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The InformationTechnology – Organizational Relationship

Information technology and new organizational forms

R.Lambert and J.Peppard

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Introduction

• Academics, consultants and managers continually debate the most effective organizational form.

• Recently there has been a spate of papers challenging traditional ways of organizing and their underlying assumptions and proposing alternative approaches, most dependent on opportunities provided by Information Technology.

• The 1990s have been 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 changing and more powerful technology provides new opportunities. To be competitive in these conditions requires different organizational forms than in more stable times.

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Historical Viewpoint

• The family, the church, the military are examples of early organizations.

• Modern business organization, a relatively recent phenomenon whose evolution can be traced to two important historical inferences: the industrial revolution and changes in the law.

– Industrial Revolution (1770s): Saw the substitution of machine power for human work and marked the beginning of the factory system of work.

– Changes in Law: The early Company Acts provided limited 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 organizational form.

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Historical Viewpoint (Contd.)

• Early attempts to formulate appropriate organization form was built around four key pillars:

– Division of labor– Functional processes– Structure– Span of control.

• Included here is the scientific management approach, which proposed one best way of accomplishing tasks, pioneered by Frederick Taylor (1911) which proposed one best way of accomplishing tasks.

• The objective was to increase productivity by standardizing and structuring jobs performed by humans and, spawn mass production with its emphasis on economies of scale.

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New perspectives

• Fortune, International Management and Business Week have recently run articles looking at the organization of the 21st century indicating clearly that this topic is on the general management agenda as well as a focus of academic studies.

• In the research six perspectives are identified which represent current thinking on new ways of organizing. These are:

– Network Organization.– Task Focused Teams.– Networked Group.– Horizontal Organizations.– Learning Organizations.– Matrix Management.

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Network organization

• The driving force towards such an organization form are competitive pressures demanding both efficiency and effectiveness and the increasing speed necessary to adopt to market pressures and competitors’ innovations.

• In essence, the network organization is in response to market forces.

• Included in this perspective are outsourcing, value adding partnerships, strategic alliances and business network design.

• A firm focuses on what it does well, outsourcing to other firms for resources that are required in addition.

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Network structure representation

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Types of Network organization

• Internal network, typically arises to capture entrepreneurial and market benefits without having the company engage in much outsourcing. The basis logic is that internal units have to operate with prices set by the market instead of artificial transfer prices. They will constantly seek to innovate 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 outsourcing expected.

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Strategic alliances

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

• McKinsey’s estimate that the rate of joint venture formation between US companies and international partners has been growing by 27 per cent since 1985.

• Collaboration may be considered a low cost route for new companies to gain technology and market access.

• Example: Banks and other financial institutions use each others’ communication networks for ATM transactions.

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Should organizations focus on core competencies and outsource all other activities?

Outsourcing

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Business network redesign

• In BNR organizations seek to address major changes in the way they interface and do business with external entities.

• The underlying assumption is that the sources of competitive advantage lie partly within a given organization and partly in the larger business network.

• Using IT, suppliers, buyers and competitors, are linked together via a strategy of electronic integration.

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Task focused teams

• The organization of the future will be more information-based, flatter, more task oriented, driven more by professional specialists, and more dependent upon clearly focused issues.

• The team is seen as being the building block of the new organization and not the individual as has traditionally been the case. Such an organization will possibly resemble a hospital.

• Katzenbach and Smith (1992) define a team as a ‘small number of people with complementary skills who are committed to a common purpose, performance goals and approach for which they hold themselves mutually accountable’.

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(Contd.)

• Increasingly, firms are using teams to coordinate development across functional areas and thus reduce product development times.

• 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 from all these functions working together as a team. Terms such as ‘concurrent engineering’, ‘design for manufacturability’, ‘simultaneous engineering’, ‘design-integrated manufacturing’ and ‘design-to-process’ are being used increasingly in organizations to incorporate cross-functional teams and methodologies to integrate engineering and design with manufacturing process.

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Mechanistic versus Organic organizations

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The networked group

• A network can be thought of as a recognized group of managers assembled by the CEO and the senior executive team.

• The membership is drawn from across company functional areas, business units, from different levels in the hierarchy and from different locations.

• In most organizations, information flows upwards and is thus prone to distortion and manipulation.

• In a network, especially a global network that extends across borders, information must be visible and simultaneous.

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How it differs

• Networks differ from teams, cross-functional task forces or other assemblages designed to break hierarchy.

• Networks are not temporary; teams generally disband when the reason they were assembled is accomplished.

• Networks are dynamic; they do not merely solve problems that have been defined for them.

• Networks make demands on senior management.

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Horizontal organizations

• Such organizations have clearly defined customer facing divisions and processes to improve performance.

• While the advantage of vertical organizations may be functional excellence it suffers from the problem of coordination.

• With many of today’s competitive demands requiring coordination rather than functional specialization, traditional vertical organizations have a hard time responding to the challenges of the 1990s.

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(Contd.)

• In the horizontal organization, work is primarily structured around a small number of business processes or work flows which link the activities of employees to the needs and capabilities of suppliers and customers in a way that improves the performance of all three.

• Although not arguing for the replacement of vertical organizations the authors recommend that each company must seek its own unique balance between the horizontal and vertical features needed to deliver performance.

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Learning Organization

• The argument is that current patterns of behavior in large organizations are typically ‘hard wired’ in structure, in information systems, incentive schemes, hiring and promotion practice, working practices, and so on.

• To break down such behavior, organizations need the capability to harness the learning capabilities of their members.

• The learning organization is able to sustain consistent internal innovation or ‘learning’ with the immediate goals of improving quality, enhancing customer or supplier relationships, or more effectively executing business strategy.

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Types of learning in organizations

• Adaptive Learning: – Typically, organizations engage in adaptive or ‘single-loop’ learning and thus

cope with situations within which they find themselves. For example, comparing budgeted against actual figures and taking appropriate action.

• Generative learning:– Generative or double-loop learning, however, requires new ways of looking at the

world, challenging assumptions, goals, and norms.

Example: EIS (Executive Information Systems)

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Matrix management

• Companies that have been most successful at developing multi-dimensional organizations first attend to the culture of the organization; then change the systems and relationships which facilitate the flow of information. Finally, they realign the organizational structure towards the new focus.

• The most successful companies are those where top executives recognize the need to manage the new environmental and competitive demands by focusing less on the quest for an ideal structure and more on developing the abilities, behavior and performance of individual managers.

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Three principal characteristics

• Build a shared vision. Break down traditional mindsets by developing and communicating a clear sense of corporate purpose that extends into every corner of the company and gives context and meaning to each manager’s particular roles and responsibilities.

• Develop human resources. Turn individual manager’s perceptions, capabilities, and relationships into the building blocks of the organization.

• Co-opting management efforts. Get individuals and organizational groups into the broader vision by inviting them to contribute to the corporate agenda and then giving them direct responsibility for implementation.

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Conclusions

• In this chapter we have presented a framework to help organizations in planning and implementing their journey. This framework is constructed around the triumvirate of vision, planning and delivery with considerable iteration between all stages. This helps with the management of uncertainty and reconfirms the destination.

• Fundamentally, managing the migration to the new organization form will require a significant amount of senior management time, energy and initiative. If this is not forthcoming because management is ‘too busy’, the likelihood of success is minimal. This must be the first paradigm to be broken.

Thank You

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