You are on page 1of 29

Version1.

0A4
Firstreleased:28April2010
Lastrevised:11May2010

TerraFirmaMedicalSystems(A)
Introduction
OnabriskautumndayinlateApril,MarvinKeatsstrodealongthecrystalbluewatersofWellington
Harbourandupasteephilltowardamodernofficebuildingwithagleamingglassfacade,wherehe
was due to meet with his boss. The building was home to the global headquarters of Terra Firma
MedicalSystems,alongwithseveralotherrapidlygrowingNewZealandcompanies.Keatshadjust
flown in from Singapore, where he served as the Director of IT & Operations for the Asia Pacific
region.Hisboss,StephanieClark,wasthecompanysChiefOperatingOfficer(COO).
ClarkhadsummonedKeatstodiscussthedisastrousnetworkfailurethatcrippledTerraFirmasmain
datacenterthepreviousweek.WhiletheWellingtonbasedcorporateITstaffhadalreadybrought
thecompanyscriticalinformationsystemsbackonlineandbegunrestoringaccesstotheremaining
applicationsandservices,theexperiencehadconvincedClarkthatafteryearsofunderinvestment,
major new capital expenditures were needed to modernize the companys IT infrastructure and
addresstheproblemsthathadbroughtthousandsofemployeestoanearstandstillforseveraldays.
ShewascountingonKeats,arelativelynewarrivalatthecompanybutaseasonedITmanagerwith
experienceatseveralmultinationalfirms,foraninfusionoffreshthinkingandhardheadedanalysis.
Time was short and the stakes were high. The Board of Directors was scheduled to meet in early
Maytoapprovetheannualbudget,soClarkhadonlyamatterofdaystoconvincethecompanys
eccentriccoCEOstosupportherrequestforwhatsheguessedwouldbeamultiyearcommitment
totalinghundredsofmillionsofdollars.Moreover,whileTerraFirmahadenjoyedadecadeofrapid
andprofitablegrowth,thecompanyfacedsubstantialuncertaintyinallofitsmajorproductmarkets
duetotechnologicalinnovation,competitivepressure,andregulatorychangesthatweresweeping
thehealthcaresectorintheUnitedStatesandEurope.
Giventhisuncertainenvironment,Keatswasworriedaboutsimplythrowingmoneyattheproblem.
HewantedtousehismeetingwithClarktoproposeadifferentapproach,whichhehadaskedhis
teaminSingaporetodevelopindetailoverthelast24hours.
He paused to catch his breath and check his BlackBerry. He was relieved to see an email from his
teamwiththedocumentsheneededforthemeeting.Eagertoheartheteamsideasandaskthema
fewquestions,heglancedthroughthedocumentsbrieflyanddialedtheSingaporeoffice.
Assistant Professor C. Jason Woodard prepared this case for the 2010 SMU APEX Global Business IT Challenge, with
generousinputfromNarayanRamasubbu,KevinSteppe,LaurenceLiew,WongYuetNan,LeeHingYan,EricClemons,and
two anonymous sources who served as inspiration for characters in the case. The company featured in the case is a
fictional composite based on publicly available information. Many other facts have been altered or disguised for
educational purposes. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effectiveorineffectivemanagement.

Copyright 2010 C. Jason Woodard and Singapore Management University. This work is licensed
underaCreativeCommonsAttributionShareAlike3.0SingaporeLicense.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

IndustryOverview:DiagnosticMedicalImagingEquipment
Terra Firma was a leading supplier of advanced sensors for medical imaging devices such as Xray
machinesandcomputedtomography(CT)scanners.Itsproductswereprimarilysoldtolargemedical
equipmentvendorssuchasGeneralElectric(GE),Philips,Siemens,HitachiandToshiba,whichinturn
integrated them into imaging systems that were sold to hospitals, outpatient imaging clinics,
doctorsoffices,andresearchlaboratories.Inaddition,thecompanyhadrecentlyintroducedaline
of filmless dental and veterinary Xray systems, which were sold through a global network of
independent distributors and a fastgrowing direct sales force. Terra Firma also provided technical
support and integration services for imaging systems and developed software for visualizing,
analyzing,andstoringmedicalimages.
ThetotalsizeofthemedicalimagingmarketwasestimatedatUS$50billionin2009,andforecastto
growbyabout6%annuallyforthenextfiveyears.1Indevelopedcountries,thisgrowthwasdriven
bytheincreasinglyroutineuseofmagneticresonanceimaging(MRI)andCTscansinthediagnosis
and treatment of major illnesses such as heart disease, cancer, and neurological disorders. In the
developingworld,theuseofXrayandultrasoundimagingwasontheriseduetoexpandedaccess
toaffordableandreliableequipment,especiallyinruralareas.Althoughtheescalatingcostofhealth
carewasaworldwideconcern,privateinsurersandnationalhealthsystemscontinuedtoreimburse
providers of imaging services at economically attractive rates due to the perception that these
serviceshelpedtoincreasethequalityofcareandreduceoverallcoststhroughearlyintervention,
increaseddiagnosticaccuracy,andavoidanceofunnecessarymedicalprocedures.
Themedicalimagingindustrywasbroadlysegmentedintoequipment(80%)andconsumables(20%).
Mostoftherevenuesintheconsumablessegmentcamefromchemicalsubstancessuchascontrast
agentsandradiopharmaceuticals,whichwereusedtohelpscannersdetectstructuresorprocesses
related to a particular patients health problem. Terra Firma participated exclusively in the
equipmentsegment,whichwasinturnsegmentedbythetypeofimagingprovided(CT,MRI,Xray,
nuclearmedicine,andultrasound).Exhibit1describestheseproductsegmentsinmoredetail.
Sophisticatedimagingsystemsrequiredmultimilliondollarcapitaloutlaystoprocureandinstall,as
wellasongoinginvestmentstooperate(particularlyinhiringandtrainingqualifiedstaff).Asmedical
devicessomecapableofdeliveringlethaldosesofradiationifimproperlycalibratedoroperated
thesesystemswerealsosubjecttoextensivehealthandsafetyregulations,whichvariedwidely
bycountry.Thecompetitiveplayingfieldwasthustiltedinfavorofahandfulofmultinationalfirms
whose health care divisions could deliver endtoend solutions to customers across all major
geographical markets. These firms, the largest of which were GE and Siemens, accounted for the
majorityofsalestoendcustomers.
While the large equipment vendors engaged in substantial inhouse product development and
manufacturing, they also relied on partners and suppliers for critical components. Some of these
components, such as Xray tubes, were based on mature technologies; suppliers of these
componentscompetedmainlyoncostandqualityofservice.Othercomponents,includingmostof
thesensorssuppliedbyTerraFirma,werehighlyspecializedandrequiredextensiveinvestmentsin
research and development (R&D) to bring to market. Although these investments were risky,

EspicomBusinessIntelligence(2009),TheWorldMedicalMarketsFactBook,p.89.Theremainderofthis
sectiondrawsonareportbyTheFreedoniaGroup(2009),FreedoniaFocusonMedicalImagingProducts.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

successful innovators enjoyed high profit margins due to intellectual property protection, limited
availability of substitutes, and strong demand for stateofthe art imaging capabilities at the top
medicalcentersworldwide.
Twomajortrendshadshapedthemedicalimagingindustryoverthepastdecade:2

First,theresolutionandspeedofscanningdeviceshadimproveddramatically.Forexample,
thetimerequiredforafullbodyCTscanhaddroppedfromabout20minutesto30seconds,
while the size of the images produced had increased from thousands of pixels to millions.
Thesegainsmadeitfeasibletocombinedatafrommultiplescansintovivid3Dimages,and
insomecasestoupdatetheseimagesdynamicallytoproducemovies(4Dimages)showing
changesovertime.

Second, hybrid scanners that combined two or more imaging techniques were becoming
increasingly common. For example, PET/CT scanners were used to show both biological
activity(e.g.,abnormalgrowthassociatedwithacanceroustumor)anditspreciselocationin
the patients body. These hybrid devices made it possible to overcome the limitations of
each imaging technique, while avoiding the need to stitch together images taken on
differentmachinesatdifferenttimes,whichwasoftentimeconsuminganderrorprone.

Imaging devices were also being combined with other kinds of medical equipment, such as linear
acceleratorsusedfortreatingcancerwithhighenergyradiation.Thesecombinedsystemsenabled
new techniques, such as imageguided radiation therapy (IGRT), that allowed doctors to see and
adjust their treatment plans in real time, giving them finergrained control and allowing more
preciselytargetedtreatments.
Overall,itwasanexciting timein theindustry.Nonetheless, competitiveandregulatory pressures
loomed for both large equipment vendors like GE and smaller suppliers like Terra Firma. Large
vendors worried about the backlash against rising health care costs especially in the US, which
accountedforalmosthalfoftheglobalmarketformedicalequipment,butalsoinEuropeandJapan,
which were under pressure from aging populations and anemic economic growth. Vendors of
imagingequipmentwerebracingthemselvesfornewregulationsintendedtocurbexcessiveuseof
imagingtestsbyphysicians,andlowerpaymentstoimagingserviceprovidersbypublicandprivate
medicalinsurers.3
Smaller suppliers might also be affected by these measures, albeit indirectly. A more pressing
concern for many, however, was their overdependence on the large vendors for the majority of
their revenues. While these vendors generally treated their suppliers well often engaging in
strategicpartnershipstojointlydevelopnewtechnologiesormarketnewproductlinessuppliers
often found themselves competing with the vendors internal product development organizations,
whichinmanycaseshadsimilarcapabilitiesandcouldleveragethemuchlargerR&Dinvestmentsof
theircorporateparents.

G.SpekowiusandT.Wendler(2009),MedicalImaging,inH.J.Bullinger,ed.,TechnologyGuide:Principles
ApplicationsTrends,Springer.Formoredetailedinformation,seeG.SpekowiusandT.Wendler,eds.(2006),
AdvancesinHealthcareTechnology,Springer.
3
M.Mitka(2005),CostlySurgeinDiagnosticImagingSpursDebate,JournaloftheAmericanMedical
Association293(6),pp.665667.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

CompanyOverview:TerraFirmasUnlikelySuccessStory
The company that became Terra Firma Medical Systems was founded in 1992 by the brothers
GodfreyandAllanFrost.TheFrostbrothersstartedthecompany,whichtheyoriginallynamedTerra
Firma Technologies, to commercialize their dissertation research on medical applications of
amorphous silicon sensor arrays. Godfrey had recently earned his Ph.D. in electrical engineering
fromtheVictoriaInstituteofAdvancedStudies(VIAS),anobscurebuteliteresearchcenternestled
in the hills behind Wellington, New Zealand. Allan, who was three years younger than Godfrey,
earnedhisPh.D.inbiophysicsatVIASayearlaterandjoinedthecompanyfulltimein1993.
ThecompanysinitialeffortswerefocusedondevelopinghighresolutionflatpaneldetectorsforX
rayimaging.Theirapproach,whichwasalsotakenbyresearchgroupsintheUSandJapan,wasto
usethinfilmtransistors(TFTs)thesametechnologyusedinactivematrixliquidcrystaldisplays,
which were becoming widely adopted in notebook computers to create large digital detectors
withmillionsofindividualsensorelements(pixels).Unlikeexistingdigitaldetectorsbasedoncharge
coupled devices (CCDs, the technology used in digital cameras), even the companys first TFT
prototypesyieldedimageswithqualitycomparabletotraditionalfilmbasedXrays.
Themainfactorresponsibleforthisimprovementinqualitywasthesizeofthedetector.Whereasa
typicalCCDdetectorwasroughlythesizeofafingernail,theFrostbrothersfirstTFTdetectorswere
as large as an A4 sheet of paper. Their size allowed them to be much more sensitive than CCD
detectors with the same number of pixels, and eliminated the need for lenses to focus the Xray
image onto the smaller detector. (This also reduced optical distortion, further improving image
quality.) Although production costs were initially high, the Frosts design was technically simpler
than comparable CCDbased designs, which they believed would ultimately lead to more compact
detectorsthatcouldbeproducedatlowercost.
Their first commercial success came in 1998, when Siemens agreed to purchase up to 10,000 of
Terra Firmas detectors for its new line of highend Xray imaging systems. The fiveyear deal
providedenoughfinancialstabilitytosecureconstructionloansforafullscaleproductionfacility,as
well as the cash flow needed to hire additional staff without raising new capital. Determined to
makethe mostoftheir goodfortune,theFrostbrothersledarapidexpansionintoother typesof
medicalimagingsensors,includingXraydetectorsforCTscannersandgammaraydetectorsforPET
andSPECTsystems.(MRIandultrasoundimagingworkedonverydifferentphysicalprinciples,sothe
companychosenottoenterthesemarkets.)
By2003,thecompanywasgeneratingalmostNZ$1billioninannualrevenue.4Nowformallyknown
as Terra Firma Medical Systems, the company had opened sales and service offices in the US, UK,
Germany, Japan, Australia and Singapore, as well as a manufacturing facility in Penang, Malaysia,
thatwasjointlyownedandoperatedwithIntel.Stilleagertoexpandbutnolongerabletofundthe
companysgrowthinternally,theFrostbrothersreluctantlybroughtintheirfirstoutsideinvestorsto
helpthembuilduptheirinternationalfootprintandfillouttheirproductlines.Onlyaselectgroupof
wealthyNewZealanderswereinvitedtoparticipate.Thegroupwasrumoredtoincludetheownerof
thecountryslargestsheepfarm,anawardwinningfilmdirector,anactorknownforhistemperand
fondnessofrugby,andtheinventorofbungeejumping.

InApril2010,oneNewZealandDollarwasworthapproximatelyS$0.98orUS$0.72.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Despitetheirinexperienceinthecorporateworld(orperhapstooffsetit),theinvestorsinsistedon
hiring a professional management team. While the Frost brothers were equally adamant about
retaining their positions as coCEOs, they agreed to the appointment of Stephanie Clark as Vice
PresidentofIT&OperationsandCOO.
Clarkscolleaguesdescribedherasaforceofnature.Theymarveledatherabilitytoworkthrough
the smallest details of an operational problem often trapping subordinates in her conference
room late into the night without losing sight of the companys broader goals. She instilled a
relentless focus on planning and execution, which often clashed with the companys engineering
culture.Whiletheysharedherpassionforhighqualitydesigns,TerraFirmasproductdevelopment
stafftendedtodoubtthewisdomoftryingtoperfectthesedesignsonafixedscheduleorbudget.
These differences came to a head in 2005 during an 18month effort to develop a filmless Xray
systemfordentalandveterinaryapplications.Clarksawahugemarketopportunityintheselowend
segments, where current filmbased imaging equipment was relatively cheap but the total cost of
ownership was much higher due to the costs of procuring, storing, and retrieving Xray film.
Successfully pursuing opportunities to displace film in this segment would require strict cost
disciplineandthedeliveryofacompleteturnkeysystem,breakingwiththecompanystraditional
role as a component supplier. Her colleague Richard Weisen, then the Vice President of Product
Engineering,agreedthattheplanmadegoodbusinesssensebutwasreluctanttodivertresources
from more technically challenging projects to work on essential but mundane parts of the system
likeleadshieldingandthepowersupply.
After nearly a year of missed deadlines and cost overruns, Clark conceded the battle to bring the
productengineeringstaffintoline,butpersuadedtheFrostsandtheBoardofDirectorstobuythe
assetsofadefunctAustralianXraymachinemanufacturerandsetupanewdivisiontorebuildits
products around Terra Firmas sensors. The head of this new Digital Imaging Systems division was
empowered tohirehisowndirectsalesforceandforgerelationshipswithdistributorsinAustralia
andSoutheastAsia.ThenewDigiRayZproductlinewasfinallylaunchedin2007,andquicklygrewto
becomeaNZ$345millionbusiness.
Atthesametime,TerraFirmabegantoinvestmoreheavilyinsoftwaredevelopment.Backin2004,
at the urging of one of its new investors, the company hired a small team of programmers with
experience in graphical rendering who had recently worked on the special effects for a series of
blockbuster films. The team put their skills to use in developing new techniques for 3D and 4D
imaging.Whileanumberofpureplaysoftwarecompanieswerealreadyworkinginthisarea,the
Frosts felt they had an advantage due to their deep knowledge of both detector physics and the
relevantbiologicalprocesses.Theirfirstproductwasreleasedayearlater,layingthefoundationfor
another new division called Imaging Software Products. Although this division was still the
companyssmallestbusinessunitin2009,itwasbyfarthefastestgrowing.
Company veterans noted that Terra Firma had finally started to feel like a mature enterprise over
thepastfewyears.Fieldofficesnowoperatedonfourcontinents,withmanufacturingtakingplace
inNewZealand,Australia,andMalaysia.(TerraFirmaboughtoutIntelsstakeinthePenangplantin
2008.) The organization had also evolved toward a classic multidivisional form. To complete this
process,WeisenwastappedtoleadanewlyformedSensorComponentsdivision,whichincludedhis
existingengineeringgroups(TFTFlatPanelDetectorsandAdvancedImagingSubsystems)andtheir

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

associated sales and marketing teams. A separate customer support organization was formed to
manage the companys technical support contracts and system integration services, which had
grownintohealthyprofitcentersintheirownright.
Bytheendof2009,annualrevenueexceededNZ$2.5billion,andthecompanyemployedover5,200
fulltimestaff.Exhibit2summarizesthecompanysrecentfinancialperformance.
TheFrostswerefiercelycompetitiveboardgameplayerswithareputationforshrewdtactics.Oneof
their favorite games was Risk. While they lamented the fact that New Zealand lacked its own
territoryontheboard,bothbrothersunfailinglypursuedthesameapproach:tocontrolAustralasia
firstandsweepoutwardfromtheretoachieveworlddomination.Whenaskedbyareporterifthis
wasanappropriatemetaphorfortheirbusinessstrategy,Allanrepliedwithafullthroatedcackle.

InformationTechnology&OperationsatTerraFirma
At Terra Firma, as in many companies, information technology was so deeply embedded into the
fabric of organizational life that it was generally taken for granted except when it failed and
thankstotheeffortsofthecompanys180fulltimeITstaff,itdidntfailveryoften.Thespectacular
networkcrashofApril2010wasarareexception.Althoughthedisruptionitcausedwasfrustrating
and costly, it served as a wakeup call to the companys senior management that perhaps they
shouldpaymoreattentiontotheirITinvestments.
Asacompanyfoundedduringthegoldenageofpersonalcomputers,beforethecommercialization
of the Internet ushered in a new era of networkcentric computing, Terra Firmas IT organization
evolved in an organic and decentralized way. Microsoft Windows 3.1, arguably the product that
cemented Microsofts control over the desktop PC market for the next 15 years, was released in
April 1992, just as Godfrey Frost was putting the finishing touches on his dissertation. Every
employeewhojoinedthecompanywasgivenachoiceofadesktoporportablecomputerrunning
WindowsandNovellNetWare(forfileandprintersharing).Atthetime,computationallyintensive
engineeringapplicationsstillrequiredUNIXworkstations,sotheproductdevelopmentorganization
also supported a variety of Sun Microsystems and Silicon Graphics machines. Meanwhile, the
fledgling accounting department installed an IBM AS/400 server to run software by J.D.Edwards.5
While much of this hardware and software was upgraded over the next decade, most of the core
enterpriseapplicationsremainedinplace.
Prior to Stephanie Clarks arrival in 2003, Terra Firma lacked a corporatelevel IT department. The
majorityofthecompanysITstaffwerecolocatedwiththeproductengineeringteamsandreported
toWeisen(atrusteddeputyoftheFrostbrothers),whiletherestwerescatteredacrossthevarious
functional organizations they supported. Clark had spent the majority of her career helping
manufacturing companies realize the benefits of IT and factory automation technologies, so she
recognized the importance of aligning IT and operations. She therefore argued against creating a
separate Chief Information Officer (CIO) position, advocating instead for the IT function to be
consolidated under her position along with the companys other operational activities such as

TheJ.D.Edwardssoftware,knownasWorld,wasanenterpriseresourceplanning(ERP)packagesimilarto
SAPbuttargetedatsmallandmediumbusinesses.J.D.EdwardswasacquiredbyPeopleSoftin2003,which
wasinturnacquiredbyOraclein2004.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

accounting, human resources, procurement, and manufacturing. While Weisen was reluctant to
transfer staff out of his organization, Clark assured him that they would continue to provide
dedicated support for the companys research, development, and testing activities. This
arrangementprovedworkable,andhadpersistedwithminoradjustmentseversince.
Exhibit 3 illustrates the structure of Clarks IT&Operations organization in 2010. Her operations
departments had a matrix reporting structure, with global managers for each function as well as
crossfunctionalmanagerslikeMarvinKeatsforeachregion.(Theheadquartersareawasmanaged
asitsownregion,whichincludedtherestofAustraliaandNewZealand.)Clarkalsoestablishedaset
ofBusinessITSolutionsteamstoworkwiththefourproductandservicedivisionsplustheCorporate
Administration group, which included corporate finance, legal and regulatory affairs, and strategy.
Theseteamswereresponsibleforgatheringrequirementsfromtheirrespectivebusinesscustomers,
developing appropriate solutions (e.g., a new application or enhancements to an existing system),
working with the business sponsors to secure funding, and liaising with other parts of the IT &
Operationsorganizationtodelivereachsolutionontimeandonbudget.Mostofthetechnicalwork
was done by a separate Corporate Application Development group, which included teams that
focused on IT architecture, enterprise applications (e.g., customization of J.D.Edwards for global
use),andapplicationsforinternalbusinesscustomers(e.g.,awebbasedorderfulfillmentsystemfor
theImagingSoftwareProductsdivision).
TerraFirmasNZ$150millionannualITbudgetwasallocatedbyanITSteeringCommitteechairedby
Clark.Thecommitteesmembershipincludedrepresentativesfromeachdivisionaswellasthemajor
functional units at the corporate level, and most decisions were made by consensus. Exhibit 4
providesabreakdownofthe2010budget,whichwasdevelopedbythecommitteein2009.
AsinmanycorporateITorganizations,fundingwasallocatedinthreemainways:

Basicserviceslikeemail,telephone,networkconnectivity,andPCsupportwerefundedona
costrecoverybasisthroughtaxesleviedoneachdepartmentordivisioninthecompany
accordingtoitsheadcount.

Services that supported corporatewide functions, such as payroll processing and financial
reporting, were funded through annual budget requests prepared by Clarks organization.
Theserequestswerealsousedtofundstrategicinitiativesandexploratoryprojects.Recent
examplesofthelatterincludedfeasibilitystudiesontheuseofdesktopvideoconferencing
andinstantmessagingsoftwaretoreducethecostofcommunicatingwiththefieldoffices.

Finally,servicesthatprimarilybenefitedasinglebusinessunitwerefundeddirectlybythese
units through internal transfers at rates agreed upon by the committee. These services
included application development and deployment, purchasing and customization of
commercial software, and maintenance of dedicated computing infrastructure. Business
unitswerefreetoprocuretheseservicesfromoutsidevendors,butprotocoldictatedthat
the committee be consulted first, and Clarks organization typically played a project
managementroleinsupervisingexternalserviceproviders.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

InanefforttostaycurrentwiththebestpracticesforITgovernance,6theSteeringCommitteesrole
hadexpandedinthelastfewyearstoincludedecisionsaboutITarchitecture,infrastructure,andthe
prioritization of business needs. One result of this expanded mandate was a set of architectural
standards for new application development, along with a documented process for deploying and
managingapplicationshostedoncorporateITinfrastructure.ThisprocessisillustratedinExhibit5.
AlthoughthenewstandardswereexpectedtohelpsimplifyTerraFirmasITinfrastructureovertime,
the vast majority of the companys applications and systems were deployed before the standards
cameintoeffect.Byonecount,Clarksorganizationwassupportingover200differentapplications,
fewer than 10% of which adhered to the new standards. Pessimists complained that even these
standards were sure to change in the future, turning todays shining examples of compliance into
tomorrowsburdensomelegacyapplications.
Given this reality, Clarks IT infrastructure team had resigned themselves to supporting a messy,
heterogeneousmixofhardwareandsoftwarefortheindefinitefuture.Exhibit6describessomeof
the companys key IT applications. Exhibit 7 provides a highlevel view of the companys network
infrastructure, which connected its four sites in the Wellington area to its overseas manufacturing
facilities and field offices. Exhibit 8 provides a deployment view showing the physical locations of
some of the applications listed in Exhibit 6. Finally, Exhibits 9 and 10 illustrate some of the more
importantcollaborationanddataflowrelationshipsinTerraFirmasITarchitecture.
Despite the complexity of Terra Firmas corporate IT environment, it seemed to operate smoothly
(with only occasional hiccups) until an engineer in the Advanced Imaging Subsystems group called
thehelpdeskinmidApriltoreportthathecouldntaccesshisemail.Thiswasthelastcallreceived
bythehelpdeskthatday,asthelinewasshortlycutoffbythefailureofthemainVOIP7switchthat
handledtelephoneserviceforthecompanysHQareafacilities.Minuteslater,supportstaffatthe
maindatacenterreachedClarkonhermobilephonetotellherthatconnectivitytobothoverseas
manufacturingplantshadbeendisrupted,andthatseveralapplicationshadcrashedduetonetwork
timeout errors. Fearing a denialofservice attack, Clark contacted Terra Firmas main Internet
serviceprovidertoseeiftheyhadobservedaspikeinincomingnetworktraffic.Theyhadnot.
It took another 18 hours and the assistance of several outside experts to establish the proximate
cause of the disruption, which was a router that had failed after being flooded with connection
requestpackets,triggeringachainreactionleadingtothefailureofboththeprimaryandsecondary
networkswitchesinthemaindatacenter.Inaturnofeventseerilyreminiscentofthedisasterthat
occurredataBostonareahospitalgroupin2002,8theultimatecausewasdiscoveredtobeanew
engineering application that was by all indications fully compliant with the new architectural
standards,buthadapparentlyneverbeentestedinaproductionenvironment.
Thesituationgotworseasthedatacenterstaffbegantheprocessofbringingthecompanyscritical
information systems back online. They discovered a host of new problems, including missing log
files, corrupted database tables, and inconsistent application data. While it turned out that no

See,forexample,P.WeillandJ.W.Ross(2004),ITGovernance:HowTopPerformersManageDecisionRights
forSuperiorResults,HarvardBusinessSchoolPress.
7
VoiceoverInternetProtocol;seehttp://en.wikipedia.org/wiki/Voice_over_Internet_Protocol.
8
S.Berinato(2003),HalamkaonBethIsraelsHealthCareITDisaster,CIO,15February,
http://www.cio.com/article/31701.

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

serious data loss had occurred, correcting these problems would require weeks of tedious effort
performingmanualrecoveryprocedures.
Oncetherecoveryprocesswaswellunderway,Clarkbegantothinkaboutthelargerlessonstobe
learnedfromtheexperience.ShecalledMarvinKeatsinSingaporetoaskforhiscandidassessment.
Shewasexasperated.Ithoughtwewereprepared,shelamented.Wespentmillionsofdollarson
faulttolerance,redundancy,failoveryounameit.Wehadadisasterrecoveryplan.Wetestedas
muchaswecouldwithouttakingthewholecompanyofflinefordaysatatime.Whydidthewhole
thingblowupsobadly?
Keatsassuredherthatasfarashecouldtell,herteaminWellingtonhaddoneeverythingthatcould
reasonably have been expected of them. He pointed out, however, that Terra Firmas level of IT
investment had lagged industry benchmarks for years, several people with unique technical
knowledgehadrecentlyleftthecompany,anddespitethebesteffortsoftheSteeringCommitteeto
impose some discipline on the companys application development and deployment processes,
powerfulexecutiveslikeWeisenstillmanagedtoforcethroughexceptionsandshortcutsforprojects
theydeemedsufficientlyurgent.
Moreover, Keats continued, the network crash was only an acute symptom of more chronic
problemswiththeuseofinformationtechnologyatTerraFirma.ITaccountedforover40%ofthe
companyscapitalexpenditures,yetmostofiteitherwenttoreplaceexistingequipmentorscaleup
existingsystemsneitherofwhichyieldedmuchofareturnoninvestmentintermsofcostsavings
or business value. It still took too long to get a new application deployed, or even a new sales
representative set up with a laptop and an account on the companys customer relationship
management (CRM) system. And the brightest people in the IT & Operations organization were
leaving because they were bored they respected Clarks professional management style, but
longedfornewandexcitingchallenges.
ClarkconcurredgrimlyandaskedKeatstoflytoWellingtonthenextdaytodiscusssolutions.

MarvinKeats:FeetontheGround,HeadintheCloud
As Director of IT & Operations for the Asia Pacific region, Keats was responsible for ensuring the
smooth operation of Terra Firmas business activities at the companys field offices in Mumbai,
Bangkok,Singapore,Taipei,HongKong,Shanghai,andTochigi,Japan,aswellasthemanufacturing
plantinPenang,Malaysia.Althoughhesometimesthoughtofhimselfasaglorifiedofficemanager
(andoftennotevensoglorified),thesystemsandprocesseshesupportedwereresponsibleforover
halfofthecompanysannualproductionoutputandalmostathirdofitsrevenue.
KeatsjoinedTerraFirmainearly2008.SpurredbystrongdemandforthecompanysnewDigiRayZ
lineofXraysystems,adozenfieldofficeshadopenedinthepreviousyearalone.Thesituationwas
chaotic, to say the least. Keatss mandate was to straighten things out in the Asia Pacific region,
developing a robust set of business processes supported by applications and infrastructure that
couldbescaledupandreplicatedacrosstheEMEAandNALAregions.
Keats brought an unusual background to the job. Although he held numerous certifications
includingMicrosoftCertifiedSystemsEngineer(MSCE),CertifiedInformationSystemsAuditor(CISA),

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

andITILServiceManagerhiscoreITskillswereentirelyselftaught.AUKnative,hejoinedDigital
EquipmentCorporation(DEC)asatechnicalsupportengineerattheageof18.Hewasaquickstudy,
with a gift for explaining complex ideas in clear and simple language. These qualities helped him
jump from a support position into a consulting role, where he developed a reputation as a skilled
projectmanager.Overthenexttwodecadesheservednumerousclientsinavarietyofindustries,
including banking, automotive, petroleum, and professional services. Some of these engagements
extendedoverseveralyears,allowinghimtobecomedeeplyembeddedinhisclientsorganizations
to the point that his clients became colleagues, and he hardly noticed when DEC merged with
Compaqin1998andCompaqmergedwithHewlettPackardin2002.
By 2004, Keats was ready for a change. Taking advantage of a generous program offered by the
Singapore government to attract hightechnology entrepreneurs, he set up an independent
consultingfirminSingaporeandmovedtothetropicalislandcitystatefromBerlin,wherehehad
been serving as an IT architect for a large global manufacturer. He decided to focus his efforts on
helpingclientstakeadvantageofnewtechnologiesforsharedservicecomputingsuchassoftwareas
a service (SaaS), utility computing, and grid computing. Singapore had recently launched an
ambitious National Grid project9 to develop the countrys capabilities in these areas, and Keats
becameanactiveparticipantintheprofessionalcommunitythatcoalescedaroundtheseefforts.
Like many businessIT professionals, Keats had read and debated Nicholas Carrs controversial
HarvardBusinessReviewarticlethatboldlyclaimedITdoesntmatter,10aswellasitssequelthat
heralded the end of corporate computing.11 And like many of his colleagues, he took offense at
Carrsargument that the strategic value of IT had diminished to the point where IT management
should, frankly, become boring (2003, p.49). But he agreed with Carrs view that, like electric
poweracenturyago,informationtechnologyisbeginninganinexorableshiftfrombeinganasset
thatcompaniesownintheformofcomputers,softwareandmyriadrelatedcomponentstobeinga
servicethattheypurchasefromutilityproviders(2005,p.67).12
ThisviewwassharedbymanyITvendors,whosawbigbusinessopportunitiesinprovidingITasa
service, with potentially lucrative recurring revenue streams, rather than simply selling hardware
and software on a onetime basis. In fact, a distinct but related trend toward serviceoriented
architecture(SOA)hadbeenunderwayforseveralyearsalready.SOAanditsassociatedtoolsand
technologies made it easier to create modular applications whose businessrelated components
could be decoupled from the hardware and software infrastructure that supported them.13 While
most enterprises were still using SOA internally rather than across firms, another set of related
technologiesknownasWebservicesenabledapplicationscreatedbydifferentfirms(e.g.,Google
Maps,FacebookandFlickr)tointeroperatewitheachotherandbecomposedintonewapplications
byindependentdevelopers(e.g.,theTripIttravelplanningsite).14

SeetheSingaporeNationalGridwebsite,http://www.ngp.org.sg/.
N.Carr(2003),ITDoesntMatter,HarvardBusinessReview,May,pp.4149.
11
N.Carr(2005),TheEndofCorporateComputing,SloanManagementReview46(3),pp.6773.
12
ThisargumentisdevelopedfurtherinN.Carr(2008),TheBigSwitch:RewiringtheWorld,fromEdisonto
Google,W.W.Norton.
13
FordefinitionsandexamplesofSOA,seehttp://msdn.microsoft.com/enus/library/aa480021.aspxand
http://www.ibm.com/software/solutions/soa/.
14
ForacomprehensivediscussionofWebservicesarchitecture,seehttp://www.w3.org/TR/wsarch/.
10

10

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

These technology trends, which could be viewed broadly as a shift toward more loosely coupled
systems,15 were essential to the viability of utilitylike business models. After all, if every home
appliancerequiredadifferentkindofelectricity(e.g.,120vs.240volts,50vs.60hertz,alternating
vs.directcurrent),itwouldbeexpensiveandinefficienttosupplyitfromacentralgrid.Worsestill,if
theseappliancescaredhowthiselectricitywasproduced(e.g.,fromcoal,nuclearorhydroelectric
power),multiplegridswouldbeneededevenifthevoltage,frequency,andtypeofcurrentcouldbe
convertedefficientlyatthepointofconsumption.ThiswasroughlythesituationforITuntiltheearly
2000s,asKeatsandhiscolleagueswerewellaware.Therecurringquestiontheyfacedwashowfast
thingswerechangingwhichtechnologieswerereadyforprimetime,andforwhatpurposes?
Fueled by a seemingly insatiable need to label abstract concepts with catchy buzzwords, the IT
industrysoonattachedanewonetotheclusterofideasswirlingaroundinthisspace.Inmid2006,
GoogleCEOEricSchmidtdescribedanemergentnewmodelhecalledcloudcomputing,which
referred to the common convention of using a cloud icon in system architecture diagrams to
illustrate the parts of a network (often the Internet) that were assumed to be present without
needingtoknowtheirdetailedstructure.16Ayearlater,IBMandGoogleannouncedaUS$30million
initiativetofundresearchoncloudcomputingtechnologiesandapplications.17
Keats became an enthusiastic proponent of cloud computing, which resonated strongly with the
ideashewasalreadypursuinginhisconsultingwork.Buthewasalsoacommittedpragmatist.Never
contenttopushthelatesttechnologyforitsownsake,hewantedtohelphisclientsdistinguishthe
reality from the hype, and apply new technologies only when and where he was confident they
could be harnessed to create real business value. He also knew that while different organizations
often faced similar problems, the appropriate solutions depended on the specific details of the
organization and its business environment. One size definitely did not fit all. Furthermore, a good
solution was not merely a technological fix but rather a combination of changes to business
processes,informationsystems,andhumanfactorsthewaypeoplewereorganizedandmanaged
thatallneededtobealignedtobringaboutadesiredoutcome.
Bycoincidence,KeatsmetthemanagerofTerraFirmasnewSingaporeofficeatasocialfunctionin
late2007.Hesawararechancetoputhisideasintopracticeonalargerscale,andwasexcitedboth
bythefreedomhewouldhavetoimplementthemintheAsiaPacificregion,andbytheprospectof
havingaglobalimpactonthecompanyifhesucceeded.Afterashortbutintenseconversationwith
Clark,bothwereconvincedhewasagoodfit.Clarkallowedhimtokeephisnewlyformedconsulting
business and join the company as an advisory contractor, but he wore his Terra Firma hat on a
nearlyfulltimebasisandoperatedwithinthecompanylikearegularemployee.

15

Theconceptofalooselycoupledsystemisbynomeansspecifictoinformationtechnology.See,e.g.,
K.Weick(1976),EducationalOrganizationsasLooselyCoupledSystems,AdministrativeScienceQuarterly
21(1),pp.119.
16
ConversationwithEricSchmidthostedbyDannySullivan,9August2006,
http://www.google.com/press/podium/ses2006.html.
17
S.Lohr(2007),GoogleandI.B.M.JoininCloudComputingResearch,TheNewYorkTimes,8October,
http://www.nytimes.com/2007/10/08/technology/08cloud.html.

11

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

FrustrationandFalseStartsin20082009
Much to Keatss disappointment, the last two years had afforded little opportunity to realize his
ambitionsonthecloudcomputingfront.Reflectingonwherethetimehadgone,herecalledaseries
ofmajorprojects,eachofwhichwasurgentandimportantatthetimebutinretrospectseemedto
leadhimawayfromhisgoalsratherthanclosertofulfillingthem:

Hespentmostofthefirstsixmonthsestablishingabasicsetofinfrastructureservicesacross
thefieldoffices,includingasecurevirtualprivatenetwork(VPN)thatsupportedemail,voice
communication,filesharing,andwebbasedaccesstocorporateapplicationslikepayrolland
travelexpensereimbursement.
Hewouldhavepreferredtooutsourcemostofthisinfrastructuretoafullserviceprovider
likeBTGlobalServicesorTataCommunications,insteadofinstallinghardwareateachoffice
andlinkingthemtogetherthroughapatchworkofcontractswithlocaltelecommunications
companies. But he did not have the luxury of a clean slate. With four field offices already
operatinginhisregionandthreemoreduetoopenwithinayear,hefeltthatitwouldhave
been prohibitively complex and expensive to undo the existing arrangements, and he was
waryofmakingdramaticchangestoosoon.

The rest of 2008 was devoted to rolling out CRM software to the Asia Pacific sales force.
Prior to 2007, Terra Firma did not use CRM software because most of its sales were to a
smallnumberoflargemedicalequipmentvendors,andtheserelationshipsweremanaged
bydedicatedteamsbasedoutofthecompanysfieldofficesintheUS,Germany,andJapan.
After launching the new DigiRayZ line and expanding its direct sales force, the company
adoptedOracleCRM(basedontechnologyacquiredfromSiebelSystemsin2005)becauseit
offeredintegrationwithitsJ.D.Edwardsaccountingsoftware.
Again, given a clean slate he might have chosen a hosted offering like Salesforce.com or
MicrosoftDynamicsCRMOnline(orevenOraclesownCRMOnDemandoffering),butinthis
caseitwasimportanttobeconsistentwiththecorporatestandard,atleastinitially.

Much of 2009 was consumed by a major effort to improve coordination with the Penang
factoryaftertakingoverfullcontrolfromIntelthepreviousyear.Themaingoalofthejoint
venture had been to benefit from Intels vast expertise in semiconductor fabrication
techniquestoreducetheproductioncostandimprovethequalityofTerraFirmassensors.
(Intel was interested in gaining experience with thinfilm deposition of amorphous silicon,
theparticulartechniqueusedbyTerraFirma,becauseitwasalsousedtoproducesolarcells.
But despite its growing interest in green IT, Intel decided not to enter this market.) This
focusoncostandqualitywasexpectedtointensifyevenfurtherintheyearsahead.
Engineersattheplanthadamassedhundredsofterabytesofproductionandtestingdata,
and were generating more at the rate of several tens of gigabytes a day. A number of
Weisens product development teams had requested access to the data to optimize their
newsensordesigns.TheyalsowantedlivevideolinksfromWellingtontoPenang.
The video links were easy to set up once Weisen agreed to pay for Polycom
videoconferencing equipment and ISDN connectivity. The data sharing issue was still

12

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

unresolvedayearlater,however.Infact,thenewengineeringapplicationwhichcausedthe
network crash was part of an effort to set up a largescale distributed filesystem between
PenangandWellington,whichwouldhaveallowedbothsidestoworkwiththeproduction
datainaseamlessway.

These challenges were by no means unique to the Asia Pacific region. Keats had been told, for
example, that the developers in the Imaging Software Products division were eager to take
advantageoftheBeowulfcomputingclusterrunbytheSensorComponentsdivision,buthadbeen
stymied by network issues as well as difficulties in managing the different kinds of workloads
generated by the two groups. The problems were exacerbated by the fact that the divisions were
physicallyseparate,withthesensordivisionlocatedinthecompanysoldheadquartersbuildingin
the Kelburn neighborhood of Wellington, while the software division was based in the Miramar
neighborhood,neartheoriginalsoftwareteamsformeremployer.

ProblemsandOpportunitiesinApril2010
Within an hour of Clarks call to discuss the Wellington network failure, Keats had assembled his
teamofbusinessanalystsinaconferenceroomoverlookingtheSingaporeRiver.Theywereyoung,
energetic,andcreative;hehadhiredthemnotfortheirindustryexperience,butfortheirabilityto
rapidly understand complex problems and develop innovative solutions through rigorous analysis.
Heneededonenowormoreprecisely,24hoursfromnow.
Although Keats wanted to help Clark address the root causes of the crash, he knew she wasnt
interestedineitheradetailedtechnicalanalysisofthecrashitself(whichshecouldgetfromherown
headquartersstaff)oragenericprescriptionforimprovingthewayITwasmanagedatTerraFirma
(whichshewasquitecapableofformulatingherself).Insteadhesensedanopportunitytoadvance
the agenda he had joined the company to pursue, namely to help Terra Firma transition its IT
infrastructureandapplicationstotakeadvantageofthecloudcomputingparadigm.
Ithinkthecrashhasasilverlining,hetoldhisteam,anditsthecloud.
Cloudcomputingmeansalotofdifferentthingstodifferentpeople,Keatssaid,butwhenIthink
about the kinds of decisions we have to make at Terra Firma, this is how I see them. On the
whiteboard,hedrewa2by2matrix:

SystemLayer

DeploymentEnvironment
Internal

External

Applications

Infrastructure

13

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

The vertical axis, he explained, separates cloud infrastructure from cloudbased applications. The
horizontal axis separates services that are deployed internally (on private clouds) from those
deployedexternally(onpublicclouds).
At the infrastructure layer, private clouds are natural extensions of existing technologies for
improving the efficiency of networkbased corporate IT infrastructure like server virtualization,
which large enterprises have been doing for years. He mentioned ISF from Platform Computing,
Moab from Adaptive Computing, Eucalyptus Enterprise Cloud, Citrix Xen, and VMware vCloud as
products to watch in this space. With public clouds like Amazon EC2 and Windows Azure, he
continued,youretalkingaboutputtingyourapplicationsonsomeoneelsesinfrastructureentirely.
Oftenthebarrierstothatareorganizationalratherthantechnicalandyouhavetothinkcarefully
aboutwhenitmightmakesensefromafinancialpointofview.
Attheapplicationlayer,ifyoureusingSOAasournewarchitecturalstandardsrequireyoure
well on the way to deploying them on a private cloud once you set up the infrastructure. He
mentionedGigaSpacesXAPandGoogleAppScaleassoftwareplatformsthatweredesignedtohost
cloudready applications in a private environment. Public cloud applications evolved from what
peopleusedtocallApplicationServiceProviders(ASPs)untilthattermwentoutoffashionandgot
replaced by SaaS and Web services. He noted that public cloud platforms like Google Apps and
Force.com had attracted thousands of developers, and predicted that hosted application offerings
likeNetSuiteandMicrosoftOnlineServiceswouldsoonstarttogaintractioninthemarket.
He instructed the team to think carefully about which parts of Terra Firmas IT environment were
ripe for transitioning to what type of cloud computing model, if any, and to give him a realistic
timeframethatdistinguishesbetweentheshortterm(ayearorless),mediumterm(next23years),
andlongterm(next510years).
Dontjustgivemeananswer,hedirected.Thinkaboutthetradeoffs,thinkaboutpriorities,think
abouthowwesellthistoClarkandwhatshellneedtodotosellittotherestofthecompany.Tell
mehowthisisgoingtoaffectourkeyprocesses,andwhatoursystemsaregoingtolooklikewhen
weredone.Tellmewhatweneedintermsofresourcesnotjustdollars,butpeopleandskills
and tell me about the risks. Not Chicken Little stuff terrorist attacks, that sort of thing but
thingsweshouldreallybeworriedaboutifwegodownthispath,andwhatwecandotoincrease
theoddsofsuccess.
By the way, he said, I think there could be a strategic business play here, too. Ourproducts
generateatonofdatatensorhundredsofterabytesaday,maybepetabyteswithinafewyears.
Analyzing it is computationally intensive, especially for things like 3D and 4D rendering. Im just
thinking out loud dont get distracted from the main problem, which is what do we do for our
ownusewithinthecompany.Butifyoucomeupwithanyideasalongtheselines,dontholdback.
HeaskedtheteamtoprepareapresentationforhimtopitchtoClark,alongwithasetofsupporting
deliverablesjustapageeach.Therewasnotimeformore,eitherfortheteamtocreateorfor
himtoexplaintoClarkduringhismeeting.Hetoldthemtopracticethepresentationasiftheywere
meeting with Clark themselves. He wished them luck, and left the office to pack his bags for the
nightflighttoAuckland,whichwouldputhiminWellingtonearlythefollowingafternoon.

14

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

TheCalltoSingapore
JudgingbyhisfirstglanceatthedocumentsonhisBlackBerry,Keatswaspleasedatwhathisteam
hadmanagedtoproduceinsuchashorttime.HehopeditwouldbeenoughtoconvinceClarkthat
she needed not just to avoid another data center disaster, but to thoroughly revitalize IT at Terra
Firmaandpositionherorganizationasastrategicpartnerforthecompanysbusinessdivisions.
As the phone rang and he waited for the team to pick up his call in the conference room back in
Singapore,hemomentarilyglancedupatthesky.Hecouldhaveswornhesawakiwiglidingacross
the harbor, its distinctive beak leading the way. He rubbed his eyes in disbelief, then chuckled to
himself.Wellthen,hethought,ifkiwiscanfly,surelyTerraFirmacanfinditswaytothecloud!

15

SMUSch
hoolofInformationSysteems

TerraFirmaMedicalSysstems(A)

Exhibiit1:MedicalImagingEquipm
mentProductSegm
mentation
n
MRI,1
17%

CT,20%

5%
Xray,15

Otherequipmen
nt,
23%

Ultrasound,12%
%

Nu
uclearmedicin
ne,
13%

ComputedTomog
graphy(CT))
CT is an
n in vivo diaagnostic tech
hnique that employs digital geomeetry to creatte threedim
mensional
anatomiical images from several twodim
mensional Xrays taken around a ssingle rotating axis.
Commerciallyavailaablesincetheearly1980
0s,CThasevvolvedintotthepreferreeddiagnosticctestfor
nal aortic aneurysm,
a
intracranial hemorrhagin
ng, kidney stones, pneeumonia, an
nd more
abdomin
recentlyy, cardiac im
maging and cancer
c
detecction and treatment. Neewer equipm
ment include
es multi
detectorr CT scanners, which caan scan the entire body of blunt traauma patients to detectt internal
injuries; CT/PET hyb
brid equipment, which is an effectiive oncologyy tool for tu
umor detecttion; and
phy(SPECT)//CThybrideequipment,w
whichiseffe
ectivefor
singlephotonemisssioncomputedtomograp
ns.
oncology(e.g.,prosttatecancer),,bonescans,,cardiologyaanddiabetessapplication
nceImaging
g(MRI)
MagnetticResonan
MRI enaables the vieewing of intternal anato
omy by expo
osing the bo
ody to an ellectromagne
etic field.
Technological advan
nces in MRI systems havve improved
d both perfo
ormance cap
pabilities and
d patient
hichoffergrreatlyenhancedimagedetail,areexxpandingapp
plications
comfortt.Highfieldsscanners,wh
in the detection
d
off breast, cardiovascularr, musculoskkeletal and neurologicall disorders, and the
detectio
on of joint disease.
d
New
wer models include the intraoperaative MRI (iM
MRI) mobile
e, image
guided scanner
s
used for surgerry. The latest innovation
ns to reach the
t market aare high fielld, open
sided sccanners thatt offer enhan
nced anatom
mical imagess and shorteer testing tim
mes; and larrgerbore
platform
msforobeseorclaustrop
phobicpatien
nts.
Medica
alXrays
Xray eq
quipment is used to perrform initial diagnostic screens on patients
p
with
h orthopedicc injuries,
infection
ns,inflammaations,tumo
ors,andseveeralotherhaardandsoft tissueabnormalities.M
MedicalX
raysinclludeconventional(i.e.,ffilmbased), computedraadiography((CR)anddigitalradiography(DR)
systems. CR and DR
R systems arre replacing filmbased types
t
because of their aability to me
eet high
volume needs, redu
uce the num
mber of retakes, provide
e high imagee quality and
d be integraated into
digitald
diagnosticim
magingrecord
dkeepingsyystems.Speccializedapplicationsincludethediaggnosisof
dentalp
problems,breeastcancer((mammography)andartterialdiseasees(angiograp
phy).

16

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

NuclearMedicine(NM)
NMisamolecularimagingtechniquethatcapturesandvisualizesmetabolicfunctionsinthebodyto
detectandanalyzevariousdiseasestates.AmajorityofNMproceduresarecardiovascularinnature.
Other uses include bone, brain, thyroid and tumor imaging. Gamma cameras form the core of all
nuclearmedicinesystems,includingconventionalandnewerSPECTconfigurations.Inrecentyears,
the NM community has contended with shortages of a key radiopharmaceutical, technetium99m,
neededforNMprocedures,duetounstableforeignsupplies.
Ultrasound
Ultrasounds advantages over alternative in vivo testing technologies include noninvasive
application,nonradiationemission,lowercostperprocedure,andthenearimmediatepresentation
ofliveimagingresults.Thetechniqueiswellsuitedtotheexaminationofmuscleandsofttissueand
effectively delineates the interfaces between fluidfilled and solid spaces within the body. Newer
ultrasoundsystemsonthemarketincludethosethatofferqualityandcolorcontrastandimaging,
overtimecomparisonviews,wirelessoptions,compactnessandportability.
OtherEquipment
Positron emission tomography (PET) equipment accounted for about a third of demand in this
categoryandsetthefastestpaceofgrowthamongallmedicalimagingproducts,or18%peryearin
the 20032008 period. PET systems (i.e., PETonly and PET/CT hybrid systems) mainly derive their
demand from applications in cancer and cardiology. PET/CT systems create high quality spatial
visualizations of internal anatomical structures and present precise virtual images of metabolic
activityattargetedinvivosites.Otherimagingequipmentinthissubsegmentincludesradiographic
fluoroscopy (RF) and miscellaneous smallvolume equipment such as dental Xray, and picture
archiving and communication systems (PACS) and radiology information systems (RIS), which can
transmitimagesviatheInternetorfacilitynetworkforremoteviewing.
Source:TheFreedoniaGroup.(Marketsharedataadaptedbycasewriter.)

17

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit2:SelectedFinancialInformationforTerraFirmaMedicalSystems

FY

2005

2006

2007

2008

2009

762
325

848
401

935
473

1,011
549

1,083
624

175
59
10

197
84
16

220
103
27

243
126
46

264
151
79

1,331

1,546

48
1,806

129
2,104

345
2,546

759
133
226
1,118

897
139
263
1,299

1,066
144
289
1,499

1,262
147
337
1,746

1,553
153
382
2,088

EBITDA

213

247

307

358

458

Depreciationandamortization
Netinterestexpense
Taxesonearnings
Netincome

(40)
(16)
(64)
93

(46)
(23)
(72)
106

(54)
(33)
(86)
134

(63)
(42)
(97)
156

(76)
(51)
(128)
203

Beginningcashbalance
Endingcashbalance

326
384

384
517

517
305

305
294

294
533

3,216

3,692

4,226

4,751

5,213

Revenues
Componentsandsubsystems
FlatpanelXraydetectors
OtherCT/PET/SPECTdetectors
Softwareandservices
Technicalsupportcontracts
Systemintegrationservices
Packagedsoftwareproducts
Integratedimagingsystems
DigiRayZproductline
Totalrevenues
Expenses
Costofrevenues
Researchanddevelopment
Selling,generalandadministrative
Totalexpenses

Numberofemployees

Note:UnitsinmillionsofNewZealanddollars.

18

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit3:TerraFirmasIT&OperationsOrganizationalChart

Chairmen&CoCEOs
(GodfreyandAllanFrost)

VP,CorporateAdministration;CFO

VP,SensorComponents(RichardWeisen)

VP,IT&Operations;COO
(StephanieClark)

VP,DigitalImagingSystems
ITSteeringCommitteeSecretariat

VP,ImagingSoftwareProducts

CustomerSolutions

Corporate
Application
Development

CorporateAdministration

Integration&SupportServices

ImagingSoftwareProducts

DigitalImagingSystems

SensorComponents

ITSecurity&Audit

Procurement

NALA

Accounting

EMEA

HumanResources

AsiaPacific(MarvinKeats)

ITServiceManagement

Manufacturing

HQ(incl.ANZ)

BusinessITSolutions

EnterpriseApplications

GlobalOperations

ITInfrastructureOperations

RegionalOperations

ProjectManagementOffice

Architecture&Integration

VP,Integration&SupportServices

19

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit4:TerraFirmasITBudgetin2009

Region
Capitalexpenses
Computerhardware
Softwarelicenses
Networkequipment
Datacenterequipment
Totalcapitalexpenses
Operatingexpenses
Infrastructureoperations
Applicationsanddevelopment
Totaloperatingexpenses
Grandtotal(cashflowbasis)
Depreciationandamortization
Grandtotal(accrualbasis)

Global

HQ

32.6
18.6
16.8
25.2
93.2

19.2
11.7
7.5
16.4
54.9

19.1
40.5
59.6

10.5
30.4
40.9

152.8

95.8

A/P

EMEA

NALA

4.6
2.6
2.9

3.6
2.2
2.5

5.2
2.1
3.9
8.8
19.9

10.0

8.3

3.8
6.1
9.9

2.9
2.4
5.3

1.9
1.6
3.5

29.8

15.3

11.9

31.7
91.3

Note:UnitsinmillionsofNewZealanddollars.18

Keytoregions
HQ

HeadquartersfacilitiesintheWellingtonarea,plus4fieldofficesinAustraliaandNew
Zealand,DigiRayZmanufacturingplantinMelbourne,Australia.Employees:about3,100.

A/P

AsiaPacific.7fieldofficesandTFTmanufacturingplantinPenang,Malaysia.RegionalHQ:
Singapore.Largestfieldoffice:Tochigi,Japan.Employees:about800.

EMEA Europe,MiddleEastandAsia.6fieldoffices.RegionalHQ:Brussels.Largestfieldoffice:

Erlangen,Germany.Employees:about700.
NALA NorthAmericaandLatinAmerica.5fieldoffices.RegionalHQ:Chicago.Largestfieldoffice:

Waukesha,Wisconsin.Employees:about600.

18

Somematerialinthisexhibitisadaptedfromchapter4ofR.D.Austin,R.L.NolanandS.ODonnell(2009),
TheAdventuresofanITLeader,HarvardBusinessSchoolPress.

20

SMUSch
hoolofInformationSysteems

TerraFirmaMedicalSysstems(A)

Exhibiit5:Terra
aFirmasITServiceManage
ementPro
ocess

21

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit6:TerraFirmasKeyITApplicationsandServices

Application/Service

BasicEndUserITservices

Description/Notes

PCsupport
Corp.HQ
helpdesk
RegionalHQ
helpdesk

Commercialcallcentersoftware,toolsfordeploying/managingstandardPCsystemimages.
Homegrownissuetrackingsystem(Rx@TFM),assetmanagementsystem(CYAssets).
FulltimeIToperationsstaffof35peopleeach.Nodedicatedhelpdeskbutsomeonealways
availableduringofficehourstotakecalls,andsomeoneoncall24hoursforcriticaloperational
issues(e.g.,networkgoesdown).
Fieldofficesusuallyhire12localITsupportpeopleonacontractbasis.CallregionalHQfor
higherlevelsupport(e.g.,SingaporeforAsiaPacific).

MicrosoftOutlook/Exchange2003.Somepeopleuseforcalendaringbutmostdont.

Fieldoffice
helpdesk
Email/calendar
MSExchange/
Outlook
Mobiledevices

Collaboration
Filesharing
Socialmedia

CorporateBlackBerriesforsomefieldstaffandkeyexecutives,otherpeoplesynctopersonal
devices(iPhone)andservices(GoogleCalendar).Someconcernsaboutdataleakage(esp.
fromengineeringteams)butnoformalpolicyyet.

PolycomvideoconferencingequipmentconnectingPenangandkeyfieldoffices(US,Europe,
Japan)toHQviaISDN.
Newerfieldofficesusingfreedesktopvideoconferencingsoftware(e.g.,Skype),butno
supportedcorporatesolution.

DepartmentalWindowsbasedfileandprintservers(Novellserversmigratedin2000).
Someexperimentswithwikis,IM,SharePoint,butnocorporatestandard.

Videoconferencing
Site

Desktop

Funding
Model*

Deployment
Location

HC

Gracefield

HC

RegionalHQs

HC

Fieldoffices

HC

Gracefield

CB+free

Various

CB

Various

BRfor
pilot

CB
BRfor
pilot

Various

Various
Various

22

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Application/Service
Description/Notes

CorporateEnterpriseSystems
ERP

J.D.Edwards

InforERPXA

SCM

HRM

Procurement
(downstream)
Procurement
(upstream)
J.D.Edwards

Benefits,leave
tracking,expense
reimbursement

CRM
OracleCRM
(f.k.a.Siebel)
Rel.mgmt.for
largevendors
BI
Corporate
reporting
Datamining/
warehousing

StillrunningonIBMAS/400platform.RecentlyextendedtoPenangforplantmanagement,
replacingproprietaryIntelsoftware.
UsedatMelbourneplant(acquiredwithXraysystemscompany);alsorunningonAS/400
(a.k.a.IBMSystemiplatform).

Bigcustomers(GE,Siemens,etc.)requireuseoftheirownprocurementportals.Developed
mixofofftheshelfconnectorsandinternallydevelopedgluecodetoconnectintoJDE.
SomeTerraFirmasuppliersable/willingtointerfacewithJ.D.Edwards.Othersprocessed
manuallybyprocurementstaff.Engineersalsoneedvisibility(e.g.,tolookuppartcatalogs).

Forbasicemployeerecord/payrollfunctionality.FullsupportinHQarea,partialsupportinthe
geographies(littlecustomizationdonesolotsofseparatetrackingneedstohappenatthe
countrylevel,e.g.,taxwithholding).
HomegrownappsforHQarea.Mostlyadhocsolutionsinthegeographies(e.g.,Excel
spreadsheetsmaintainedbyofficemanagers).

InstalledonWindowsclientsatfieldoffices.Costlyandtimeconsumingtoaddusers,whichis
happeningalotasnewofficesgrowandmorestaffjoin.
KeyvendorrelationshipsmostlymanagedbyhandandbysharingdocumentsbetweenHQ
andfieldoffices.Somecustomappswritten,fewusedwidelyormaintained.

Somereports(e.g.,financialstatements)produceddirectlybyJ.D.Edwards.Mostothers
preparedusingExcel,someautomatedwithVBAscripting.
SASandCognosusedformoresophisticateddatamining.

Funding
Model*

Deployment
Location

BR
BR

Gracefield,
Penang
Melbourne

BR

Gracefield

BR

Gracefield

BR

Gracefield

BR

Gracefield

BR

Gracefield,
Fieldoffices
Gracefield,
Fieldoffices

Corp.HQ,
RegionalHQs
Gracefield,
Fieldoffices

CB

BR
CB

23

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)
Funding
Model*

Deployment
Location

MixofSynopsys,CadenceandMentorGraphicsrunningonhighendUNIXworkstations(now
Intelbased).Lowutilizationrate,butengineerspreferhavingondeskratherthansending
batchjobstoserver.
48nodeBeowulfclusterfornumericalcomputation.Mainlyrunningappsdevelopedby
productengineeringgroups,plusgeneralpurposescientificsoftware(e.g.,MATLAB).
HomegrownapplicationfortrackingRequestsforEngineering(RFEs).

Standardcommercialandopensourcesoftwaredevelopment(e.g.,MSVisualStudio,Eclipse).
MixofWindows,Mac,Linuxoperatingsystemplatform.
Mixofhomegrownandcommercialrenderingsoftware.Notdeployedatscale(desktoponly).

CB

Kelburn

CB

Kelburn

CB

CB+free

Kelburn

Miramar

CB

Miramar

15machinesrunningdifferentversionsofWindowsandMacOSX.Someautomatedtesting
software.

LocallydevelopedappsinPenangforqualityassuranceandtesting.Generateslotsofdata,
someofwhichneedstobeaccessedbyHWengineeringstaffatKelburn.

CB

Miramar

CB

CB

Penang,
Melbourne,
Gracefield
Various

CB

Kelburn

Application/Service
Description/Notes

ProductDevelopment/Manufacturing
Hardwareengineering
ElectronicDesign
Automation(EDA)

Simulation/
analysis
Issuetracking
Softwareengineering
Application
development
Graphics
rendering
Testinglab
Manufacturing
QA/Test

Production
control
IPR/compliance
EMCDocumentum

SoftwareinPenanglargelyinheritedfromIntel.Majorissueisretainingskillsneededto
maintainandupgrade.

Forregulatorycompliance(FDA,etc.)aswellaspatentfiling.

*Fundingmodels:HC=headcounttax,BR=budgetrequest,CB=internalchargeback.

24

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit7:TerraFirmasCorporateITArchitecture(NetworkView)

Penang
Production Facility

Engineering
Design
Kelburn Lab
(HQ area)

45 Mbps
Corporate Headquarters
Wellington
Central Office
(HQ area)

34 Mbps
+ ISDN
Regional HQs
(Singapore, Brussels,
Chicago)

1-20 Mbps +
128 kbps ISDN
(for video)

Field Offices
(Tochigi,
Erlangen, etc.)

155 Mbps
+ ISDN

Main Data Center


Gracefield
Operations Center
(HQ area)

Internet VPN

155 Mbps
+ ISDN

45 Mbps
8 Mbps
Software
Development
Miramar Lab
(HQ area)

Melbourne
Production Facility

25

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit8:TerraFirmasCorporateITArchitecture(DeploymentView)

Regional HQs
(Singapore, Brussels, Chicago)
Standard
Corp.
Desktops
(~1 / pax)

Video
Conf.
Equip.
(1-3)

Regional Servers (1-3):


BI / marketing tools
HR / finance apps.

Field Offices
(Tochigi, Erlangen, etc.)

Standard
Corp.
Desktops
w/ CRM client
(~1 / pax)

Corporate Headquarters
Wellington Central Office (HQ area)
Standard
Corp.
Desktops
(~1 / pax)

Server Room:
BI / marketing tools
HR / finance apps.
File sharing

Main Data Center


Gracefield Operations Center (HQ area)
(All machines redundant w/ UPS)

JD Edwards
(& ERP DB)

Video
Conf.
Equip.
(1)

Video
Conf.
Equip.
(4)

Corp.
Web Site
(separate
network)

Exchange /
Active Directory

Help Desk /
Ops. Mgmt.
Apps.

Intranet Apps.
(HR, Finance)

Oracle CRM
(& CRM DB)

Penang Production Facility


JD Edwards
ERP (2)

Production
Control (3)

Engineering Design
Kelburn Lab (HQ area)
Designer Workstations
w/ EDA software
(Sun / UNIX, ~1 / pax)

Server Room:
Project management
Document management
Simulation / analysis
(48-core Beowulf cluster)

Software Development
Miramar Lab (HQ area)
Developer Desktops
w/ graphics, dev. tools
(Mac OS X, ~2 / pax)

Test Lab (15 machines):


Various Windows, Mac
SVN, Bugzilla, etc.

Melbourne Production Facility


QA Systems & Test Data
(3 servers + large SAN)

XA ERP
(2)

Production
Control (2)

QA
Systems

Note:Darkershadingindicateshigherload.

26

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit9:TerraFirmasCorporateITArchitecture(CollaborationView)

Documentum
Intranet Apps.
(HR, finance)

Corp. HQ Servers
(file sharing)

Penang QA Systems
& Test Data

HQ Desktops
(exec / admin,
collectively)

Corp. HQ Servers
(BI / marketing tools)

HQ Desktops
(operations,
collectively)

JD Edwards
(HQ)

XA ERP

Engineering Servers
(project mgmt.)
JD Edwards
(Penang)

Ops. Mgmt.
Apps.

JD Edwards
(HQ)

Documentum

Engineering Servers
(project mgmt.)
Corp. HQ Servers
(file sharing)

Designer
Workstations
(collectively)

Developer
Desktops
(collectively)

Penang QA Systems
& Test Data
Engineering Servers
(Beowulf cluster)

Test Lab
Various Windows, Mac
SVN, Bugzilla, etc.

Penang
Production
Control

1-3 times / week

1-10 times / day

1-10 times / hour

1-10 times / min

1-10 times / sec

27

SMUSchoolofInformationSystems

TerraFirmaMedicalSystems(A)

Exhibit10:TerraFirmasCorporateITArchitecture(DataFlowView)

Documentum
Intranet Apps.
(HR, finance)

Corp. HQ Servers
(file sharing)

Penang QA Systems
& Test Data

HQ Desktops
(exec / admin,
collectively)

Corp. HQ Servers
(BI / marketing tools)

HQ Desktops
(operations,
collectively)

JD Edwards
(HQ)

XA ERP

Engineering Servers
(project mgmt.)
Ops. Mgmt.
Apps.

JD Edwards
(Penang)

JD Edwards
(HQ)

Documentum

Engineering Servers
(project mgmt.)
Corp. HQ Servers
(file sharing)

Designer
Workstations
(collectively)

Developer
Desktops
(collectively)

Penang QA Systems
& Test Data
Engineering Servers
(Beowulf cluster)

Test Lab
Various Windows, Mac
SVN, Bugzilla, etc.

Penang
Production
Control

~10 MB / day

~100 MB/day

~1 GB / day

~10 GB / day

100 or more GB / day

28

NotesonLicensingandDistribution
ThisdocumentisprotectedbyinternationalcopyrightlawbutreleasedunderaCreativeCommons
AttributionShare Alike 3.0 Singapore License for the benefit of instructors who wish to use or
modify the case for educational purposes. A Microsoft Word version is available from the author.
Toobtainit,pleaseemailjwoodard@smu.edu.sgorterrafirmacase@gmail.com.

AdditionalRequestsfromtheAuthortoInstructors
Developingahighquality teaching caserepresents asignificantinvestmentoftimeandresources.
For this reason, many cases are only available at a substantial percopy fee. Inspired by strong
interestamongparticipantsinthe2010SMUAPEXGlobalBusinessITCaseChallenge,however,Iam
experimentingwithanalternativelicensinganddistributionmodel.
TheCreative CommonsBYSAlicenseallowsyoutofreelydistributethe casetoyourstudents.No
permission or advance notice is required. Moreover, nothing in the license prevents you from
modifyingandfurtherdistributingthecaseinanyformyoulike,subjecttoconditionsonretaining
credit to the original author (the Attribution feature) and using the same or a similar license (the
ShareAlikefeature).
Thatsaid,Iwouldliketomaketwoadditionalrequests:
1. If you use the case, please do let me know. It would be helpful to tell me the institution,
name of the course, primary audience (e.g., undergraduate IS majors, secondyear MBAs),
andnumberofstudents.Keepingtrackofthisinformationwillhelpconvincemydeanthat
distributingcasesthiswayisagoodidea,andmakeitmorelikelythatotherswillfollow.
2. If you modify the case, please send me your revised Word document(s) along with the
informationabove.InadditiontofulfillingyourobligationsundertheShareAlikeprovisions
ofthelicense,thiswillhelptoimprovethecaseovertime,andmightevenleadtoseveral
branchestargetedatdifferentaudiencesorhighlightingdifferentissues.
Please also keep this page intact, appending to the revision history as appropriate. (If you are
distributingprintedcopies,youmayomitthispagetosavepaper.)

RevisionHistory
Version
None
1.0A4

Date
28April2010
11May2010

Changes
Competitionversion.Part(B)releasedon29April2010.
Addedlicensinganddistributioninformation.FormattedforA4paper.