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The resulting structure of sub-organizations is redefining the boundaries of both firms and industries. A case in point is the computer industry. In the past, large, vertically integrated firms such as IBM dominated the industry, which created products and services throughout the value chain -- from the microprocessor level all the way up to the provision of solutions. The vertical structure is now being replaced by a series of layers, each of which is, in effect, a separate industry. Value is generated by coalitions, where each member of a coalition specializes in its area of core competence and enhances it through the use of tactical or strategic partnerships. Internally, team structures are replacing the traditional hierarchical form. Incentives are increasingly based on performance, and achievements. In sum, modern enterprise is undergoing major restructuring and information technology IT is an important driver of this transformation. "A fundamental change is taking place in the nature and application of technology in business. This change has profound and far-reaching implications for organizations and for you...the information age is evolving into a second era. Organizations that do not make this transition will fail. They will become irrelevant or cease to exit." ¨ Information Technology: Technology is usually referred to as the production process of a society or an industry. But, with the advent of computers, such assumption is no longer valid. We are now living in a new era of Information, and a new definition is born: “Information Technology” which combines the processing power of computers and all hardware and software that accompanies it, enabling those components to retrieve, process, store and distribute information to support decision-making and control in an organization. With such tools individuals can access and share a wide variety of information “Information technology… transcends the knowledge base constraints of general technology and gives the user access to a theoretically limitless perceptual field” . The effects of computers and its accompanying systems have therefore, the capability to change social as well as organizational structures. ¨ Organization Structure: The structure of an organization is seen as providing the framework, which turns a collection of people and resources into an identifiable form. “Mintzberg places considerable emphasis on structure and his definition proposes it as the summation of the ways in which a firm’s labor is directed and coordinated into tasks” There are generally several models of organizations. But the most commonly used are the mechanistic form, which portrays the organization as a machine, and organic which view the organization as an organism, which is a more flexible model. Since structure (mechanistic or organic provides a framework for all the components of an organization including technology, we can therefore find a relationship between structure and technology, and more specifically IT. At the turn of the century, Frederick Taylor sought to put the wisdom for successful business organization on a scientific basis. His work guided a generation of managers towards success in adapting their organizations with the technologies, markets, labor and general environment of the era. By the 1920s, Henry Ford had applied the Taylorist approach and soon dominated the automobile market, driving dozens of competitors under. Ironically, these same principles are opposed to the prevailing wisdom of the 1990s. For example, consider the following guideline from The Science of Management “It is necessary in any activity to have a complete knowledge of what is to be done and to prepare instructions... the laborer has only to follow instructions. He need not stop to think.” The current emphasis on "empowerment", "learning organizations", and even "thriving on chaos" stands in sharp contrast to the above advice. Similar contrast can be found with many, if not most, of the other principles that lead to success even as late as the 1960s. For example, there are growing calls for downsizing (vs. economies of scale), total quality (vs. cost leadership), project teams (vs. functional departments), networked organization (vs. clear firm boundaries); performance-based pay (vs. position based), and autonomy (vs. rigid hierarchy). Comparing the present information revolution with the Industrial Revolution, Malone and Rockart (1993) indicated that the latest changes in IT would lead to the evolution of new technology-intensive organizational structures. They project that the advances in IT would result in dramatic decline in the costs of "coordination" which would lead to new, coordination-intensive business structures. In this section we review the major factors of change that might affect the Organizational Structure, and explain the difference between the old structure (Mechanistic) and the new one (Organic) and the relationship of IT with them. We then explain how Information Technology changes the structure of such organizations. There are many possible factors for the change regarding organizational design. For instance, it is justifiable to call for change with reference to competitive pressures: although firms that applied the old principles were among the most successful competitors of their day, presumably the nature of competition has changed in some way. Others suggest that consumer tastes have changed, making customized items more appealing than they once were. All the factors leading to the current organizational transformation are undoubtedly numerous and far from being independent, but we would like to single one out for special attention: the rise in IT. The new organizational model is strongly connected with the structure of an organization's information systems. Under the old model (Mechanistic), the firm was governed by a relatively rigid functional structure. This separation into distinct and well-defined organizational units economizes on the information and communications requirements across functional units and reduces cost and complexity. There is a tradeoff, however: the old structure is less flexible, less responsive and ultimately results in lower quality. In my view, the growing use of IT and the trend towards networking and client-server computing are both a cause and an effect of the organizational transition. Lowering the costs of horizontal communications, facilitating teamwork, and enabling flexible manufacturing and providing information support for time management and quality control. It is equally clear that the new organizational model (Organic) demands new information systems: nothing can be more devastating for cross-functional teamwork than a rigid information system that inhibits cross-functional information flows. We can unify these perspectives by noting that the structure of the organization's information system is a key element of organizational transformation. Changes in IT change the nature of organizations just as changes in organizational structure drive the development of new technologies. "In summary, the traditional organizational structures and practices do not have to stay the same as we move into the 1990s. All dimensions of the organization will have to be reexamined in light of the power of the new IT. The economics are so powerful and apply to so much of the organization that one has to question everything before accepting the status quo (Morton, 1991:11)." Information Systems and Organizational Structure Investment in computers has increased steadily and dramatically since at least the 1960’s. There have been over a twentyfold increase in IT investments between 1971 and the 90’s. Computers, a category of equipment that was largely insignificant three decades ago is now very important. Today, a book-sized 2.5KG (4 pound) $1200 " notebook PC" packs the computing power of a million dollar mainframe computer of the 1960s. The downsizing and price-reductions of computing technology has enabled even the smallest of organizations to afford a computer or two. IT changes the structure of organizations by facilitating certain information flows as well as by turning knowledge that used to be specific into general knowledge. Intra-organizational networks and workgroup computing facilities reduce the information costs of teamwork and hence make it a more efficient solution to the organizational design problem. Client-server computing technology lowers cross-functional (as well as geographic) barriers. The importance of information is reflected in its ability, through the appropriate technology, to corrupt departmental boundaries. IT (when applied properly) streamlines the types of information that used to be the “raison d’être” of middle management, and turns it into general knowledge that can be readily transmitted to, and processed by, people other than those who originally gathered the data. A reduction in the number of management layers and the thinning out of middle management ranks is the predictable result. Power is shifting from line managers to those who control the information technology, such as the technicians in the DP departments or knowledgeable users Similar considerations apply to enterprises that cross firm boundaries. With the increasing implementation of information technology, the issue has taken on greater significance. Boundaries can no longer be so easily identified. Modern technological systems directly link organizations into other organizations, thus merging in part, their established boundaries Future organizations would be "networks" (Keen, 1991) characterized by adhocracies with flexible systems of projects and teams (Drucker, 1988; Malone and Rockart, 1993; Mintzberg, 1979) brought together quickly to accomplish specific tasks (Ramstrom, 1974; Rockart & Short, 1989; Toffler, 1985) . Fig1 below illustrates this shift from the old form of Hierarchy to the new Network form Fig. 1. Transformation from the M-form to the IT enabled Network Organization The Relationship between IT and firm size In this section, we are concerned with how firms adapt to the availability of increasingly powerful and inexpensive IT. A theoretical question, then, is why the increasing use of IT might change the structure of firms. We answer this question in three basic categories: (a) Labor Substitution, (b) Outsourcing (c) Reduction of Layers of Management Perhaps the simplest explanation for why firm size might be related to IT is that firms can sometimes use IT to produce the same output with fewer people. It is affecting workers at all levels of organizations from the executives to assembly hands and clerks. “To align a firm’s structure for carrying out work so that the information technology can be leveraged, a firm must be prepared to downsize forcibly and painfully “ By substituting automated processing for human labor, these firms can increase productivity and reduce costs. To lower productivity gains realized at lower levels of the hierarchy into bottom-line profitability, management needed to identify and eliminate assets, employees, and divisions that automation had rendered either obsolete or underutilized. Another possible explanation for why IT might lead to smaller firms is that IT might allow firms to "outsource" more of their activities. That is, the use of IT might lead firms to "buy" rather than "make" more of the components and services needed to make their primary products. For instance, when a firm like Ford needs tires for the cars it produces, it has two choices about how to obtain these tires: It can make them internally, or it can buy them from a tire supplier. If Ford produces its own tires, for instance, it will be incurring extra costs, including, the costs of managers, labors, raw materials and machinery. If Ford buys its tires from an outside supplier, it will only incur coordination costs for finding suppliers, negotiating contracts, and paying bills. Coordination costs include information intensive activities such as gathering information, communicating, and making decisions. Since IT is particularly useful in these kinds of information intensive activities it will even reduce these costs that are needed for coordination with external suppliers. IT can make buying things externally more attractive to firms and less likely to need as much internal manufacturing capacity. In this case, the average size of firms should decrease. The new technologies will allow managers to handle more functions and widen their span of control. "...information technology is a critical enabler of the re-creation (redirection) of organizations. This is true because it permits the distribution of power, function and control to wherever they are most effective, given the missions & objectives of the organization and the culture it enjoys The way in which Information Technology will be used, will determine the points at which decisions are to be made, shifting these points from the top management to middle management and even clerks. Therefore, if the decision points are changed by technology, then the structure and size should change also. Fewer levels of management hierarchy will be required, enabling companies to flatten the pyramid of today's management structure. The new information technologies allow decentralization of decision-making without loss of management awareness; thus employees at all levels can be encouraged to be more creative and entrepreneurial. The key responsibility of the CEO will be leadership; to focus the energies of organization on the key strategic objectives. Fig. 2 represents the Downsizing of the structure of Organization In this section we examine the evolution and future trends of the most visible and transforming technology of our time, the Internet. Improved connectivity, faster computers, emergence of digital libraries, software agents are a few such technological advances that are beginning to suggest the structure of the future Organizations From its modest beginnings in the early 1990s, the World Wide Web has grown to the point where hundreds of millions of people across the globe access it on a regular basis. This tremendous growth has also fueled a rapid and unprecedented increase in use of the Web for business applications. Companies like Amazon.com have begun to tap into the multi-trillion dollar global retail industry. Investment services companies now make the buying and selling of securities a daily occurrence for millions of small investors. And even schools and universities now offer graduate degrees to thousands of students entirely via this amazing medium This tremendous increase in the use of the World Wide Web to execute business transactions now goes under the name electronic commerce, or e-commerce. Electronic commerce is transforming business faster than organizations can adapt. We're becoming a "wired" society, and futurists predict these changes will become more far-reaching than we can even imagine. A quote from the Investor Guide explains this point: The Internet is the biggest megatrend in history. It’s fundamentally changing the way companies do business, and it will soon change the way people live. This convergence of personal computing and communications is a trillion business that’s creating incredible synergies, allowing traditional things to be done better and allowing new things that couldn’t be done at all before. Over the next 15 years, the internet will eat traditional communications, entertainment, publishing, client/server computing, commerce and transaction processing research – the list goes on and on . The Internet is becoming the main place to work and to do business for many companies and people, and in the future they will spend their working lives on the Internet, communicating with other people, selling, buying and surfing the markets for new opportunities. Companies have to change their way of working in the next Millenium, in order to compete on the Internet, and the next generation of organizational model will probably be something like virtual offices on the net. Those organizations that choose to ignore the new trend in technology and do not adapt to those changes are bound to find themselves out of business quickly The Internet and information technology is fundamentally changing our whole society and it is no longer a case that some companies are IT oriented and others are not. Those who do not join the IT revolution ‘will go to the wall’ – and fast. (Percey Barnevick, chairman of Investor, the largest owner on the Stockholm stock exchange) From this study, we find that there is substantial evidence of a relationship between increased levels of IT usage and smaller firm size, therefore, our findings are consistent with the hypothesis that IT changes organizational structure and leads to a decline in the average size of firms. In the next century (Millenium) which is just a few days away, Organizations should look different as a direct result of the ability to process information and the disappearance of such traditional barriers to innovation as location and organizational boundaries. Organizations such as we know them today, might cease to exist and give place to virtual organizations that exchange and share information on the Internet. Bibliography: Bibliography Daniel Robey, and Carol A. Sales, “Designing Organizations”, 4th Edition, Richard D. Irwin Inc. 1994 David Overbye, “Internet Commerce Provides New Opportunities.” Los Angeles Business Journal Issue: Jan 24, 2000 (Source: Internet) Doug Bartholomew, “How to lead?(information technology and managing)”, Industry Week, issue Jan 19, 1998(Source: Internet) Jon Harrington, “Organizational Structure and Information Technology” Prentice Hall International (UK) Ltd, 1991 GEAC “How Information Technology can transform business” January 5, 1999 GEAC is a leading worldwide supplier of business solutions to the highly competitive mid-market sector (Source : Internet) Mats Larson & David Lundberg, “The Transparent Marke:t: management challenges in the electronic age” MacMillan Press Ltd. London, 1998 Martin Beirne and Harvie Ramsay, “Information Technology and Workplace Democracy”, Routledge, London, 1992 Michael Earl “Opinion How To Be a CEO for the Information Age.” Sloan Management Review, Issue: winter, 2000 (Source: Internet) Peter Hess & Julie Siciliano, “Management: responsibility for performance” McGraw- Hill, 1996 Rob Kling “Computerization and Controversy: Value Conflicts and Social Choices,” San Diego, Academic Press (2nd Ed.) , 1996. (Source: Internet) Richard L. Nolan and David C. Croson, “Creative Destruction: a six stage process for transforming the organization”, Harvard Business School Press, Boston, 1995 “Role of Information Technology in Managing Organizational Change and Organizational Interdependence” @brint.com: The BizTech Network™ Word Count: 2730
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