IT in the 1990s: Managing Organizational Interdependence

FOR THE PAST TWO DECADES, the question of what impact information technology (IT) will have on business organizations has continued to puzzle academics and practitioners alike. Indeed, in an era when the business press has widely disseminated the idea that IT is changing the way businesses operate and the way they relate to customers and suppliers, the question of technology’s impact on the organization itself has gained renewed urgency.

The literature suggests four major classes of impact. First, there is the view that technology changes many facets of the organization’s internal structure, affecting roles, power, and hierarchy. A second body of literature focuses on the emergence of team-based, problem-focused, often-changing work groups, supported by electronic communications, as the primary organizational form.

Third, there is the view that organizations today are “disintegrating their borders punctured by the steadily decreasing costs of electronic interconnection among firms, suppliers, and customers. Companies, it is believed, will gradually shift to more market-based organizational forms, with specialized firms taking over many functions formerly performed within the hierarchical firm.

Finally, a fourth view of organizational change arises from a technical perspective. Here, it is argued that today’s improved communications capability and data accessibility will lead to systems integration within the business. This, in turn, will lead to vasdy improved group communications and, more important, the integration of business processes across traditional functional, product, or geographic lines.

While each of these four “IT impact” perspectives offers important insights, there are significant and unresolved questions about each. To shed additional light on this issue, the Center for Information Systems Research (CISR) at the MIT Sloan School of Management recently conducted a fourteen-month study of sixteen major companies. Emerging from this study is the strong belief that the current “IT impacts” picture is incomplete. There is clear evidence for a fifth viewpoint that draws on and expands these perspectives, providing a more integrated, managerial view with important implications for today’s executives.

We will argue here that information technology provides a new approach to one of management’s oldest organizational problems: that of effectively managing interdependence. Our fundamental thesis is that a firm’s ability to continuously improve the effectiveness of managing interdependence is the critical element in responding to new and pressing competitive forces. Unlike in previous eras, managerial strategies based on optimizing operations within functional departments, product lines, or geographical organizations simply will not be adequate in the future.

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References

1. A precise definition of “interdependence” has generated considerable disagreement among students of organizational behavior. An early and influential view is contained in J.D. Thompson, Organizations in Action: Social Science Bases of Administrative Theory (New York: McGraw-Hill, 1967).

Also see critiques of Thompson’s work by:

J.E. McCann and D.L. Ferry, “An Approach for Assessing and Managing Inter-Unit Interdependence — Note,” Academy of Management Journal 4 (1979): 113–119; and

B. Victor and R.S. Blackburn, “Interdependence: An Alternative Conceptualization,” Academy of Management Journal 12 (1987): 486–498.

2. “The Big Loss at Merrill Lynch: Why It Was Blindsided,” Buisness Week, 18 May 1987, pp. 112–113.

See also “Bankers Trust Restatement Tied to Trading Style,” New York Times, 22 July 1988, p. D2.

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5. For more on organizational centralization, see:

M. Anshen, “The Manager and the Black Box,” Harvard Business Review, November-December 1960, pp. 85–92;

T.L. Whisler, The Impact of Computers on Organizations (New York: Praeger, 1970);

I. Russakoff Hoos, “When the Computer Takes over the Office,” Harvard Business Review, July-August 1960, pp. 102–112.

Also see D. Robey, “Systems and Organizational Structure,” Communications of the ACM 24 (1981): 679–687.

On organizational decentralization, see:

J.F. Burlingame, “Information Technology and Decentralization,” Harvard Business Review, November-December 1961, pp. 121–126.

Also see J.L. King, “Centralized versus Decentralized Computing: Organizational Considerations and Management Options,” Computing Surveys 15 (1983): 319–349.

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A.M. Pettigrew, “Information Control as a Power Resource,” Sociology 6 (1972): 187–204;

J. Pfeffer, Power in Organizations (Marshfield, MA: Pitman, 1981); and

M.L. Markus and J. Pfeffer, “Power and the Design and Implementation of Accounting and Control Systems,” Accounting, Organizations and Society 8 (1983): 205–218.

On decentralization of managerial power, see S.R. Klatsky, “Automation, Size and the Locus of Decision Making: The Cascade Effect,” Journal of Business 43 (1970): 141–151.

6. Carroll and Perin argue that what managers and employees expect from technology is an important predictor of the consequences observed.

See J.S. Carroll and C. Perin, “How Expectations about Microcomputers Influence Their Organizational Consequences” (Cambridge, MA: MIT Sloan School of Management, Management in the 1990s, working paper 90s:88–044, April 1988).

Similarly, Invernizzi found that the effectiveness of the process used to introduce technology into the organization strongly influenced its ultimate impact. See E. Invernizzi, “Information Technology: From Impact on to Support for Organizational Design” (Cambridge, MA: MIT Sloan School of Management, Management in the 1990s, working paper 90s:88–057, September 1988).

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15. R.I. Benjamin and M.S. Scott Morton, “Information Technology, Integration, and Organizational Change” (Cambridge, MA: MIT Sloan School of Management, Center for Information Systems Research, working paper No. 138, April 1986).

Also see S. Kiesler, “The Hidden Message in Computer Net-works,” Harvard Business Review, January-February 1986, pp. 46–60.

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18. J. Galbraith, Organization Design (Reading, MA: Addison-Wesley, 1977). Galbraith also introduced the concept of the organization as information processor in this work. He distinguished computer-based, vertical information systems from lateral relations and emphasized the division of organizations into suborganizations because of the need to minimize the cost of communications.

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See also N. Venkatraman, “Changing Patterns of Interfirm Competition and Collaboration” (Cambridge, MA: MIT Sloan School of Management, Management in the 1990s, working paper, forthcoming).

20. On quality process management, see G.A. Pall, “Quality Process Management” (Thornwood, NY: The Quality Improvement Education Center, IBM, 16 February 1988).

21. Although our three collapsed segments in the value chain are integral units, data does flow from one to another. The three segments are also interdependent, but less strongly so than the functions within each segment.

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J.F Rockart, “The Line Takes the Leadership — IS Management in a Wired Society,” Shan Management Review, Summer 1988, pp. 57–64;

W.F. McFarlan, “How Information Technology Is Changing Management Control Systems” (Boston: Harvard Business School, Case Note No. 9–187–139, 1987).

23. Rockart (1988).

24. Drucker (1988).

25. Bullen and Johansen (1988).

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27. J.F. Rockart and D.W. DeLong, Executive Support Systems: The Emergence of Top Management Computer Use (Homewood, IL: Dow Jones-Irwin, 1988).

28. Rockart (1988).

29. T.J. Main and J.E. Short, “Managing the Merger: Strategic I/S Planning for the New Baxter” (Cambridge, MA: MIT Sloan School of Management, Center for Information Systems Research, working paper No. 178, September 1988).

Acknowledgments

The authors wish to acknowledge the contributions of colleagues Christine V. Bullen, J. Debra Hofman, and John C. Henderson, Center for Information Systems Research, MIT Sloan School of Management, to the research on which this article is based.