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MGT504 - Organization Theory and Design - Lecture Handout 18

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A primary way many companies are using information technology as a strategic weapon is through electronic commerce, or e-commerce. One only needs to think of Amazon.com, which created huge headaches for bookstores such as Barnes & Noble and Borders---and which has a market value higher than all the bricks-and-mortar bookstores in the world combined – in order to understand the significance of e-commerce in today’s business world. E- Commerce can be useful for either a low –cost leadership or a differentiation strategy.

E-commerce is a very broad term, which basically means any commercial activity that takes place by digital processes over a computer network. E-commerce replaces or enhances the exchange of money and product with the exchange of information from one computer to another. As such, applications such as EDI, extranets, and so forth are all aspects of e-commerce. Today, most e-commerce takes place on the intranet. Two aspect of ecommerce are business-to-business transactions and business – to –customer transactions. Market researchers at International Data Corporation predict that the amount of overall e-commerce will top $ 1 trillion by 2003.

One company that has integrated e – commerce into its entire business strategy is Dell Computer Corp., which now offers internet transaction capabilities in thirty – six countries and eighteen languages. Dell uses end –to-end digital networks to keep in touch with customer, take orders, pull together components as needed from suppliers, and assemble and ship customized products directly to the purchaser. The system enables Dell to compete with both cost advantages and speed. For example, by connecting directly with suppliers, Dell can eliminate costly inventory, but the company can frequently obtain needed parts and supplies in a matter of minutes. A customer order placed with Dell t 9 A.M. On Monday can be on a delivery truck by 9 P.M. Tuesday. Similarly Cisco Systems is electronically connected not only to customer and employees but also to supplies, contract manufacturers, assemblers, and other business partners. High-tech companies like Dell and Cisco Systems are leaders in business to – business commerce, but even low-tech companies are getting into the game. U.S. Office Products, a leading supplier of business products and services to companies of all sizes, offers online ordering, checking of order status and tracking, online payment options, and online reporting/usage information. A new feature is a procurement management system that enables USOP to give its customers a way to streamline and control their purchasing process, reduce costs, and improve efficiency. This service differentiates USOP in the highly competitive office product market.

Although business-to-business commerce over the internet is growing rapidly, perhaps the most visible expression of e-commerce is selling products and services directly to consumer over the internet. Until very recently, the internet has been used much more intensively by consumers than by business executives. For example, eToys offers more than 6,000 items from almost 500 manufacturers. Customers choose what they want from the Web Site, type in their credit card numbers, and receive shipments of toys within a few days. The company can do business much less expensively than a company like Toys “R” us that has to maintain buildings, store inventory, and so forth, Other internet companies, such as iVillage, which has become the No. 1 women site on the Web, offer services such as chat with doctor about children’s problems or discussion groups about women’s business opportunities.

Web sites that offer a place to participate in an online community are increasingly popular. Other rapidly growing areas of e-commerce include finance and insurance, travel, online auctions, and computer sales. Marriott International put together its first online reservation system in 1996 and did $ 1 billion in business the first year. Today, Marriott’s interactive Web site is linked to numerous other travel- related sites. The site is personalized for each visitor, averages 15,000 hits a day, and generators more than $ 2 million in internet –related revenues a month. Marriott executives believe its value –added approach differentiates the chain from other hotels and help to build customer loyalty

Most established organizations are recognizing that they will have to get into the business of e – commerce or be slaughtered by start – up – companies. Companies such as Southwest Airlines, Office Depot, Fingerhut, and even the U.S. Postal Service have established successful e-commerce units. Even such old-line companies as Sears and Whirlpool are jumping on the e-commerce bandwagon. An important consideration for such companies is whether to incorporate a new e-commerce division within the traditional organization or to create a spin off company. Sears CEO Arthur Martinez once considered the internet “the domain of fanatics,” but is now investing heavily in new ecommerce division aimed at making Sears the “definitive online source for the home,” Although the division is a part of the larger organization, executives are striving to give employees the right combination of freedom and incentives they need to be creative and take the necessary risks. Martinez doesn’t believe a spin-off is the only way to give an e-commerce unit the autonomy it needs to succeed. Whirlpool, on the other hand, created a start-up company called Brandwise.com to help build its Internet-related business. Because the Brand wise site is designed to help consumers find the best products and value, it could potentially lose business for Whirlpool, but the company believes the risks are worth the potential rewards, Whirlpool hopes to gain access to valuable information about its business and customers. In addition, top executives believe the start –up provides a valuable breeding ground for the organization’s next generation of leaders, who will need a deep understanding of e-commerce and be skilled at working in “Internet-time”.

Although companies in the United States and Canada are the leading participants in e-commerce, the evolution is beginning to affect the way the rest of the world does business as well. European e-commerce, for example, is expected to grow from $5 billion in 1997 to $197 billion in 2002. Scandinavian-based Internet start – ups are competing head –to-head with U.S. based Web giants in Britain as well as the largely untapped cyber markets of Germany, France, and Italy.


Even organization that do not use a network structure are rapidly evolving from self-contained, vertical organizations to firms that rely on business partners to fulfill major parts of their company’s activities and purpose, helping them cut costs and be more responsive to customers. Many companies today depend on strategic partnership to remain competitive, and electronic connections are a critical aspect of this trend.
Many computers and other high – tech firms are electronically connected to varied manufacturing subcontractors. For example, when a customer places an order for a low – end router on Cisco System’s Web site, the order goes directly to Flextronics Ltd. a contract manufacture in San Jose, California. Cisco relies so heavily on outside manufacturers and distributors that it can ship products anywhere in the world within a couple of days without ever touching the product. Nortel Networks has announced that by 2002, it will close or sell seventeen of its twenty – fourth factories – the company has calculated that it can save $300 million a year by outsourcing.

Another significant trend is developing electronic relationships with suppliers and customers Study shows differences between traditional inter-organizational relationship characteristics and emerging relationship characteristic. Traditionally, organizations had an arm’s –length relationship with suppliers. However, suppliers are becoming closer partners, tied electronically to the organization for orders, invoices, and payments. In addition, relationships with customers are changing dramatically. New information technology has increased the power of consumer by giving them electronic access to a wealth of information from thousands of companies just by clicking a mouse. Already, 16 percent of new car buyers check dealer prices online before visiting a dealership to shop for a new car.

In addition, by giving consumer direct access to manufactures, the internet has radically altered customer expectations about convenience, speed, and service. For example, N2K.com is giving music lovers a chance to custom-build their own CDs track by track, by downloading music off the internet and storing it in a home audio video server. Continually evolving information technology both responds to and expands the trend toward connectivity and cooperation among organizations and with consumer. Companies that want to thrive in the new “networked” economy have to learn and adapt quickly.


Advances in information technology are having a tremendous impact on all organizations in every industry. Some of the implications of these advances for organization design are:

  1. Smaller organizations. Information technology enables organizations to our source many functions and thus use fewer in house resources. The hub of a network organization, for example, may be made up of only a few people. In addition, some internet – based businesses exist almost entirely in cyber-space; there is no formal “organization “in terms of a building with offices, desks, and so forth. One or few people may maintain the site from their homes or a rented work space. Information technology may also enable traditional organizations to do the same amount of work with fewer people, which also contributes to a decline in organization size. For example, Allstate Corp. recently announced the closing of four regional offices and a filed support central as the company begins to do more business through electronic commerce and over the internet. The closing will eliminate at least four thousands jobs.
  2. Decentralized organization structures. Advanced information technology ahs enabled organizations to reduce layers of management and decentralized decision making. Information that may have previously been available only to top managers at headquarters can be quickly and easily shared throughout the organizations. Even across great geographical distances. Managers in varied busin4ss division or offices have the information they need to make important decision quickly rather than waiting for decision from headquarter. Technologies that enable people to meet and coordinate online can facilitate communication and decision making among distributed, autonomous groups of workers. In addition technology allow for telecommuting, whereby individual workers can perform work that was once done in the office from their computer at home or other remote locations. People and groups no longer have to be located under one roof to collaborate and share information. An organization may be made up of numerous small teams or even individuals who work autonomously but coordinate electronically although management philosophy and corporate culture have a substantial impact on whether information technology is used to decentralized information and authority or to reinforce a centralized authority structure, most organizations today use technology to further decentralization.
  3. Improved internal and external coordination. Perhaps one of the greatest outcomes of advanced information technology is its potential to improve coordination and communication both within the firm and with other organizations. Intranets, extranets, and other networks can connect people even when their offices, factories or stores are scattered around the world. For example, General Motors’ intranet, dubbed Socrates on the basis that the Greek Philosopher would be recognized worldwide, connects some 100,000 staff members around the globe. Managers use the intranet to communicate with one another and to stay aware of organizational activities and outcomes. Electronic technology also enables the network organization and other form of organizational interdependence. Recent studies have shown that inter-organizational information networks tend to heighten integration, blur organizational boundaries, and create shared strategic contingencies among firms. Organizations can cooperate and collaborate with other companies no matter where they are geographically located.
  4. Additional professional staff and departments. The implementation of sophisticated information technology systems means that organization needs more people with professional skill and knowledge to use and maintain the system. As we discussed, as organizational technology grows more complex, the complexity of the organization increases as well. Many firms are adding chief information officers, and some create whole new departments to help the organization manage and keep pace with rapidly changing information technology. In addition, when companies become involved in e- commerce, the need for professional staff greatly increases. The only way a company can successfully implement an e-commerce strategy is to crate a separate professional department or division devoted specifically to electronic commerce. Land’s End, for example, created a new department headed by a vice – resident of e-commerce to manage its internet business. Sears has more than fifty professionals setting up its new e-commerce division.
  5. Greater employee participation. With today’s technology, workers on the front lines can have instant access to pertinent information about their jobs, allowing greater participation and autonomy. For example, at the Chesebrough Ponds Inc. plant in Jefferson City, Missouri, line workers routinely tap into the company’s computer
    network to track shipments, schedule their own workloads, order production increases, and perform other functions that used to be the province of management. Particularly in learning organizations, everyone throughout the company is wired into the computer network and has complete information about all aspects of the business, enabling them to fully participate in solving problems, making decision, and moving the organization forward.

Increasingly sophisticated information technology will continue to have a significant impact on organization deign. Although a few organizations have used technology to reinforce rigid hierarchies, centralized decision making, and routinized work, the trend in general is toward greater decentralization, improved coordination and information sharing, more challenging work, and greater opportunities for participation.

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