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The Information Technology–Organizational Design Relationship 433 Practitioner Fund holders and the competitive role of NHS Trusts. The distinction between purchaser and provider organization represents the emergence of the networked organization. District Health Authorities now purchase health services based on the health needs assessment of the community from a variety of sources. Provider organizations need to be more cost and quality conscious. In order for networks to exist, close relationships must be built with both suppliers 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 conventional electronic data interchange (EDI) links. They depend largely on the attitudes and practices of the participating managers. Asda Superstores and Procter and Gamble (P&G) now cooperate with each other beyond sending just orders and invoices via EDI. For instance Asda now provide forecasting information to P&G in an open way that was not previously management practice. In return, P&G are more responsive in meeting replenishment requirements. General Motors has renamed its purchasing department the ‘supplier development’ department. For a network organization to exist it requires the capability of IT to facilitate communication and co-ordination among the various units. This is especially so when firms are operating in global markets. Further, IT facilitates VAPs; it does not create them. 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 (Hamel et al., 1989; Nakomoto, 1992; Ohmae, 1989). 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 (Ernst and Bleeke, 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 rationalize operations and share costs. Banks and other financial institutions use each others’ communication networks for ATM transactions. Corning, the $3 billion-a-year glass and ceramics maker, is renowned for making partnerships. Among Corning’s bedfellows are Dow Chemicals, Siemens (Germany’s electronics conglomerate) and Vitro (Mexico’s biggest glass maker). Alliances are so central to Corning’s strategy that the corporation now defines itself as a ‘network of organizations’. The multi-layered structure of today’s computer industry and the large number of firms it now contains, means that any single firm, no matter how powerful, must work closely with many others. Often, 40% 20% -20% -40% -60% -80% Cisco Quantum Exabyto AST Synoptics Dell Apple Sun Northern Telecom Conner Hewlett-Packard Seagate Compaq Tandem IBM Digital Equipment Unisys Percent return on equity (1991) Outsourcing Vertical integration Companies using more: 434 Strategic Information Management this is in order to obtain access to technology or management expertise. A web of many joint ventures, cross-equity holdings and marketing pacts now entangles every firm in the industry. Outsourcing There is an argument that organizations should focus on core competencies and outsource all other activities. This has been a successful strategy followed by many companies. For example, Nike and Reebok have both prospered by concentrating on their strengths in designing and marketing high-tech fashionable sports footwear. Nike owns one small factory. Virtually all footwear production is contracted to suppliers in Taiwan, South Korea and other Asian countries. Dell Computers prospers by concentrating on two aspects of the computer business where the virtually integrated companies are vulnerable: marketing and service. Dell owns no plants and leases two small factories to assemble computers from outsourced parts. Figure 15.2 illustrates the relative success of electronics companies who outsource as against the vertically integrated companies. 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 chain from components and capital equipment to end products and coordinate their strategic approaches to block foreign competition and penetrate world markets. There are also close relations between the banks and group companies, 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 increasingly popular where organizations seek to address major changes in the way they interface and do business with external entities. BNR represents using IT for ‘designing the nature of exchange among multiple participants in a business network’ (Venkatraman, 1991, p.140). 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 (Venkatraman, 1991). BNR needs to be distinguished from EDI, which refers to the technical features, and inter-organizational systems (IOS), which refers to the characteristics 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 value- adding partnerships are equally relevant here as they are with dynamic networks. Extending the industry network by introducing outsourcing is also feasible. Task focused teams Reich (1987) argues that a ‘collective entrepreneurship’ with few middle-level managers and only modest differences between senior management and junior staff is developing in some organizations. Drucker (1988) concurs and contends 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. He proposes that such an organization will resemble a hospital or symphony orchestra rather than a typical manufacturing firm. For example, in a hospital much of the work is done in teams 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 the other perspectives on organizations. The team is seen as being the building block of the new organization and not the individual as has traditionally been the case. Katzenbach and Smith (1992) define a team as a ‘small number of people with complementary skills who are committed to a common purpose, 436 Strategic Information Management performance goals and approach for which they hold themselves mutually accountable’. 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 is seeking 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 was replaced by management by goals and trust; individual piece-rate payment changed to group bonuses; controlling staffs moved to support teams; and there was one union agreement for all employees. Drucker’s notion of teams echoes Burns and Stalker’s (1961) organic organization as opposed to the more mechanistic type of organization. Table 15.1 contrasts these views and presents their distinguishing organizational characteristics. 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 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 (Dean and Susman, 1989; Griffin et al., 1991). Since 1990 British Aerospace (BAe) has been actively promoting simultaneous engineering in its engineering division, having examined a number of initiatives. They saw the total quality management (TQM) message being difficult to get across and not very relevant to engineering. While process review 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, members develop mutual role acknowledgement generating an achievement culture. However, the notion of teams is nothing new. Value analysis and value engineering have been popular in many manufacturing firms since the 1950s. Although employees from various disciplines were brought together, the focus was on products; the new conceptualization is much broader. What is new about Drucker’s vision is the role that IT will play. IT greatly facilitates task- based teams especially in enabling geographically dispersed groups to improve the coordination of their activities through enhanced electronic communication. Rockart and Short (1989) see self-governing units as being one of the impacts of IT. The Information Technology–Organizational Design Relationship 437 The networked group According to Charan (1991) a network is 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 hierachy and from different locations. Such a network brings together a mix of managers whose business skills, personal motivations, and functional expertise allow them to drive a large company like a small company. The foundation of a network is its social architecture, which differs in important ways from structure. As such, it differs from Miles and Snow’s (1987) concept of network in that it is internally focused. Table 15.1 Mechanistic versus organic organizations Element Mechanistic organization Organic organization Channel of communication Highly structured Controlled information flow Open; free flow of information Operating style Must be uniform and restricted Allowed to vary freely Authority for decisions Based on formal line- management position Based on expertise of the individual Adaptability Reluctant, with the insistence holding fast to tried and tested principles in spite of changes in circumstances Free, in response to changing circumstances Work emphasis On formal, laid down procedures On getting things done unconstrained by formality Control Tight, through sophisticated control systems Loose and informal, with emphasis on cooperation Behaviour Constrained, and required to conform to job description Flexible and shaped the individual to meet the needs of the situation and personality Participation Superiors make decisions with minimum consultation and minimum involvement of subordinates Participation and group consensus frequently used Source: D. P. Slevin and J. G. Colvin (1990). 438 Strategic Information Management • 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. 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. Members of the network receive the same information at the same time. Not only must hard information be presented, but also more qualitative information, not just external information but members’ experiences, successes, views and problems. The single most important level for reinforcing behaviour in networks is evaluation. Every manager, regardless of position or seniority, responds to the criteria by which he or she is evaluated, who conducts the review, and how it is conducted. For a network to survive top management must focus on behaviour and horizontal leadership: Does a manager share information willingly and openly? Does he or she ask for and offer help? Is he or she emotionally committed to the business? Does the manager exercise informal leadership to energize the work of sub-networks? Horizontal organizations Questioning the validity of the vertical orientation of organizations a number of writers have proposed what they call the horizontal organization. Such organizations have clearly defined customer facing divisions and processes to improve performance. Ostrof and Smith (1992) contend that performance improvements will be difficult to achieve for companies organized in a traditional vertical fashion. 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, tradi- tional vertical organizations have a hard time responding to the challenges of the 1990s. 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. Ostrof and Smith (1992) list ten principles at the heart of horizontal organizations which are listed in Table 15.2. Although not arguing for the The Information Technology–Organizational Design Relationship 439 replacement of vertical organizations they recommend that each company must seek its own unique balance between the horizontal and vertical features needed to deliver performance. BT was one of the early companies to recognize the ineffectiveness of the traditional vertical organization. Through project Sovereign and its process management initiatives, BT has reorganized itself into customer facing divisions and has embarked on significant performance improvement activity. Senior managers are now process owners with responsibility for service delivery as opposed to being functional heads. In a recent interview, BT’s chairman revealed that AT&T, MCI and Deutsche Telecom have all restructured themselves following the BT model, setting up distinct business and personal communication divisions and separating network management from customer facing elements (Lorenz, 1993). The horizontal design is seen as a key enabler to organizational flexibility and responsiveness. Time is critical in today’s fast changing business environment (Stalk, 1988). Organizations need to be able to respond to customer demands with little delay and just-in-time (JIT) is just one manifestation of this. Kotler and Stonich (1991) have coined the term ‘turbo marketing’ to describe this requirement to make and deliver goods and services faster than competitors. Multinational corporations face additional challenges making horizontal organizations work. As a result of their research Poynter and White (1990) have identified five activities needed to create and maintain a horizontal organization spanning a number of countries: Table 15.2 Blueprint for a horizontal organization • Organize around process not task • Flatten hierarchy by minimizing the subdivision of work flows and non-value-added activities • Assign ownership of processes and process performance • Link performance objectives and evaluation to customer satisfaction • Make teams, not individuals, the principal building blocks of organization performance and design • Combine managerial and non-managerial activities as often as possible • Treat multiple competencies as the rule, not the exception • Inform and train people on a ‘just-in-time to perform’ basis not on a ‘need to know’ basis • Maximize supplier and customer contact • Reward individual skill development and team performance, not individual performance Source: Ostrof and Smith (1992). 440 Strategic Information Management 1 Create shared values. Collaborative decision making is not possible unless an organization has shared decision premises, a common culture or set of business values. 2 Enabling the horizontal network. To counteract the tendency for an organization to (re)assert vertical relationships, initiatives, such as giving headquarters’ executives dual responsibilities, should be put in place. 3 Redefine managers’ roles. The skills, abilities and approaches required for the horizontal organization are different than those from conventional verti- cal organizations. Fundamentally, senior managers must create, maintain and define an organization context that promotes lateral decision making oriented towards the achievement of competitive advantage world-wide. 4 Assessing results. Assignment of performance responsibility and avail- ability for results within horizontal organizations is problematic. The people involved in horizontal collaborative efforts change over time and their individual contributions are difficult to measure. 5 Evaluating people. Evaluating executives in terms of their acceptance and application of a common set of beliefs is particularly appropriate for international management because of the shortcomings of orthodox vertical measures of evaluating people. Business process redesign This focus on process has become an important management focus over the past few years, with business process redesign (BPR) figuring highly on many corporate agendas (Dumaine, 1989; Butler Cox Foundation, 1991; Heygate and Breback, 1991; Kaplan and Murdock, 1991). BPR first entered the management nomenclature as a result of research conducted at MIT (Davenport and Short, 1990; Scott Morton, 1991). In their ‘Management in the 1990s’ research project they identified BPR as an evolutionary way of exploiting the capabilities of IT for more than just efficiency gains (Scott Morton, 1991). Consider how IT is currently implemented in organizations: localized exploitation – typically to improve the efficiency of a particular task; and internal integration – integration of key internal applications to establish a common IT platform for the business. With an internal focus, both of the above overlay on the existing tasks and activities thus retaining existing organization structures. This is what Hammer (1990) has referred to as ‘paving the cow path’. Most IT systems design methodologies reinforce this view. BPR, however, questions the validity of existing ways of organizing work and is concerned with redesigning the organization around fundamental business processes. BPR is the analysis and design of work flows and processes within organizations. It has also been called business re-engineering, process The Information Technology–Organizational Design Relationship 441 re-engineering, process innovation and core process redesign. The crucial element is the concentration on process rather than events or activities. A business process can be defined as a set of related activities that cuts across functional boundaries or specializations in order to realize a business objective. A set of processes is a business system.* Processes are seen to have two important characteristics: (i) they have customers, that is, processes have defined business outcomes and there are recipients of outcomes (customers can be either internal or external); (ii) they cross functional boundaries, i.e. they normally occur across or between organizational functional units. Examples include research and development, mortgage application appraisal, developing a budget, ordering from suppliers, creating a marketing plan, new product development, customer order fulfilment, flow of materials (purchas- ing, receiving, manufacturing). Most companies still operate with thousands of specialists who are judged and rewarded by how well they perform their separate functions – with little knowledge or concern about how these fit into the complex process of turning raw material, capital and labour into a product or service. Activities and events are thus snap shots of a larger process. The Japanese realized that focusing on individual activities in the value chain was not sufficient. Superior performance was gained by focusing on the total process. So while Western managers focused on managing inventories, the Japanese saw that eliminating delays in the production process was the key to reducing instability, decreased cost, increased productivity and service. However, BPR is not a new concept: its origins can be found in work study organization and methods (O&M) of the 1960s. It also has its roots in the quality revolution where the stress is on improving quality by identifying, studying, and improving the processes that make and deliver a product or service. The scope of quality management is often narrow, however, with responsibility lying in functional areas and thus not as rigorous as process redesign. The emphasis of BPR is on how different processes are carried out. The objective is to re-evaluate these processes and to redesign them so that they are aligned more closely to business objectives. The philosophy of BPR is fundamentally different from the systems approach with which it might be confused. The systems approach is a theoretical framework which recognizes the interdependence of functional units and seeks to integrate them by integrating information flows. With BPR the emphasis is on processes which transcend functional units. It seeks to challenge existing assumptions relating to how the organization operates. It * For a discussion on the ‘process’ notion see Chris Edwards and Joe Peppard, Business Process Redesign: Hype, Hope or Hypocrisy? Cranfield School of Management, Cranfield, Bedford, 1993. 442 Strategic Information Management emphasizes a top down customer focused approach often using IT as the mechanism for coordination and control. The benefits of taking a process approach is to reduce costs, increase quality, while increasing responsiveness and flexibility. IT is often the essential ingredient by which the process concept can be turned into a practical proposition. Processes can also be redesigned to take account of the latest developments in technology. Learning organizations There has been renewed interest over the past few years in the learning organization (Garvin, 1993; Hayes et al., 1988; Kochan and Useem, 1992; Stata, 1989; Senge, 1990a, 1990b, 1991; Quinn Mills and Friesen, 1992). The argument is that current patterns of behaviour 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 behaviour, 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 (Quinn Mills and Friesen, 1992). This notion has similarities to the work of Argyris (1976, 1982). Argyris identified two types of learning that can occur in organizations: adaptive learning and generative 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 or double-loop learning, however, requires new ways of looking at the world, challenging assumptions, goals, and norms. Implementing executive information systems (EIS) typically requires users to first adapt to using technology to obtain their required information, i.e. adaptive learning. However, to exploit the potential of EIS fully, systems users must proactively develop and test models of the use of EIS in the management process, i.e. double-loop learning. Zuboff’s (1988) work refers to the criticality of line managers developing spatial models to exploit fully the potential of information systems available to them. Mintzberg (1973) claims that the way executives use information that they collect is to develop mental images – models of how the organization and its environment function. Hedberg and Jonsson (1978) assert that to be able to operate at all, managers look at the world and intuitively create a myth or theory of what is happening in the world. With this in mind, they create a strategy to react to this myth so that they can form defence networks against information overflows from other myths and map information into definitions [...]... (13, 14) Information Technology and Organizational Decision Making 463 computer-assisted automation, on a broader set of organizational attributes, see Child, 1 984 , 1 988 ; Gibson and Jackson, 1 987 ; Strassman 1 985 a; Zuboff, 1 984 .) Finally, the theory does not explicitly address use of advanced information technologies for impression -management purposes such as those described by Sabatier (19 78) and Feldman... (For expanded discussion of the term advanced information technologies, see Culnan and Markus, 1 987 ; Gibson and Jackson, 1 987 ; Johansen, 1 988 ; Rice and Associates, 1 984 ; and Strassman, 1 985 a.) The need for such a theory has been exemplified in a review by Culnan and Markus (1 987 ) and in a special issue of Communication Research (Steinfield and Fulk, 1 987 ) In that special issue, the guest editors noted... Entrepreneurship reconsidered: the team as hero Harvard Bus Rev., May–June, 77 83 Rockart, J F and Short, J E (1 989 ) IT in the 1990s: managing organization interdependencies Sloan Manage Rev., 30(2), 7–17 Schwenk, C R (1 988 ) A cognitive perspective on strategic decision-making J Manage Studies, 25(1), 41–55 4 58 Strategic Information Management Scott, W G (1961) Organization theory: an overview and an appraisal... Bus Rev., September– October, 77 85 Hayes, R H., Wheelwright, S C and Clark, K B (1 988 ) Dynamic Manufacturing: Creating the Learning Organization, The Free Press, New York Hedberg, B and Jonsson, S (19 78) Designing semi-confusing information systems for organizations in changing environments Accounting, Organizations, and Society, 3(1), 47–64 456 Strategic Information Management Henderson, B D (1979)... engineering: information technology and business process redesign Sloan Manage Rev., Summer, 11–27 Dean, J W and Susman, G I (1 989 ) Organizing for manufacturable design Harvard Bus Rev., January–February, 28 36 deGeus, A P (1 988 ) Planning as learning Harvard Bus Rev., March–April, 70–74 Drucker, P F (1 988 ) The coming of the new organization Harvard Bus Rev., January–February, 45–53 Dumaine, B (1 989 ) What... effects (cf Culnan and Markus, 1 987 ; Markus, 1 984 ; Zuboff, 1 984 ) Further, traditional technologies often score higher with respect to acceptability, ease of use, and richness (cf Culnan and Markus, 1 987 ; Fulk et al., 1 987 ; Trevino et al., 1 987 ), or have scores that overlap on these properties with the scores of advanced information technologies For these reasons, use of advanced information technologies will... that does the thinking; rather it must occur at every level Hayes et al (1 988 ) argue that in effect the organization of the 1990s will be a learning organization, one in which workers teach themselves how to analyse and solve problems 444 Strategic Information Management Matrix management Bartlett and Ghoshal (1990) argue that strategic thinking has far outdistanced organizational capabilities which... strategy formulation popularized by Earl (1 989 ), Galliers (1991) and Ward et al (1990) and incorporates organizational and implementation issues 4 48 Strategic Information Management Strategic business vision VISION Organisation vision BUSINESS TRANSFORMATION PLANNING Existing organisation form Organisation strategy IS strategy Existing IS/IT strategy PLANNING CHANGE MANAGEMENT PROCESS Organisation redesign... flow of information Finally, they realign the organizational structure towards the new focus They call this matrix management although it is different from the 1970s concept of matrix management They argue that while the notion of matrix management had appeal, it proved unmanageable – especially in an international context Matrix management tended to pull people in several directions at once Management. .. Process, McGraw-Hill, New York Miles, R and Snow, C (1 987 ) Network organizations: new concepts for new forms California Manage Rev., Spring Miller, D (1 986 ) Configuration of strategy and structure: towards a synthesis Strategic Manage J., 7, 233–249 Miller, D (1 987 ) The genesis of configuration Acad Manage Rev., 12(4), 686 –701 Miller, D and Mintzberg, H (1 984 ) The case for configuration In Organizations: . initiatives Organisation vision Strategic business vision IS strategy DELIVERY PLANNING VISION BUSINESS TRANSFORMATION PLANNING CHANGE MANAGEMENT PROCESS 4 48 Strategic Information Management It is structured. al. (1 988 ) argue that in effect the organization of the 1990s will be a learning organization, one in which workers teach themselves how to analyse and solve problems. 444 Strategic Information Management Matrix. and group consensus frequently used Source: D. P. Slevin and J. G. Colvin (1990). 4 38 Strategic Information Management • networks differ from teams, cross-functional task forces or other assemblages