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
VignetteYour 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 15-year 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.
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.
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).
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).