1. IT Impact on Organizations
Chapter 3

2. Learning objectives
Recognize that IT impacts the business model through its effects on organizational capabilities
Understand organization as an effort to simultaneously manage information complexity and uncertainty
Learn how to analyze IT for its potential to enable new capabilities e.g. facilitate new and improved organizational structures and processes

3. Agenda
The need for new capabilities
IT impact on capabilities

4. The need for new capabilities
20th century: building and perfecting hierarchies
1980s and 1990s: downsizing, delayering
Is hierarchy dead?
Good and bad about hierarchy?
“power, resources and reach of a large firm and the hunger, spirit, and fire of a small one.”
“We want to be global and local, big and small, and radically decentralized with centralized reporting and control”

5. The Organization Design Challenge

6. hybrid designs
Goals
Control and efficiency, enabling flexibility and speed of response
Adaptive, information-intensive, team-based, collaborative, and empowered
Results
Conflict, confusion, information overload, and costly duplication of resources

7. Building Lean, Yet Agile Enterprises

8. Learning from mistakes
Speed counts, but not at the expense of control
The faster the pace, the greater the need to monitor business operation
Driving analogy
Empowerment is not anarchy
Push decision making down the line?
Getting rid of (or bypassing) middle management?
Should be accompanied by a more comprehensive redefinition of authority and control throughout the organisation
Transforming an organization requires more than just changing the structure
Processes and infrastructure
People and partners
Organization and culture
Leadership and governance

9. IT impact on capabilities
Organizations are information processing system
IT is a key enabler for addressing the challenges of being agile and controllable at the same time

10. Can IT enable agility and control?
Two scenarios
New product development without involving supply chain, manufacturing, and order fulfilment processes
Involve all the relevant parties but not able to control the accelerated, real-time processes
Mistakes
Failure to redesign end-to-end processes
Failure to realign faster-cycled operations with organization structure, control, authority systems, incentives, and culture
Timely information IT?

11. Synchronise two types of processes
Operating processes
Management processes
Activities that define how a firm designs, produces, distributes, markets, sells, and supports its products and services.
Activities that define strategic direction and coordinate and control operations.

12. Streamlining Operating and Management Processes

13. Redefining Control Systems

14. Can IT enable accountability and collaboration?
Possible mistakes
Add too many controller
Cut middle management without supplying sufficient information for decision making
What can IT do?

15. Redefining Authority Systems

16. Characteristics of different organizations: process integration and synchronization
Hierarchy
Entrepreneurial
Networked
Activities managed by functions
Activities are synchronised during yearly planning sessions
Activities defined on an on-going basis by the people doing the work
Activities synchronized through ad hoc discussion
Process activities integrated and synchronized through the flow of information in IS
Changes discussed and planned through frequent interactions
Team meet daily or weekly if necessary

17. Process cycle time Hierarchy Entrepreneurial Networked
Operating cycle time based on management cycle time
For highly structured, routine, automated processes, cycle time can be shortened
In unstructured situations, time and inventory buffers used to manage uncertainty
Operating cycle time based on changes in the business environment
Operating activities not structured and managed in an unstructured way
Information on the market, industry and operations available and acted on in real time
The cycle time of operating activities approaches the cycle time of changes in the business environment

18. Process complexity Hierarchy Entrepreneurial Networked
The inherent complexity of the business environment minimised through structure and slow response to change
Standard products and services for mass markets
Processes structured to reduce operating complexity
Start-up firms offer a limited product set to a limited market
Significant customisation provided to ensure meeting individual customers’ requirements
real-time information and sophisticated analytical tools enable customisation for smaller customer segments
Real-time information and sophisticated analytics enable a large firm to manage complexity directly rather than managing through complexity reduction

19. Management cycle time Hierarchy Entrepreneurial Networked
Defined around yearly planning and budgeting system
Yearly and quarterly performance monitoring and reporting dictated by country-level regulations for public and private firms
Management processes defined by the founder, often ad hoc
Direct involvement of the founder
Real-time information and reporting enable the management cycle time to be tied directly to the operating cycle, which has bee timed to the inherent cycle time of the business environment

20. Scope and granularity of business understanding
Hierarchy
Entrepreneurial
Networked
Understanding of business limited to specific job an employee is hired to do
Employees at all levels unable to link specific decisions and actions to the firm’s overall performance
Planning targets and goals set on a yearly basis and monitored and adjusted quarterly
Direct involvement in all activities and decisions, both founders and employees have an in-depth understanding of the business
Business performance monitored and communicated in real time
Operations continually adjusted and refined in an ad hoc manner
Detailed information on the market, industry and business performance and operations enables operating teams to refine and adjust goals and activities with the scope of their authority
Operating teams, rather than individuals, have authority over a broader set of business activities

21. Information and business literacy
Hierarchy
Entrepreneurial
Networked
Employee understanding of business dynamics and information limited to specific assigned tasks
Employees and founders have access to all information required to run the company and are expected to use that information to accomplish firm’s goals
Employees of all levels have access to information on business goals and operations across a wide range of activities, and, working in teams within the scope of their collective authority, are expected to use that information to make decisions and take actions to accomplish firm’s goals

22. Boundaries and values Hierarchy Entrepreneurial Networked
Activities and authority segmented so that no one individual has the power or authority to cause irreparable harm to company
In areas of high risk, special security precautions prevent sabotage since board decision-making authority limited to upper levels of management, companywide value system not as crucial
Boundaries and values created in real time and transmitted directly by founders
Founders directly involved in most decisions and actions
The size of the company limits risk to the founders and a small number of investors
As decision authority pushed down, shared values become an important component of strategic control

23. Units of work and chain of command
Hierarchy
Entrepreneurial
Networked
Work highly segregated by function with duplication of resources within each operating unit
Deep chain of command who report through business unit heads to corporate headquarters
Simple, functional chain of command
Flat chain of command (3 or less) with functional managers reporting directly to the founder
Flat, team-based chains of command
Market-focused operating teams composed of functional managers report to business unit managers, which report to corporate headquarters
Broad chains of authority with work teams reporting to operating management teams

24. Span of management Hierarchy Entrepreneurial Networked
Each manager supervises 5-7 direct reports
Varies with the size and stage of development. Spans of more than 10 are common
Spans of 30 or more are common

25. Corporate headquarters
Hierarchy
Entrepreneurial
Networked
Large corporate headquarters staff assume major responsibility for planning, budgeting and performance management
Large staff of analysts required to plan, monitor, and coordinate work
Single site for headquarters and operations
Little formal planning, budgeting, and performance monitoring
Operations planned, coordinated, and managed by those who do the work
Small corporate headquarters with minimal responsibility for planning, performance monitoring, and organisationwide resource management
While formal planning, coordinating, and managing operating activities takes place in operating units

26. Coordinating mechanisms
Hierarchy
Entrepreneurial
Networked
Work is primarily coordinated though direct supervision and the chain of command
Work is coordinated though ad hoc adjustments by those directly involved in the work
Work coordinated though the integrated flow of information
Routine work coordinated though real-time feedback and adjustment
Important decisions and actions coordinated through meetings of operating managers and employees who analyse realtime operating information to continually adjust and refine goals and their execution

27. Roles Hierarchy Entrepreneurial Networked
Except at top levels of firm, roles and accountability defined in formal job descriptions
Roles based on functional expertise and skills
Minimal to no formal specification of roles
Emphasis on hiring innovators (“pioneers”)
All organizations, regardless of size, require innovators and operators
Senior executives must be skilled at leading and engaging
Self-managing work teams define work and how it gets done

28. Career progression Hierarchy Entrepreneurial Networked
Employees advance through functional hierarchical progression
Seniority is as important as expertise and performance as a criteria for advancement
Career progression is often lateral
In a rapidly growing firm, employees may move down in rank as senior managers are hired to ensure the leadership required by the more complex organization. Original employees may leave at this point
Minimal opportunities for advancement within flat hierarchical chains for command
Innovators may have an opportunity to launch and grow new businesses
Expanded jobs, increased lateral movement, and ownership incentives make work environment more challenging and rewarding

29. Questions to ask
Have we identified the key activities and decisions needed to execute strategy and achieve our goals?
Do we have, or can we acquire, the resources (people and expertise, information, technology, equipment and supplies, capital) we need to be successful?
Have we correctly identified the activities and decisions that should be performed inside our organization and those that should be sourced from the outside?
Have we integrated and streamlined end-to-end processes to ensure efficiency and quality?
Are these processes synchronized with both cycle times in the business environment and with the management cycle times needed to coordinate and control operations?

30. Do individuals and teams at all levels within our organization and in customer, supplier, and partner organizations have the information and analytical tools needed to sense and respond to internal and external opportunities and threats?
Have we correctly grouped people and partners into teams and units to enable them to coordinate and control streamlined and integrated end-to-end processes?
Have we provided these teams with the tools and incentives needed to collaborate (both face-to-face and online) in making decisions and taking actions to ensure execution of today’s strategy and a steady stream of innovations for success in the future?

31. Have we effectively developed, organized, and leveraged the creativity and full potential of our people and partners?
Have we created a culture of shared values and behaviours that unites the organization and its partner around a common shared purpose and the achievement of both personal and shared goals?