IT IMPACT ON

ORGANIZATIONS
(C)ITM 700 Information Technology and Strategic Management

Key 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.

IT Impact on Organizations

Last week
The impact of IT on business model through its effects on strategy and/or
organizational capabilities
Strategy:
IT plays a role in determining product, market, business network, and boundary
positioning.
IT drives differentiation, sustainable advantage, and the development of proprietary
assets.
IT could define the growth path of the company over time

Capabilities:
IT plays a role in building the capabilities needed to execute strategy.
processes and infrastructure, people and partners, organization and culture, and leadership
and governance.

IT Impact on Organizations

Last week
Analyze the potential of IT to create strategic opportunities.
Questions that executives can use as they search for ways to leverage
IT to drive business model strategy include:
Can IT change the basis of competition?
Can IT change the nature of relationships and the balance of power in buyerseller relationships?
Can IT build barriers to entry?
Can IT raise switching costs?
Can IT add value to existing products or services or create new ones?

IT Impact on Organizations

Last week
IT as a potential source of strategic risk
Strategic risk:
1. Can emerging technologies disrupt our current business model by
enabling new business models with decidedly superior economics?
2. Can IT lower entry barriers, change industry power dynamics, or
increase competitive intensity?
3. Can IT trigger regulatory action?
Project Risk

IT Impact on Organizations

Organization Design
Transition from industrial economy to a global network economy
From agrarian to industrial economy
Traditional organizational design are inadequate for coping with the
todays turbulent and increasingly networked world.
agile, innovative, and entrepreneurial without losing the efficiency, power,
and reach that come with the size and scale.
Determine how best align the organization with the environment and the
chosen strategy.

Building businesses that can survive and prosper in the todays fastpaced and uncertain environment require capabilities.
IT Impact on Organizations

Organization Design
20th century building and perfecting hierarches
Last few decades (1980s & 90s):
Attempt to tear hierarchies, downsizing, delayering, and reengineering.
Shattering rigid intra- and inter firm boundaries
Forming strategic partnerships and alliances

Hierarchy is far from dead.

Developing new capabilities that enable organization to work more effectively
and efficiently within more diffuse and fluid business networks.
Ecosystems

IT Impact on Organizations

Organization Design
Our dream and our plan well over a decade a go were simple. We set out to
shape a global enterprise that preserved the classic big company advantage
while eliminating the big company drawbacks. What we wanted to build was
a hybrid enterprise with the power, resources, and reach of a large firm
and the hunger, sprit, and fire of a small one
Jack Welch, CEO of General Electric mid 1990s
The dilemma of how to be big and small simultaneously.
Complexity problems of control and management.
IT as a key enabler of controlling operations while also providing real-time
information and analytical tools
IT Impact on Organizations

Organization Design
Big-small organization design
Hybrid design (matrix )(1950s and 1960s)
Originally billed as obvious organizational solution
Proponents - adaptive, information-intensive, team-based, collaborative, and
empowered

Sources of difficulty
The dramatic increase in the need for timely information to manage it
successfully.
Bred of conflict, confusion, information overload, and costly duplication of
resources
Hierarchic design managed complexity by minimizing it, the matrix demanded
that managers deal with complexity directly.
IT Impact on Organizations

The Organization Design Challenge

IT Impact on Organizations

10

The Organization Design

In the large industrial economy hierarchies:
paper-based and word-of-mouth communication moved slowly
Limited channels of communication
Mainframes supported centralized decision making and hierarchical
communication.

Changes
Microcomputer revolution in 1980s - Provided tools to decentralize
information processing
Networked IT revolution in the 1980s
Commercialization of the Internet and associated technological innovations.
Made possible new approaches and sharing of information and redefined
organizational possibilities.
IT Impact on Organizations

11

Building Lean, yet Agile, Enterprise

IT Impact on Organizations

12

Learning from Mistakes

How can executives exploit the power of emerging IT infrastructures
to enable organizations to act big and small simultaneously?
New approaches of organizing and managing are required?
Hierarchic organization
Specifies structures and systems to safeguard a firm.
Authority systems limit decision making and actions
Responsibilities, duties, standardization of jobs, direct supervision, restricted access to
information and assets

Control systems ensure tight control of operating process through multiple

intersecting checks and balances.
Evaluation, compensation,
IT Impact on Organizations

13

Learning from Mistakes

New-age organization exhort executives to
empower their people and expand their area of responsibility.
wipe out middle management ranks and create self-managing teams.

Doesnt specify how control and authority are to be maintained once

the traditional systems have been disrupted.
Barings Bank lost $1.2 Billion by the actions of a 27 years old trader

Lessons from past mistakes

Speed counts, but not at the expense of control
Empowerment is not anarchy
Transforming an organization requires more than just changing the structure.

Comprehensive approach
IT Impact on Organizations

14

Learning from Mistakes

Comprehensive approach to organization design (analysis and
realignment of capabilities within four key areas of business model
design):

Process and infrastructure

People and partners
Organization and culture
Leadership and governance.

IT Impact on Organizations

15

IT Impact on Capabilities

Organizations are information systems. They are communication

systems. And they are decision making systems . If one thinks about it,
every aspect of organizational functioning depends on information
processing of one form or another.
Morgan, 1997

IT Impact on Organizations

16

IT Impact on Capabilities
Building a high-performance organization requires:
Leveraging vertical and horizontal information processing capacity
The ability to align and adapt an organizations strategy and capabilities to the
demands of the business environment

The challenges of new organizational model

Agility and control
Accountability and collaboration

The role of IT

IT Impact on Organizations

17

IT, and Agility and Control

Systems thinking system wide change
Organization as a set of integrated, horizontal operating processes.

Redesign end-to-end processes

Realign faster-cycled operations with organization structure, control,
authority systems, incentives, and culture.

IT Impact on Organizations

18

Streamlining Operating and Management Processes

IT Impact on Organizations

19

Redefining Control Systems

IT Impact on Organizations

20

IT, and Accountability and Collaboration

Modern-day buzzwords empowerment, teams, collaboration
Formal and informal authority structures

IT Impact on Organizations

21

Redefining Authority Systems

IT Impact on Organizations

22

Characteristics of Hierarchy, Entrepreneurial and Networked Organization

Characteristi
cs

Hierarchy

Entrepreneurial

Networked

Process
Process activities
Process activities defined on
integration
segregated into
an ongoing basis by the
and
distinct tasks
people doing the work.
synchronizat
managed by functions Activities synchronized
ion
Activities are
through ad hoc discussion
synchronized during
(face-to-face, email, phone)
yearly planning
sessions

Process activities synchronized

through the flow of information in
IT systems.
Changes discussed and planned
through frequent interactions
among those doing the work (faceto-face, email, phone)

Information Employee understanding

and Business of business dynamics and
Literacy
information limited to
specific assigned tasks.

Employees at 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 firms goals.

Employees and founders have

access to all information
required to run the company and
are expected to use that
information to solve problems,
make decisions, and take actions
to accomplish firms goals
IT Impact on Organizations

23

Next week
IT Business Value

Chapter 4: Making the Case for IT

Appendix 4A: Analyzing IT impact on Business Model Performance
Appendix 4B: Business Model Drivers and Performance Metrics
Reading 1-1: The Five Competitive Forces That Shape Strategy

Case #1 due next week

IT Impact on Organizations

24

Next week
Read case 1-4: Boeings e-Enabled Advantage
Discussion Questions:
1. What challenges and opportunities did Boeing face in the late 1990s?
2. What is the e-Enabled Advantage? How did it link to the companys
strategy?
3. What advantages would such an approach give Boeing?
4. What challenges did Boeing face in executing such a radical new strategy?

IT Impact on Organizations

25