Digital technologies are changing the structure of many industries and the organizations operating within them. Identify and debate the opportunities and challenges for managers and employees operating within these new forms of organization.
The firms today use digital technology starting from placing orders to suppliers to delivery of the finished goods to the consumer. It is undeniable that the Internet and the many information technologies are important tools in the strategic arsenal of the modern firm.
Consumers can not only find out the details of the products but can order them online. They can search for a product most suitable to them, within their price range. I think this freedom to choose has made a significant impact on the way firms use digital technology today.
Information Systems, can sometimes, change the way the processes are performed. For example, consider the online banking tasks like checking balances or fund transfer which was earlier performed via IVR (Interactive Voice Response) using a touch-tone phone. Many of us now perform the same tasks through the web. The only change is the way we perform the tasks.
At other times, Information Systems also affect those individuals who performed these processes in the first place. Either their role is modified or some different people are involved. Consider the case of airline check-in kiosks. Earlier we had to stand in a cue and get our boarding passes by an agent. But with check-in kiosks, we can get the boarding passes ourselves. Now the airline agents perform more of training and troubleshooting role by helping people with the kiosks rather than completing the check-in process.
The Main Components of Information Systems in an Organization
We can represent any organizational information system connected via digital technology as having four fundamental components that must work together to deliver the information processing functionalities that the firm requires. These are: IT, people, process and structure.
Gabrielle Picolli has grouped these four components into two subsystems: the technical subsystem and the social subsystem (Refer Appendix 1). The technical subsystems are the components like technology and processes that do not include human elements. The social subsystems are the components like people and people in relation to one another. This represents the human element.
The following figure can be derived from the above explanation:
- Information Technology: IT, in our context, can be defined as the hardware, software and telecommunication equipment. The IT is a very important component of any modern IS. It can enable or constrain the tasks that can be performed through rules of operation. For example, many of us may have heard a customer representative on the phone say “The system won’t allow that.” In such a scenario the software development team may have, knowingly or unknowingly, restricted the functionality of the software in order to perform the task. This may simply mean that the customer representative is not following the proper process or is taking a short-cut to perform the said task.
- Process: A process can be defined as a series of steps required to perform a business activity. Each individual may have a different process to perform the same business activity, but it is in the interest of the firm if they have a set process which all employees doing the same activity should use. An example of a process can be the invoice system used by Comptex (Case study done in class). The hand written forms are delivered to the invoice team from the sales team. The invoice team (1) enters all the details of the customer (2) enters the details of the order (3) enters the rate of each component (4) adjusts the discount offered by the sales team (5) checks the total amount (6) prints the invoice (7) sends the invoice to the packaging and delivery team.
- People: The individuals and/or groups that are directly involved in the information system are referred to as people. Whether they are end users, managers or IT professionals, all of them have their own skills and personal agendas that determine what they choose to do as part of the IS. Also, people in certain departments may have access to certain information systems to which other departments don’t have access. This can be illustrated by the example of the payroll IS. Only the payroll team has access to the payroll IS while others don’t.
- Structure: The organizational structure component refers to the organizational design, reporting (functional, divisional) and relationships within the information system. For example, my previous organisation, Affiliated Computer Services, a global IT consulting firm, recognised the potential for knowledge sharing amongst its consultants. They created a knowledge management system in which all the consultants were supposed to contribute their learning from the completed projects. The system’s objective was to share best practices across its global offices. Another objective of the system was to identify SMEs (Subject Matter Experts) to whom the firm will direct questions on specific topics. But in the fast paced world of consulting the road to success was the billable hour which could be achieved by working on client projects. The consultants didn’t have any incentive to enter their knowledge in the system, certainly not at the cost of reducing their billable hours. Also, in our organization, superior skills were valued over knowledge sharing and so none of the consultants wanted to share their expertise. The conclusion was obvious - the firm will have to change the reward structure and the old mentality of the firm for the new knowledge management system to work.
(Refer Appendix 2)
Every organization is unique – this is not only true for companies operating in different industries but also of companies operating in the same industry. Consider the example of Apple Computers and Microsoft. Both the firms have dramatically different images and culture yet they are vying to establish their operating system as the dominant platform. Another example is of the two Dallas, Texas based airlines – Southwest and American Airlines. Both the airlines are in the airline industry but are completely different from each other.
Information Systems in an Organization
At the highest level, a firm can be characterised by the following four:
- Firm strategy – Understanding a firm’s strategy tells us what the firm intends to do. It also tells us which course of action it intends to pursue in order to achieve its intended goals. An example of using different strategies in the same industry can be of Ryanair and British Airways. Both firms operate in the same industry but employ completely different strategies. Ryanair focuses on keeping its operational costs to a minimum and thus offering cheap tickets. Where as British Airways boasts of its world class service to attract customers.
- Firm culture – Firm culture may be defined as the collection of beliefs, values and expectations shared by the members of an organization. It captures the way by which the organization goes about doing business. Practices may be a norm in one organization but may be inappropriate in another. Let’s consider the merger of software giants Oracle, Corp. and PeopleSoft Inc. For Oracle to succeed, it must create a cohesive company out of the two firms with two very different cultures (Refer Appendix 3).
- Infrastructure – Whenever a firm is making decisions about Information Systems, they first consider their existing IT infrastructure. This is mainly because there is no point in developing something that wouldn’t work on the existing infrastructure. Another reason is that the firm may not want to wipe out all the older investments it had made in building the current infrastructure. The IT infrastructure constrains and enables opportunities for future information systems implementations.
- The external environment – Organizations are embedded in external environment that encompasses regulation, the competitors, and social trends. Let me try to explain this with an example. Consider three competitors in the consumer electronics market – Sony Corporation, Philips Electronics and Samsung. All three are headquartered in three different countries, dealing with different governments, different labour laws and different taxation systems. Yet they compete in the global market for consumer electronics. These factors have an influence on the firm and the type of information systems these firms will need.
The above model can be derived from the explanation provided above. The model takes into consideration whether the Information System is used or not. If the Information System is used, then intended and unintended outcomes will follow. The outcomes may be financial results (favourable or unfavourable), results on people and effects on the future opportunities of the firm. The existing Information System also constraints the future expansion of the firms IT because all the future updates will have to take into consideration the existing Information System.
Information Systems and Organizational Change
Due to the large scale adoption of Digital Technologies by today’s organizations, most of the organizational change is brought by new digital technologies and IT. There are three levels of organizational change brought by introduction of digital technologies and IT in a firm:
- Automation: This is the simplest organizational change that can be brought by introduction of digital technology. The best example to describe this level of change is the online banking example previously described under “Digital Age”. We previously used to check balances and transfer funds using a touch tone phone but now the same tasks can be performed online.
Impact on Managers: This level of change requires very little involvement on the part of managers. Managers understand the impact of the new technology and can justify it because of the simple fact that these projects are easier to estimate in terms of return on investment (ROI) and financial benefits.
- Information: Information level of change has major implications on people, IT and processes components of IS. These components have earlier been discussed under “The main components of Information Systems in an organization”. An example of this can be the one discussed earlier about check-in kiosks at airports. The introduction of check-in kiosks not only changed the work done by the airline agents but also changed the IT systems and processes followed by the airline.
Impact on Managers: Information level poses a much bigger challenge to Managers than the Automation level primarily because it impacts the people component in a major way. Those affected include employees as well as the customers. Appropriate training and overcoming the tendency to fight change are the major challenges. Justifying Information level change is more difficult mostly because Information level changes are designed to take advantage of the available market opportunities and is therefore difficult to estimate in terms of financial benefits and ROI.
- Transformation: Massive organizational changes are brought in the case of transforming an organization. It generally results in a change in the reporting and authority structure of the organization. Many jobs are also likely to get redundant as a result of transformation. As a result of transformation, the organization generally becomes flatter and more permeable. The Royal Bank of Scotland BPR case study that was done in class comes to mind when we talk about transformation. The New Branch Columbus project was supposed completely restructures the way RBS functioned and in doing so it was going to shed about 2000 jobs.
Impact on Managers: Transformation projects require significant inputs from managers and executives alike. Another huge requirement for this kind of projects is to possess the required political stronghold in the organization. Political battles and resistance are common because some people are bound to lose their authority and influence as a result of the transformation.
Major Opportunities for Managers
- Intranet and group collaboration: Intranet provides a collaborative environment to the members of an organization for the exchange of ideas. Online repositories of information can be formed and updated continuously using the intranet. Intranet can be used in almost all functional areas of business like Finance, Human Resources, Marketing, Sales, etc thereby allowing the organization to manage its processes electronically.
An example of intranet is “Sparsh”, the intranet site used in one of my previous organization – Infosys Technologies Limited. Sparsh was voted one of the 10 best intranets in the world (Refer Appendix 4). Managers can approve their employees’ time sheets, can manage their appraisals, approve or disapprove their claim forms, etc from the intranet.
- By co-ordination and Supply Chain Management, managers can not only lower costs but can also deliver the product more rapidly to the customer. By having proper co-ordination systems in place, managers can respond quickly to customer demands.
- Managers can find out the strategies being used by industry leaders and adapt them according to the needs and requirement of their own firms. This is an important step in negating your competitors’ Sustainable Competitive Advantage and creating POPs (Point of Parity).
- Managers can reduce costs, either directly or indirectly, in the form of financial benefits, reducing manual input required for a particular process, etc. by using Information Systems. The ROI of some of the Information Systems is easy to estimate but for others it can be very difficult to quantify.
- Managers can use Information Systems to add value to their product or service. Consider the case of Xerox Corp. Xerox has a knowledge management system where their engineers enter the knowledge they gained by experience. This system is available for all engineers so that they don’t have to “re-invent” the wheel. The system helps in saving the engineers’ time and effort and provides quick and quality service to Xerox’s customers. The knowledge management system is also used by Xerox’s Research & Development team to fix common design issues in their products.
- Information Systems can be used to aid decision making. Consider the case of an investment banker who trades thousands of shares in a day. The decisions he makes are dependent on the information systems of his organization. The information systems show him the trading price of the share in which he is interested for the last 2 years for example. It may also show him the key news items relating to the organization so that he has a fair view of where the company is going in the future.
- Managers can use the Information Systems for reporting activities. In the case of Consultants this aspect is very important because billable-hours are what get the consultancy firm revenue from the clients. If the reporting of these billable-hours is not correct, the firm will lose out on revenue from its clients.
- Managers can use Information Systems to create unique new products and services that are easily distinguishable from its competitors’ product. Product differentiation prevents the competition from responding and so these firms with different products no longer compete on the basis of cost.
Major Challenges Facing Managers
There are a number of challenges facing managers in organizations which employ digital technologies. These are discussed below:
- Unproven business models: Employing IT enabled Information Systems and doing business over the internet is not necessarily cost efficient. For example, online retailers may not need expensive shops on high street but they need heavy outlays for warehousing and call centres.
- Keeping costs low: Managers not only have to answer the higher executives about the costs incurred in implementing the Information Systems but they also have to make sure that the maintenance cost of the system is low. There are some companies that charge royalty for the licensed use of their technology. For example, organizations employing IBM’s legacy mainframe systems pay IBM for the “CPU time” they use which can be thousands of dollars if not millions.
- Damage control: Managers and senior executives implementing a new Information System need to have a fall-back plan in case the Information System is not successful. The managers and executives will need to answer the shareholders about the reasons of the failure and what steps they took to minimize the damages. A very good example of such a fall-back plan is in the RBS Case Study done in class. The RBS management went ahead with the New Branch Columbus Project because they knew that if the project fails they have a fall-back plan – shedding 2000 jobs. These jobs were paying for the project over a period of 2 years.
- Virtual management: In today’s digital world many organizations let their employees work remotely, from their homes. This surely has benefits for the organization and its employees as a whole but poses a problem for the managers of managing their employees “virtually”. Some managers may need some formal training and time to get used to this kind of organizations.
- User resistance: Its human nature to resist change. Managers have to spot this resistance in their employees and motivate them in using the new system by giving them some sort of incentive. Chronic defaulters should be dealt with an iron hand in order to set an example in the office environment.
- “Old” managers: The traditional managers generally are not very tech savvy and don’t know a great deal about the system. They need to be properly trained in order to understand the system so that they can deal with the issues of the customers and system in a better way.
- Managing IT assets: Managers in today’s organizations have to manage not only people but may also need to manage IT assets like number of computers needed by their team members, software needs of their employees, granting access to online repositories, etc. This challenge can be taken care by providing some formal or informal training within the organization so as to make the manager feel comfortable with what he/she is doing.
- Developing sustainable competitive advantage: Managers today face the daunting task of creating sustainable competitive advantage. Thanks to the digital technology a majority of competitive advantages can be imitated quickly. A great example is in the gaming industry. Nintendo, Microsoft and Sony have their own gaming consoles in the market but none seems to have any competitive advantage over the other. Every move of a company is matched by their competitor by introducing similar product into the market within as early as 2 months.
- When to “kill” the system: We all know about the low success rate of Information Systems – 20 to 25% (Refer Appendix 5). This means the rest of the projects are failures. This leaves the managers and executives to make the tough task of deciding when to “kill” the system. This decision is mostly organization specific and no straight forward model can be applied to determine a sure-shot way to determine when a system is not required.
Managers must remember that whenever an Information System is to be designed or modified, the focus should be on optimizing the IS as a whole instead of focussing on optimizing the technology. This focus on IS design suggests that there are multiple ways to achieve the same IS goal. And if the IS goals are achieved, managers will be able to use the IS to their advantage rather than getting hampered by the use of technology in IS.
- Piccoli, Gabriele. "Information Systems Defined." Information Systems for Managers: Text & Cases. Chichester: John Wiley & Sons, 2007. 25-28. Print.
- Silver, Mark, M. Markus, and Cynthia Beath. "The Information Technology Interaction Model: A Foundation for the MBA Core Course." The Information Technology Interaction Model: A Foundation for the MBA Core Course 19.3 (1995): 361-90. Print.
- Pimentel, Benjamin. "When Firms Merge, a Clash of Cultures Oracle, PeopleSoft Managing Styles Couldn’t Be More Different." San Francisco Chronicle [San Francisco] 15 Dec. 2004: C-1. Print.
- "Infosys - Infosys Intranet among World's 10 Best | Press Releases | Newsroom." Infosys - Business Consulting | IT Services | Outsourcing. 2 Feb. 2007. Web. 22 Dec. 2010.
- "CHAOS." Chaos Report. The Standish Group, 1995. Web. 22 Dec. 2010.
| Company Name | Page No. |
| Affiliated Computer Services, Inc. | 4 |
| American Airlines | 4 |
| Apple Computers | 4 |
| British Airways | 4 |
| Comptex | 3 |
| IBM Computers | 10 |
| Infosys Technologies Limited | 9 |
| Microsoft Corporation | 4, 11 |
| Nintendo | 11 |
| Oracle Corporation | 5 |
| PeopleSoft Inc. | 5 |
| Philips Electronics | 5 |
| Royal Bank of Scotland | 7 |
| Ryanair | 4 |
| Samsung | 5 |
| Sony Corporation | 5, 11 |
| Southwest | 4 |
| Xerox Corporation | 9 |
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