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Use Information Technology for Organizational Change
MARYAM ALAVI AND YOUNGJIN YOO
The information age is upon us. With a few clicks of a mouse button, we can instantly access everything from current stock prices to video clips of current movies, with millions of bytes of information in between. Like the steam engine helped enable the transition into the industrial age, information technologies are fueling the transition into the information age.
The phrase information technologies (IT) refers to computer and communication technologies (both hardware and software) used to process, store, retrieve, and transmit information in electronic form. Today, information technologies are pervasive in industrialized nations and are changing the way we work and live with an accelerating pace. According to Forrester Research, it was estimated that there would be over 1 billion personal computers (PCs) in the world by the end of 2008 and the number is expected to double by 2015. While it will have taken 27 years to reach the first billion PCs in the world, it will take only seven years to reach the next billion (Champan, 2007). When we consider new forms of computing devices such as the mobile phone, the number is even more overwhelming. Consider the following. According to a report by Reuters (November 29, 2007), there were over 3.3 billion mobile phone subscribers in the world in November 2007, which is the half of the world population. Furthermore, there are 50 countries in the world that have more mobile phones than people. One can presume this dramatic penetration of IT will only accelerate over the coming decade. According to Computerworld, the average spending on information technologies in the USA by various industries grew to 6.4% in 2008 from 3% in 1993.
Why do firms invest so heavily in IT? What are the organizational impact and outcomes of IT? What positive changes can be expected and realized from IT applications in organizational settings? These questions have been of great interest to both researchers and practitioners in the field of information systems (IS) over the last 40 years. It is expected that the study of the organizational impact and benefits of IT will increase in popularity and importance due to the increasing dependence of global commerce on IT as well as the steady introduction of new information technologies with new capabilities.
Dramatic and rapid developments in information technology have brought fundamental changes in the strategic landscape. Companies can no longer rest on the success of yesteryears. Instead, they constantly need to look out for emerging new technologies that might make their core products and strategies obsolete overnight. Many companies that used to dominate their own market have seen their key products quickly becoming obsolete due to these disruptive technologies. We will summarize some of the key technological trends that underpin these fundamental changes. We then discuss four different ways to use IT as a catalyst of organizational change in an information age.
Ever since organizations started using large mainframe computers for their back-office automation in the 1950s, the development of new technologies have created new opportunities to change organizations. The introduction of PCs, the development of network technology, and the emergence of the internet as a viable platform of commerce activities all significantly influenced organizations. Now, the introduction of ubiquitous computing, fueled by the advancements in mobile technology and miniaturization of computing chips, is poised to revolutionize organizational computing one more time. Below we will summarize some of the key technological trends that will influence the way organizations perform.
Miniaturization of computing resources
One important driver behind the current development of ubiquitous computing is miniaturization of various computing resources. The computing power of microprocessors has been doubled roughly every 18 months. Such dramatic improvements in computing power have enabled companies to reduce the size of chips dramatically. As a result, we can embed computing powers into tools and equipment, and even physical environments to create intelligent tools and intelligent environments. Such intelligent environments and tools can recognize the changing context and render appropriate computing services to meet the needs.
Broadband network
Another important development in technology is the rapid penetration of broadband network. Over the last decade, the bandwidth of communication network has been doubled every 6-9 months. Not long ago, 28.8 kbps dial-up connection was considered a luxury. ISDN, T1, and T3 connections were available only at selected organizations. Today, through the use of DSL, cable modem, fiber optics, and satellite, increasingly large bandwidths in communication network are available.
The emergence of the internet as a communication backbone
In the past, organizations had to maintain two different types of communication network: voice and data. Recent developments in network and digital signal technologies, however, made it possible to exchange rich multimedia data over the internet network without losing the quality of services. Consequently, individuals can conduct voice and video conferencing over the internet. A key development in the internet is the development of a new internet protocol, called IP V6 (internet protocol version 6). An important significance of IP V6 is the large number of unique IP addresses that can be assigned. Theoretically, the new addressing scheme allows up to 3.4 × 1038 unique addresses. This can be translated into approximately 5 × 1028 for each of the 6.5 billion people alive in 2006. It will be more than enough to assign a unique IP address for everyone on earth and many of the objects that they possess, not to mention their computers. This opens up unlimited possibilities of connecting various tools and equipment to the network, which in turn opens up many novel business opportunities.
Wireless technology
In the past, users had to go to a specific location in order to use computers. Increasingly, however, computing services will follow users when and where they are needed. This is due to the explosive growth and developments in wireless communication technologies and mobile handheld devices. The speed of current wireless technologies easily exceeds the speed limit of fixed line internet connection of just a few years ago. Furthermore, the development of global positioning systems (GPS), sensors, and RFID (radio frequency identification) which can be embedded into small devices enables completely new ways of organizing resources.
Mobile devices
The increasing miniaturization of computing resources and increasing mobility gave birth to various small handheld devices that can perform powerful computing services. Various mobile devices, including mobile phones, PDAs (Personal Digital Assistants), Blackberries and portable media devices (e.g. iPods), provide convenient mobility with increasing computing powers to the mobile users. These devices increasingly liberate users from the past limitations of space and time so that they can use computers anywhere and anytime.
Organizational implications of technology trends
The aforementioned developments in various areas in information technology can be summarized in three characteristics: mobility, digital convergence, and mass scale. First, computing services have become increasing mobile, following where users are and providing services when it makes most sense. At the same time, we will see increasing convergence toward digital signals. For example, so-called “triple-play” (combining broadband internet, phone, and TV services) or “quadruple-play” (adding mobile internet) has resulted from rapid digital convergence in media content, storage, and distribution mechanisms which have created major disruptions in media and communication industries. By utilizing the quickly converging digital platforms, companies in these industries can and must explore new media products and services that combine, for example, internet services and mobile communications.
While the technological developments reviewed in this section are breathtaking and impressive, managers need to think about how to leverage such new technological capabilities for their organizations. They need to constantly ask the question “Do we deliberately harness the technology innovations?” The developments in IT as reviewed here have created new sets of opportunities to improve efficiency, transform the way they are organized, disrupt competitive dynamics, and invent new business opportunities. Yet, organizations must act deliberately in order to leverage these new capabilities (Zammuto, Griffith, Majchrzak, Dougherty, and Faraj, 2007). New technological capabilities cannot be simply plugged into an existing organizational structure. Instead, organizations need to revisit long-held rules and assumptions (Yoo, Boland, and Lyytinen, 2006).
Studies of various forms of IT systems and applications in organizational settings (Boland, Lyytinen, and Yoo, 2007; Harris and Katz, 1991; Keen, 1991) have established that IT use in organizations can lead to four major categories of changes. These categories consist of:1. gaining large-scale efficiencies in business processes and transactions (Brynjolfsson, 1994; Davenport, 1993; Hitt and Brynjolfsson, 1996),
2. enhancing communication, information access, decision making and knowledge sharing (Alavi and Leidner, 2001; Jarvenpaa and Leidner, 1999; Kanawattanachai and Yoo, 2007; Lipnack and Stamps, 2000; Majchrzak, Rice, Malhotra, King, and Ba, 2000),
3. changing the basis of competition and industry structure to a firm’s advantage (Pavlou and El-Sawy, 2006; Porter and Millar, 1985; Sambamurthy, Bharadwaj, and Grover, 2003; Sambamurthy and Zmud, 2000), and
4. exploiting new business models (Malone, 2004; Tapscott and Williams, 2006; Yoo, 2008; Yoo et al., 2006).
These categories are not mutually exclusive and a particular firm can realize various changes simultaneously through the effective use of various IT capabilities. Now, we will discuss these four impacts of IT in more detail.
Gaining large-scale operational efficiencies
The use of information technologies for transaction processing systems and enterprise resource planning systems can greatly enhance the operational efficiency of organizational processes. The development of advanced information technologies (such as service-oriented architecture and data warehouse) enabled the development of enterprise-wide integration across different business functions. For example, enterprise resource planning (ERP) is a highly integrated set of software modules designed to handle the most common business function transactions including general ledger accounting, accounts payable, accounts receivable, inventory management, order management, and human resources. At the heart of an ERP system is a single common database that collects data from and feeds data into all the software modules comprising the system. When an information item is changed in one of the software modules, related information is automatically updated in all other modules. By integrating information, streamlining data flow, and updating information across an entire business in a real-time mode, ERP systems can lead to dramatic productivity and speed gains in operations. Consider the efficiency gains at IBM’s Storage Systems division after the deployment of an ERP system. The division reduced the time required for repricing its products from five days to five minutes and the time required to complete a credit check from 20 minutes to three seconds (Davenport, 1998). Once Fujitsu Microelectronics implemented an ERP system, it was able to close its financial books in four days (compared to eight days prior to the ERP system) and reduce order-filling time from 18 days to two days.
Continuing developments of communication and network technology further accelerate the trend toward tight integration in other areas. For example, in a healthcare setting, an integrated electronic medical record (EMR) system can be an integral tool in reducing the cost of healthcare service. Through the use of a centralized database, redundant and inconsistent data entry for the same patient can be minimized. Vital information about the patient can be easily shared between doctors, hospitals, insurance companies, and drug stores, dramatically reducing the time and effort it normally takes.
Enhance decision making and communication
Decision making and communication constitute two core organizational processes. Complex and challenging demands are placed on these two core processes in the current and emergent business environments, particularly due to globalization and the increased volatility of business and competitive environments.
Globalization has dispersed the operation of large firms across time and geography, increasing the need for effective and efficient ways to communicate across distance. Change in business and competitive environments in and of itself is not new (see Chapter 29, this volume). After all, it has been said that change is the only constant. However, the rate of change in today’s economy has greatly increased, making it a major force to contend with. The rapid rate of change increases decision-making complexity in several ways. An increase in fluctuations and uncertainty in the decision environment requires more sophisticated analysis for developing, evaluating, and selecting alternatives. An increase in the uncertainty and complexity of decision tasks further increases the information processing requirements of the decision maker. Larger volumes of information from various sources need to be assembled and organized more frequently. And finally, the rapid rate of change combined with the increased complexity in analysis and information requirements in decision environments increases the time pressure on decision makers. It is simple to see that the traditional approaches to organizational decision making (manual analysis and information management) and communication (face-to-face and same place, same time modes of interaction) are insufficient. Information technologies such as decision support systems and group support systems provide powerful capabilities in meeting the decision-making and communication demands of modern organizations.
The decision support system (DSS) concept was first articulated by Gorry and Scott Morton (1971) as an interactive computer-based system that enables decision makers to use data and analytical models to solve unstructured problems. The objective of decision support systems is not to replace the decision maker but to support and augment his/her judgment and experience in order to improve decision-making effectiveness. Recent developments in database technology further enable decision makers to analyze large-scale complex datasets with multidimensional decision-making criteria (Turban, Aronson, and Liang, 2006). These emerging DSS tools take advantage of sophisticated artificial intelligence and multidimensional statistical techniques to detect hidden patterns and associations. Furthermore, powerful visualization tools enable decision makers to analyze the data from many different angles (Dillon and Information Management Forum, 1998). Leading companies like Wal-Mart have been very successful in utilizing the huge volume of transaction databases to gain new insights into customer behaviors. Organizations can deepen their relationship with customers by leveraging better insight on customers’ behavior (Cooper, Watson, Wixom, and Goodhue, 2000). In information systems literature, several researchers have articulated and investigated the relationship between DSS and organizational decision-making processes and outcomes. For example, Leidner and Elam (1995) in their study involving 91 users of decision support systems in 22 organizations found that the use of DSS led to better decision-making outcomes as well as enhanced user mental models. Thus, the information access and analytical capabilities offered by DSS can bring about changes and improvements in decision-making processes and outcomes.
Information technologies, with their vast capacity for creating, transmitting, and storing messages, can also play a key role in the support of communication and collaboration processes in organizations. An early effort to use information technology to support organizational communication and collaboration processes led to the development of group support systems (GSS). More specifically, GSS refers to a range of computer- and communication-based capabilities designed to support work group interaction processes in order to enhance the performance of groups in organizational settings (Jessup and Valacich, 1993; Nunamaker, Dennis, Valacich, Vogel, and George, 1991). Dominant forms of early GSS tools include electronic mail and computer conferencing systems, videoconferencing, and electronic meeting systems.
There has been a major growth in the application of group support systems in organizations over the past decade. Consider the following examples and changes resulting from applications of group support systems. Boeing experienced a return on investment of 681% with an approximately $100,000 investment (Briggs, 2004). Andersen Consulting uses a Lotus Notes software system as a corporate backbone for the support of its knowledge sharing (Yoo and Torrey, 2002). Notes is deployed to over 10,000 people worldwide and is actively used for a variety of group functions, including e-mail, project management, and information exchange and capture.
Early GSS research literature (Benbasat and Lim, 1993; Dennis, Wixom, and Vandeberg, 2001; DeSanctis and Poole, 1994; Pinsonneault and Kraemer, 1989) point out that, in general, three types of value-added organizational change can be expected from group support system applications. These include: (1) reducing the effects of time and distance barriers that constrain face-to-face interactions and communication, (2) enhancing the timeliness, range, depth, and format of the information available to organizational members, and (3) improving performance and effectiveness by reducing group process losses (e.g. evaluation apprehension) through more efficient and structured group interaction processes.
The continuing development of communication technology has enabled the emergence of virtual teams as a viable form of organizing and coordinating group works (Jarvenpaa, Knoll, and Leidner, 1998; Jarvenpaa and Leidner, 1999; Lipnack and Stamps, 2000; Piccoli, Powell, and Ives, 2004; Powell, Piccoli, and Ives, 2004). A virtual team is a temporary, geographically dispersed, culturally diverse, and electronically communicating work group (Jarvenpaa and Leidner, 1999). Faced with global competitions and increased need to draw on a more diverse pool of talents, organizations routinely use virtual teams. Leading firms like Intel, Hewlett-Packard, and IBM rely on global virtual teams for their engineering tasks (Lipnack and Stamps, 2000). These organizations use a barrage of communication tools including electronic mail, intranet sites, groupware, and desktop videoconferencing to support these virtual teams. In many cases, virtual teams allow individuals to collaborate without permanently relocating, thus providing significant cost savings and productivity gains (Malhotra, Majchrzak, Carman, and Lott, 2001). Over time, virtual teams have become a pervasive and permanent reality of leading organizations.
Virtual teams present unique challenges to management, however. Some of these are old and familiar management challenges of managing diverse teams, only in the context of computer-mediated communications. Yet, at the same time, virtual teams present unique management problems that stem from the fact that virtual teams are explicitly socio-technical entities. Over the last decade, a large body of literature on virtual teams has emerged (Powell, Piccoli, and Ives, 2004; Wiesenfeld, Raguram, and Garud, 1999). Trust (see Chapter 21) (Jarvenpaa et al., 1998; Jarvenpaa and Leidner, 1999; Kanawattanachai and Yoo, 2002), leadership (see Chapter 15) (Kristof, Brown, Simps, and Smith, 1995; Pearce, Yoo, and Alavi, 2003; Yoo and Alavi, 2004), group composition (see Chapter 16) (Jarvenpaa et al., 1998), culture (Jarvenpaa and Leidner, 1999; Massey, Montoya-Weiss, Hung, and Ramesh, 2001), conflict (see Chapters 17 and 18) (Iacono and Weisband, 1997), the appropriation of communication technology (Majchrzak et al., 2000), and transactive memory (Cramton, 2001; Kanawattanachai and Yoo, 2007) are among a few of the factors that have been identified as drivers of the success and failure of virtual teams. These studies show that while virtual teams indeed face similar challenges that face-to-face teams have faced in the past, in many cases, the nature of those challenges are quite unique and different.
Virtual teams often rely on electronic communication media as primary means to communicate. These electronic media have different material characteristics that afford different communication capabilities to teams, which in turn afford different social dynamics in the teams (Fulk and DeSanctis, 1995; Zammuto et al., 2007). For example, Kanawattanachai and Yoo (2002, 2007) found that in virtual teams early communication plays a much more critical role than their counters in a face-to-face setting, as the early communication affects the emergence of swift trust and transactive memory systems - meta-knowledge of knowing who knows what. These early trust and transactive memory systems in virtual teams act more like a set of hypotheses that need to be validated and sustained later through teams’ actual interactions. This non-experience-based, hypothetical nature of trust and transactive memory systems in virtual teams are formed entirely through early communications via electronic media among team members.
In summary, information technologies in the form of decision support systems and group support systems can play a major transformational role in organizations through their impact on the key organizational processes of decision making and communication. Future developments in this area will depend not only on technological advances but also on our understanding of and open-mindedness toward their applications and the resulting changes.
Change the competition and industry structure to your firm’s advantage
Information technology offers organizations opportunities to change the competitive landscape by more effectively defining the dimensions of competition. The information and knowledge intensity (Porter and Millar, 1985; Palmer and Griffith, 1998) of products and services has become an important element in defining competitive advantage. Information intensity includes the amount of information that goes into the development of the product or the service, the amount of information required by consumers to utilize the product, and the amount of information required across the value chain to develop and deliver the product or service. Firms have redefined the basis of competition by providing additional information regarding their products or in extending the information content. Recent developments of ubiquitous computing technologies provide new ways of embedding information and knowledge into products and services; such actions can fundamentally disrupt the existing competitive dynamics.
Consider the case of Progressive Auto Insurance that opened up new competitive opportunity to leverage its knowledge on customer behaviors. It conducted an experimental program in Texas using advanced telecommunication technologies that included GPS and wireless communication tools. Progressive Insurance installed special equipment to the customers’ automobiles that were enrolled into a special program. The equipment recorded the customer’s driving pattern (time and location) and uploaded the information to the company’s data center at the end of each month. By combining the real driving records from customers with its massive database of past history, Progressive Insurance was then able to customize the insurance premium for each customer for the next month. Customers who drove more safely got big discounts, while customers who drove dangerously saw higher premiums. This model offers a serious disruption to the auto insurance industry given its cost structure. The profit margin of an insurance company is the difference between the insurance premium it receives from the customers and the incurred loss to cover the accidents. The Progressive Insurance program attracted a pool of low-risk customers from its competitors and drove out high-risk customers to them. This shift gave significant competitive advantage to Progressive Insurance.
The most significant change in industry structure came from the emergence of the Internet as a means of conducting viable commerce transactions. The Internet caused fundamental restructuring of highly fragmented industries through disintermediation. Two perfect examples are the travel industry and the office products delivery industry. Traditionally, the travel industry involved numerous independent travel agents presenting travel options of providers such as airlines, hotels, and rental cars presented to the business and leisure traveler. The advent of the Internet has significantly changed the industry structure, with providers providing services directly to customers via Internet sites. This disintermediation of the travel agents is a major structural change for the industry.
Supply chain management has been a critical area for the use of information technologies to change the competitive dimensions. The early implementation of electronic data interchange (EDI) in which supply chain partners exchange data on sales trends, inventory replenishment, and in-store space allocation and management has been replaced with B2B Internet commerce. Improvements in supply chain efficiencies have led to several significant competitive advantages for firms such as Wal-Mart and Dell, including improved bargaining power over suppliers, reduced inventory costs, and enhanced in-store space management.
Finally, some organizations use advanced IT in order to fundamentally reshape interfirm relationships. Shared database, interconnected IT-enabled business processes, and digitized tools can change the nature of interfirm relationships. Architecture, engineering and construction (AEC), the world largest industry, is experiencing a fundamental reshaping of interfirm relationships. The traditional practice of an AEC project begins with an architect working with a client to create a set of paper drawings and detailed specifications, which indicate the intention and form of what is to be built. The architect’s drawings leave it to the contractors and subcontractors to determine an appropriate method of constructing the building. Contractors take the architect’s drawings and use them as a basis for creating their own “shop drawings” which show how they intend to fabricate and install their part of the building. In preparing their shop drawings, contractors ask architects questions by submitting RFIs (requests for information) or RFCs (requests for clarification). In this traditional contractual context, architects and contractors need to be collaborative, yet often maintain adversarial relationships, maintaining an arm’s-length relationship and sharing minimally required information.
Recently, however, firms in the AEC industry began forming much more collaborative relationships among each other based on Building Information Management (BIM) systems (Berente, Srinivasan, Lyytinen, and Yoo, 2008; Boland et al., 2007). Such collaborations are based on information transparency and co-creation using a shared BIM platform. With BIM systems, contractors do not create their own shop drawings based on architectural drawings. Instead, there is a central repository of data and model, with layers of information that is created and consumed by different parties involved in the project. In a typical AEC project, design conflicts between different trades are often found at the field site, which cause delay and budget overrun. With BIM systems, such design conflicts are detected during the design stage and negotiated much earlier in the process, saving time and money. A communication pattern which used to be linear and sequential in the past now has become more dynamic and reciprocal using a centralized BIM platform. AEC firms that use these technologies have become more competitive with their improved efficiency and their ability to build more challenging projects (Berente et al., 2008).
The use of IT to change competitive dynamics often involves identifying opportunities for greater use of information in (1) the supply chain, (2) the description of the product or its use, or (3) the after-sales support or service dimension. Industry structures can be changed when the use of information technologies can (1) aggregate previously fragmented markets, (2) replace existing channels at lower cost or improved convenience, (3) more effectively bundle products and services, or (4) fundamentally alter interfirm relationships.
Exploit new business models
The speed, scope, and ubiquity of information technologies offer the opportunity to exploit entirely new business models in a variety of industries. The opportunity for firms to enhance customer relationships by offering 24/7 (24 hours a day, 7 days a week) access to purchasing, product information, and service offers an enhanced model for customer convenience and connection. This capability has influenced both Internet-based retailers as well as traditional retailers in the provision of customer convenience (Palmer, 1997).
The Internet has dramatically increased the marketing activities available to many organizations. While the Internet has helped organizations to gain efficiency, to improve communication and decision making, and to create new competitive dynamics, its most important impact was the creation of new business models. Take the most well-known Amazon.com as an example. The basic idea of using the Internet to sell millions of books on the Internet without relying on any type of physical direct interactions with the customers was a novel idea at the time it was first introduced. Other online companies such as eBay.com and Priceline.com also leveraged the Internet in order to implement a unique and novel business model. In the case of eBay, it uses a large community of passionate buyers and sellers, combined with an auction pricing model, to radically outsource procurement, pricing, sales and fulfillment of products that are sold (Malone, 2004). In the case of Priceline.com, it uses a unique “reverse auction” model so that sellers will bid for the price set by potential buyers in travel-related products. In these cases, the Internet provides these organizations an opportunity to present information regarding their products and services to both customers and suppliers. With the potential to reach global markets with product and service information as well as the ability to provide user interaction with the website, these companies were able to tap into so-called “long-tail” markets that were not practical in the past (Anderson, 2006).
The Internet also opens up the possibility of “open innovation” (von Hippel, 2005a, 2005b). Consider the examples of Linux and Apache software, two of the most popular and reliable software systems that run the Internet. Tens of thousands of volunteer programmers around the world worked together to build these software systems with minimum hierarchical control (O’Reilly, 1999; von Hippel and von Krogh, 2003). Open source developers use electronic communication and coordination tools in order to maintain a sense of social community and to coordinate their actions (Stewart and Gosain, 2006). This allows them to organize and source globally distributed programming knowledge and skills into exceptionally complex software products. The success of open forms of digital innovation is not limited to software. Companies like General Electric and Procter and Gamble have now started to turn to Internet-based innovation communities to find new ideas and solutions (Chesbrough, Vanhaverbeke, and West., 2006; von Hippel, 2005a). Such open innovation represents a novel business model for many organizations that are looking for new avenues for innovations.
Recently, companies like General Motors, IBM, and Sears began experimenting with Internet-based virtual reality. Emerging platforms like Second Life™ provide relatively scalable and inexpensive platforms to create virtual reality. Unlike conventional virtual reality technology that required expensive specialized hardware, software and facility, the new generation of virtual reality technologies use the Internet to reach millions of users. Furthermore, compared to conventional websites, these virtual reality platforms provide a much more engaging user interface. Individual users can create their own avatar which can navigate through the three-dimensional terrain in the virtual world. These avatars mimic human behaviors creating more intimate social context for interactions. Leveraging such a rich user interface, some companies like IBM are using virtual reality to add social dimensions to its global operations. Other organizations use virtual reality to introduce and/or experiment their new product ideas. For example, many consumer goods manufacturers are using virtual reality to let consumers experience their products virtually, even before those products are introduced to the real world market.
Finally, embedding of software-enabled capability into products and services enables organizations to invent new products and services (Yoo, Boland, and Lyytinen, 2008). Many products that used to be non-digital are now increasingly composed of fully digital components, enabling the products to interact with other local digital devices, or to use the Internet to control behaviors or learn about the environment in which they operate. This offers organizations a way to differentiate customer or user experience. For example, the widespread availability of GPS (Global Positioning Systems) functions in digital cameras and mobile phones, when combined with comprehensive digital maps and sensors in surrounding buildings, cars or clothing, can spur a stream of novel services and products that will connect previously unconnected experiences and create a new “virtual” physical world. By embedding digital RFID chips into running shoes, Nike and Apple were able to integrate the iPod into running shoes, creating a novel product that never existed before.
In summary, the development of IT offers four different ways to invent new business models: (1) organizations can use the Internet to reach out to “long-tail” markets; (2) organizations can draw on the power of crowds by employing open innovations; (3) organizations can leverage increasingly powerful virtual reality; and (4) organizations can invent novel products and services by embedding software-enabled capabilities into products and services.
Considering the prevalence of IT applications and the large and growing investments in them in modern organizations, one might expect a consistently positive set of outcomes associated with IT initiatives. This, however, is not always the case. Both research and practice have shown that due to implementation failures, IT may not lead to the planned or expected organizational changes described above. One form of implementation failure involves the cancellation of an IT project before the completion and installation of the system. For example, in 1995, 31% of large IT projects were canceled in US companies prior to their completion for an estimated total cost of $81 billion (Robey and Boudreau, 1999).
Another form of IT implementation failure involves situations in which the IT system is completed and installed, but the targeted organizational users resist the system, or do not use it in the intended way. An interesting example is provided by Robey and Boudreau (1999) and involves a system originally described by Kraut, Dumais, and Koch (1989). One of the goals of the system, a computerized record-keeping system, was to enhance the operational efficiency of the organization by reducing the opportunities for social interactions among employees during working hours. After the system installation, although the employees were more isolated, they “invented” a new and unintended way of using the system for social interactions. They used a memo field designed for capturing customer comments for passing messages back and forth among themselves, undermining the expected organizational efficiency gains from the IT system.
Thus, the successful implementation of IT systems is a prerequisite for realizing the planned and expected changes associated with these systems. The researchers in the information systems field have identified several factors that seem to contribute to the implementation success of IT systems. These factors include top management support and commitment, user involvement in the planning and design of the IT system, and user training in the use of IT (Alavi and Joachimsthaler, 1992; Lucas, Ginzberg, and Schultz, 1991). Top management support and IT commitment are prerequisites for the success of all forms of organizational change initiative, including IT-centered change. This is partly due to the need for top management support and commitment for garnering organizational resources required for IT implementation. Furthermore, top management support is shown to influence the level of individual user personal stake in the IT implementation success (Lucas et al., 1991). The strength of the relationships between user involvement and training and IT implementation success was established through the meta-analysis study of Alavi and Joachimsthaler (1992). This finding is consistent with the views presented in normative models of organizational change (e.g. Kolb and Frohman, 1970) and the diffusion of the innovation model (Cooper and Zmud, 1990) of IT implementation. These models highlight the importance of involvement and training as the means to create a favorable and accepting environment in which to bring about the IT-centered change.
Other researchers investigating IT implementation issues have suggested that the above-mentioned factors seem to be necessary, but not sufficient conditions for the success of large-scale IT implementations (Markus and Robey, 1988; Robey and Boudreau, 1999). According to these researchers, organizational change associated with large-scale IT applications is complex and should be analyzed at different levels including individual, group, and departmental as well as organizational and strategic levels. Consider the enterprise resource planning (ERP) systems described earlier in the chapter. At the operational level, these systems can lead to highly integrated, coordinated, and efficient core operational processes. These benefits are achieved by imposing generic and streamlined workflow logic encoded in the software on the organization. This impact at the operational level may restrict the latitude of authority at the individual worker level. On the other hand, the standardization of workflow and information items across departments may empower cross-functional teamwork in the organization. At the same time, the company’s move toward generic and standardized processes may have a negative impact on the competitive positioning of the firm, if customized processes are a source of competitive advantage in the firm. For example, Dell Computer found that its ERP implementation would not fit its new, decentralized management model (Davenport, 1998).
In summary, to enhance the success of IT implementation and to realize the desired organizational changes, IT impacts should be considered and planned for at multiple levels of analysis simultaneously. Failure to do so may lead to negative and unexpected consequences.
Implementing ERP systems at NASA
NASA was established in 1958 with the passage of the National Aeronautics and Space Act. It succeeded the National Advisory Committee for Aeronautics (NACA) by adding the development of space technology and inherited three major research laboratories - Langley and Ames aeronautical laboratories and Lewis Flight Propulsion Laboratory - along with two smaller test facilities. Soon after, other centers and facilities were added. Currently, there is one central headquarters and 10 field centers for research and spaceflight control (including the Jet Propulsion Laboratory which is managed by Caltech under a contract arrangement) around the USA.
From the beginning, each center was established in order to meet unique challenges in fulfilling the mission of the Agency. Over time, each center established its own unique competencies, culture, organizational structure, and technical infrastructures. The centers’ unique technical capabilities and foci of their research and development have served the Agency’s ambitious purpose of pursuing complex human and robotic space exploration projects. Centers have established worldwide reputations in their own unique areas for their technical excellence. Over time, however, this has resulted in “stove-piped” information systems and organizational processes at each center and for different functional needs. Each functional area built their legacy systems in order to meet their idiosyncratic needs. Furthermore, similar capabilities and knowledge resources were established in different centers, resulting in redundant investment. Different administrative and organizational procedures have made it difficult for the individuals within NASA to identify knowledge resources and capabilities distributed throughout the Agency. Even if they identify the potentially useful knowledge resources, differences in organizational rules, accounting standards, and information technology have made it difficult to collaborate across the center boundaries. As documented in a Columbia Accident Investigation Board (CAIB) report, the lack of integrated information systems and organizational practices caused major challenges in coordination and control across the Agency.
To address these challenges, NASA began working on an integrated financial management system in 1987 after the GAO found that NASA’s accounting and financial information systems “constitute a material weakness of the Agency.” The attempt to design and implement an agency-wide integrated system, officially named NASA Accounting and Financial Information Systems (NAFIS), failed after eight years and more than $90 million. After the failure of the NAFIS project, NASA decided to implement a “commercial off-the-shelf” (COTS) software system. In 1995, NASA officially launched the first iteration of the IFMP and hired KMPG Peat Marwick to customize a system that they had implemented elsewhere and implement it. Yet, NASA and KPMG agreed to cease the work in early 2000 as KPMG continued to fail to meet the major milestones.
In February 2000, NASA started its third attempt to integrate its financial management systems. NASA established an Integrated Financial Management Program (IFMP) and decided to implement the industry-leading product SAP and hired Andersen Consulting and IBM as the technical implementation and change agent consulting firms, respectively. NASA appointed new leadership of the project in February 2000 and redesigned the project. Marshall Space Center was selected as the lead center where most technical implementation teams are based, and Glenn Research Center was chosen as the first phase site. The vision of the IFMP program is to build a modern, leading edge business system that will provide the management information needed for mission success, meet the information needs of internal and external customers, support compliance with external regulatory guidance, and promote standardization and integration of business processes and systems across NASA. Specifically, the IFMP aims at delivering five business objectives:• Provide timely, consistent and reliable information for management decisions;
• Improve NASA’s accountability and enable full cost management;
• Achieve efficiencies and operate effectively;
• Exchange information with customers and stakeholders;
• Attract and retain a world-class workforce.
The first wave implementation of the SAP Core Financial Module at Glenn went live in October 2002. The rest of the Agency went live with financial core in fall of 2003. Although the system officially went live in October 2002 at Glenn, there were continuing training, minor upgrades, and fixes throughout the duration of the data collection. Subsequently, NASA implemented budget formulation, an updated version of financial core, project management, and asset management modules. Currently, the project is combined with the e-government initiatives.
Initial implementation of SAP, however, was marred with technical and organizational challenges. Scientists and engineers at NASA were frustrated with the new system as its complexity quickly overwhelmed them. Given NASA’s unique mission and organizational structure, many NASA employees found that SAP does not provide adequate reports and lacks flexibility in managing large complex projects. Furthermore, despite the implementation of SAP, PricewaterhouseCoopers, the agency’s auditor, issued a disclaimed opinion on NASA’s 2003 financial statements. PricewaterhouseCoopers complained that NASA couldn’t adequately document more than $565 billion in year-end adjustments to the financial statement accounts, which NASA delivered to the auditors two months late. Because of “the lack of a sufficient audit trail to support that its financial statements are presented fairly,” concluded the auditors, “it was not possible to complete further audit procedures on NASA’s September 30, 2003 financial statements within the reporting deadline established by [the Office of Management and Budget].”
NASA says blame for the financial mayhem falls squarely on IFMP. NASA’s CFO, Gwendolyn Brown, says the conversion to the new system caused problems with the audit. In particular, she blames the difficulty the agency had converting the historical financial data from 10 legacy systems - some written in COBOL - into the new system, and reconciling the two versions for its year-end reports. Brown says that despite the difficulties with both the June 30 quarterly financial statement preparation and the year-end close, the system is up and running, and she has confidence in the accuracy of the Agency’s financial reporting going forward. “It is working,” says Brown, who was confirmed as CFO in November 2003, “and we are moving forward to ensure that we’re ready to go to the moon, to Mars, and beyond, financially.”
Large-scale IT-enabled organizational change at Federal Express
Federal Express, located in Memphis, Tennessee, is one of the leading logistic integrators in the world and is famous for its commitment to timely delivery and customer service. It is currently the world’s largest express transportation company and part of the Federal Express Corporation. Federal Express has annual revenues of US$15 billion dollars and 138,000 employees. It operates over 650 airplanes and employs over 45,000 courier vehicles worldwide. It handles approximately 3.5 million packages per day but during peak times the number of packages flowing through the system is significantly greater. The company offers over 40 different types of delivery services and has over 200 different delivery services. Combined with thousands of different routing possibilities and fluctuating seasonal volumes, the package handling system is enormously complex.
Federal Express has utilized information technology to gain large-scale efficiencies in business processes and transactions, enhance communication, expand information access and decision making, change the basis of competition and industry structure to its advantage, and constantly exploit new business models. Because Federal Express operates in an industry with low profit margins and intense price competition, the company is very sensitive to the costs incurred due to incorrect information, poor coordination, or inappropriate incentives. Therefore, its use of information technology in the deployment of its core operations has always been aggressive. Federal Express has always been an industry leader in adopting new technological solutions.
As technology continues to develop, Federal Express is trying to transform itself once again. Utilizing an increasingly powerful communication network, Federal Express is constantly trying to push its intelligence toward the edge of the organization. The PowerPad solution is Federal Express’s next generation computer support for courier tasks and work processes. It replaces and expands their current courier support technology that employs the DADS (Digitally Assisted Dispatching System) and the SuperTracker handheld computer that operates on an analog wireless network. The new PowerPad platform integrates a specially built and designed handheld computer, a Bluetooth enabled Personal Area Network (PAN) solution - which integrates DADS, a printer (called ASTRA), a smartphone (running broadband wireless), a barcode scanner, and associated technologies (called Electronic SuperTracker) - and a headset unit.
PowerPad is expected to influence couriers’ operations on their customer premises, while driving in the van, and also during their stay in the pick-up centers (stations). Federal Express envisions that the introduction of the PowerPad technology will accomplish the following: (1) reduce the time couriers need to perform package handling tasks; (2) enable couriers to carry out expanded operations at the customers’ premises; (3) reduce dependency on manual tasks and other system entities during pick-up; and (4) reduce duplicate data entry. The new system minimizes the couriers’ need to return to their van during any pick-up or delivery operation and gives near instantaneous connectivity, which allows the completion of any initiated transaction on the spot. It enables almost real-time planning of routes and load schedules across the whole Federal Express network. The systems also embed much of the operational knowledge and intelligence required to allocate picked packages to correct service categories, thereby reducing routine and data capture errors, while also providing better feedback to customers about how their packages will be handled. The PowerPad system is expected also to improve the couriers’ mobility and service within their routes by offering them nearly instantaneous and transparent access to different information services at the station level (or higher), including communications with other couriers. The system is also useful for other information sharing purposes such as distributing and maintaining delivery guidelines, providing remote support for exceptional situations, and so on.
The PowerPad system is a typical example of a new set of emerging applications that draw upon multiple ubiquitous computing concepts and technologies that help embed computing intelligence with a mobile workforce. All major logistic firms are currently rolling out similar applications. Associated “location-aware” ubiquitous computing systems will eventually become standard in organizations providing transportation, maintenance, and support services. More generally, these systems can be expected to have a major impact on the everyday tasks of a distributed workforce as they will be able in the future to integrate flexibly with other ubiquitous computing technologies such as voice-activated tasks, wearable components in uniforms, radio technologies that enable “smart” environments and packages, or Bluetooth-enabled glasses or heads-up screens.
Finally, multiple external networks provide an opportunity for Federal Express to enhance the logistics chain as well as its customer relationships, changing the nature of competition within the online delivery industry. Federal Express integrated its data systems with those of its customers. Allowing customers to track packages not only reduced internal costs to Federal Express, but more importantly linked the Federal Express database to those of its customers. This linkage allowed Federal Express customers to better serve their own clients, increasing customer loyalty and reducing the likelihood of switching to another provider (Goldman, Nagel, and Preiss, 1995). This use of the Internet resulted in improved customer satisfaction and involvement, while reducing costs through the elimination of call centers. In addition, Federal Express information technology capabilities include a knowledge base of expertise in shipping, customs brokerage, and governmental regulations, which supports the globalization of their business and is value added information for Federal Express customers.
Over time, Federal Express has extended its expertise in information technology applications to position itself as a logistics integrator. This new business model goes beyond that of package delivery to develop warehousing, notification, tracking, and packaging technology for its customers. This enhanced business model also includes multiple new revenue streams from each of the value adding activities. This model is particularly attractive given the development of Internet-based selling of physical products requiring full logistics support. An example is the Federal Express alliance with Laura Ashley. Under this agreement, Federal Express took over the warehouse and distribution activities. This provides a global distribution network for Laura Ashley and firmly established Federal Express as a logistics provider.
CONCLUSION
Information technology can serve as a significant catalyst for organizational change. The impact of information technology can improve operating efficiencies across the organization, improve the communication and decision-making processes, fundamentally alter competitive dynamics, and invent new business models. Emerging information technologies in particular offer radically different new products and services.
Implementation of technology continues to be a challenge for all companies. In the past, organizations saw technology implementation as a discrete occasional task, only occuring during the time when the organization installed new technology or upgraded the existing technology. However, in the current organizational environments where the technology development cycle has been radically reduced and the impact of information technology in organizations is far more pervasive, organizations cannot treat technology implementation as discrete periodic challenges any more. Furthermore, the impact of success and failure of information technology is often felt far beyond the boundary of an organization’s information systems department.
The tremendous potential for improvements through information technology is only fully realized when existing organizational processes, incentives, and culture are reflected in the implementation process. Successful use of information technology involves strong organizational commitment and a clear identification of the role information technology will play.
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Discuss risk factors associated with large-scale IT implementation and develop an effective mitigation plan (30 min)
1. Discuss the organizational and institutional background of NASA. Have students study NASA’s history ahead of time. Alternatively, you can give a short lecture on NASA’s history and organizational structure. (5 min)
2. Identify various risk factors in implementing ERP at NASA.a. Divide the class into groups of four. Have students identify technical, organizational, cultural, and institutional risks associated with ERP implementation. (10 min)
b. Groups report their findings. Using a board, develop a comprehensive list of risk factors for large-scale IT projects in organizations. (5 min)
3. For each major risk factor identified, discuss effective risk mitigation strategies. (10 min)
Discuss potential benefits of large-scale IT implementation based on the Federal Express case (30 min)
1. Discuss Federal Express’s competitive strategy and some of the key threats and opportunities. (10 min)
2. Discuss the future potential of PowerPack.a. Have students develop a concrete business scenario where Federal Express can engage in a new strategic alliance with its mobile computing platform in small groups. (10 min)
b. Have groups report back. As groups make their presentations, explore pros and cons of their ideas. (10 min)