of organizations have become the same task.
CHAPTER 4: THE IMPACT OF INFORMATION TECHNOLOGY ON THE ORGAN IZATION
TABLE 4·3
IT DESIGN VARIABLES AND FOUR PROTOTYPICAL ORGANIZATIONS
Organization Negotiated Vertically integrated
variable Virtual organizations Traditional conglomerates
Virtual components Substitute electronic Substitute electronic Use to replace Force component for physical for physical isolated onto electronic components components components subsidiary Electronic linking Essential part Essential part Optional Essential part
and
communications
Technological Participate in Use for coordination Use for various Use for coordination
matrixing matrixed group groups and task forces
Technological Use to supervise NA Use to reduce layers Use to reduce layers
leveling remote workers of management of management
and groups
Electronic Crucial part of Crucial part of Use where Key to coordinate
workflows strategy strategy applicable to work units
restructure work
Production NA Communicate Use where Coordinate
automation designs applicable production among
work units Electronic customer! Used extensively Used extensively Potentially important Key to operations
supplier links
From Lucas and Baroudi, 1 994.
elements; in other cases it is necessary for the very existence of an organization form. In certain instances, the IT variable is optional or not applicable.
Conventional organizations have historically grouped workers together to es tablish communications and coordination. In contrast to physical presence, IT design variables allow for virtual organization structures. The virtual organiza tion started 15 to 20 years ago as people began to see the possibilities of using technology for work at home. With electronic communications a physical orga nization is not needed for many kinds of tasks. For example, many catalog oper ations use individuals working from their homes using a phone connected to an 800 number.
The virtual organization creates new management and coordination challenges. The kind of virtual office described above may be necessary to assuage a man ager's misgivings about supervision. Perhaps all members of this nonorganization will log in to virtual offices each morning to report in and have an electronic dis cussion with a supervisor. Microsoft offers Netmeeting on its network which makes it possible to coordinate work on PCs in different locations. CU-SeeMe is a program developed at Cornell. It is free and lets users on the Internet set up small videoconferences using inexpensive cameras.
88 PART TWO: ORGANIZATIONAL ISSUES
At first, only technology companies like IBM and AT&T eliminated employee offices. AT&T found that eliminating commute time with a home office allowed the sales force to spend 15 to 20 percent more time with customers. Now, other firms like Chiat-Day, an advertising firm, have eliminated physical offices for a large number of employees. When Compaq Computer Corporation moved its sales force into home offices, sales and administrative expenses went from 22 percent to 1 2 percent of revenue partially due to this change. Perkin-Elmer, a scientific equipment manufacturer in Connecticut, based 300 sales and customer-service representatives in their homes, which allowed it to close 35 branch offices.
A second kind of IT-enabled organization is labeled "negotiated agreement." A flower company in California, Calyx and Corolla, is based on two negotiated agreements. (See Figures 4-1 and 4-2.) The first agreement is with Federal Ex press to deliver flowers overnight to any destination in the US at a favorable rate. The second agreement is with flower growers. Instead of selling exclusively to wholesalers, the growers agree to put together a number of standard arrangements. The final part of the organization is an 800 number staffed by clerks who take or ders. The orders are sent via phone or fax to growers who prepare and address arrangements for pickup and delivery by Federal Express.
Through these negotiated agreements and communications technology, this company feels it can compete with the neighborhood florist and FTD. Calyx and
FIGURE 4·1
CHAPTER 4: THE IMPACT OF INFORMATION TECHNOLOGY ON THE ORGANIZATION 89
A virtual negotiated-agreement organization.
FIGURE 4·2
90 PART TWO: ORGANIZATIONAL ISSUES
Corolla is a negotiated organization in that its existence and profitability depend on the agreements it has with others and the service supplied to its customers by others. Calyx and Corolla is, in effect, a broker using IT to coordinate its negoti ated production facility and its negotiated delivery system.
The management challenge for the negotiated organization is to maintain ser vice and quality. The firm depends on its partners to provide a product or service and yet has limited direct supervision of the business. Meeting service targets and deadlines and assuring adequate quality control can be difficult. As an example, the floral firm might place random orders with its growers to have flowers sent to its own management to test delivery time and product quality. Just as department stores have used "shoppers" to test their own personnel and service, and to check on competition, the negotiated organization will need "electronic shoppers." Un like the purchase of some off-the-shelf product, an alliance that creates virtual components results in ongoing interdependence between the two partners.
The two types of organizations described above are quite different from conven tional corporations. Traditional organizations are also using technology to make some changes in structure without making major modifications to the entire organization. An electronics manufacturer has set up a just-in-time electronic data interchange (EDI) link with a parts supplier, changing one component of the organization; the supplier can now be viewed as part of the manufacturer's raw material inventory.
The traditional organization may call its redesign efforts "reengineering." Mer rill Lynch, for example, completely redesigned the way it processes physical secu rities turned over by customers. This effort resulted in the closing of two process ing centers and the creation of a new processing site. The firm adopted image processing to dramatically reduce the need to physically handle securities. In this process redesign, the total number of individuals employed in handling securities has been cut by 50 percent. Finally, with the process running smoothly, Merrill Lynch outsourced its operations and systems to a third party.
There are many examples of the use of IT design variables to make changes in parts of traditional organizations. A management challenge in the traditional or
ganization is to transform the organization enough so it can take advantage of the cost savings and competitive opportunities made possible by technology. The ob jective of process reengineering is to make dramatic improvements in how an or ganization functions. Today's business environment is characterized by rapid changes, and the traditional organization needs to take advantage of technological leveling to reduce layers of management, technological matrixing to improve co ordination, and electronic workflows to reduce paper handling.
The traditional organization today is at risk unless it progresses toward the vir tual model and the T-Form to improve responsiveness. IBM, one of the largest and most admired "blue chips" in the 1960s and 1970s, struggled for a number of years with declining market share and bureaucracies that resisted the kind of sweeping changes necessary to be competitive. IT organization design variables help restructure traditional organizations by making them more flexible. However, bringing about the kinds of changes that are possible given the technology is a for midable management task not well suited to the traditional organization.
CHAPTER 4: THE IMPACT OF INFORMATION TECHNOLOGY ON THE ORGANIZATION 91
We labeled the last IT-enabled organization prototype a "verticailly integrated conglomerate," a form viewed with mixed emotions. The movement toward greater electronic exchange of data between customers and suppliers creates verti cally integrated conglomerates. This form will more likely emerge if there is a large power imbalance between the customer and the supplier.
As an example, General Motors requires all its suppliers to use electronic data in terchange. For some suppliers, GM is such a large proportion of their business that the supplier becomes a component of GM, responding to its orders and demands. GM sends orders to the supplier's production-scheduling system and is permitted to modify production schedules, priorities, etc. As a result, GM obtains a substantial amount of control and can sever the relationship at any time for little or no invest ment. Vertically integrated conglomerates may not be desirable for all organizations.
It
should be made clear that managers must be careful when establishing elec tronic links. The efficiency is very appealing, but the link may lock a firm into a relationship that reduces its independence. Until the links are standardized-for ex ample, using an industry standard or an X.12 EDI protocol-firms involved have more flexibility in switching business relationships. If a link goes beyond simple exchange transactions and actually gives a customer access to one's production planning systems, then the supplier risks becoming a part of a verticaHy integrated conglomerate, for better or for worse.Adding People to the Design
One reaction to the discussion so far may be that it is a bit sterile-that is, where are the people? When do we consider how individuals relate to one another, how they are rewarded, and what is the nature of the tasks they perform? Where are
A
Telluride, Colorado, a ski resort high in the Rocky Mountains, has become a haven for hardy telecommuters. Community leaders decided that this remote town needed con nections to the I nternet (see Chapter 1 2) and with help from the nonprofit Telluride In stitute, it has been able to provide Internet accounts for fully one-third of its 1 500 resi dents. A few years ago, the town only had analog, party line phones! Town officials convinced U.S. West to replace these lines with private digital lines and to run a fiber optic trunk line to the town. The closest In ternet connection was in Denver, which meant high phone bills to use the Net. With
grants from the state, the town was able to buy two computers and create an Internet server for the town and a town bulletin board . These two servers are available through a local telephone call. Apple Com puter heard about the town's projects and donated eight Macintosh computers to put in public buildings, creating an overnight sen sation as residents took to "cruising the Net." The town is also providing high-speed wireless communications, though this ser vice is much more expensive for users. Many vacation-only residents now live full time in Telluride and use electronic commu nications in place of physical presence.
92 PART TWO: ORGANIZATIONAL ISSUES
I n late 1 997, Mercedes Benz began selling an aggressively priced sport-utility vehicle made in Alabama. The M-Class Mercedes costs a few thousand dollars more than a Jeep Grand Cherokee or Ford Explorer; it has al ready won praise from reviewers. The plant has gone one step beyond just in-time (J IT) manufacturing, where suppli ers build components like seats weeks in advance and deliver them a few days or hours ahead of production. Mercedes is trying just-in-sequence manufacturing.
As a vehicle goes through the paint shop, a computer sends an order to a sup
plier, like Johnson Controls in Wisconsin, to deliver a dashboard within a few hours.
The plant assembles cars in which other suppliers manufacture 70 percent of the components. The o bjective of j u st- i n sequence manufacturing i s t o dramatically reduce inventory management costs. The company contracted with I BM to develop the syste m for its 2 m i l l i o n-squ are foot plant; IBM has installed enterprise re source planning software from The Baan Company.
In this example, information technology provides electronic linking and communica tions and ties Mercedes to its suppliers. The objective is to reduce inventory man agement effort and costs while maintaining scheduled production.
organization politics? For the most part, politics and emotions in organizations are not of concern in IT-enabled organizations; they are no different here than in conventional organizations ! Politics and the beliefs of senior managers are likely to determine the direction of the firm, its strategy, and how resources are allo cated. The design remains neutral as its focus is on creating an efficient and com petitive organization.
While politics and emotion are not unique to IT-enabled firms, people and tasks are an important component of any organization. The framework in the last chap ter shown in Figure 3-1 shows that in addition to structure and technology, an or ganization consists of people and tasks. As some of the examples show, it may be difficult to change an organization if one only attempts to alter its structure. People and tasks may create the greatest challenge for the manager who wants to change the organization.
Table 4-4 adds people and tasks to the structure and technology to provide a more complete picture of organization design. The first three organizations in the table are conventional and show typical assumptions about people and task struc turing along with examples.
In a rigidly hierarchical organization, tasks are separated and decision mak ing is done within strict guidelines. Tasks are defined by rules and practice to avoid risk. Bureaucracies assume employees need to be motivated so they pro vide elaborate standards and procedures to tell them how to do a job. A profes sional services firm, on the other hand, is based on trust and professional con duct. For example, members of law and consulting firms tend to define their own tasks.
CHAPTER 4: THE IMPACT OF INFORMATION TECHNOLOGY ON THE ORGANIZATION 93
TABLE 4-4 I
ADDITIONAL DESIGN VARIABLES Structure and technology
(grouping, tasks, jobs, linkages) Rigid hierarchy Bureaucracy Adhocracy Virtual Negotiated agreement
Traditional with electronic components
Vertically integrated conglomerates
From Lucas and Baroudi, 1 994.
People: Assumptions about motivation
People need external motivation
People want direction and procedures, are not good decision makers Trust, professionalism
Trust, self-control Trust in partners/alliances
Mixed, some suspicion and self-control assumed Control-orientation; individuals in linked organizations expendable Tasks-especially decision making No delegation; tasks designed for employee Limited delegation and
decision authority Loosely defined; individual
decides how to best accomplish tasks
Example
Military organizations Government, university
(administration) Law firm, university
(faculty) Distributed decision making Organization of the
future?
Basic tasks defined in Calyx & Corolla flower agreement; details left to company
individuals
Tendency to define tasks IBM for lower-level employees;
some discretion for managers
Tasks tend to be designed for employee, even those in linked organizations
GM
The virtual organization has to be based on trust and minimal supervision. We expect that this type of organization will be more common in the future as a num ber of forces, from child care to clean air, argue for fewer, centralized workplaces to eliminate unnecessary commuting.
In a negotiated organization, one must trust employees who are in allied com panies. An agreement may specify the required output or level of service, but it will be up to each member of the alliance to accomplish its tasks as it sees fit.
The traditional firm with electronic components tends to be large and will treat its employees in a variety of ways. Technology can be used to distribute responsi bility to lower-level managers or to centralize control over the organization. This structure depends on the firm's assumptions about employees and how it defines tasks, especially decision making.
The vertically integrated electronic conglomerate is very control-oriented as it drives the systems of a different organization; it avoids the expense, the need for, and the risks of traditional vertical integration. As a result, it tends to specify clearly how the firms connected to it electronically must operate.
94 PART TWO: ORGANIZATIONAL ISSUES
BUI LDING A T·FORM ORGANIZATION
Chapter I introduced the T-Form organization. The IT design variables in Table 4-2 can be used to create organizations with the characteristics described in this first chapter. It is likely that you will use these variables to design organizations and their components. An example below shows how to create a new organization using information technology.
People in the T ·Form
The pure T-Form organization operates with the assumptions about people found in the virtual and negotiated agreement organizations, where managers base super vision on trust in employees and their self-control. It is not possible to exert close physical supervision. Managers also have to trust partners in business alliances since both partners depend on each other. The details of how people define and ex ecute their tasks is left up to the employee. Decision making is moved to the low est level of the organization where people have the information and knowledge to make the decision. People and tasks are an extremely important component of the T-Form organization.
Other Design Possibilities
The T-Form organization is a generic model for a technologically enabled organi zation. The same IT design variables can be used in a variety of ways to create very different types of organizations, all of which have some of the characteris tics of the T-Form. Figure 4-3 presents simple structural models of five different organizations.
Frito-Lay is a major producer of snack foods like Fritos Corn Chips. The company invested heavily in hand-held computers for its drivers and a satellite
CHAPTER 4: THE IMPACT OF INFORMATION TECHNOLOGY ON THE ORGANIZATION 95
communications network to transmit transactions data to headquarters. The firm developed a data warehouse and provided decision-support tools for district managers to use in planning their operations. The company vests decision rights heavily in senior and lower-level managers; there are relatively few middle-level managers.
Mrs. Fields Cookies developed elaborate in-store systems to guide its store man agers in all aspects of the business. The company uses e-mail and voice mail to com municate with the store manager. It also has a very flat control structure with store controllers at headquarters closely monitoring sales results for each retail store.
VeriFone is a company that manufacturers devices to verify credit card pay ments and is active in offering electronic commerce solutions on the Internet. The firm views itself as a global corporation. The chairman compares it to a "blueberry pancake where all the blueberries (locations) are equal." Verifone uses technology extensively for communications and coordination in the firm.
We have already discussed Calyx and Corolla. Oticon is a Danish manufacturer of hearing aids that underwent a major restructuring when it lost considerable market share. The chairman created a "spaghetti organization" in which an execu