Chapter 3: IT Impact on Organizations

Summarize from: Lynda Applegate, Robert D. Austin, and Deborah L. Soule, Corporate Information Strategy And Management: Text and Cases, McGraw Hill, 8th Edition, 2009.

Last updated: September, 2014

Learning objectives

Recognize that IT impacts the business model (through its effects on organizational capabilities)

Learn how to analyze IT for its potential to enable new capabilities啟用新功能

e.g. facilitate促進 new and improved organizational structures and processes

What is the problem with organization? (1)

Inadequacy in traditional organizational design for coping with today’s business turbulent動蕩 and increasingly networked world.

Large organizations want to be more agile敏捷 , innovative and

entrepreneurial企業家Small organizations want to

tap into an extended network of partners打入一個擴展的合作夥伴網絡

Entrepreneur

“The person who perceives an opportunity and create an organization to pursue it.”

Creates “new business may, in a few rare instances, be the revolutionary sort that rearranges the global economic order, as Walmart, FedEx, Apple, Microsoft, Google, eBay, and Amazon.com … Facebook and Twitter”

Source: William D. Bygrave, and Andrew Zacharakis, Entrepreneurship, John Willey &Sons, Inc., 3rd Edition, 2014. (p: 2)

Entrepreneur (latest example…)

Alibaba: “Alibaba Holdings Ltd. IPO, .. the Chinese e-commerce giant

is now worth $230 billion, making it the fourth-largest tech company in the world behind Apple, Google and Microsoft, in terms of market capitalization市場資本 .

The public offering raised $21.8 billion公開發行籌集了 218億美元 for Alibaba, more than Visa's $17.8 billion in 2008 and more than Facebook's $16 billion in 2012. After briefly soaring close to $100 a share接近每股 100美元 , the stock settled back in the $91 to $91 range and closed at $93.89, slightly higher than the $92.70 opening price開盤價 , but up 38 percent from the IPO price發行價 of $68.”

Direct quote Source: International Business Times, http://www.ibtimes.com/, 19 Sept. 2014, Accessed: 22 Sept. 2014.)

The Entrepreneurship Process(Source: William D. Bygrave, and Andrew Zacharakis, Entrepreneurship, John Willey &Sons, Inc., 3rd Edition, 2014. )

The Entrepreneurship Process(Source: William D. Bygrave, and Andrew Zacharakis, Entrepreneurship, John Willey &Sons, Inc., 3rd Edition, 2014. (p.:51) )

What is the problem with organization? (2)

But they must Understand how organizational and design

choices influence operational efficiency and flexibility

Determine how to best align the organization with environment and the chosen strategy to quickly and effectively “sense and respond”感知和響應 to opportunities and threats

What this chapter proposes?

IT is an important enabler推動者 for developing the best-in-class capabilities

required for success

IT Capabilities transformation

Include (CRM, SCM) External relationship management capabilities

Financial resources capabilities, intellectual resources capabilities (CRM, ESS, BI) Market responsiveness capabilities

information resources capabilities, financial resources capabilities (ERP) Cost effective IS operations capabilities information

resources capabilities …. (Data analytics software) processing of big data information

resources capabilities, intellectual resources capabilities (Social media sites) networking and marketing information

resources capabilities, human resources capabilities

Dilemma faced

Two issuesEfficiency for speed速度效率 vs. authority

and control權力和控制Both influence real-time(即時 )customer

needs and business performance

Dilemma faced – example: “LeapFrog” from California

Beginning (small-size) Operation: outsource manufacturing to 7 Chinese

factories; and shipping運輸 and distribution分銷 to global logistics全球物流

From #15 toy company in 2000 to #4 in 2001, and #3 in 2002

Eventually (grown to big-size) Faces problems of control and talent人才

management IT was seen as key enabler推動者 of

controlling operations, and providing real-time information and analytical tool

to continue the steady stream不斷 of product innovation

IT impacts of business model:Stages of dev. and contri. of IT to firm

Mainframe computer大型電腦 systems Support centralized decision making and hierarchical

communication階層式的溝通 Microcomputer revolution微電腦革命 of the 1980s

Support decentralize information processing分散資訊處理 and improve local decision making地方決策

But technology to support both local and enterprise-wide information sharing and communication was inadequate

Recent IT – “networked網絡 IT revolution” (with the Internet, and assoc. technological innovation) Make possible new approaches to communicating and sharing

information --- redefine organizational possibilities possibilities遠景 Create new approach – called “Business On Demand”

On Demand (or Adaptive)隨需應變的 Enterprise

Enterprise that “unites information, processes, and people to create an enterprise in which end-to-end processes are integrated終端到終端的流程都集成 across a company, an industry, and globally to enable it to respond with speed and flexibility以速度和靈活性應對 to any customer demand, market opportunity, or external threat.”

Next question

How can executives exploit the power of emerging IT infrastructures利用新出現的的 IT基礎設施的力量 to enable organizations to act big and small simultaneously?Technology技術 is not enoughNew approaches to organizing and

managing are requiredBut how? Answer: review檢閱 lessons from

previous organizational failures

How – The lessons learnt

Two fundamental elements基本要素 for success Hierarchy等級制度– specify a number of structures

and systems that help to safeguard保護 a large firm Authority權力 system – limit decision making and

actions行為 by strict segregation隔離 of responsibility and duties責任和義務 , restricted access to information and asset

In theory, the hierarchy is designed so that, short of sabotage破壞 , no single employee or work unit can make a decision or take action that can immediately threaten威脅 the entire organization

Rules from the lessons learnt (1)

R1: Speed counts, but not at the expense of control速度很重要，但不能犧牲管制為代價 The faster we go, the more important it is and the harder it is ---- to keep control of our car

So, the greater the need to monitor business operations and clearly define and enforce the rules執行規則 of the road

Rules from the lessons learnt (2)

R2: Empowerment授權 is not anarchy無政府狀態Empower employees can lead to disaster 禍

when not accompanied by a more comprehensive redefinition全面的重新定義of authority and control throughout

Organizational boundaries界限 and value systems must be more clearly communicated, closely monitored and consistently enforced一致執行

Rules from the lessons learnt (3)

R3: transforming改變 an organization requires more than just changing the structureNot enough to simply take out layers or

redraw boxes in organization chartStructural changes alone cannot harness線

束 the energy of the workforce to recreate an organization with a common purpose and direction一個共同的目的和方向

Suggestion

Adopt a comprehensive approach全面的做法to organization design that includes Analysis and realignment調整 of capabilities within

4 key areas of business model商業模式 design Processes and infrastructure流程和基礎架構 People and partners Organization and culture Leadership and governance

Core elements to consider under agility敏捷 Improved access to information High-capacity networked communication高容量的網絡通

信 systems

Balancing agility with control (1)

Two mistakes executives often make (1) Failure to redesign失敗重新設計 end-to-

end processes (with consideration for other part部分 of the organization or on partners, suppliers and/or customer organizations)

E.g. Frito-Lay, Inc. (a division of PepsiCo, Inc.) in the mid-1980s attempted to accelerate the rate of new product development加快新產品開發速度without ensuring無保證 that the supply chain, manufacturing, and order fulfillment processes訂單實行流程 could handle the increased complexity

Balancing agility with control (2)

(2) Failure to realign faster-cycled operations重新調整更快運作 with organization structure, control, authority systems, incentives, and culture

E.g. Frito-Lay, Inc. 2nd project to integrate their new products development process with supply chain, manufacturing, and order fulfillment processes but failed to redesign the organization and management systems needed to control these accelerated, real-time processes

Real-time business intelligence即時商業智能 and early warning for decision-making were not in place, opportunities were missed, and problems went undiscovered問題發生未被發現

Balancing agility with control (3)

Thus, the key is to streamline, integrate, and “time synchronize”精簡，整合和“時間同步” both operating and management processes in the business Operating processes: the activities thru which an

organization designs, produces, markets, delivers, and supports its products and services

Management processes: the activities thru which an organization manages the design, production, marketing, delivery, and supports of its products and services

IT can enable agility and control

Example: Con-Way, Inc. (freight貨運 transportation and logistics company) has turned to IT to enable the real-time sense and respond organization and control systems needed to Respond quickly while maintaining control of its global

network維持其全球網管制 Implemented

A single IT-enabled operating platform for streamlining, integrating, and synchronizing operating and management processes throughout Con-Way, and its network of shippers, receivers, and carriers貨主，接收，和運營商網 .

Began to experiment with Wi-Fi (a std. for wireless LAN) system Building radio frequency identification (RFID) systems to track

parcel These systems will provide real-time information and analytical

tools to support decision making, collaboration, and control

Hierarchical階層式 organization (1)

Characteristics Cost and risk of coordinating local operations and aligning

individual interests was minimized by centralizing decision making, structuring operations and developing a deep hierarchy – operations were executed efficiently and according to clearly defined procedures

Assumptions Centrally located executives and decision makers had access

to the information they needed to understand local biz dynamics; and have the time and expertise to analyze the info, make decisions, and ensure that the decisions were executed by operating employees

Hierarchical organization (2)

Problem As the complexity, uncertainty, and volatility in the

biz environment intensified – it became difficult to satisfy the assumptions required for centralized decision making

Solution In 1980s and 1990s – decentralize decision making

to increasingly more focused and autonomous profit centers獨立的利潤中心 or “self-managing teams”

Decisions could be made more quickly Problem: cost of coordination and control increased; and

decisions made by local teams often failed to consider the overall goals of the company

IT can enable accountability and collaboration - Phillips Petroleum (1)

The case of “Phillips Petroleum” (oil and gas company) Attempt to maintain control over decentralized

decision making by adding controllers in all business units to avoid the senior management oversight疏忽

Over time – ended up having checkers checking the checkers. As competition and price erosion increased, slow-to-respond and costly authority structures and systems become a drag on innovation and on earnings

IT can enable accountability and collaboration - Phillips Petroleum (2)

Response: Create a matrix organization with centralized center of

excellence that provided shared services Teams of operating managers were given authority for

decision making in the field, and senior executives could provide the required oversight

Business intelligence system was implemented – to analyze the production environment for possible performance improvements to an optimized mix of fuel types, such as gasoline and jet fuel. For example, if prices are low for commodity fuel, such as gasoline, the business-intelligence system can change the "cut points" of the process to boost the volume of high-margin jet fuel the refinery produces

Organizational capabilities

“Ability and capacity of an organization expressed in terms of its (1) Human resources: their number, quality, skills, and experience, (2) Physical and material resources: machines, land, buildings, (3) Financial resources: money and credit, (4) Information resources: pool of knowledge, databases, and (5) Intellectual resources: copyrights版權 , designs, patents專利 , etc.”

Direct quote from: http://www.businessdictionary.com/definition/organizational-capability.htmlDirect quote from: http://www.businessdictionary.com/definition/organizational-capability.html

BackBack

IS/IT capabilities

“IS resources can be broadly divided into IS assets (technology-based) and IS capabilities (system-based) [42]. … Wade and Hulland [42] classify IS resources into eight major resources: (1) external relationship management, (2) market responsiveness, (3) IS-business partnerships, (4) IS planning and change management, (5) IS infrastructure, (6) IS technical skills, (7) IS development, and (8) cost effective IS operations” (pg. 181-182).

Direct quote from: Ng, C.S-P., and Chang, P.C. 2009. "Exploring the Links between Competitive Advantage and Enterprise Resource Planning (ERP) Upgrade Decision: A Case Study Approach," 16th ISPE International Conference on Concurrent Engineering, Taipei: Springer, pp. 179-191.

Direct quote from: Ng, C.S-P., and Chang, P.C. 2009. "Exploring the Links between Competitive Advantage and Enterprise Resource Planning (ERP) Upgrade Decision: A Case Study Approach," 16th ISPE International Conference on Concurrent Engineering, Taipei: Springer, pp. 179-191.