Information Systems and Organization Essay

This paper, and the particular(a) step to the fore, address relationships between tuition systems and changes in the shaping of in the buff enterprise, some(prenominal) within and crosswise unswervinglys. The emerging arrangingal picture involves complementary changes in multiple dimensions. The revolution in culture systems merits special circumspection as both ca engross and gear up of the organizational trans pathation. This suffer be illustrated by geting two list variables the location of study and the location of finish rights in organizations. Depending on the bes of entropy transmission and processing, either the MIS issue of transferring entropy, or the organizational re function solution of moving conclusiveness rights, can be an core groupive approach toward achieving the demand collocation of nurture and finality rights.When tuition systems change radic on the wholey, wizard can non expect the optimal organizational coordinate to be unaffec ted. Considering the interplay among information, incentives and decision rights in a unified fashion leads to unsanded insights and a relegate organizational planning. The papers in the special issue address contrasting facets of this fundamental interaction. Despite significant progress, our meeting of the economic go for of information systems in organizations remains in its infancy. We conclude that successful design of modern enterprise will require advertize narrowing of the past gap between research in information systems and research in economics.The organization of work is in the midst of transformation. In m whatso perpetually industries, aggregative merchandise by large, vertically-integrated, hierarchically-organized firms is giving way to to a greater extent than flexible forms of both internal organization and industrial anatomical twist. Work is increasingly accomplished by dint of communicates of scurvyer, much foc utilize enterprises. The resul ting structure of loosely coupled sub-organizations blurs the boundaries of both firms and industries.A canonical case in point is the data processor intentness. In the past, the industry was dominated by large, vertically-integrated firms such as IBM and Digital Equipment which created products and services through come in the value chain from the microprocessor level all the way up to the readying of solutions. The vertical structure is now being replaced by a serial of layers, each of which is, in effect, a separate industry. Value is generated by dynamical coalitions, where each member of a coalition specializes in its atomic number 18a of mall competence and leverages it through the use of tactical or strategic partnerships. innerly, aggroup structures are replacing the conventional hierarchical form, and the Silicon Valley impersonate of internal organization is emerging as a clear winner.3 Internal incentives are increasingly based on performance, and this further blurs the differences between inter- and intra-firm contracts. In sum, modern enterprise is undergoing major restructuring.In this short paper we soon discuss the unseas adeptdly emerging organizational figure of speechs and their relationship to the predominant trends in information engineering (IT). We argue that IT is an important number one wood of this transformation. Finally, we place the studies selected for this special issue of the Journal of organisational Computing within this context.1. Emerging Organizational Paradigms Symptoms and CausesAt the turn of the century, Frederick Taylor sought to put the nascent wisdom for successful backing organization on a scientific basis. His work control a generation of managers towards success in meshing their organizations with the technologies, markets, labor and command environment of the era. By the 1920s, Henry Ford had applied the Taylorist approach with a vengeance and soon dominated the automobile market, driving dozens of competitors under. Ironically, these self alike(prenominal) principles are almost diametrically opposed to the prevailing wisdom of the 1990s. For example, consider the following guide term from The Science of Management 1It is necessary in some(prenominal) activity to drop a complete companionship of what is to be do and to prepare instructions the laborer has only to follow instructions. He need not stop to think.The current emphasis on empowerment, attainment organizations, and even thriving on chaos stands in sharp oppose to Meyers advice (cf. 2 , 3 ). Similar contrast can be found with many, if not most, of the separate principles that lead to success even as late as the 1960s. Consider, for example, the emergence calls for downsizing (vs. economies of scale), commission (vs. conglomerates), total quality (vs. cost leadership), project teams (vs. structural departments), supplier partnerships (vs. maximizing bargaining power), networked organization (vs. cl ear firm boundaries) performance-based stick out (vs. fixed pay), and local autonomy (vs. rigid hierarchy).Milgrom and Roberts 4 make the point that the variant characteristics of modern manufacturing, an important example of the emerging organizational paradigm, are a great deal highly complementary. This complementarity, coupled with the innate(p) tendency to change organizational attributes one at a time, makes the transit from one paradigm to anformer(a) peculiarly demanding. Strong complementarity implies that in order to be successful, change mustiness be implemented simultaneously along a number of related dimensions. Organizations that exact only one or two trace components of the modernistic organizational paradigm whitethorn fail alone by virtue of this complementarity.For instance, Jaikumars 5 study of 95 US and Japanese companies found that the majority of US companies had failed to hit productivity  maturations despite switching to flexible manufacturi ng technology. The reason was that they had bear on dozens of manufacturing practices such as long production runs and high work-in-process breed levels, which complemented the old technology but kept the new technology from fulfilling its potential. Thus, the transition from the old structure to the new one is overwhelmingly complex. The switch would be easier if we declare design guided by possibility instead of bit by bit evolution.There are many possible explanations for the change in the prevailing wisdom regarding organizational design. For instance, it is common to meetify calls for radical change with author to heightened competitive pressures although firms that applied the old principles were among the most successful competitors of their day, presumably the disposition of competition has changed in some way. Others suggest that consumer tastes call for changed, making customized items more appealing than they once were. While historians would argue that the taste for hoi polloi marketed items was itself something that had to be developed in the early days of mass production, increased wealthiness or social stratification may make this more difficult today. It can in addition be argued that some of the new principles were as relevant fifty years ago as they are today, but that they simply had not yet been discovered.Although the enablers of the current organizational transformation are doubt slight legion(predicate) and far from mutually independent, we would like to single one out for special attention the rise in IT. Brynjolfsson 6, p.6 argues that IT is an appropriate candidate for explaining these changes for tercet reasonsFirst, compared to other explanations, the advances in information technology have a particularly reasonable claim to being both novel and exogenous. Many of the first harmonic technological breakthroughs that enable todays vast information bag were made less than a generation ago and were driven more by progr ess in physics and engineering than business demand. Second, the produce in information technology investment is of a large lavish magnitude to be economically significant the result has been what is commonly referred to as the information explosion Third, there is a sound basis for expecting an connecter between the be of technologies that manage information and the organization of economic activity. The firm and the market have each been frequently modeled as in the first place information processing institutions (see Galbraith 7 and Hayek 8 , respectively).Miller 9 foresaw the expose features of the new paradigm as a natural outcome of the information era and the associated economy of selectThe new technologies will rent managers to handle more functions and widen their thwart of control. Fewer levels of focussing hierarchy will be requisite, enabling companies to cast glowering the pyramid of todays care structure. The new information technologies allow de unde rlyingization of decision-making without loss of management awareness indeed employees at all levels can be encouraged to be more creative and intrapreneurial. The discern responsibility of the CEO will be leadership to find the devolve or energies of the organization like a lens and focus them on the key strategic objectives.The new organizational paradigm is indeed intertwined with the structure of an organizations information systems. Under the old paradigm, the firm was governed by a relatively rigid functional structure. This separation into distinct and exonerated 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 our absorb, the growing use of IT and the trend towards networking and client-server computing are both a cause and an effect of the organizationa l transition.Lowering the cost of horizontal communications, facilitating teamwork, enabling flexible manufacturing and providing information support for time management and quality control are key enablers on the supply side. It is equally clear that the new organizational paradigm demands new information systems nothing can be more lay waste to for cross-functional teamwork than a rigid information system that inhibits cross-functional information flows. We can unite these perspectives by noting that the structure of the organizations 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.2. study Systems, political economy and Organizational anatomical structureJensen and Meckling 10 raise a expedient framework for studying the complementarities between information systems, incentive structures and decision rights in organ izations. In their framework, the structure of an organization is specified by three key elements (i) The allocation of decision rights (i.e., who is responsible for what actions/decisions) (ii) the incentive system, which defines how decision makers are to be rewarded (or penalized) for the decisions they make and (iii) a monitoring and measurement scheme use to prise these actions and their outcomes.According to Jensen and Meckling, informational variables are key to the structure of organizations because the quality of decisions is unconquerable by the quality of information open to the decision maker. The co-location of information and decision rights enables the decision maker to make optimal decisions. The implementation of this co-location depends on the nature of the inclined(p) information. Jensen and Meckling distinguish between peculiar(prenominal) experience which is localized, difficult to represent and transfer, and depends on idiosyncratic circumstances, and oecumenic knowledge which can be easily summarized, communicated and shared by decision makers.Now, there are two slipway to sire information and decision rights together (i) The MIS solution transfer the information required for the decision to the decision maker, using the organizations (possibly non-automated) information systems or (ii) the organizational redesign solution redesign the organizational structure so that the decision making authority is where the pertinent information is. By definition, worldwide knowledge which is useful for a decision calls for the MIS solution because it can be transferred at low cost. In contrast, when specialized knowledge plays a key role in a decision, the best solution calls for restructuring decision rights so as to provide the decision authority to the one who possesses or has accession to the pertinent information (since the transfer of specific knowledge is too costly).4Jensen and Meckling thus represent the structure of organ izations as an efficient response to the structure of their information costs. But then, a change in information costs must induce a change in organizational structure. In particular, IT has changed the costs of processing and transferring de limited types of information (e.g. quantitative data), but has done minor for other types (e.g. implicit knowledge or skills). IT changes the structure of organizations by facilitating certain information flows as puff up as by turning knowledge that used to be specific into universal knowledge. By developing a taxonomy of information types and identifying the variantial impacts of new technologies on their transferability and importance, we can take a significant step towards applying the simple insight that information and authority should be co-located 11 .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 prob lem. Client-server computing technology lowers cross-functional (as well as geographic) barriers. IT (when applied properly) streamlines the types of information that used to be the raison detre of middle management quantitative control information 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.Similar considerations apply to enterprises that cross firm boundaries. As a simple example, consider the organization of traffic activities 12, 13, 14 . Traditionally, trading took place on the level of an exchange, which was the locus of numerous pieces of specific knowledge, ranging from the hand signals indicating bids and offers to buy and sell a security to traders seventh cranial nerve expressions and the atmosphere on the grade of the exchange. Under that struc ture, much of the information pertinent to trading is specific and localized to the floor. Thus, when an investor instructs her gene to sell 1,000 shares of a given stock, the broker transmits the order to the floor of the exchange and only the floor broker attempts to provide best execution.The decision rights (here, for the trading decisions) are naturally delegated to the decision maker who has the pertinent specific knowledge, and since that knowledge resides on the floor of the exchange, the floor broker is best suited to have the decision rights. technology, and in particular screen-based systems, turns much of the specific knowledge on the floor (i.e., bids and offers) into general knowledge. This elusions decision rights up from the floor to the brokers screens. The inevitable result is the decline of the trading floor and the increased importance of brokers trading rooms. The demise of the trading floor in exchanges that turned to screen-based trading (such as Londo n and Paris) is a natural outcome of the shift in the locus of knowledge. More generally, markets in particular, electronic markets transform specific knowledge into general knowledge 15 .Ironically, even as IT has sped up many links of the information processing chain and vastly increased the amount of information available to any one decision-maker, it has too led to the phenomenon of information overload. This can perhaps best be understood by a generalization of the Jensen and Meckling framework to include finite human information processing capacity. As more information moves from the specific category to the general category, the limiting factor becomes not what information is available but rather a matter of finding the human information processing capacity needed to attend to and process the information.Computers appear to have exacerbated the surfeit of information relative to processing capacity, perhaps because the greatest advances have occurred in the processing and storage of structured data, which is generally a complement, not a substitute, for human information processing. As computer and communications components increase their speed, the human bottleneck in the information processing chain becomes ever more apparent. culture overload, when interpreted in light of this framework, can provide an explanation for the increased autonomy and pay-for-performance that characterize a number of descriptions of the new managerial work (cf. 6 ). Economizing on information costs means that more decision rights are delegated to line managers who possess the idiosyncratic, specific knowledge necessary to accomplish their tasks. Shifting responsibility from the overburdened top of the hierarchy to line personnel not only reduces the information processing load at the top of the hierarchy, but also cuts down unnecessary communications up and down the hierarchy.This blurs the traditional distinction between conceptualization and execution and broadens the compass of decision rights delegated to lower level managers. By the Jensen-Meckling 10 framework, any such shift in decision authority (and in the associated routing of information) must also be accompanied by a change in the structure of incentives. Disseminating information more broadly is ever easier with IT, allowing line workers to take into account information that goes well beyond the formerly-narrow definitions of their job.Meanwhile, providing the right incentives for the newly empowered work take out is an equally crucial element of the current reorganization of work. Agency theory predicts that performance-based pay is necessary when decision rights are decentralized (otherwise, the agents may be induced to act in ways that are in logical with boilersuit organizational goals). It therefore follows that incentive-based compensation is appropriate for better-informed workers 16.5 Thus, the confluence of better-informed workers, an empowered manpower and more incentiv e-based pay is consistent with our thesis that IT is a key driver of the new organizational paradigm.Furthermore, the theory of neither contracts suggests that the analysis can be extended to include interorganizational changes such as increased reliance on outsourcing and networks of other firms for key components 17 . Here again the shift can be explained in incentive terms one ultimate incentive is ownership, so entrepreneurs are liable(predicate) to be more innovative and aggressive than the alike(p) individuals working as division managers. Both within and across organizations, then, changes in information systems are accompanied by changes in incentives and in the organization of work.3. The Special IssueThe papers in this special issue bear witness to the role of information systems in the structure of modern enterprise and the blurring of the differences between inter- and intra-firm executions. Starting from the firms level, Barrons paper studies how a firm determines its internal organization and how IT affects this goal. Barron considers a traditional firm, with well-defined boundaries that are endogenously determined by considering flexibility and scope of control. Ching, Holsapple and Whinston broaden the scope of the enterprise to the network organization a construct obtained by tying together a number of firms that cooperate through a well-defined communication mechanism.Specifically, they use a instruction protocol to manage the relationship between suppliers and producers. Beath and Ang seek another form of inter-firm cooperation, the relational contract, in the context of software-development outsourcing. They show how relational contracts embody a relationship that can be characterized as a network consisting of two organizations. Whang studies a more subtle form of networking information sharing between purchasers and suppliers. Bakos and Brynjolfsson examine the impact of incentives and information costs on the nature of buyer-s upplier relationships. They show that committing to a partnership with a small number of suppliers can be an optimal strategy for a buyer because it will maximize the suppliers incentives for non-contractible investments such as information sharing, innovation or quality.The papers thus present a spectrum ranging from a study of the boundaries of the traditional firm through distinct forms of networking to explicit buyer-supplier relationships. A common constitution is the organization of work so as to reduce overall information costs not only within an organization but across them as well. The surviving enterprise is often (though not always) the one that attempts to reduce information costs while capitalizing on the comparative advantage of the fighting(a) organizations. This calls for opportunistic cooperation that benefits the members of the network for as long as they cooperate.IT reduces the costs of such cooperation by facilitating communication and increasing the flex ibility of the participating organizations. Using the Jensen-Meckling terminology, different network participants can make more effective use of their specific knowledge when the costs of transferring and processing general knowledge are reduced. Further, technology enables the development of markets that, by their very nature, transform specific knowledge into general knowledge. Thus, the bidding and communications protocols proposed by Ching, Holsapple and Whinston in their paper Modeling cyberspace Organizations effectively transform the specific knowledge inherent in the production technology of the competing suppliers into general knowledge that encompasses not only prices but also their reputations. From this perspective, IT is key to the development of network organizations.In his paper Impacts of Information engine room on Organizational Size and Shape Control and Flexibility set up, Barron builds a stylized quantitative model to study the impact of IT on the structure of organizations. Examining flexibility and scope of control, he identifies sixteen different cases with different patterns of the actual causality between IT and firm structure. Barron shows that simplistic statements regarding the impact of IT are not as straightforward as one might hypothesize due to the interaction of size, scope and flexibility. His results suggest that the impact of IT is rather complex, and that further specification is necessary prior to making predictions on the impact of IT on organizational size or shape.Hierarchical Elements in Software Contracts by Beath and Ang focuses on the contractual structure of outsourced software development. This is an interesting example of the new organizational paradigm because of the key role of information systems in any organization. Effective software development hinges on cooperation, communication and joint management which are at the heart of the new organizational paradigm. Beath and Ang examine the mechanisms used to govern outsourcing projects as specified in their outsourcing contracts.They suggest that the relational contract, which converts an arms-length transaction into a joint project with governance and resolution procedures that resemble those used by firms internally, is an effective way to accomplish this. Thus, while Ching, Holsapple and Whinston view bidding and explicit reputation formation as the alphabet of the network organization, Beath and Ang view actual contract clauses as the key linguistic constructs. The paper shows how the structure of the contract is driven by the attributes of the project as well as those of the parties to the transaction.In Analysis of Economic Incentives for Inter-Organizational Information Sharing, Whang addresses the indecision of information sharing in non-cooperative buyer-supplier settings. Whang studies this question for two different models. He first shows that due to unseemly incentives, suppliers will not be willing to share informatio n regarding their costs. The situation is different when the information to be conveyed is regarding the expected delay or lead time. Whang shows that suppliers are better off disclosing lead-time information to buyers (when the demand curve for their product is convex). This result is consistent with our general thesis, whereas the former one introduces a note of caution adverse incentives pose limits to the scope of information sharing among network organizations.In From Vendors to Partners Information Technology and Incomplete Contracts in Buyer-Supplier Relationships, Bakos and Brynjolfsson start with the assumption that, in many cases, complete information exchange between two firms will be infeasible, so any contract between them will be rudimentary in the sense that some contingencies will remain unspecified. They then explore how the interplay of IT and organizational structure can affect the role of non-contractible investments, such as innovation, quality and the exchang e of information.For example, Bakos and Brynjolfsson show that when fewer suppliers are employed, they collectively capture a larger share of the benefits of the relationship, and this will increase their incentives to make non-contractible investments. As a result, even when search costs are very low, it may be desirable for the buyer to limit the number of employed suppliers, booster cable to a partnership-type of relationship, rather than aggressively bargaining for all the benefits by exist to switch among numerous alternative suppliers. Like Whang, they show that the incentive effectuate of the applications of IT must be explicitly considered in any model of their effect on inter-organizational cooperation.4. ConclusionIn this paper, we have stressed the joint determination of the location of information and decision rights. The default mechanism used to achieve this co-location depends on ones point of reference. Information Systems researchers are likely to take the lo cus of decision authority for granted. They will typically focus their attention on devising schemes that will efficiently organize, retrieve, sort, filter, transmit and endanger information for designated decision makers.In contrast, the economist is likely to focus on the allocation of decision rights and the concomitant effect on incentives.6 As we discussed in Section 2, transferring information and transferring decision authority are two sides of the same question. Because economics and information systems research evolved to address different problems, this complementarity long went unnoticed. severally of the papers in the special issue addresses a different saying of the interplay among information, incentives and the structure of economic enterprise. In every case, insights resulted when both information and incentives were explicitly considered. Each paper contributes an additional piece to an emerging mosaic that describes not only the features of the new organization, but also gives some insight into their suppositional underpinnings.The papers in this special issue also highlight the incomplete state of knowledge in the subject area and the dearth of empiric guidance to the formulation and testing of theoretical research. We started this paper with a reciprocation of the computer industry as the canonical example of the new paradigm as exercised in Silicon Valley, and continued by arguing that its products truly fuel the shift to this paradigm. It is only appropriate to close the loop by examining the dictum of that paradigm as it applies to the inner workings of firms in the computer industry. A major effort along these lines in being undertaken by one of the authors and his colleagues in Stanford Universitys Computer Industry Project.Understanding these changes so that they can be harnessed for productive ends remains a central challenge for the next decade of research. The rapid progress in scheming computers and communications systems c ontrasts starkly with the uncertainty clouding organizational design. Yet, new ways of organizing will be necessary before the potential of IT can be realized.Furthermore, because the new organizational paradigms involve numerous complementarities, the trial-and-error methods which were important in the rise of the organizational forms of the past century, such as large hierarchies and mass markets, may be unsuited for making the next transition. Understanding and implementing one aspect of a new organizational structure without regard to its interaction with other aspects can leave the make the organization worse off than if no modifications at all were made. Design, rather than evolution, is called for when significant changes must be made along multiple dimensions simultaneously.Successful organizational design, in turn, requires that we understand the flow of information among humans and their agents every bit as well as we understand the flow of electrons in chips and wires. Pe rhaps, then, the revolution in information processing capabilities not only calls for a change in business organization, but also a re-evaluation of the historic separation between Information Systems and Economics.REFERENCES1 Meyers, G. The Science of Management. In C. B. Thompson (Eds.), Scientific Management Cambridge Harvard University Press, 1914.2 Kanter, R. M. The New Managerial Work. Harvard line of products Review, Nov-Dec, 1989, pp. 85-92.3 Peters, T. Thriving on Chaos, Handbook for a Management Revolution. New York Knopf, 1988.4 Milgrom, P. and Roberts, J. The Economics of Modern Manufacturing Technology, Strategy, and Organization. American Economic Review, Vol. 80, No. 3, 1990.5 Jaikumar, R. Post-Industrial Manufacturing. Harvard Business Review, November-December, 1986, pp. 69-76.6 Brynjolfsson, E. Information Technology and the New Managerial Work. Working Paper 3563-93. MIT, 1990.7 Galbraith, J. Organizational Design. Reading, MA Addison-Wesley, 1977.8 Hayek, F. A. The Use of Knowledge in Society. American Economic Review, Vol. 35, No. 4, 1945.9 Miller, W. F. The delivery of Choice. In Strategy, Technology and American Industry HBS Press, 1987.10 Jensen, M. and Meckling, W. Knowledge, Control and Organizational Structure Parts I and II. In Lars, Werin and Hijkander (Eds.), Contract Economics (pp.251-274). Cambridge, MA sweet basil Blackwell, 1992.11 Mendelson, H. On Centralization and Decentralization. Stanford, forthcoming, 1993.12 Amihud, Y. and Mendelson, H. An Integrated Computerized Trading System. In Market do and the Changing Structure of the Securities Industry (pp. 217-235). Lexington Heath, 1985.13 Amihud, Y. and Mendelson, H. (1989). The Effects of Computer-Based Trading on volatility and Liquidity. In H. C. Lucas Jr. and R. A. Schwartz (Eds.), The Challenge of Information Technology for the Securities Markets. (pp. 59-85). Dow Jones-Irwin.14 Amihud, Y. and Mendelson, H. Liquidity, Volatility and rally Automation. Journal of Ac counting, Auditing and Finance, Vol. 3, Fall, 1988, pp. 369-395.15 Malone, T. W., Yates, J. and Benjamin, R. I. Electronic Markets and Electronic Hierarchies. Communications of the ACM, Vol. 30, No. 6, 1987, pp. 484-497.16 Baker, G. P. Incentive Contracts and surgical operation Measurement. Journal of Political Economy, Vol. 100, No. 3, June, 1992.17 Brynjolfsson, E. An Incomplete Contracts Theory of Information, Technology, and Organization. Management Science, forthcoming, 1993.