MODULE 2: MANAGING TECHNOLOGY
TOPIC 1. INFORMATION TECHNOLOGY ROLE IN ORGANIZATIONAL
CHANGE
Today's perception of information technology (IT) changes. IT is no longer viewed as a
cost center but instead a revenue generator. Executives learn that IT can significantly
enable changes in organization's strategic position in domestic and global markets. More
often, integrating information systems with long-term planning can completely changes
the way a firm conducts it business. Some systems even change the product or service
that the firm provides.
Readings:
 Lecture note: Topic 4
 Chapter 3
 Markus, M. Lynne; Benjamin, Robert I. The magic bullet theory in IT-enabled
transformation. Sloan Management Review, 01/01/1997, 14p. *
 Ross, J.W., Beath, C.M., and Goodhue, D.L. et al. 1996. Develop Long-term
Competitive through IT Assets. Sloan Management Review, Fall. .*
* Available for download in the Course Document on Blackboard.
Learning Objectives: At the end of this week, you will be able to
1. Explain why organizations need to change over time
2. Describe a change process
3. Recognize different theoretical models presented in this lecture
4. Describe the role of IT as a change agent
5. Compare and contrast the role of IT as a facilitator and as a change advocate
6. Describe five stages of business transformation in Venkatraman's model and
identify real-world examples in each level
Lecture Outline
PRESSURES FOR CHANGE
PROCESSES FOR PLANNED ORGANIZATIONAL CHANGE
LEWIN'S PROCESS MODEL
CONTINUOUS CHANGE PROCESS MODEL
STAGES OF CHANGE
INFORMATION TECHNOLOGY AS A CHANGE AGENT
OPTIONAL READINGS: BRIEF SUMMARY
Vignette
Your box of antique spittoons is en route from London to Fort Worth, Texas, and you
need it yesterday. If it was sent via United Parcel Service of America Inc., those slop jars
won't be gathering dust waiting to clear U.S. Customs. UPSnet, a global network
package tracking system, notifies Customs of incoming packages' declared contents
before those packages arrive, thus enabling Customs officers to process those parcels
more speedily. To provide rapid service worldwide, "information is almost more
important than the package," says Kenneth Lacy, vice president of information services at
UPS.
In June 1999, UPS invested $100 million on Delivery Information Acquisition Device
(DIAD) that is the world's fastest package tracking system, deploying the first device in
the industry to both collect and send delivery information at virtually the same time. Now
when a package is delivered, the tracking data will be widely available before the driver
has even left the scene. According Mr. Lacy, the system already benefits the company
$55 million.
Source: http://www.cio.com/archive/080196_ups_print.html,
http://www.motorola.com/LMPS/pressreleases/upsdiadiii.html, and http://www.ups.com/
Companies such as UPS are constantly faced with pressures to make changes. This week
we will address the issue of Information Technology (IT) management and organization
change. This week's lecture note presents a view of change in organizations by
examining the pressures for change and then discusses several approaches to planned
organizational change. At the end of the lecture, we will talk about the resistance to
change that typically occurs and how managers can deal with it.
Pressures For Change
Today's companies encounter many pressures that likely to affect the entire or part of the
organizations. Such those pressures are divided into four different categories: people,
technology, information processing and communication, and competition (Moorhead &
Griffin 1995, chapter 18).
People
We're in the midst of great social upheaval, with major shifts occurring in the work world
as we know it. As baby boomers, people who were born during 1945-1960, are getting
older but living longer and healthier lives, they are still in the workforce. The special
characteristics of baby boomers indicate distinct purchasing patterns that affect
product/service, innovation, technological change, and marketing and promotion
activities (Colvin 1984). Currently, children of baby boomers are also entering the
workforce at the very young age, for example, Shawn Fanning, the 19 year-old inventor
of the song-swapping software and service known as Napster, and Ashley Power, a 15year old President of Goosehead.com Inc. Finally, the increasing diversity in the
workplace will mean a major changes for organizations.
Technology
Information technology (IT), especially the Internet, becomes increasingly advanced. The
rate of technological change itself is growing at an amazing pace. Advanced technology
affects today's organizations in many ways and forces managers to respond quickly and
wisely. From the UPS story at the beginning of this lecture, we can see how IT enables
UPS to gain competitive advantage.
Information Processing and Communication
Rapid changes in information processing and communication alter the way the business
was done. The Internet has a significant influence on how companies communicate and
operates. Many companies are doing their business online with their business partners
(B2B) as well as customers (B2C). This creates a new form of organization called 'the
virtual organization.'
Competition
Globalization and advanced information technology have made the market highly
competitive and uncertain. The adoption of trade agreements such as the North American
Free Trade Agreement (NAFTA) and the General Agreement on Trade and Tariffs
(GATT) has increased competition because it becomes easier for foreign competitors to
penetrate the domestic market. Developing countries may soon offer different,
innovative, high-quality, and less expensive products while enjoying the benefits of low
labor costs, highly expertise in a certain area, and financial protection from their
government. For example, Mercedes-Benz (owned by DaimlerChrysler NYSE: DCX)
had to respond to the pressure from Japanese car manufacturers by introducing new
economy cars (i.e., A-Class and C-Class), eliminating 25,00 jobs, and building a new,
state-of-the-art plant in Tuscaloosa, AL.
Processes for Planned Organizational Change
External pressures may force change on an organization. In the current turbulent
environment, the organization has to not only respond to change but anticipate it, prepare
for it through planning, and incorporate it into its business strategy (Moorhead & Griffin
1995, p. 471). To view organizational change or transformation from a strategic
(dynamic) viewpoint, there are three models that are used to deal with this issue: Lewin's
process model, continuous change process model, and Venkatraman's stages of change.
Lewin's Process Model
Lewin introduced a model called "Organization Change Process" that suggested a
systematic multistage process to approach change (Lewin 1951). He believes that
organizations exist in a temporary stable state with two sets of forces: one drives changes,
and the other restrains them. The model (see figure 1) consists of three stages:
unfreezing, change, and refreezing.
Unfreeze
Old
State
(Increased Need
for change)
Refreeze
Change
(Assurance of
permanent
change)
New
State
Figure 1. Lewin's Change Process
First, unfreezing is the process by which people become aware of the need for change.
For example, dissatisfaction with current operations is one of the motivations to change.
Once people become aware of the need, they will be motivated to unlearn current
behaviors and attitudes. Second, change is the movement from an old stage to a new one.
Change that refers to anything that alters existing relationships or activities includes
purchasing and installing a new equipment, redesigning business processes, or
implementing a new information system. In this stage, people will learn about new
behaviors and attitudes. Last, refreezing is the process of making new behaviors
relatively permanent or routine and resistant to further change.
The success of organization change depends on how well people can break their old habit
and accepts a new one. Managers or leaders play a significant role here to be proactively
involved in the changes and encourage (or educate) their subordinates to learn to change.
Without a top management support and involvement from all stakeholders (i.e., everyone
who will be affected by the changes), the effort will be highly unlikely to succeed.
Continuous Change Process Model
Lewin's model, though simple and straightforward, addresses change as planed, rational,
and controllable process. In reality, however, change is complex and difficult, if not
impossible, to deal with. From top management perspectives, change needs to be treated
as an ongoing process. Continuous change process (see figure 2) states that the
organization may seek the assistance of a change agent, a person who will be responsible
for managing the change effort. The change agent can come from inside or outside the
organization. An internal agent is likely to know more about the organization and
business processes than an external one. On the other hand, outsiders will be likely to be
more acceptable by everyone because of their assumed impartiality. Under the direction
and management of this change agent, the organization implements the change through
Lewin's change process. Finally, the change agent together with top managers evaluates
the effect of change that takes place whether or not it meets their desire. Throughout the
change process, the change agent acts as a facilitator who brings in new ideas and
viewpoint that help members look at old problems in new ways, and as a initiator who
challenges the organization's assumptions and generally accepted business processes.
1. Forces for
Change
2. Recognize and
Define Problems
3. Problem
solving Process
Change
Agent
5. Measure,
Evaluate, Control
4. Implement the
Change
Figure 2. Continuous Change Process Model (Moorhead & Griffin 1995)
There are many approaches to deal with changes (see more details at
Aorist consulting firm). Each of those approaches has strengths and weaknesses, and
there is no one magic solution for successful organization change. Managers must
choose an appropriate approach to their organization depending on what situation they
are facing.
Stages of Change
Read the full article IT-enabled business transformation: From automation to business
scope redefinition. By: Venkatraman, N.; Sloan Management Review, 01/01/1994.
Below is a summary of the article.
Venkatraman (1991) argue that IT-enable organizational transformation is an
evolutionary process. He develops a framework that is based on 2 dimensions: the range
of IT's potential benefits and the degree of organizational transformation (see figure 3.).
The underlying thesis of this framework is "the benefits from IT deployment are marginal
if only superimposed on existing organizational conditions (especially strategies,
structures, processes, and culture). Thus the benefits accrue in those cases where
investments in IT functionality accompany corresponding changes in organizational
characteristics." (Venkatraman 1994). These changes can be divided into 5 stages (see
figure 3).
High
Degree of
Business
Transformation
5. Business scope redefinition
4. Business network redesign
Revolutionary
Levels
3. Business process redesign
2. Internal Integration
Evolutionary
Levels
1. Localized Exploitation
Low
Low
Range of Potential Benefits
High
Figure 3. Five Stages of IT-enable Business Transformation ( Venkatraman 1991)
Stage1: Localized Exploitation
IT is exploited within existing, isolated business activities, normally within one
functional area. This is the deployment of standard IT applications with minimal changes
to the business processes. Stand-alone systems, e.g., an accounting system and a billing
system, are examples of systems found in this stage. Managers, typically, choose these
systems to solve operational problems or challenges occurring in a functional area. For
example, Hertz (NYSE: HRZ) and Avis (NYSE: AVI), number 1 and 2 car rental
companies, implemented systems to automate a car rental process at major airports
(Venkatraman 1994).
Stage 2: Internal Integration
A company builds the internal IT infrastructure, or platform, that allows the integration of
tasks, processes, and functions. Stage 2 is an extension of stage 1, indicating a more
systematic attempt to leverage IT capabilities throughout the entire business process.
This stage involves two types of integration: technical connectivity and business process
interdependence. First, technical connectivity deals with connecting different systems
and applications through a common IT platform. Second, business process
interdependence refers to integration between organizational roles and responsibilities
across distinct functional areas. To succeed, a firm needs both. Most companies focus
heavily on technical connectivity (e.g., making sure that systems are integrated), but they
overlook business interdependence (e.g., coordination among functions). Venkatraman
(1994) concludes, "the lack of attention creating interdependent business processes (with
a supporting performance assessment system) weakens the organization's ability to
leverage a seamless and interoperable technical platform." Several examples include
Merrill Lynch (NYSE: MER)'s Cash Management Account (CMA) that leverages
information across different financial products, Baxter (NYSE: BAX)'s Analytic Systems
Automated Purchasing (ASAP) that delivers high-value products and services to
customers, and Frito-Lay's Electronic Data Interchange (EDI) that provides information
for marketing managers to respond quickly and effectively to their competitors. Learn
more about Frito-Lay (Click here).
The first two stages are "evolutionary" because they require minimal changes to the
business processes relative to the next three stages. Stage 1 and 2 need to follow
accordingly; however, a firm does not have to follow stage 3, 4, and 5. One can jump
from stage 2 to 4 or 5, or from 2 to 5 without passing 3 and 4.
Stage 3: Business Process Redesign (BPR)
The third stage reflects a strong view that only automating a process is not sufficient for a
firm to lead its competitors. Process automation provides efficiency up to a certain point,
and productivity will become stagnant. In order to bring productivity to the next level,
managers need to redesign their business process. Many people associate BPR with
downsizing because as the processes are streamlined, many non-value-added jobs are
eliminated. However, this is not always the case. Companies can move their employees
to new positions, rather than firing them.
Benefits from BPR are limited in scope if the redesigned processes are not extended
outside the organizational boundary. Redesigning or revitalizing relationships with other
parties (e.g., suppliers and customers) will increase value to the entire supply or value
chain. For example, the entry of Shell, Sam's club, Sears (NYSE: SRH), and other major
companies into the credit card market has changed the basis of competition in the market
place.
Stage 4: Business Network Redesign
The above three levels are centered on IT-enabled business transformation within a single
organization. Although we discuss earlier that BPR needs to go beyond the firm's
boundary to gain benefits, we assume that external parties (suppliers, consumers, and
other intermediaries) remain the same. On the other hand, the fourth stage: business
network redesign, refers to "the exchange among multiple participants in a business
network through effective deployment of IT capabilities." (Venkatraman 1994)
Business network redesign is not electronic data interchange (EDI) or a transaction
processing system (TPS). EDI and TPS are only a means to redesign the business
network rather than an end in itself. For instance, Wal-mart implemented
Stage 5: Business Scope Redefinition
This stage addresses not only the question of "what business(es) are we in -- and why?"
but also "what role (if any) --does IT play in influencing business scope and the rationale
of business relationships within the extended business network?" (Venkatraman 1994).
The focus of business scope redefinition is to fundamentally alter activities within a value
chain by using IT to enhance coordination and control (Gurbaxani and Whang 1991).
Venkatraman (1994) describes business process redefinition in a delicate way as follow.
"Companies should accompany the current strategic thrusts toward core
competence and outsourcing with a systematic approach to combine the critical
competencies in a form acceptable to the customer. IT capabilities greatly
enhance and facilitate such attempts at combining the required competencies on a
flexible basis…the flexible combination of different fragments of activities to
provide customers with the required products and services is fundamentally
enabled by superior information processing capability. We cannot talk effectively
about network-based coordination to deliver flexible products and services if we
do not have a supporting IT infrastructure for efficient coordination and control."
Examples of companies that experienced business scope redefinition are American
Airline's SABRE (ticket reservation system) and Otis Elevator's remote elevator
monitoring (REM). American airline (NYSE: AMR) and Otis Elevator Co., a whollyowned subsidiary of United Technologies Corporation (NYSE: UTX) earn a lot of money
out of their systems by charging a usage fee. In addition, a number of dot-com
companies introduce a new way of doing business and redesign activities in a value
chain. For example, Amazon.com is the biggest online bookstore that expands the scope
of a brick-and-mortar store. It provides customers with not only a book itself but also
related information such as the book review and other related books
Information Technology as a Change Agent
Information technology (IT) is an agent for social change. The introduction of new IT
into a broad range of human activities is having an impact on human communication and
the structure of human organization. The interaction between the evolution of IT and the
development of economy and society has always been an important dimension of our
history. IT is expected to become rapidly advance especially in several areas
biotechnology, artificial intelligence, and Internet technology. For example, the
international Human Genome Project funded by National Human Genome Research
Institute (NHGRI) successfully completed the pilot phase of sequencing the human
genome and the launch of the full scale effort to sequence all 3 billion letters (referred to
as bases) that make up the human DNA instruction book (see the article). This project, if
done successfully, will create a tremendous amount of benefits to the area of
biomedicine.
In the business area, IT has far advanced than anyone can imagine. Computers not only
become smaller, faster, smarter, and cheaper, but also converge into televisions and
telephones. On our computer, we can literally do everything including watching TV
shows, talking or chatting with friends and family, reading a newspaper, looking up
information, and buying and selling products/services. From the aforementioned
examples, IT is likely to modify significantly current ways of doing business.
Organizations in the post-industrial society are currently faced with more increased
turbulence in the business environment than ever before. Many companies are under the
pressure of increased competition, shorter product/service life-cycles, and rapidly
changing consumer needs. These pressures require an increased ability for organizations
to acquire, process, and distribute information in a timely and cost-effective manner
(Bhattacherjee and Hirschheim 1997). The authors point out, "appropriate use of
computer and communication technologies are expected to provide organizations with
opportunities to restructure and significantly enhance their information flow and
processing capabilities. Introduction of a new information technology within an
organization may, however, require or lead to changes in organizational structures, roles,
and processes - sometimes unanticipated and unprecedented scale." (Bhattacherjee and
Hirschheim 1997) Therefore, managers who want to implement a new IT need to
consider its potential impact as a change agent, and address issues related to
organizational change.
Read The magic bullet theory in IT-enabled transformation. By: Markus, M. Lynne;
Benjamin, Robert I.; Sloan Management Review, 01/01/1997. The article discusses why
many IT projects fail because of misperceptions about the role of IT. The authors suggest
an alternative way of viewing IT as a change agent.
Optional Readings: Brief Summary
Both assigned reading Markus et al. (1997) and Venkatraman (1994) examine the role of
IT in organizational change. The first article focuses on input elements of a change
process (e.g., top management support, managers' perception, and teamwork); the second
article emphasizes outcomes (i.e., five levels of change). They didn't explain how IT can
actually alter an organization. In other word, they left out process and feedback parts of
an entire change process. (Remember all processes have four major components: input,
process, output, and feedback). The two optional readings below will help fill out that
gap.
The first article that we will read this week is written by Malhotra (1993)
http://www.brint.com/papers/change/ The article addresses the role of information
technology in managing organizational change by using the open systems theory to
understand the impact of IT on the organizational structure. The open systems approach
provides a “wholistic” view of an organization an open system that interacts with its
environment. In order to understand the role of IT, Malhotra proposes seven propositions
that can be used as a building block to measure organizational effectiveness. Finally, the
author suggests that a study of organization needs to include input, process, output, and
feedback, as well as their interrelationship.
The second article is written by Gurbaxani and Whang (1991). They attempt to study the
relationship between IT and organizational change. Unlike Malhotra’s article, Gurbaxani
and Whang study the impact of IT from an economic perspective. The authors focus on
two specific attributes of firms: size and decision rights (i.e., the allocation of decisionmaking authority among the various actors in a firm). They use two economic theories:
agency and transaction costs. The authors argue that IT can reduce coordination and
transaction costs and alter firm size by changing the underlying cost structure of a firm.
In addition, IT may lead to decentralize or centralize decision rights depending on
organizational and environmental factors. Exploiting this capability of IT properly can
derive a hybrid organizational structure.
References:
Colvin, G. 1984. What the Baby Boomers will Buy Next. Fortune, Oct. 15, p. 28-34.
Moorhead, G. and Griffin, R.W. 1995. Organizational Behavior. Houghton Mifflin Co.,
Boston.
Nickols, F. Change Management 101: The Primer. 2000.
http://home.att.net/~nickols/change.htm.
Lewin, K. 1951. Field Theory in Social Science. New York: Harper & Row.
Bhattacherjee, Anol ; Hirschheim, Rudy. IT and organizational change: Lessons from
client/server Technology Implementation. Journal of General Management v23n2,
(Winter 1997): p.31-46
Gurbaxani, V. and Whang, S. The Impact of Information Systems on Organizations and
Markets. Communications of the ACM, Jan 1991, p. 59-73.
Venkatraman, N. "IT-induced Business Reconfiguration." In the Corporation of the
1990s: Information Technology and Organizational Transformation, edited by M.S.
Scott Morton, Oxford University Press, NY. 1991. p. 122-158.
Venkatraman, N. "IT-enable Business Transformation: From Automation to Business
Scope Redefinition." Sloan Management Review, V. 35, N. 2, Winter 1994, P. 73-87.