Lec 3

Organizational Impacts of
Information System Use
Managing and Using Information Systems: A Strategic
Approach

by Keri Pearlson & Carol Saunders

 Introduction
• How does the use of information technology impact the
organization?

• What type of organizational structure tends to be most

willing to embrace technological change and
sophistication? Why?

• What are the advantages and disadvantages of the

networked organizational structure?

• How has IT changed the way managers monitor and

evaluate?
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• Are virtual organizations just a passing fad?
 Objective
• In order for information systems (IS) to support an organization
in achieving its goals, the organization must reflect the
business strategy and be coordinated with the organizational
strategy

• This chapter focuses on linking and coordinating

the IS strategy with the three components of
organizational strategy:
1. organizational design (decision rights, formal reporting
relationships
And structure, informal networks)
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2. Management control systems (planning, data collection,
Variable Description
Organizational variables
Decision rights Authority to initiate, approve, implement, and control various types of
decisions necessary to plan and run the business.
Business processes The set of ordered tasks needed to complete key objectives of the business.
Formal reporting The structure set up to ensure coordination among all units within the
relationships organization.

Informal networks Mechanism, such as ad hoc groups, which work to coordinate and transfer
information outside the formal reporting relationships.
Control variables
Data The information collected, stored, and used by the organization.
Planning The processes by which future direction is established, communicated, and
implemented.
Performance measurement The set of measures that are used to assess success in the execution of
and evaluation plans and the processes by which such measures are used to improve the
quality of work.
Incentives The monetary and non-monetary devices used to motivate behavior within
an organization.
Cultural variables
Values The set of implicit and explicit beliefs that underlie decisions made and
actions taken. reflects aspirations about the way things should be done
Locus
The span of the culture, i.e., local, national, regional

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Figure 3.1 Organizational design variables.
 Real World Examples
• Diamond Technology Partners (DTP).
– Every consultant has a laptop to permit automatic connectivity with
the corporate intranet.

– Intense use of computers, shared data, extensive electronic

communications foster high levels of interaction & fluid, highly
adaptable work arrangements.

• Mrs. Fields IS focused on sales skills not simply

production.
– Implemented a computer system that automated much of the baking
and planning tasks.

– Employees able to focus on sales not on baking issues.

• IS is fundamental to the way these companies are organized to do5

Information Age
Organizations
 Key Characteristics

• 1988 three professors at Harvard Business School predicted

what would be key characteristics of information age
organizations.

• Their predictions were close to what happened.

• These predictions can be related to three categories (Figure

3.2):
– Organizational structure.

– Human resources.

– Management processes.

• Information age organizations use a different organization 7

Dimension Characteristics
Organizational Companies have benefits of small and large scale
Structure simultaneously.

Lg. organizations adopt flexible/dynamic structure

Centralized/decentralized control blur

Focus on projects/process vs. tasks/procedures

Human Resources Workers better trained, autonomous, transient

Work environment exciting, engaging

Management shared, rotated, even part-time

Job descriptions tied to defined tasks non-existent

Compensation tied directly to contribution

Management Decision-making is well understood

Processes Control separated from reporting relationships

Computers support creativity at all levels

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Figure 3.2 Key characteristics forhistory,
IS retain corp. the Information Age organization
experience, expertise
INFORMATION TECHNOLOGY AND
ORGANIZATIONAL DESIGN

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 Information Systems and Organizational
Design

• Organizations must be designed in a way that enables them to

perform effectively. Different designs accomplish different goals.

• It focuses on how IS are designed in conjunction with an

organization's structure.

• An organizational structure is designed to facilitate the

communication and work processes necessary for it to accomplish
the organization's goals, and the use of IS is often the way
coordination and workflow are done.
• The organizational variables include decision rights that underlie formal
structures, formal reporting relationships, and informal networks.

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 Formal Reporting Relationships and
Organization Structures

• Organization structure is the way of designing an

organization so that decision rights are correctly allocated.
The structure of reporting relationships typically reflects the
flow of communication and decision making throughout the
organization. Traditional organization structures are
hierarchical, flat, or matrix. The networked structure is a
newer organizational form. A comparison of these four types
of organization structures may be found in Figure 3.4

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 Informal Networks

• The organization chart reflects the authority derived from formal reporting
relationships in the organization's formal structure.

• However, informal relationships also exist and can play an important role
in an organization's functioning.

• Informal networks, in addition to formal structures, are important for

alignment with the organization’s business strategy.

• Some informal relationships are designed by management:

§ Working on a project, Job rotation program, etc.

• Unintended networks are formed throughout an organization by:

– Proximity, Shared interest, Family ties, etc.

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IT & Organizational Structures
• Traditional organizations are hierarchical, flat or matrix in design
(Fig. 3.3).

• In hierarchical orgs. middle managers tell subordinates what to do

and tell superiors the outcomes. IS supports this hierarchy.

• In flat structured orgs. work is more flexible and employee do

whatever is needed. IS allows offloading extra work and supports
intra-firm communications.

• In matrix organizations, work is organized into small work groups

and integrated regionally and nationally/globally.
– IS reduces operating complexes and expenses by allowing information
to be easily shared among different managerial functions.
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Figure 3.3 Hierarchical, flat, and matrix organization structures.
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 Hierarchical Organizational
Structure
• Based on the concepts of division of labor, specialization,
and unity of command

• Key decisions are made at the top and filter down

through the organization

• Middle managers do the primary information processing

and communication function

• IS is typically used to store and communicate

information along the lines of the hierarchy and to
support the info management function of the managers
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 Flat Organizational Structure

• Decision-making is centralized

• As everyone does whatever needs to be done, they

can respond quickly to dynamic, uncertain
environments

• However, this organizational structure often

becomes less flexible as the org. grows

• Routine IS work is often off-loaded but, as a

hierarchy develops, becomes the ‘glue’ tying parts
of the organization that would not otherwise 16
 Matrix Organizational Structure

• This typically assigns workers with two or more

supervisors in an effort to make sure multiple
dimensions of the business are integrated, with
each supervisor directing a different aspect of the
employee’s work.

• Matrix organizations often fail to enable managers

to achieve their business strategies because of the
inability to cope with increased information
processing demands 17
 Networked Organizational
Structure
• “Rigid hierarchies are replaced by formal and informal
communication networks that connect all parts of the
company.”

• Defined by their ability to promote creativity and flexibility

while maintaining operational process control, which is
achieved by substituting hierarchical controls with controls
based on IS

• Extensive use of communication technologies and

networks also makes it easier to coordinate across
functional boundaries 18
 Hierarchica Flat Matrix Networked
l
Description Bureaucratic w/ Decision-making Workers assigned Formal/informal
defined levels of pushed down to to 2 or more communication
management lowest level supervisors networks that
connect all
Division of labor Informal roles, Dual reporting Known for
Characteristics flexibility and
specialization, planning and based on
unity of command control; often function/purpose adaptability
sm.,young orgs.

Type of Stable Unstable Unstable

Environment Uncertain Unstable
Best Certain Uncertain
Supported Uncertain
Primary function Functions and
Basis of Primary function purpose Networks
Structuring
Centralized Centralized Distributed
Power Distributed
Structure Mainframe, Personal Networks
centralized data computers Intranets and
Key Tech. and processing Internet
Supporting
this Figure 3.4 Comparison of Organizational Structures
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Figure 3.5 The networked organization.

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 T-Form Organization
• T-form (“technology-based”) organizations take the
networked structure one step further by combining IT
with traditional components to form new types of
components

• These include electronic linking, production automation,

electronic workflows, electronic customer/supplier
relationships and self-service Internet portals

• Work is often coordinated electronically, while systems

enable information to more easily move around the
organization, and decentralizing decision-making 21
Information Technology
And Management Control
Systems

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 Management Control
• Controls are the second type of managerial lever. Not only does IS
change the way organizations are structured, but also it
profoundly affects the way managers control their organizations.

• Management control is concerned with how planning is performed

in organizations and how people and processes are monitored,
evaluated, and compensated or rewarded. The activities of
management control are summarized in figure 3.6
• Depending upon the organizational structure will determine the
level of control that a manager must exercise over their
employees.

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 Management Control
• IS play three important roles in management control processes
– Data collection: IS enable the collection of information that
helps managers determine whether they are satisfactorily
progressing toward realizing the organization's mission as
reflected in its stated goals.
– Evaluation: IS facilitate the comparison of actual performance
with the desired performance that is established as a result of
planning.
– Communication: IS speed the flow of information from where
it is generated to where it is needed. This allows an analysis of
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the situation and a determination about what can be done to
Control Brief Definition
Activities

Monitoring Observing and keeping track of the progress, quality,

cost, time and other relevant parameters

Evaluating Comparing the data collected through monitoring to

standards or historical data.

Providing Communicating the results of evaluation to the

Feedback individuals responsible for the activities and tasks.

Compensating Deciding on salary or other forms of payment to

those individuals who preformed the tasks.

Rewarding Deciding and delivering bonuses, recognition, or

other types
Figure 3.6 Model of prize for exemplary
of management work.
control activities. 25
IT Changes Management Functions

• IT changes the way managers:

– Monitor: IS makes possible new ways to track performance
and behavior

– Evaluate: models are easily built, making it easier to

understand progress and performance

– Provide Feedback: IS makes rapid feedback possible (e.g.,

through electronic forms)

– Compensate & Reward: team-based efforts can be

evaluated and complex formulas used

– Control Processes: IS also used extensively in industrial

processes, and makes it easier to collect, analyze and move
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information
 Virtual Organizations

• IT has made it possible for an individual to work for an

organization and live anywhere

• Virtual organization structure is “networked”.

– Extensive collaboration takes place electronically (e-mail).

• Managers in a virtual environment monitor results, not

progress

• Forms are electronic, tech. support through a web

interface

• Business processes are designed differently.

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 Virtual Teams
• Virtual Teams are geographically and/or organizationally
dispersed coworkers assembled using telecommunications and
IT to accomplish an organizational task.
• Several reasons explain their growing popularity:
– As information needs mushroom, firms rely on the skills and
knowledge of individuals dispersed across countries/time zones,
etc
– Enhanced bandwidths promote the use of networks linking
individuals, internal and external to the organization
– Technology (group support systems, groupware, etc) is available to
assist collaboration
– Difficulties in getting relevant stakeholders together physically are
relaxed
– Growing pressures for off-shoring has resulted in systems
development by global virtual teams whose members are located 28
around the world.
Challenges Virtual Teams Traditional Teams
Communicatio Multiple Zones can lead to Teams are collocated in same
ns greater efficiency but can lead to time zone. Scheduling is less
communication difficulties. difficult.
Communication dynamics such Teams may use richer
as non-verbal are altered. communication media.
Technology Team members must have Technology is not critical and
proficiency across a wide range tools not essential for
of technologies. communications.
Technology offers electronic Electronic repositories are not
repository. typically used.
Work group effectiveness may be Task technology fit may not be as
more dependent on alignment of critical.
group & technologies used.
Team Members typically come from Because members are more
Diversity different organizations and/or homogeneous, group identity is
cultures which makes it: easier to form.
-Harder to establish a group identity. Because of commonalities,
-Necessary to have better com. skills communications are easier to
-More difficult to build trust, complete successfully.
norms …
Figure 3.7 Comparison of challenges facing virtual and traditional teams.
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 FOOD FOR THOUGHT:
IMMEDIATELY RESPONSIVE
ORGANIZATIONS

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 Immediate Responsive
Organizations
To accomplish the goal of instant “customization”, an
organization must master five disciplines:
1. Instant value alignment – ready to provide exactly what the
customer wants

2. Instant learning –building learning directly into the company’s tasks

and processes

3. Instant involvement – using IT to ensure that everyone is ready to

deliver products, services, etc

4. Instant adaptation – creating the culture to support this

5. Instant execution – During It to cut cycle times to appear instant to

the customer
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 Summary
• IS must be a key component of organizational design.

• Organizational designers must have an understanding of what IS can

do.

• The flow of information can inhibit or facilitate organization

structures.

• Virtual and networked organizations are rising in use and are

replacing older legacy structures.

• IT affects managerial control mechanisms and managers must

ensure that these controls are in place.

• Virtual organizations make it possible for employees to live

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anywhere.