Strategic Information Management Third Edition Challenges and Strategies in Managing Information Systems_11 doc

Considering social subsystem costs andbenefits in IT investment decisions: A view from the field of anticipated payoffs, Journal of Management Information Systems, 16, 4 2000, 11–40... o

would make to their job function(s) A simplified course was also developedfor shop floor stakeholders This course not only addressed the educationalissues associated with MRPII but also looked at the practical implications ofsuch a system on their job function(s) In doing so, it clearly differentiatededucation from training The subject and teaching media used varied, using asmuch imagination as possible Teamwork was promoted, with all employeesbeing mixed and grouped together They were filmed and reviewed playinggames, using Legos® and jigsaw puzzles, all with meaning for throughputproduction flow, communication, Just in Time (JIT) inventory management,and Total Quality Management (TQM) The workshop exercises appeared to

be well received, and helped to win over skeptics In parallel with theworkshop training and education sessions, an information system design anddevelopment team was assembled

Table 14.4 Taxonomy of indirect human costs

Exploring the potential of the system

Linking and integrating new systems together, e.g.,CAM, DNC, CIM

Employee Time Detailing, approving and amending the

computerization of product BOMs

Employee Training Being trained to manipulate vendor software and

training others

Employee Motivation Interest in computerized production planning and

control reduces as time passes

Changes in Salaries Pay increases based on improved employee flexibility.Software Disposal The removal of all software prior to disposal

Staff Turnover Increases in interview costs, induction costs, training

costs based in the need for skilled human resource

Evaluating the Impact of IT on the Organization 417

Where necessary, employees (subject to their acceptance) were sent onexternal training courses to develop new technical skills In addition, students

on industrial placements were temporarily employed to develop software.Students were placed at Company V for a period of six months or one year.During their placement each student was supervised by a member of staff from

a university (implicitly resulting in technical academic support) Thisrecruitment policy helped to keep system development costs down, thusreducing the need for expensive contract engineers An additional benefit ofhaving students on the project was to maintain a constant stream of innovation,inspiration, and motivation However, closer supervision was needed to retainproject focus than would have been needed if only general company employeesperformed the work During the development of their bespoke IS, Company

V schematically mapped out their entire business process using flowchart tools

In doing so, a top-level analysis of Company V’s key business processes wasperformed, identifying processes and their order of occurrence

This enabled processes to be reengineered and facilitated the removal ofnon-value-adding activities before any systems were computerized Thisapproach to reengineering was considerably different from earlier attempts inthat previous processes appeared to be generic and were based around thefunctionality of the vendor-supplied software The reengineering of businessprocesses before bespoke system development allowed for the software beingdeveloped to be modeled on best practice jobbing shop activities It was at thispoint that the expertise of the consultancy company and academic institutionsproved invaluable

Table 14.5 Taxonomy of indirect organizational costs

Classification of indirect

organizational costs

MRPII cost factor

Productivity Losses Developing and adapting to new systems,

procedures, and guidelines

Strains on Resource Maximizing the potential of the new

technology through integrating informationflows and increasing information availability.Business Process Reengineering The redesign of organizational functions,

processes, and reporting structures

Hardware Disposal The removal of all hardware prior to

environmentally friendly disposal

Organizational Restructuring Covert resistance to change

Technology management factors: key learning issues

As a result of the case study findings, a number of technology managementfactors have been identified as having an impact on the failure/success ofCompany V’s adoption of MRPII These factors are presented in Table 14.6,where their contribution is identified toward the implementation of vendorsoftware and the later development of a bespoke system

The inability of traditional modes of financial analysis to justify IT/ISinvestments (which have strategic implications) has led a growing number ofpractitioners in calling for a moratorium on their use The reason for this isthat traditional approaches are considered to offer narrow levels of analysis,through their prescriptive focus on operational implications of the investment.This is further complicated, with many managers becoming preoccupied withfinancial appraisal insofar as practical strategic considerations have beenoverlooked and in some cases ignored This inevitably results in manystrategically important projects failing to ‘pass’ the financial justificationstage of the evaluation process Consequently, companies are often forced toadopt a myopic approach to IT/IS project justification This is furthercomplicated where the information system is modular and the system ispurchased in stages, the implications being that the appraisal methods onlyconsider the benefits and costs associated with the module being evaluatedand are unable to account for benefits that the entire system brings

Conclusions

The increased scope of new technology has not only provided organizationswith enablers for change but also prompted companies to reassess the waythey evaluate, manage, and exploit technology The empirical results reported

in this chapter have identified a case where traditional modes of investmentappraisal were inappropriate when accounting for the implications of theinvestment, and as a result, did not support the efficient and effectivedeployment of new technology Therefore, the strategy adopted by the casestudy when evaluating the MRPII investment was an ‘act of faith,’ and thus

ad hoc in nature This subsequently resulted in the system being considered a

‘failure’ as human and organizational factors were neglected during theevaluation and technology management process The main reason for

Company V’s ad hoc approach to investment decision-making was that many

of the benefits resulting from their investment were considered intangible andnonfinancial Consequently, they could not be accommodated within tradi-tional evaluation and management frameworks, which had been previouslyused for the justification of capital manufacturing equipment The relativelynew and inexperienced management team further complicated the justificationprocess, as a result of their lack of knowledge on how to identify and manage

Table 14.6 Comparative review of technology management processes

Technology management factors Vendor software Bespoke software

IT/IS-related benefits and costs There are also serious implications connectedwith the poor project management, which in part was exacerbated byindecisive and inconsistent leadership, thus questioning the appropriatepositioning of project managers within the organizational structure Withmanagement under increasing pressure to produce short-term financialsavings through improved productivity, managers need to ensure that thoseprojects with long-term strategic focuses were not excluded on the basis oftheir intangible and nonfinancial benefits The case study points to thesignificance of human and organizational factors, and exemplifies the need totake account of such issues within any robust evaluation criteria, thusheightening the significance of the proposed technology managementtaxonomies.

Acknowledgements

The authors thank the case study company for its participation in this study.Without the cooperation and support of management and employees theresearch could not have been undertaken The authors are also grateful to thefive anonymous referees for their helpful and constructive comments, whichhelped improve this manuscript

Note

The previously formed software selection and implementation team took theinitiative to implement bespoke MRPII development They perceived that thecompany would be more satisfied with the results of their ‘own’ system, ratherthan the implementation of ‘rigid’ vendor software

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Manufactur-ing Projects London: Kogan Page, 1987.

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5 Ezingeard J.-N., Irani, Z and Race, P Assessing the value and costimplications of manufacturing information and data systems: an

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Evaluating the Impact of IT on the Organization 421

6 Farbey, B., Land, F and Targett, D IT Investment: A Study of Methods

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Systems, 17(3), Winter, 161–177.

Questions for discussion

1 We often talk of tangible and intangible benefits when evaluating IS/ITinvestments How useful is this distinction? Consider the case studydiscussed in this chapter and the benefits identified when answering thisquestion Can you think of other benefits – tangible or intangible – thatmight also have been identified by the authors?

2 In Chapter 20, Willcocks and Lester talk of the IT productivity paradox.Relate the conclusions to be drawn from this chapter and theirs

3 Why do many organizations ‘approach the whole management of

[information] technology in an unstructured or ad hoc manner throughout

the systems’ lifecycle’? Why don’t they view it ‘as a structured iterativebusiness process’ as the authors of this chapter recommend?

4 How might a company use the findings from the case study researchreported in this chapter in parallel with the kind of ‘stages of growth’framework introduced in Chapter 2?

5 Compare and contrast the findings and recommendations reported in thischapter with those of Willcocks in Chapter 9

Figure IV.1 The focus of Part Four: information systems strategy and the organizational environment

of business;* alternative organizational arrangements; decision making in organizations, and organizational culture and knowledge management New to this edition are chapters on the impact

of IT on customer relationship management and the impact of IT on organizational learning Part Four commences, in Chapter 15, with an article by Lambert and Peppard that looks at IT and new organizational forms By the latter they mean structure, systems, management style, cultures, roles, responsibilities, skills and the like The authors remind us that ‘Organizations must adopt a form that is appropriate to their strategy and the competitive position within which they find themselves’, bearing in mind the opportunities afforded by IT A range of alternative organizational forms are presented, as is a framework which should prove useful when dealing with the myriad complex issues associated with migrating towards an appropriate new form Their framework pays considerable attention to change management issues (cf once again, the innermost circle of our conceptualization of strategic information management, and Chapters 5 and 6) For further reading on the general topic of organizational transformation, see Kochan and Useem (1992), from which Chapter 5 is extracted For more on IT and organizational transformation, see, for example, Scott Morton (1991) and Galliers and Baets (1997).

We turn our attention, in Chapter 16, to the effects of information technology on organizational decision making Written by Huber, this chapter is not alone in this collection in being of particular relevance to MBA audiences, drawing, as it does, from a range of disciplines, in this instance from the worlds of organization science and communications, as well as information systems As Gibbons (1995) has argued, it is through trans-disciplinary research of this kind that new knowledge is more likely to be obtained Huber’s intent is to reinvestigate components of organization theory, given that much of this had been formulated ‘when the nature and mix of communication technologies were relatively constant, both across time and across organizations

of the same general type’ Citing the advent of electronic mail, image transmission, computer conferencing, expert systems, external information retrieval systems, and the like, Huber sets out

to explore how such new technologies as these might impact organizational forms, intelligence and decision making A series of propositions are set forth, connected with constructs and

concepts, from which a conceptual theory is developed He concludes, inter alia, that researchers

in organization science ‘should study advanced information technology as an intervention or jolt in the life of an organization that may have unanticipated consequences with respect to evolved organizational design’ The collective experiences of our readers are likely to conclude that he is right on this score! More positively, he also concludes that IT is likely to improve decision making and enable new organizational forms Reasons for possible impediments to the former, however, are uncovered in Chapter 19 that then follows For further reading on IT and

organizational structure and decision making, see, for example, Fiedler et al (1996), Leidner and

Elam (1993, 1995), Molloy and Schwenk (1995), Orlikowski and Robey (1991) and Tavakolian (1989).

In Chapter 17, Leidner reflects on the issues associated with current attempts to implement knowledge management systems (KMS) in organizations and their, at times, limited impact, due

to clashes with corporate culture The author introduces the chapter with an insightful account of developments over the years in information systems designed to support managerial and operational activity in organizations, preceding the more recent developments in KMS Providing

a complementary account to that presented in Chapter 1, Leidner focuses attention on the implementation effects and requirements of various types of information system, from management information systems (MIS), to decision support systems (DSS), to executive information systems (EIS), to KMS She notes a trend from a ‘one system for all users’, to a ‘one system for one user’, to an ‘anyone, anywhere, anytime’ information provision strategy in line with these developments Reflecting on organizational culture issues, Leidner illustrates how the

* See also, for example, Walsham (2001) and Castells (2001).

Information Systems Strategy and the Organizational Environment 425

necessity for user participation in the information systems development and design process has progressed, in the light of these developments, from involvement during earlier stages of analysis and design to active contribution of user knowledge with KMS This is where her concept of

information culture comes in, with a series of propositions that help illustrate, inter alia, the

circumstances in which knowledge is more or less likely to be shared by actors in organizations, dependent on their view as to whether this information is an individual or corporate asset While knowledge management may be considered a relatively new topic, it is in essence an extension of the broader issue of organizational learning Chapter 18 offers an interesting analysis

of the introduction of IT in an organization and subsequent learning Pentland views organizations

as knowledge systems composed of a collection of knowledge processes, including constructing, organizing, storing, distributing, and applying Pentland analyses the case of a small engineering consulting company that implemented a new information system to automate one of its core business activities He shows how information systems influence not only the objects of knowledge but also the criteria for knowledge construction.

Chapter 19 introduces a topic new to this edition, that of improving customer support with information systems El Sawy and Bowles provide insights for designing IT-enabled customer support processes that enable a company to meet the requirements of operating in a fast response, internetworked world The system they describe provides an infrastructure for problem resolution that includes a customer support knowledge base whose structure is dynamically updated based

on adaptive learning through customer interactions Whereas the previous chapter focuses on individuals learning through information systems, this chapter poses the opportunity of systems learning through the information input by people El Sawy and Bowles provide observations that can be useful starting points for any firm wanting to think of ways to utilize information technology to improve customer relationships.

We conclude, in Chapter 20, with a look at what has been termed the IT productivity paradox – the problem that many organizations face in obtaining business advantage from their IT, despite the dramatic developments in the technology that we have witnessed over recent years, and despite the considerable investment made in this technology by many companies Written by Willcocks and Lester, it proposes a means of linking business and information systems strategy

by prioritizing IT investments, setting interlinking performance measures and considering external IT services as well as internally developed solutions In many ways, then, the holistic stance taken by the authors makes Chapter 20 an appropriate place to bring our consideration of strategic information management to a close, since it tries to integrate many – although by no means all – of the issues raised in the book The overall intention of the chapter, as well as

Strategic Information Management as a whole, has been to enable organizations to obtain greater

business value from their investments in IT This can only be achieved by executives understanding the issues, getting involved and taking responsibility in this key area We hope we have gone some way in assisting in this process.

References

Castells, M (2001) The Internet Galaxy, Oxford University Press, Oxford.

Fiedler, K D Grover, V and Teng, J T C (1996) An empirically derived taxonomy of

Information Technology structure and its relationship to organizational structure Journal of

Management Information Systems, 13(1), Summer, 9–34.

Galliers, R D and Baets, W R J (1998) Information Technology and Organizational Transformation: Innovation for the 21st Century Organization, Wiley, Chichester.

Gibbons, M (1995) The New Production of Knowledge: The Dynamics of Science and Research

in Contemporary Societies, Sage, London.

Kochan, T A and Useem, M (eds) (1992) Transforming Organizations, Oxford University Press,

New York.

Leidner, D E and Elam, J J (1993) Executive information systems; their impact on executive

decision making Journal of Management Information Systems, 10(3), 139–156.

Leidner, D E and Elam, J J (1995) The impact of executive information systems on

organizational design, intelligence and decision making Organization Science, 6(6),

645–665.

Molloy, S and Schwenk, C R (1995) The effects of Information Technology on strategic

decision making Journal of Management Studies, 32(5), 283–311.

Orlikowski, W and Robey, D (1991) Information Technology and the structuring of

organizations Information Systems Research, 2(2), 143–169.

Porter, M E (1990) The Competitive Advantage of Nations, Macmillan, Basingstoke Scott Morton, M S (ed.) (1991) The Corporation of the 1990s: Information Technology and Organizational Transformation, Oxford University Press, New York.

Tavakolian, H (1989) Linking the Information Technology structure with organizational

competitive strategy: a survey MIS Quarterly, 13(3), September, 309–319.

Walsham, G (2001) Making a World of Difference: IT in a Global Context Wiley,

Chichester.

15 The Information

Technology–Organizational Design Relationship

Information technology and new organizational forms

R Lambert and J Peppard

Throughout the 1980s there was a tremendous emphasis on business strategy.Many organizations developed sophisticated strategies with scant attentiongiven to their ability and capability to deliver these strategies Over the pastfew years a tremendous amount has been written about the organization of the1990s, its characteristics and the key enabling role of information technology.While this presents us with a destination in general terms, little attention isgiven in how to get there This chapter addresses this concern, beginning byreviewing six perspectives which best represent current thinking on new ways

of organizing and outlines their characteristics Having identified their keycharacteristics, three key issues which now dominate the management agendaare proposed The vision: where do we want to be in terms of ourorganizational form? Gap analysis and planning: how do we get there? andManaging the migration: how do we manage this process of reaching ourdestination? Extending the traditional information systems/information tech-nology strategic planning model, a framework is presented which addressesthese concerns This framework is structured around the triumvirate of vision,planning and delivery with considerable iteration between planning anddelivery to ensure the required form is met

Introduction

Academics, consultants and managers continually debate the most effectiveorganizational form (Organizational form includes structure, systems,management style, cultures, roles, responsibilities, skills, etc.) If there is

agreement it is that there is no one best way to develop organizations toachieve the best mix of structure, systems, management style, culture, roles,responsibilities and skills One lesson is clear and it is that organizations mustadopt a form that is appropriate to their strategy and the competitive positionwithin which they find themselves Recently there has been a spate of paperschallenging traditional ways of organizing and their underlying assumptionsand proposing alternative approaches Many of these approaches aredependent on opportunities provided by information technology (IT).Clearly the situation within which organizations find themselves today isradically different than from earlier times As we saw earlier, the 1990s havebeen characterized by globalization of markets, intensification of competition,acceleration of product life cycles, and growing complexity with suppliers,buyers, governments and other stakeholder organizations Rapidly changingand more powerful technology provides new opportunities To be competitive

in these conditions requires different organizational forms than in more stabletimes It is well recognized that responsiveness, flexibility and innovation will

be key corporate attributes for successful organizations Information plays acritical role in improving these within today’s organization However,traditional organizational forms have significant limitations in supporting theinformation-based organization

Information technology must share responsibility for much of the rigidityand inflexibility in organizations By automating tasks IT cemented hierarchywith reporting systems, and rigidified behaviour through standardization.Indeed, often technology has not resulted in fundamental changes in howwork is performed: rather it has allowed it to be done more efficiently Theirony is that IT can also help us break out of traditional modes of organizingand facilitate new organizational forms which previously would have beenimpossible The challenge therefore is not only to consider new organizationalforms but also to identify the critical issues that must be managed to allow thistransformation to begin

It is our intention to map out some of the themes relating to new ways oforganizing which have been emerging over the past decade We also want toclear up the confusion which is often encountered when reading suchliterature where similar ideas are often shrouded with new names Inparticular, we explore the role of IT in facilitating new ways of organizing

In order to place this chapter in perspective, we begin by briefly tracingdevelopments in organization theory This review is not intended to beexhaustive, but to give a flavour of just some of the main themes which haveemerged over the years We then explore some of the perspectives that havebeen proposed in the recent management literature, identify the main themes

of each, the critical management issues and combine these into a frameworkwhich we believe is useful in giving direction to managing the transformationprocess

The Information Technology–Organizational Design Relationship 429

Historical viewpoint

Whenever people have come together to accomplish some task, organizationshave existed The family, the church, the military are examples of earlyorganizations Each had their own structure, hierarchy, tasks, role andauthority The modern business organization, however, is a relatively recentphenomenon whose evolution can be traced to two important historicalinferences: the industrial revolution and changes in the law

The industrial revolution, which occurred largely in England during the1770s, saw the substitution of machine power for human work and markedthe beginning of the factory system of work It spawned a new way ofproducing goods and offered opportunities which saw business increase to

a scale never previously possible The early Company Acts providedlimited liability for individuals who came together for business purposes.Both these events led to the emergence of the professional manager, i.e.someone who managed the business but who did not own it The increase

in scale of organizations required a management structure and tional form

organiza-Early attempts to formulate appropriate organization form focused ondetermining the anatomy of formal organization This so-called classicalapproach was built around four key pillars: division of labour, functionalprocesses, structure, and span of control (Scott, 1961) Included here is thescientific management approach pioneered by Frederick Taylor (1911) whichproposed one best way of accomplishing tasks The objective was to increaseproductivity by standardizing and structuring jobs performed by humans Itspawned mass production with its emphasis on economies of scale Althoughinitially the concept applied to factory-floor workers, its application spreadprogressively in most organizational activity Harrington Emerson tookTaylor’s ideas and applied them to the organizational structure with anemphasis on the organization’s objectives He emphasized, in a set oforganizational ‘principles’ he developed, the use of experts in organizations toimprove organizational efficiency (Emerson, 1917)

This mechanistic view was subsequently challenged by an emerging viewstressing the human and social factors in work Drawing on industrialpsychology and social theory, the behavioural school argued that the humanelement was just as important Themes such as motivation and leadershipdominated the writings of subscribers to this view (e.g Maslow, 1943, 1954;Mayo, 1971; McClelland, 1976)

Over the past 40 years organizational theorists have been concerned withthe formal structure of organization and the implications these structures have

on decision-making and performance Weber (1947), for example, argued thathierarchy, formal rules, formal procedures, and professional managerialauthority would increase efficiency

Ever since Adam Smith (1910) articulated the importance of division oflabour in a developing economy this notion has become ingrained in thedesign of organizations Functionalism due to specialization is a salientfeature of most organizations Too often, however, this had led to anineffective organization with each functional unit pursuing its own objectives.

To overcome inherent weaknesses in this view, both the systems approach andthe strategy thesis seek to integrate diverse functional unit objectives.The systems movement originated from attempts to develop a generaltheory of systems that would be common to all disciplines (Bertalanfy, 1956).Challenging the reductionist approach of physics and chemistry the focus was

on the whole being greater than the sum of the parts Organizations wereconceptualized as systems composed of subsystems which were linked andrelated to each other Indeed, the systems approach is the dominant philosophy

in designing organizational information systems Systems theory also madethe distinction between closed systems, i.e those that focus primarily on theirinternal operations, and open systems which are affected by their interactionwith their external environment Early organizational theories tended to adopt

a closed systems view However, by adopting a more open approach it wasclear that environmental issues were equally important

The strategy movement which originated from Harvard Business School inthe 1950s highlighted the importance of having an overall corporate strategy

to integrate these various functional areas and how the organization can bestimpact its environment The argument was that without an overall corporatestrategy, each functional unit would pursue its own goals very often to thedetriment of the organization as a whole The decade of the 1970s saw manyformalized, analytical approaches to strategic planning being proposed such asthe Boston Consulting Group’s planning portfolio (Henderson, 1979) andAnsoff’s product portfolio matrix (Ansoff, 1979) Competitor analysis and thesearch for competitive advantage was the dominant theme of the 1980s,greatly influenced by the work of Porter (1980, 1985)

Chandler (1962), in his seminal study of US industries, saw structurefollowing strategy His thesis was that different strategies required differentorganizational structures to support them Organizations that seek innovationdemand flexible structures Organizations that attempt to be low costoperators must maximize efficiency and the mechanistic structure helpsachieve this However, theorists such as Mintzberg (1979) and Thompson(1961) have emphasized the systemic aspect of structure, showing howstructure can influence strategy and decision-making while hinderingadaptation to the external environment

The contingency theorists argued that the form an organization took is afunction of the environment (Lawrence and Lorsch, 1970) Mintzberg, Millerand others talk about organizational configurations that bring strategy,structure, and context into natural co-alignment (Miller, 1986, 1987; Miller

The Information Technology–Organizational Design Relationship 431

and Mintzberg, 1984) They argue that key forces or imperatives explain andgive rise to many common configurations The form an organization wouldtake would reflect its dominant imperative

We are not arguing that these forms or perspectives were inappropriate Intheir time they represented the best forms that supported contemporarymanagement thinking For instance, despite its neglect of human aspects,scientific management yielded vast increases in productivity However, thedynamic element which precipitated many of these approaches has also

rendered them ineffective Where are many of the excellent companies which

Peters and Waterman (1982) wrote about 10 years ago? Perhaps they stuck tothe knitting and ran out of wool Perhaps the competition started using knittingmachines or, indeed, the market now no longer has the need for wool products.Recently Mintzberg (1991) has refined his thinking on organizational formand considered another view of organizational effectiveness, in whichorganizations do not slot themselves into established images so much ascontinually to build their own unique solutions to problems

Given today’s competitive conditions it is clear that one of the challengesfacing management in the 1990s is to develop more dynamic organizationsharnessing the power and capability of IT What form such organizations willtake is yet unclear However, a picture of what this form will look like andhow to initiate its development is beginning to emerge

New perspectives

Over the past few years there have been a number of papers calling for thereappraisal of the form taken by organizations and for the widely accepted

assumptions governing organizations to be re-evaluated Fortune,

Inter-national Management and Business Week have recently run articles looking at

the organization of the 21st century indicating clearly that this topic is on thegeneral management agenda as well as a focus of academic studies In ourresearch we have identified six perspectives which we feel represent currentthinking on new ways of organizing These are: network organizations; taskfocused teams; networked group; horizontal organizations; learning organiza-tions; and matrix management

In the sections that follow, we examine these perspectives briefly, withreference to key articles and research findings, and we identify salient themes

We then synthesize these themes into a framework which presents the keyissues to be considered in the transformation process to a new organizationalform

Network organization

In their early work Miles and Snow (1978) discuss how market forces could

be injected into traditional organizational structures to make them more

Distributors Suppliers

Brokers Designers Producers

efficient and responsive In so doing they exhibit characteristics of delayering,downsizing, and operating through a network of market-sensitive businessunits The driving force towards such an organization form are competitivepressures demanding both efficiency and effectiveness and the increasingspeed necessary to adopt to market pressures and competitors’ innovations Inessence, the network organization is in response to market forces Included inthis perspective are outsourcing, value adding partnerships, strategic alliancesand business network design

With a network structure, one firm may research and design a product,another may engineer and manufacture it, distribution may be handled byanother, and so on A firm focuses on what it does well, outsourcing to otherfirms for resources that are required in addition (Figure 15.1) However, care

must be exercised in outsourcing: Bettis et al (1992) report that improper use

of outsourcing can destroy the future of a business

Three specific types of network organization are discussed by Snow et al.

(1992):

• Internal network, typically arises to capture entrepreneurial and market

benefits without having the company engage in much outsourcing Thebasis logic is that internal units have to operate with prices set by themarket instead of artificial transfer prices They will constantly seek toinnovate and increase performance

• Stable network, typically employs partial outsourcing and is a way of

injecting flexibility into the overall value chain

• Dynamic network, provides both specialization and flexibility, with

The Information Technology–Organizational Design Relationship 433

Practitioner Fund holders and the competitive role of NHS Trusts Thedistinction between purchaser and provider organization represents theemergence of the networked organization District Health Authorities nowpurchase health services based on the health needs assessment of thecommunity from a variety of sources Provider organizations need to be morecost and quality conscious

In order for networks to exist, close relationships must be built with bothsuppliers and buyers along what Porter (1985) refers to as the value system.Johnson and Lawrence (1988) have coined the term value-adding partnerships(VAPs) to describe such relationships, which are more than just conventionalelectronic data interchange (EDI) links They depend largely on the attitudesand practices of the participating managers Asda Superstores and Procter andGamble (P&G) now cooperate with each other beyond sending just orders andinvoices via EDI For instance Asda now provide forecasting information toP&G in an open way that was not previously management practice In return,P&G are more responsive in meeting replenishment requirements GeneralMotors has renamed its purchasing department the ‘supplier development’department

For a network organization to exist it requires the capability of IT tofacilitate communication and co-ordination among the various units This isespecially so when firms are operating in global markets Further, ITfacilitates VAPs; it does not create them

Strategic alliances

Strategic alliances with both competitors and others in the industry valuesystem are key strategies adopted by many organizations in the late 1980s

(Hamel et al., 1989; Nakomoto, 1992; Ohmae, 1989) McKinsey’s estimate

that the rate of joint venture formation between US companies andinternational partners has been growing by 27 per cent since 1985 (Ernst andBleeke, 1993)

Collaboration may be considered a low cost route for new companies to

gain technology and market access (Hamel et al., 1989) Many European

companies have developed pan-European alliances to help rationalizeoperations and share costs Banks and other financial institutions use eachothers’ communication networks for ATM transactions Corning, the $3billion-a-year glass and ceramics maker, is renowned for making partnerships.Among Corning’s bedfellows are Dow Chemicals, Siemens (Germany’selectronics conglomerate) and Vitro (Mexico’s biggest glass maker) Alliancesare so central to Corning’s strategy that the corporation now defines itself as

a ‘network of organizations’ The multi-layered structure of today’s computerindustry and the large number of firms it now contains, means that any singlefirm, no matter how powerful, must work closely with many others Often,

OutsourcingCompanies using more:Vertical integration

this is in order to obtain access to technology or management expertise A web

of many joint ventures, cross-equity holdings and marketing pacts nowentangles every firm in the industry

Japanese financial-industrial groups are an advanced manifestation of a

dynamic network Called keiretsu, they are able to make long-term

investments in technology and manufacturing, command the supply chainfrom components and capital equipment to end products and coordinate theirstrategic approaches to block foreign competition and penetrate worldmarkets There are also close relations between the banks and groupcompanies, often cemented by banks holding company shares It is interesting

to note that many German companies have similar relations with their banks

Figure 15.2 Outsourcing versus integration in electronics companies (Source: Fortune, 8 February 1993)

The Information Technology–Organizational Design Relationship 435

and very often bankers sit on the board of directors Business Week (1992)

recently reported that Ford has been making plans for what it would do with

a bank if and when US legislation permits it to own one

Business network redesign

The concept of business network redesign (BNR) has become increasinglypopular where organizations seek to address major changes in the way theyinterface and do business with external entities BNR represents using IT for

‘designing the nature of exchange among multiple participants in a businessnetwork’ (Venkatraman, 1991, p.140) The underlying assumption is that thesources of competitive advantage lie partly within a given organization andpartly in the larger business network Using IT, suppliers, buyers andcompetitors, are linked together via a strategy of electronic integration(Venkatraman, 1991)

BNR needs to be distinguished from EDI, which refers to the technicalfeatures, and inter-organizational systems (IOS), which refers to thecharacteristics of a specific system

Redesigning an industry network is something akin to the dynamic

structure of Snow et al (1992) where an active relationship is cultivated

between members of the network Terms such as strategic alliance and adding partnerships are equally relevant here as they are with dynamicnetworks Extending the industry network by introducing outsourcing is alsofeasible

value-Task focused teams

Reich (1987) argues that a ‘collective entrepreneurship’ with few middle-levelmanagers and only modest differences between senior management and juniorstaff is developing in some organizations Drucker (1988) concurs andcontends the organization of the future will be more information-based, flatter,more task oriented, driven more by professional specialists, and moredependent upon clearly focused issues He proposes that such an organizationwill resemble a hospital or symphony orchestra rather than a typicalmanufacturing firm For example, in a hospital much of the work is done inteams as required by an individual patient’s diagnosis and condition Drucker

argues that these ad hoc decision-making structures will provide the basis for

a permanent organizational form

The emphasis on the team is a common theme which is emerging from theother perspectives on organizations The team is seen as being the buildingblock of the new organization and not the individual as has traditionally beenthe case Katzenbach and Smith (1992) define a team as a ‘small number ofpeople with complementary skills who are committed to a common purpose,

performance goals and approach for which they hold themselves mutuallyaccountable’ They suggest that there is a common link between teams,individual behaviour change and high performance.

High performance teams play a crucial role within Asea Brown Boveri(ABB), the Swedish–Swiss conglomerate Here, their T50 programme isseeking to reduce cycle time by 50 per cent These teams were as a result of

a major change of attitude in the organization Management by directives wasreplaced by management by goals and trust; individual piece-rate paymentchanged to group bonuses; controlling staffs moved to support teams; andthere was one union agreement for all employees

Drucker’s notion of teams echoes Burns and Stalker’s (1961) organicorganization as opposed to the more mechanistic type of organization Table15.1 contrasts these views and presents their distinguishing organizationalcharacteristics

Increasingly, firms are using teams to coordinate development across

functional areas and thus reduce product development times (Krachenberg et

al., 1988; Lyons et al., 1990) For example, if we look at pharmaceuticals and

telecommunications, the traditional sequential flow of research, development,manufacturing and marketing is being replaced by synchrony: specialists fromall these functions working together as a team Terms such as ‘concurrentengineering’, ‘design for manufacturability’, ‘simultaneous engineering’,

‘design-integrated manufacturing’ and ‘design-to-process’ are being usedincreasingly in organizations to incorporate cross-functional teams andmethodologies to integrate engineering and design with manufacturing

process (Dean and Susman, 1989; Griffin et al., 1991).

Since 1990 British Aerospace (BAe) has been actively promotingsimultaneous engineering in its engineering division, having examined anumber of initiatives They saw the total quality management (TQM) messagebeing difficult to get across and not very relevant to engineering While processreview was appealing it was limited in scope if only done inside engineering.For BAe, multifunctional teams are key to the success of their programmes.There is a clear focus on goals, the top level plan is robust to change,dependencies are less critical as they are dealt with by the team, membersdevelop mutual role acknowledgement generating an achievement culture.However, the notion of teams is nothing new Value analysis and valueengineering have been popular in many manufacturing firms since the 1950s.Although employees from various disciplines were brought together, the focuswas on products; the new conceptualization is much broader What is newabout Drucker’s vision is the role that IT will play IT greatly facilitates task-based teams especially in enabling geographically dispersed groups toimprove the coordination of their activities through enhanced electroniccommunication Rockart and Short (1989) see self-governing units as beingone of the impacts of IT