(The following was submitted and
accepted with modifications for presentation to ISD '97; however, due to time
constraints and schedule conflicts, the author had to withdraw
his entry)
DESIGNING EFFECTIVE IS FOR INFORMATION-INTENSIVE ORGANIZATIONS
by
Dimos Papadopoulos
Loyola Marymount University
dimos@hermesgroup.com
330 E. Cordova, #346 - Pasadena, CA
91101 - U.S.A Tel:
(01)(818)5849059
Keywords
information-intensive, organic organizations, collaborative strategies, business process reengineering, information systems planning, General Systems Theory, Cybernetics, socio-technical systems
Abstract
This paper attempts to compare traditional organizational structures and management styles with several more progressive ones and draw conclusions regarding the effectiveness of each as applied to information-intensive organizations and Information Systems (IT) planning.
The paper begins with a review of three types of organizational structures and their accompanying cultures and management styles as they have evolved over the last century. Then relatively recent concepts such as Systems Theory, and some of its derivatives such as the Quality Initiative, Process Reengineering, Chaos Theory and Cybernetics are introduced and their applicability in managing information-intensive organizations and IT planning is assessed. The impact of IT on both the traditional and the contemporary organizational structures and management styles is also addressed. Lastly the authors attempt to elaborate on the organizational structure and the management style that will be required to effectively and efficiently manage the complex socio-technical systems of information-intensive organizations into the next century.
This paper suggests that, as the types and properties of products and services required by customers are constantly changing, there is a growing need for IT to evolve so that it can support a more "organic" organizational structure with increased information needs.
Introduction
In the Information Age, information joins traditional resources (land, capital and labor) as an equally, if not more, important resource as Peter F. Drucker argues in the "Post-Capitalist Society." Adam Smith in his classical economic theory proposed that national resources, such as land, mining deposits, gold, etc. are essential in producing wealth for a nation. This contradicts such economically developed nations as Switzerland and Japan, where most raw materials are imported. The value-added is in the form of technology (Rappaport, Halevi, 1992), optimized processes and knowledge (Webber, 1994). One such example is the emergence of Japanese steel in the world markets, despite the fact that all raw materials are imported from abroad. Since then, the US steel producers have implemented the very efficient, automated minimill that leverages Information Technology (IT). For the purposes of this paper, the term IT refers to technology in general (e.g. telephones, videoconferencing, robotics, etc) whereas Information Systems (IS) refers to computer-based systems (e.g. mainframes, telecommunication networks, etc).
Properly implemented IT, in general, and IS in particular, have the potential to facilitate the efficient allocation of scarce resources and increase productivity. However, recent studies that attempted to correlate productivity and IS, have not done so in a convincing manner. Researchers and industry analysts offer the following reasons as possible explanations:
Other potential explanations to the so-called "productivity paradox" might include the erroneous use of productivity rather than profitability as a measure, the shift from "mass-production" to "mass-customization" and new capabilities that would simply not exist without the use of IT (e.g. 24-hr banking due to ATMs, "virtual sales force" with access to corporate databases due to advances in telecommuting, etc.)
With regard to improper use of IT, findings from the MIT research program "1990’s Research" (Morton, 1994) warn against:
Hayes, Pisano (1994) also agree that technologies that can be bought, built or copied cannot constitute a competitive advantage. Nevertheless this paper maintains that an enterprise infostructure (Papadopoulos, Mehlman, 1995) is an amalgam of technologies and organizational structure that cannot be easily transplanted from one organization to another (although individual technologies can be bought).
Service and Manufacturing
The productivity paradox appears to be more profound in the service sector, despite the somewhat fuzzy distinction between manufacturing and services: IT spending of 750 billion between 1980-1990 was accompanied by a productivity growth rate of 0.7, a rate significantly lower that in the 70s. At the same time the manufacturing sector’s productivity rose by over 60 percent (Brynjolfsson, 1993; Morton, 1994).
Moreover, computer-based IT development and its associated costs threaten to overturn the service companies’ variable-dominated cost structure, whereas, for most manufacturing companies, fixed IT costs are barely noticeable on the fixed-dominated budget. Unlike manufacturing, however, the combination of lack of portability of their services and lack of international competition (Ayers, 1995) has led to "localized monopolies" that many service companies take advantage.
There is, however, a far more important distinction than the industry classification, that is whether the organization depends on an extensive information exchange to accomplish its business objectives. These organizations are commonly referred to as "information-intensive" or "knowledge-based." In order to facilitate the flow of knowledge and create new channels of communication in information-intensive organizations, IT is utilized.
Evolving organizational
structures
The Industrial Revolution with its explosion of mechanical technology required a new organizational structure. Taylor pioneered the "scientific management" that depended on division and specialization of labor and has been credited with a tremendous jump in productivity when deployed in the, then new, work environment, the assembly line. Services and administrative organizations deployed the same concepts and created the assembly line equivalent with the bureaucracy, a structure that excels in controlling repetitive tasks. Organizational structures modeled after the "scientific management" are hierarchical in nature and deploy a lot of one-directional, vertical communication (figure 1). It is typical of these organizations to codify in writing policies and procedures, to design rather rigid job descriptions and use seniority as a criterion for advancement.
Sometime in the mid-60’s,
the matrix organization structure appeared, partially in response
to having to develop very complex weapons systems for the US
Department of Defense. Job descriptions were still fairly rigid,
although the structure realizes and attempts to deal with,
overlapping responsibilities and information flow. New planning
and control techniques were introduced, collectively named here
Project Management, which crossed functional departments and
lines of reporting. Consequently, a pure matrix organizational
structure requires extensive communication skills that span
functional departments to reach other project members while
maintaining some limited communication with the functional
manager (figure 2). The responsibility to maintain dual reporting
lines also consists one of the disadvantages of this type of
organizational structure.
We will attempt to describe here the successor of the matrixed organization structure, what we tentatively name "network" structure. This organizational structure is a spin-off of the matrix, except that it is a lot less rigid and a lot more dynamic. Workgroups are arranged without regards to department divisions, other workgroups or even organizational boundaries (e.g., workgroups may include customers or employees of a vendor). In terms of communication, there is extensive exchange not only between members of the same group, but also among members of different workgroups (figure 3).
Another characteristic of this
organizational structure is a flexible job design that allows an
employee to assume different roles in different teams, according
to merit, leadership skills, self-initiative and training, rather
than job title or seniority. This type of organization relies
heavily on the individual’s ability to deal with change and
uncertainty, rather than proper interpretation and application of
policies and procedures. This organizational structure
intentionally cultivates an information overlap and limited
functionality duplication among the different workgroups, thus
allowing "system suboptimization." Although this
approach contradicts the "scientific management"
requirement for narrow scope of responsibility and separation of
skills, the net effect for the organization is enhanced
flexibility and ability in dealing with unstructured decisions.
It appears then, that we are transitioning from mechanistic organizational structures to "organic" ones, with much less structure and order, and much more of overlap and interdependence. Organizations, like organic life forms, are a lot more dynamic than the typical organizational chart reveals. Real organizational cultures have group values, an informal network, they possess a memory (i.e. "corporate knowledge"), common emotional condition (i.e. morale), a sense of purpose and expectations (i.e., vision), and adaptability to internal and external stimuli. When viewed as such a complex system with many underlying dependencies, it becomes quite clear that attempted changes in any one area can unintentionally wreak havoc in another. For example, a downsizing with layoffs, will certainly impact morale, and most likely creativity and quality of communication. If the organization depends on these, as most information-intensive organizations do, overall system efficiency and productivity might instead decrease, offsetting any short-term financial gains that resulted from the reduced payroll. This is not to say that life-time employment is the only alternative, but that a system view must be considered and that decision-makers must be aware of the overall system dynamics.
Managing Process-Oriented organizations
Hammer and Champy (1992) document rather extensively the benefits of process-orientation over a task-structured organizational environment and the dramatic improvements in performance it allows. This concept forms the foundation of Business Process Reengineering (BPR).
Formal processes, when designed
in a top down fashion, cannot cope well in a dynamic environment,
which most organizations operate in on a daily basis. The
assumption that such formalized processes can be followed in
daily operations is based on the fallacy that there is a static
business environment, and thus, an "optimal" work flow.
This is demonstrated in organizations where at least two work
flows exist for each process, an extension of the existence of
the "dual organization" (Stitt, 1990): a formal,
documented one on file that many employees are unfamiliar with,
and very few follow, and an informal one, that is practiced by
most. The consequences of not being aware of the informal
workflows, communication channels and other dynamics of the
business environment when attempting BPR projects are apparent.
Worse yet, traditional cost allocation techniques (e.g. inter-departmental chargebacks, centers of profitability) overemphasize subsystem (i.e. departmental) profitability over that of the whole organization. This leads to the paradox of financially profitable functional departments, but an unprofitable company. For example, in a traditional service-oriented organization, the Customer Service department is solely responsible for ensuring customer satisfaction, without much control of, or interaction with, other departments in designing or modifying organizational procedures. Robustly designed processes will allow work or projects to "flow" through the different steps with minimal disruptions and deviations from target values or deadlines.
On the other extreme, as (Huber, 1994) documents, complete lack of cost allocation can lead to undocumented and unnecessary workflows, that add to the cost of the final product. Roberts (1994) notes that utilizing an Activity-Based Costing (ABC) methodology would be a more effective method of allocating overhead costs.
The ability to manage processes constitutes a strategic advantage for an organization. It is therefore imperative for organizations to examine their IT and ensure they possess enterprise-wide, integrated IT for sharing product information, throughout its life cycle (figure 4) as well as a built-in flexible workflow management system that can be dynamically altered to reflect the changing operating environment of the socio-technical system.
Aligning IT with business objectives
As systems complexity increases, new methods are needed to monitor and record changes during the life-cycle of a project or product (see fig 4). Traditional IT tended to isolate the different phases of a product or service into narrow functional areas. It is quite common (Putnam, 1985) for engineering CAD data to be confined within the engineering department and the marketing data within the marketing department. The inability to share information works to the detriment of the final product quality.
To a certain degree, IT can be blamed for this deteriorating organizational efficiency and lower product quality. IT becomes fragmented with the proliferation of "islands of information" within the organization, inhibiting the electronic, real-time sharing of information across cross-functional areas. This failure has been made even more evident recently, since the success of most TQM programs greatly depends on the extensive deployment of cross-functional work groups. As Beischel and Smith (1991) note, inability to share multi-discipline information can even interfere with basic manufacturing performance measurements.
The inability to record product or service data at specific phases of its cycle and then make the data available at the enterprise level can jeopardize efforts to reengineer organizations to improve effectiveness and efficiency. IT is responsible for quickly disseminating information down to the lowest levels in the organizational hierarchy or laterally to cross-functional group members, where is it needed for accurate decision making (Peters, Waterman, 1982).
Researchers (Powell, 1992; Boynton, et al, 1994) have suggested four ways that IT can assist an organization realize its strategic goals:
Improve Productivity and Performance: The ever-decreasing product cycle is largely attributed to a very competitive business environment. In this turbulent business climate, tactical and strategic decisions need to be made (El Sawy, El Sherif, 1988), which necessitate access to data from multiple business disciplines (e.g. engineering, marketing, finance, etc), functions that are not adequately supported by conventional, functional department-based IT.
According to the TQM principles, minimization of statistical variation in products and processes is the ability of organizations to produce products and processes that maintain the expected target values and minimize deviations to the degree that it is economically feasible. This ensures predictable and consistent behavior of the product during field use or of the process during deployment, which in turn guarantees low life-cycle cost (Tagushi, 1986; Tagushi, Elsayed, et al, 1989)
Develop new business: It is quite common that progress or a breakthrough in IT creates a new business opportunity. For example, the first personal microcomputers were introduced in 1982. Today they support multi-billion dollar hardware and software industries, employ thousands of employees and consist one of the fastest growing segments of the US economy.
Managing and Organizing: IT looks promising in assisting institutions to manage change. The typical large US business operates in a geographically dispersed, culturally diverse environment. It is in this type of environment that IT is mostly needed to function as the organizational "glue" among the different groups to encourage the creation of a positive organizational culture and disseminate organizational values, such as customer focus, enterpreneurialship, risk taking, etc. Research even points that the benefits of allowing use of business-paid IT for social purposes within an organization far outweigh the costs (Steinfield, 1990). An organized and well-planned IT can serve as an advanced communication system that supports chaotic, loosely organized, self-directed workgroups, while preserving the integrity of business processes and maintaining the necessary "strategic flexibility" (Hayes, Pisano, 1994).
Competitive Advantage: IT should reflect the organization's strategic goals in conjunction with its achievement methodology to be considered a competitive advantage. Porter (1980) notes that in order to be successful, companies must compete using any one of the following three alternative strategies: low price, superior product or niche marketing. Martinsons (1993) adds that all of these alternative strategies require significant deployment of IT.
Systems Theory
Kerzner (1992) proposed the following definition of a system:
Systems theory argues that however complex or diverse the world that we experience, we will always find different types of organization in it, and such organization can be described by principles which are independent from the specific domain at which we are looking. Hence, if we would uncover those general laws, we would be able to analyze and solve problems in any domain, pertaining to any type of system. The second part of the solution to a systems problem, once the underlying dependencies were known, is to address and correct the shortcomings in the system of relationships.
Real world systems are open to, and interact with, their environments, and that they can acquire qualitatively new properties through emergence, resulting in continual evolution. Rather than reducing an entity (e.g. the human body) to the properties of its parts or elements (e.g. organs or cells), systems theory focuses on the arrangement of and relations between the parts that connect them into a whole. This particular organization determines a system, which is independent of the concrete substance of the elements (e.g. particles, cells, transistors, people, etc.) Thus, the same concepts and principles of organization underlie the different disciplines (physics, biology, technology, sociology, etc), providing a basis for their unification.
Systems theory postulates that turbulence occurs naturally in complex systems. Organizations that employ IT comprise complex socio-technical systems, with many underlying relations between the social and the technical aspects. Some examples of external turbulence include, but are not limited, to globalization of economies, the move from manufacturing to services, changing demographics and types of skills required (Morton, 1994) and IT.
Systems analysis, developed independently of systems theory, applies systems principles to aid a decision-maker with problems of identifying, reconstructing, optimizing, and controlling a system (usually a socio-technical organization), while taking into account multiple objectives, constraints and resources. It aims to specify possible courses of action, together with their risks, costs and benefits.
Cybernetics is the science of communication and control. Cybernetics presumes that there are underlying principles and laws which can be used to unify the understanding of such seemingly disparate types of systems. Cybernetics and Systems Science regards are systems such as organisms, ecologies, minds, societies, and machines as complex, multi-dimensional networks of information systems.
All "value-added" computer-supported communication technologies (e.g. electronic mailing list, newsgroups and bulletin boards, groupware, electronic publishing tools such the WWW, etc) improve the coordination among subsystems. They make it possible to exchange information in a very fast, simple and reliable way, so that it is automatically stored and ready for immediate further processing or transfer. The practical implication is that communication channels between far-away locations become so flexible and direct that they remind us of nerves, connecting and controlling different parts of an organism. The group of cooperators thus can behave more like a single system, with a vastly increased knowledge and intelligence, rather than like a collection of scattered individuals who now and then exchange limited messages, that need a lot of time to reach their destination and be processed.
Managing Socio-Technical Systems
Although a fair amount of literature studies the impacts of technology to social and organizational structures in general, not enough attention has been paid yet to the effects of information technology in particular, especially in the context of an emerging type of organization, the information-intensive one. As shown earlier, information-intensive organizations, whether services or manufacturing, create value-added (and their profits) by adding information to a product or service. For example, a credit card company which collects data about individual customer’s buying patterns and then target a specific segment or a local auto shop which tracks their customer’s mileage and reminds them of the next expected service stop, both add value in the form of information for their customers . In these organizations, information needs to flow both horizontally and laterally, yet symmetrically, and requires a culture that encourages this type of interaction.
By stark contrast, traditional management in rigid, hierarchical (i.e. command-and-control) organizations can only dealt with type of information flow in one direction, vertical (see figure 1). Terlaga (1994) observes this contradiction between centralized management and the flexibility that IT enables and argues that the Socio-Technical Systems approach is the proper methodology to integrate people and IT. Similarly, Jih and Owings (1995) in their review of reengineering projects and the role of IT among large organizations, summarize the results from nine such successful attempts. They conclude that the proper combination of management style combined with state-of-the-art IT was is the key to productivity and profitability gains.
This discrepancy between the capabilities of information technology and management style often creates an additional turbulence, exhibited as decreasing ROI on IT, and lower profitability than that of the competitors. Consequently, without realizing, these information-intensive organizations misuse and underutilize what is perhaps their two most important assets: human capital and information.
There are certain management programs that are strongly affected by culture and require adaptation to ethnic and/or organizational culture before they yield improvements in organizational performance (Nohria, Berkley, 1994). For example, it is well documented the cultural emphasis Asian cultures place on a group's well-being over that of the individual's (Vonderembse, 1990). The reverse is true in the US. It is also well understood that Asian cultures operate in a geographically local and close-knit, ethnically homogeneous culture. This difference may account for their economic success despite significantly lower IT investment levels. The reverse may be true of the US business environment, since they operate in a geographically dispersed, culturally diverse environment.
An example of an ethnic culture that, as a whole, seems to better exploit non-computer-based IT seem to be the Japanese. As a nation, the IT spending as percentage of the GDP is half that of the US and the installed computing capacity, in MIPS/1000 people, is 1/3 (Dedrick, et al, 1995). They actively encourage collaboration among different functional groups and built consensus within the team. Nevertheless, despite a lengthier decision-making process, all remaining phases of the implementation phase are executed substantially faster and with a far less likelihood of a miscommunication. In this respect, TQM has made a great contribution by providing quantitative tools that measure overall performance of the system (i.e. organization) output. This compares rather unfavorably with many western cultures that place an overwhelming emphasis on individual achievement, thus creating an organizational culture prone to the "cowboy syndrome".
An organization, which has realized the importance and successfully used the "systems-approach" is the US Navy. An example is the establishment in the late-60’s of the Navy Top Gun Academy to re-train pilots in dogfighting. The training and change in tactics reduced the kill ratio for Navy pilots from 2:1 to 12:1 within a couple of years, with no other major changes in the planes or operations. Since then, military technology (e.g. AWACS, GPS, "smart-munitions", etc) and additional communications capabilities have enabled a shift in the decision-making model from a strictly centralized to a hybrid one: the Command-and-Control post still provides the objectives and the constraints, but allows considerable flexibility to field commanders.
The reason that military organizations pay so much attention to organizational behavior and individual decision-making skills is that human lives depend on these abilities. Similar techniques have been adopted by law enforcement, fire departments and emergency services. For example, empirical evidence suggests that 24 hour shifts in fire departments help create very strong bonds among team members, loyalty and a sense pride for the job and the organization. These are qualities that, despite their best efforts very few commercial companies have been successful in duplicating among their employees. Of course, no business is faced with similar type of life-or-death decisions; nevertheless, there are great benefits that can be drawn with regards to achieving business objectives from understanding the organizational culture, behavior and decision-making skills that military organizations preach and practice.
Examples of cross-functional, self-directed workgroup, named cell-team, have been described by (Ayers, 1995) together with some examples of organizations that successfully implemented it. He also explicitly cautions against overlaying IT on top of existing structures and procedures, advocating instead the more radical reengineering methodology, which is consistent with Morton’s, (1994) findings.
According to the study by Gibbs (1994), organizational environment and technology are increasingly better predictors of managerial role activity than previous hypotheses of functional area, level in hierarchy or other internal structural dimensions. This finding is especially profound in organizations that are either recently-formed or lack a rigid, institutionalized culture. Consequently, instruments that rate the candidate’s ability to handle complexity and uncertainty in the environment should become more important in the employee selection process.
Conclusion
This paper is by no means an
exhaustive comparative study of different organizational
structures and management styles, and evidence suggests that the
more progressive "organic" organization structure and
associated management style is more effective for managing
information-intensive service industries. Information-intensive
service industries should not be divided into functional areas
but rather be considered a complex socio-technical system with
many interdependent components.
Systems Theory can provide a
valuable new perspective in designing organizations that can
fully utilize information technology. Applying systems theory can
be a critical factor for managing information-intensive
organizations, the success of which absolutely depends on their
ability to process information and gain knowledge.
A "network" organization structure bears some resemblance to a matrix organization, in terms of the relations between functional departments and projects or processes. Therefore, some of the project management functions are very much still applicable:
In particular, the management philosophy of the new "organic" organization excludes any hints of "micromanaging" employees, relying instead on their communication skills and motivation to accomplish the business objectives and realize the vision. Furthermore, it is desirable of team members to possess qualities such as critical thinking, self-reference and a pluralistic and participative approach to decisions so that they can effectively function in an environment of flexibility, cooperation and shared responsibility.
IT is always a component of a
larger system, which includes organizational structure,
management style and people. For IT to be effectively deployed
and deliver the promised financial returns, it requires an
awareness of, and concurrent investment in the other components
of the system, namely people, management style, and organization
structure.
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