Principal, Xamax Consultancy Pty Ltd, Canberra
Visiting Fellow, Department of Computer Science, Australian National University
Version of April 1995
© Xamax Consultancy Pty Ltd, 1997
This paper was presented as an Invited Address to the East Asian Conference on Infrastructure for the 21st Century, Crown Princess Hotel, Kuala Lumpur, 2 May 1995
This document is at http://www.anu.edu.au/people/Roger.Clarke/II/KLII.html
Information Technology (IT) is used in this paper to refer to the rich set of tools made possible by the marriage between computing and communications, and the gradual incorporation of robotics. This paper argues that achieving IT's benefits at the level of individual organisations is dependent on the national information infrastructure and national culture.
In order to appreciate the range of applications within organisations at the turn of the twenty-first century, it is valuable to re-trace IT's developmental path. The paper therefore commences with a review of the application of information technology within organisations, and of IT's contemporary significance for corporate strategy.
Business use of IT began in the 1950s and 1960s with the automation of existing manual processes. The process was referred to as data processing (DP), and the resulting systems as transaction data processing systems (TDPS). TDPS addressed the large volume of routine activities in which organisations engaged, and served the needs of operational staff and their supervisors.
It quickly became apparent that TDPS contained large collections of data about an organisation's business. If only the wheat could be separated from the chaff, managers at all levels of the corporation could better understand the state of the part of the business for which they were responsible. Management information systems (MIS) exploited the transaction database by extracting from it information which was valuable for managerial decision-making. It did this by reducing the volume of data up the organisational hierarchy, using two key techniques: aggregation of data into appropriate summaries; and the identification and notification of exceptions.
In the early stages of DP and MIS, computers were vastly expensive and very large. They required special housing and highly-specialised support staff, and data had to be physically transported to and from them. Soon afterwards, communications were harnessed to computers. Initially, telex-machine keyboards were connected to provide input from remote locations, and telex-printers and cathode-ray tubes were installed to print and display the output from the machine at other locations around the same building or industrial site.
The limitation of computer-connection to a single site has been progressively overcome, by linking local computers to remote ones using 'tele', or distant, communications. Progressively, terminals have bee replaced with PCs, which have matured into workstations. These so-called 'clients' can be linked through hierarchies of networks to larger computers which act as 'servers'. Hence, TDPS and MIS have supported the exercise of more effective control not only by single-site organisations, but also by complex organisations with widely dispersed operations.
Valuable though they have been, MIS can only provide part of what management needs. MIS are built on top of TDPS, and hence only have access to internal, historical data. This may support much of a manager's needs in relation to the control of an existing and relatively stable operation, but does little to assist management's planning responsibilities. The term Decision Support Systems (DSS) arose to describe applications of IT which gather external, future-oriented data, and blend it with internally-sourced data. DSS support modelling of the uncertain futures confronting the organisation, and 'what-if' analysis of alternative strategies and alternative environments.
DSS are applicable at all levels of management. The primary focus has, however, been at the most senior levels of management, and the term Executive Information Systems (EIS) has arisen to describe the particular blends of MIS and DSS which address the particular needs of the CEO and his leadership team.
One of the naivetes which was associated with early applications of IT was the implicit presumption that decisions were made by individuals in isolation. In practice, most decisions, and especially the significant ones, arise from group processes. There are various 'top-down' models, including strong CEO leadership with articulation of the details of the CEO's vision by a hierarchy of managers; consensual decision processes within the executive team. Such organisational processes as quality circles can be seen as 'bottom-up' decision-making, by 'empowered' groups of operational-level employees. The term 'middle-out' refers to approaches in which managers and professionals in the organisational layers between the operational and the executive are a primary source of initiatives.
Recognition that most decisions in practice involve multiple people rather than one has led to the emergence of various forms of IT-supported Group Decision Support Systems (GDSS). These facilitate groups which wish to assess situations, generate possible strategies, analyse and evaluate them, and select and articulate the most appropriate course of action. It has also been recognised that not all teamwork is targeted at decision-making, and tools are becoming popular which enable computer-supported co-operative work (CSCW), and can be combined into group support systems (GSS).
The ongoing maturation of IT can be depicted as having four further important lines of development:
In the beginning, a little over 40 years ago, IT concentrated on data, and in particular on transactions, which captured into usable form the relevant aspects of real-world events such as the movement of money, raw materials and finished goods. The focus progressively switched to extracting useful information from the raw data. Data and information came to be transmitted electronically rather than in hard-copy form. Recently, the emphasis has matured further, to focus on the communication processes among humans.
Meanwhile, IT artefacts are ceasing to be standalone devices. They already interact with other devices. Currently they are maturing into something more like an organism than a machine, as they come to sense their environment directly, and act directly on it. Various forms of automated data capture are in place, such as magnetic-stripe and bar-code readers, and various effector technologies have been installed, ranging from production-line robots and automated warehouses to the humble automated teller-machine (ATM). Progressively, the term 'organisation' is coming to mean not just a set of people performing some co-ordinated function, but a complex of humans and artefacts.
The third theme is concerned with the extent of change which IT induces. For many years, the focus was on the automation of business processes, with the expectation that the capital and running costs of the equipment could be recovered from the displacement of the most mechanical jobs. There is a great deal of academic argument about whether that phase really delivered the productivity it promised. What is clear, however, is that organisations which have gone beyond mere automation, and used IT as a means of rationalising their operations, have gained handsomely. Some of the gains have been through direct cost reduction, but in many cases they were indirect, as corporations brought their businesses under control, and overcame wastage inherent in their old processes. This has led on to a fashion, unleashed in 1990, referred to as business process re-design or re-engineering (BPR).
BPR is drastic organisational surgery - a strategy for the risk-taker. It is eminently justifiable in the case of business units which are in dire trouble, which soon will be if they do not re-form themselves, or which choose to be aggressive and lead their market segment into a new phase. In the case of effectively functioning businesses in relatively stable markets, there is a concern that BPR may cause unnecessary dislocation, and even risk obliteration, not only of redundant processes, but also of the firm as a whole.
The fourth theme of the last decade of the twentieth century is the harnessing of IT to serve corporate strategy. Several different strategic thrusts have been identified which corporations use to achieve and sustain advantage over their competitors. The first of these, cost reduction, can be supported by applying IT to the automation, or preferably rationalisation, of business processes, and the timely provision of relevant information to enable managers to keep routine operations under control and hence overcome wastage.
In many organisations, IT can also support the second class of strategic thrust, differentiation, for example by enabling faster product design, faster or more careful testing of product prototypes, or greater customer intimacy. Beyond merely using IT to leverage off its existing competitive advantages, corporations can develop new advantages by infusing IT into their products and services, and by developing information businesses.
Two further strategic thrusts have arisen directly from IT. There has been a fundamental shift in corporate thinking in recent years. The focus is less and less on organisational structure, and more and more on organisational process, especially those processes which 'add value' to factors of production and deliver products and services to meet customers' needs. IT and techniques associated with it are the key weapons in implementing internal integration along the organisation's value-chain. To achieve large-scale advantage generally requires risk-taking, radical re-engineering of processes, and consequential substantial and painful impacts on organisational structures and people long used to a particular way of doing things.
Since 1988, I have driven a Research Programme at the Australian National University which I styled 'supra-organisational systems'. My contention was that IT was capable of conferring advantages through intra-organisational systems, but also through systems which transcend organisational boundaries. IT is indeed opening up the additional strategic thrust of external integration. This can be undertaken along the industry-sector value-chain, through IT-enabled alliances. One example of this is the so-called 'hub-and-spoke' EDI schemes used (with different flavours) in the automotive industry in the United States, Europe and Japan. Another is so-called 'customer response systems', in which companies like Benetton and Levi-Strauss invest in communications linkages along the chain from materials manufacturer through clothing manufacturer to warehouse and to retail store.
Alternatively external integration can be undertaken collaboratively across an industry segment, to the benefit of the segment's customers. This includes such initiatives as the UPC and EAN code movement in retailing throughout the world, and the integration of the ATM and EFT/POS networks of competing financial institutions. The approach is particularly visible in the international trade segments of some nations, especially Singapore. IT-enabled external integration requires co-ordination, a willingness among the participants to restrain some elements of competition, in order to gain competitive advantage in a larger market, and acceptance by regulatory authorities that significant economic benefits will arise from these fundamentally collusive activities.
No corporation is an island. Corporations are dependent on effective, efficient, reliable and flexible infrastructure, in the local areas in which they operate, and at the levels of nations and geographical regions. In the past, the term 'infrastructure' has been applied primarily in such areas as energy, transportation and water. The emergence of the 'information economies' and 'information societies' of the late twentieth century has seen 'information infrastructure' become one of the most frequently encountered terms of the mid-1990s.
For at least thirty years, the feeling has been in the air that a major shift in civilisation was occurring or about to occur. A variety of terms have been coined and catalysts nominated, including 'post-civilisation', 'the global village', 'the super-industrial society', 'third wave society' and 'post-industrial society'. As long ago as 1968, Drucker asserted that "knowledge, during the last few decades, has become the central capital, the cost centre and the crucial resource of the economy".
During the 1980s, the terms 'information economy' and 'information society' appears to have won the race to become the most commonly used terms. During the last few years, a great deal of excitement has been generated by the initiative of the United States' Clinton/Gore Administration generally referred to as the 'National Information Infrastructure' (NII). Many nations have initiated programs to ensure that they are not left behind and become uncompetitive. There has been criticism of the term 'national', because so many elements of the emergent infrastructure are global in nature, rather than merely local, national or regional.
The following list provides an indication of the wide range of services which are capable of being supported by an appropriately designed and implemented information infrastructure:
There are many elements to information infrastructure. High-capacity backbones are needed to carry distance traffic, and these require associated switching mechanisms, and interfaces among sub-networks. They must support many different communications services, and provide a high level of reliability, resilience, redundancy and robustness. Connections are necessary between the backbones and physically dispersed communities, with 'exchanges' or 'switches' in each community. There need to be 'tail-ends' connecting industrial, commercial and private properties with community exchanges, and gateways between the regional infrastructure and organisations which have substantial internal networks. Finally, local infrastructure is need, comprising workstations with network connections, private wide-area and local-area networks operated by user-organisations, and public workstations and local area networks, in public locations such as libraries, shopping centres and transport interchanges, and including both general-purpose work- and play-stations and specific-purpose terminals such as ATMs.
To remain competitive and sustain growth, nations need to participate in the international information economy. To do so, they must stimulate and co-ordinate public and private investment in basic telecommunications, network services, and electronically accessible databases. There can be no simple formula for governments in deciding their policy mix to achieve this progress. This section highlights important considerations which need to be blended with domestic economic, institutional, political and cultural factors.
As a first requirement, governments need to establish, and clearly and consistently communicate their policy direction in relation to the exploitation of information technology. A second concern is that the central elements of the information infrastructure will require substantial funding. Although considerable scope exists for private sector to provide most of this, there is a significant case for some degree of public investment, at least during the early years of development. Education and training of the workforce to be able to develop, maintain, and, most critically of all, use IT, demands direct public investment in education.
Governments will also need to implement various stimulatory measures of a less direct nature than public investment. These may include grants for research into relevant information technology, for community-based applications and prototypes, and for research into implications of relevant information technology and its applications. Government agencies may need to be encouraged, or instructed, to participate. In addition, careful examination of the role of intellectual property law in innovation, and amendments to the law to ensure that creativity is not hampered. As a means to these ends, Parliamentarians need to be convinced of the importance of the information infrastructure.
Adaptation of existing laws to deal with the new networked environment, and maintain an effective balance between the interests of originators and owners of data and services, and users of data and services. Particular areas in which activities may prove to be necessary include the removal of obstacles to diversity among carrier-technologies, carriers and services, the removal of obstacles to network-based value-transfer, where monopolies remain or emerge, or physical dangers arise, the encouragement, and in extreme cases, imposition of operating standards, the clear specification in law of community standards in relation to such matters as pornography and the incitement of racism, and the refinement of existing enforcement regimes to ensure that the community's standards are sustained
At the level of services, government again does not need to, and should not, adopt a general role of services provider, nor of services planner, nor of services regulator. The market appears to be, subject to a few provisos, sufficiently enthusiastic and dynamic to ensure appropriate development of services, and access by Australians to services available in other countries. Individual agencies, however, need to be active participants both as users and as providers of network services.
Because progress in information technology is revolutionary in nature, it demands complementary organisational measures. Singapore provided an example of the speed with which a shortage of IT professionals could be addressed. In addition to IT specialists, there is an urgent need for IT-aware executives and managers, and for design professionals ('knowledge workers') to become highly IT-capable as well. Corporations need to adapt the attitudes of their employees into a 'technoculture'.
The technoculture notion implies that the organisation and its participants are mature in relation to the appreciation of IT's promises and pitfalls. IT artefacts are seen as complementary to people rather than threatening, it is accepted that continuous innovation is the norm, and the risks associated with continuous change are shared, rather than being imposed on individual workers unequally.
In the IT-impregnated 21st century, corporations must harness IT to corporate strategy. Strong, hierarchical leadership of centralised bureaucracies will be unable to adapt their cultures, and will lose out to competitors who are fleet of foot. Small start-up companies are in a particularly good position to establish modern, relatively loose organisational processes and structures which embody technoculture. Size will not unduly hinder small and medium-sized enterprises (SMEs) from competing with giants, because they will use IT to establish alliances from which they can gain sufficient economies of scale and scope. Some conglomerates are also in a position to migrate their organisational style, by keeping their business units small and flexible; for example, ABB provides its large numbers of constituent parts with maximal autonomy and exercises control primarily through financial management constraints.
Governments must play a key role in encouraging appropriate kinds of developments, and rates of development, in IT usage by organisations. To facilitate that, they must adopt the national information infrastructure as a priority in their programmes. They must manage a mix of incentives and disincentives that will direct private investment, and some amount of public, investment into communications, network-based services and related education and training. Only in this way can they ensure their nation's participation in the international information economy, and hence protect their people's well-being. In short, for IT to fulfil its great promise for East Asian nations, their governments must 'grasp the nettle'.
But nettles sting.
The necessary and very brisk maturation in corporate culture has significant implications for social cultures in the East Asian region. The focus in the new world is on knowledge, not just skills; and knowledge requires education, not just training. Associated with knowledge and education are innovation and imagination; and dynamic, mobile life-styles; and 'different-thinkers'.
Conflicts will inevitably emerge between the expectations of these people and of the general population, used to slower-paced patterns of life. Reconciliation between the traditional and the progressive, and maintenance of an ongoing balance between them, have always been vital components of viable national development strategies. Sustaining that balance is being made even more challenging by the pace and importance of change engendered by information technology.
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Created: 9 September 1996
Last Amended: 24 November 1997
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