Quarterly Journal on Management
From the publishers of THE HINDU BUSINESS LINE
Vol. 2 :: Iss. 3 :: February 1999
Through the Window
The impact of information technology on strategic management.
John C. Camillus
The information technology (IT) revolution has had an enormous influence on how organisations are managed. It can credibly be claimed that no other source of change has had more impact on the paradigms and practices that underline the management function. Though other developments such as the emergence of the global economy and the increasingly knowledge-based nature of modern organisations have significantly affected how organisations are managed, IT developments actually are an integral part of these other phenomena that require innovations in the practice of management. To understand the pervasive and powerful influence of IT, it may be useful to consider some important ways in which IT can affect the role of managers and the practice of strategic management in organisations.
The most visible ways in which IT can and does influence management, particularly at the strategic level include:
1. Managerial access to information;
2. Electronic modes of communication and
3. Decision support
Electronic access, communication, and decision support influence several managerial processes and systems including the nature and scope of managerial roles, organisational structure, strategic planning systems, budgeting, performance measurement and review, incentive compensation systems, and knowledge management. Each of these three ways in which IT can influence the strategic management of organisations is discussed below.
Managerial access to information
The most obvious aspect of the information explosion is the vast amount of information that is readily available to managers. There are two different dimensions to this information explosion. First, the information about the operations and performance of the organisation that can now be tracked and relatively easily accessed would have been literally inconceivable just a decade ago. Second, the exponential growth of the internet affords access to information outside the organisation to an extent and with an ease that defies the imagination. Instead of being constrained by the lack of needed information, the challenge has shifted to identifying what is relevant from an overwhelming mass of available data.
Within the organisation, the integrated systems offered by software such as SAP and Oracle allow senior managers to "drill down" to the smallest transaction. While it is patently absurd for the CEO of a major company to go down to the detail of a trivial accounting transaction in a small and remote sales office, this access to operational information can be and is being put to effective use by top management. For instance, the CEO of CNG, a major energy company headquartered in Pittsburgh, Pennsylvania, can, at 7.00 a.m. Eastern Time, access the databases of the company's exploration and production division based in Houston, Texas and leave e-mail messages that the head of the division reads and acts on at 7.00 a.m. Central Time.
The availability of information on the Internet now makes competitive and industry analyses very much easier and considerably more effective. While seated in Chennai, it is possible to get a handle on the leadership wrangles at Marks and Spencer in London, and their impact on the company's international expansion plans, the financial market problems and political instability in South East Asia, and the consequent trends in Brazilian imports of Indian-made garments.
Electronic modes of communication
The availability and use of electronic modes of communication has had an equally pervasive and dramatic effect on the practice of management. It is now a cliche that the airline industry has been affected by the growth in the use of videoconferencing, reducing the need for business travel. This cliche sheds light on the pervasive and often unpredictable impact of information technology. New industries are created, new products and services are fashioned, new ways of doing business are implemented, new dimensions of competition emerge, and new theories of economies are necessary. In this article, however, the focus is on the practice of management, and here too, the effect of electronic communication has been great.
For instance, ABB's nuclear energy business has to link, on a real time basis, its construction activities in South Korea, its design and engineering capabilities in the US, and its business development efforts in the People's Republic of China. While e-mail, video conferencing, phones and faxes are the most obvious ways of supporting the needed communication between these far-flung but highly related activities, a more subtle but perhaps even more powerful integrating and communicating mechanism is employed by ABB. The strategic plans of these units are integrated and then translated into action plans that are on-line and available on the company's intranet to the relevant global ABB managers. "Read only" and "write" privileges are carefully assigned. The appropriate managers are enabled to modify the action plans for which they are responsible, as unanticipated developments occur. The original action plans are still documented and a chronology of changes and their rationale is maintained. Planning staff monitor worldwide developments and alert senior managers as strategic issues emerge. Global strategic management reaches news heights of sensitivity to diverse happenings, and achieves an unprecedented capability to integrate strategy development and implementation worldwide. The strategic planning function is greatly facilitated by electronic communication. National Semiconductor, which is widely believed to have the most extensive corporate intranet, uses this means to enhance both the efficiency and effectiveness of its strategic planning. Planning manuals that detail the reporting forms and calendar for planning activities are provided on-line, as a way of efficiently supporting the co-ordinating function of the planning staff. On-line information about proven planning techniques and their effective use serve a didactic function.
In Royal/Dutch Shell, a worldwide technology enabled, learning alliance of planning managers and general managers exists. Sharing of experiences with new techniques, information about emerging issues, and discussion on topics of interest and concern are supported by this network. Internet benchmarking is greatly facilitated and strategic developments in Lausanne are immediately available to managers in Louisiana, Lucknow and London.
Network forms for organisational structure are based on the assumption that needed information is readily available and widely shared. Electronic modes of communication support the heavy information sharing requirements of network structures. Matrix organisations require multiple perspectives on information that can be readily supported by electronic means. Collateral organisations can exist effectively because of the flexibility of electronically available information. And, because strategy and structure are inextricably intertwined, electronic means of communication have fundamental and novel impacts on company strategies through the medium of innovative organisational structures.
Decision support
The strategic enterprise management (SEM) software that is currently being developed is intended to enable managers to make better-informed strategic decisions. By coupling decision models with the access to information provided by integrated enterprise software, strategy development can go beyond the realm of educated guesses to fact-based decision-making.
Of course, management science applications that support decision-making have been available for decades. However, as the scope of the problems that are addressed by these models embraces the strategic domain, it is possible to substitute expertise and analysis for experience and judgement. Problems that previously could not be responded to by senior managers are now amenable to technical solutions at the hands of middle level managers.
There are two interesting consequences of these developments. First, and more obviously, formerly complex and challenging problems are now transformed into more routine and tractable problems, thus reducing the burden on senior managers who can now shift their attention and capabilities to other issues.
Second, and less obviously, the strategic implications of operating information and problems are more readily visible. Up-to-the-minute, near real-time sales information and forecasts facilitate speedy strategic responses to changing assumptions and unanticipated trends. Developments in a particular department or function that have implications for other departments or functions can be both tracked and responded to expeditiously.
In this world, operations become a source of strategic differentiation and advantage. The surging importance given to supply chain management, logistics, integration with suppliers and the customer, mass customisation, and the new economics of information can be seen as a logical consequence.
Strategic implications
There is a common pattern to the three developments discussed above. First, all three developments - managerial access to information, electronic modes of communication and decision support - are not only linked but reinforce one another. Managerial access to information is made possible by information technology and is made meaningful by the availability of decision support.
Second, all of these developments support networking in organisations. Teamwork is not only supported but is often the best way to both respond to and take advantage of these developments. This is true at many levels. Decisions can now be made far away from the operating location, but they have to be understood, accepted and implemented on site. The possibility of better integrating the decisions made in various departments and functions underscores the need for teamwork and cooperation. There is an ever more pressing need for the information technologists and managers in organisations to be a full and mutually supportive partnership with line managers, at both the strategic and operating levels.
Third, the traditional roles and responsibilities of managers in organisation may no longer be appropriate or meaningful. Access to information now makes it possible for senior managers to MBWA (manage by walking around) electronically. In the days when enterprises were local, it was possible for senior managers of, say, a textile mill to do their daily "rounds" and get a hands-on understanding of what was going on by listening to the machinery, viewing the scrap and rejects, and talking to the workers. On the one hand, senior managers can, if the systems are appropriately designed, once again do their rounds daily, even in a global organisation. On the other hand, with the emergence of sophisticated decision support, expert systems and the like, decisions that were once the exclusive province of senior, experienced managers can now be made just as effectively by middle level managers.
Fourth, the developments in information technology are causing a blurring of the distinction between operational and strategic issues and decisions. Strategic decisions have been viewed as those that are significant in impact, that are multi-functional if not organisation-wide in their implications, and that integrate the organisation and its environment. Information technology invests what were previously clearly operating issues with these strategic characteristics. It opens up the possibility of gaining significant competitive advantage from operational enhancements; it makes the organisation-wide implications of decisions in a particular area evident; it enables the creation of the boundary-less organisation. In short, it can make traditionally operational issues strategic. Conversely, if strategic decisions are defined as those made by managers at the organisational apex, then decision support technologies are increasingly divesting many decisions of their strategic character and moving them into the arena of middle management.
Based on these consequences of information technology on the practice of strategic management, it appears reasonable to suggest, without being accused of hyperbole, or the misuse of a cliched phrase, that a true "paradigm shift" is occurring in the practice of management, particularly strategic management. If one employs the "4S" model (competitive strategy, organisational structure, planning, information, control and human resource systems, and management style) as a representation of the strategic management system, it is evident that every one of the four components of this model is changed by the developments in information technology.
Competitive strategy is fundamentally transformed by information technology. If competitive strategy is seen as the product/service, market and technology choices made by the organisation, then each of these can be significantly added to or altered by information technology. If competitive strategy is seen as how the organisation fits with its environment, then information technology cannot but have an effect because of its ability to redefine the boundaries of an organisation.
Organisational structure is similarly transformed by information technology. The traditional roles and responsibilities of senior and junior managers are no longer a constraint. High-involvement organisations, where junior managers have an influence on strategy and senior managers delve into operations, become both feasible and desirable. Innovative organisational forms become an attractive possibility.
Planning, information and control systems are inevitably transformed by the developments in information technology. The connections are intrinsic, and have been touched upon earlier. In addition, human resource systems - recruiting, training, development, career and succession planning, compensation and incentives - are inherently affected the possibilities opened up by information technology. In addition to these inherent changes, these systems have to be responsive to the changes in strategy, structure and style brought about by information technology.
Finally, management style also has to be responsive to the mandates of information technology. As discussed, high-involvement, networking, and teamwork are concomitants of the developments that have been identified. Traditional bureaucratic and hierarchical approaches to decision-making, and the fostering of mechanistic rather than organic cultures are made obsolete if not dysfunctional by these developments.
In conclusion, the impact of information technology on strategic management is so fundamental and extensive that it requires that the textbooks and existing models of strategy formulation and implementation be rewritten. The distinction between what is strategic and what is operational is increasingly blurred, the roles of senior and junior managers are no longer separate and discrete, the boundaries between an organisation and its environment are a matter of choice, and the potential for creating innovative strategies has vastly increased. Information technology has changed the hitherto accepted rules and created a brave new universe for strategic management.
Prof. John C. Camillus is Donald R. Beall Professor of Strategic Management, Katz Graduate School of Business, University of Pittsburgh. He can be reached at camillus@Katz.Business.Pitt.edu.