IT Impact on Organizations Chapter 3

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

Agenda The need for new capabilities IT impact on capabilities

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”

The Organization Design Challenge

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

Building Lean, Yet Agile Enterprises

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

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

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?

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.

Streamlining Operating and Management Processes

Redefining Control Systems

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?

Redefining Authority Systems

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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?

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?