Chapter 8

Using Information Technology for Control and Coordination

Overview• Evolution of Organizational Applications of IT• Information for Decision Making and Control

– Organizational Decision-Making Systems– Feedback Control Model– Management Control Systems

• The Level and Focus of Control Systems– Organization Level & Department Level

• Strategic Approach I: – Strengthening Employee Coordination and Efficiency

• Strategic Approach II: – Strengthening Coordination with External Partners

• E-Business Organization Design• IT Impact on Organization Design

Evolution of Organizational Applications of Information Technology

• Transaction processing systems– automate the organization’s routine, day-to-day business

transactions

• Data warehousing is the use of huge databases that combines all of a company’s data to allow users to access the data directly.

• Business intelligence (data mining)– the high-tech analysis of a company’s data in order to

make better strategic decisions

Evolution of Organizational Applications of Information Technology

Information for Decision Making and Control

• A management information system (MIS) provides information for managerial decision making.

• The MIS is supported by the organization’s transaction processing systems and by organizational and external databases.

• Management information systems include:– Information reporting systems

– Executive information systems (EIS)

– Decision support systems (DSS)

• Organizations are using technology to add strategic value.

Managerial Control and Decision Making

Organizational Decision-Making Systems

• An information reporting system provides mid-level managers with reports that summarize data for day-to-day decision making on issues such as production scheduling.

• An executive information system converts complex data into pertinent information for top management to have rapid access to key decision making information such as worldwide customer buying trends.

• A decision support system relies on decision models and integrated databases so users can pose a series of what if questions to test alternatives.

Feedback Control Model

• The feedback control model consists of– setting standards of performance, – measuring actual performance, – comparing it to the standards, and – correcting or changing activities as needed.

A Simplified Feedback Control Model

Management Control Systems

• Management control systems are formal routines, reports, and procedures that use information to maintain or alter patterns in organizational activities.

• Four core elements of a management control system: – the budget controls financial resources; – statistical reports controls nonfinancial outputs;– reward system controls managers based on department

performance;– quality control systems control according to guidelines and

goals

Management Control Systems

Management Control Systems• An executive dashboard, sometimes called a business

performance dashboard, is a software program that presents key business information in graphical, easy-to-interpret form and alerts managers to any deviations or unusual patterns in the data.

• Benchmarking means the process of continually measuring products, services, and practices against tough competitors or other industry leaders.

• Six Sigma is a highly ambitious quality standard that specifies a goal of no more than 3.4 defects per million parts.– The pursuit of higher quality and lower costs

An Executive Dashboard

The Level and Focus of Control Systems

• Organizational Level: The Balanced Scorecard– A comprehensive management control system that

balances traditional financial measures with operational measures relating to a company’s critical success factors.

– Strategy map• visualization of organization success drivers and how

they are linked

Major Perspectives of the Balanced Scorecard

Strategy Map for Performance Management

The Level and Focus of Control Systems

• Departmental Level: Behavior versus Outcome Control– Behavior control is based on manager observation of

employee actions to see whether the individual follows desired procedures and performs tasks as instructed.

– Outcome control is based on monitoring and rewarding results, and managers might pay little attention to how those results are obtained.

Strategic Approach I: Strengthening Employee Coordination and Efficiency

Increasing internal coordination

Intranets

Social Networking

KnowledgeManagement

EnterpriseResourcePlanning

Strategic Approach I: Strengthening Employee Coordination and Efficiency• Networking links departments within an

organization, enabling the sharing of information. • The fastest growing form of corporate networking is

intranet, using Internet protocols, but accessible only to employees within the organization.

• Knowledge management refers to the efforts to systematically find, organize, and make available a company’s intellectual capital and to foster a culture of continuous learning and knowledge sharing so that organizational activities build on what is already known.

Strategic Approach I: Strengthening Employee Coordination and Efficiency• The company’s intellectual capital is the sum of its

knowledge, experience, understanding, relationships, processes, innovations, and discoveries. – Codified knowledge is formal, systematic knowledge that

can be articulated, written down, and passed on to others in documents or general instructions.

– Tacit knowledge is based on personal experience, rules of thumb, intuition, and judgment.

Two Approaches to Knowledge Management

Strategic Approach I: Strengthening Employee Coordination and Efficiency• Social Networking– A blog is a running Web log that allows an individual to post

opinions and ideas about work projects and processes. • The microblogging service Twitter is increasingly being used by

companies as a fast way to solve problems. – A wiki is similar to a blog and uses software to create a

website that allows people to create, share, and edit content through a browser-based interface.

• Social networking sites provide an unprecedented peer-to-peer communication channel, where people share personal data and photos, information and opinions.

Strategic Approach I: Strengthening Employee Coordination and Efficiency

• Enterprise resource planning (ERP) systems collect, process, and provide information about a company’s entire enterprise, including order processing, product design, purchasing, inventory, manufacturing, distribution, human resources (HR), receipt of payments, and forecasting of future demand.

Example of ERP Network

Strategic Approach II: Strengthening Coordination with External Partners

• Strengthening External Coordination with information technology– Supply Chain Management

– Integrated enterprise

– Enhancing customer relationships

– eBusiness organizational design

Strategic Approach II: Strengthening Coordination with External Partners

Extranet• An external communications system that uses the

Internet and is shared by two or more organizations.

The Integrated Enterprise• The integrated enterprise is an organization that

uses advanced information technology to enable close coordination within the company as well as with suppliers, customers, and partners.

Strategic Approach II: Strengthening Coordination with External Partners

• The integrated enterprise uses supply chain management systems, which manage the sequence of processing from obtaining raw materials to distributing finished goods to consumers. – Information linkages are key for coordination

– Horizontal relationships coordinate the supply chain to meet customers’ product and time demands

The Integrated Enterprise

Corrugated Supplies System in Action

Strategic Approach II: Strengthening Coordination with External Partners

Customer Relationships

• Many companies are applying technology to build customer relationships

• Social Media Directors are blending marketing, promotions, customer service, and support through Facebook, Twitter, and company websites

• 65% of companies use company blogs to communicate with customers

• For CEOs, blogs and Twitter have become requirements

E-Business Organization Design• E-business is any business that takes place over a

computer network rather than in physical space.

• E-commerce is transforming to m-commerce as more transactions take place on mobile devices.

• Managers must figure out bricks and clicks strategies– Separate business– In-house division– Integrated design

E-Business Organization DesignSeparate Business• Some organizations create a separate spin-off company to

provide for greater autonomy, flexibility, and focus. In-House Division• This structure offers tight integration between the Internet

operation and the organization’s traditional operation by creating a separate unit within the company that functions within the structure and guidance of the traditional organization.

Integrated Design• There is no separation between what is defined as the

traditional part of the business and what is defined as the e-business part. – E-business is incorporated into every employee’s work.

Strategies for Integrating Bricks and Clicks

IT Impact on Organization Design

Smaller Organizations

Decentralized Organizational Structures

Improved Horizontal Coordination

Improved Interorganizational Relationships

Enhanced Network Structures

Key Characteristics of Traditional vs. Emerging Interorganizational Relationships

Design Essentials

Successful organizations leverage technology

Technology aids in better decision-making

Organizations must employ controls to measure performance

Technology is adding strategic value internally and externally

Technology is impacting the design of organizations