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Anatomy of Agile Enterprise

Janne J. Korhonen

Stratification Underlies Agility, Part 2: Systems

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By systems, Waterman et al. (1980) refer to "all the procedures, formal and informal, that make the organization go, day by day and year by year: capital budgeting systems, training systems, cost accounting procedures, budgeting systems". They argue that by changing the system, organizational effectiveness can be powerfully enhanced without disruptive restructuring.

In their popular text book on information systems, Laudon and Laudon (2000) categorize six major types of information systems: transaction processing systems (TPS), office automation systems (OAS), knowledge works systems (KWS), management information systems (MIS), decision support systems (DSS) and executive support systems (ESS). They also suggest four levels of organization (operational, knowledge, management and executive level) that these systems serve.

(It appears that since the time of my graduate studies the authors have omitted the OAS and KWS categories in the latest editions of the book and reduced the number of levels to three, but I will stick with the original formulation, which I find more precise.)

Transaction Processing Systems (TPS) are basic business systems that perform and support daily routine transactions at Stratum I (please see Preface for introduction to Requisite Organization, if you are not familiar with the notion of requisite strata). Examples of such systems include order processing system or machine control. TPS support most business functions in most organizations and are often very critical for the business

Office Automation Systems (OAS) are targeted at meeting the knowledge needs of data workers who are involved in information use, manipulation or dissemination. Typical OAS handle and manage documents, scheduling and communication. They support work at the lowest two strata.

Knowledge Work Systems (KWS) are information systems that aid knowledge workers in the creation and integration of new knowledge at strata II−III. Examples of KWS include various knowledge bases, knowledge-intensive collaboration systems and design workstations.

Management Information Systems (MIS) serve the functions of planning, controlling, and decision-making at the departmental (Stratum III) and functional (Stratum IV) management levels. These systems are designed to report on existing operations and to support structured decision-making. They are focused primarily on internal rather than external events and historical data rather than future projections.

Decision-Support Systems (DSS) combine internal information from TPS and MIS with information from external sources and apply analytical models and tools to support semistructured and unstructured decision-making at Stratum IV. These systems provide flexible support for decisions and problems whose solutions cannot be specified in advance.

Constructing information systems at Stratum IV and above poses challenges for system builders, as decision-making is situational and depends on the cognitive style of the manager (McKenney & Keen 1974). Formal information systems have minimal impact on managers, who make decisions dealing with modern technology but using non-explicit procedures in making them (Mintzberg 1971). Two third of the information they are using is retrieved from face-to-face and telephone conversations, and one third of information comes from various documents, most of which are from outside of the organization (Davenport 1994). In fact, formal systems within which many general managers must operate "probably hinder effective performance" (Kotter 1982). Ultimately, the manager "must design his own information system" (Mintzberg 1971). "A good planning system should help a GM [= general manager] create an intelligent agenda and a strong network that can implement it. --- It should give the GM leeway and options, so that, depending on what kind of environment among subordinates is desired, he or she can use the planning system to help achieve the goals." (Kotter 1982).

Executive Support Systems (ESS) are designed to address unstructured decision-making at the strategic level with a time horizon of 5+ years (Stratum V). Rather than providing any fixed function, these systems create a generalized computing and communications capacity with the emphasis on reducing the time and effort required to obtain pertinent information useful to executives.

The higher strata can also be supported and "informated" by information technology, but the role of IT drastically diminishes as we get on the conceptual-abstract order of complexity. Stratum VI comprises interorganizational systems such as collaborative forecasting and planning. Systems at Stratum VII, such as corporate strategy system, provide a broad, global view of the entire "system of systems" of the corporation and assist in managing the development, formation and construction of Stratum V businesses. Stratum VIII systems deal with mission and vision building for the whole corporation in consideration of its impact on society at large.

Table 1 exhibits some exemplary systems at different organizational strata. These systems vary from formal information systems that support structured activities (mostly at lower strata) to informal systems that are only partly, if at all, supported by information technology (predominantly higher in the holarchy). While I subscribe to Laudons' original classification of systems, I will somewhat depart from their four-tier (or three-tier) stratification in order to better align the types of information systems to the lowest five strata of Requisite Organization.

Table 1. Exemplary systems at different organizational strata.

Stratum Systems
VIII Mission and vision building
VII Corporate strategy, value system
VI Virtual vertical integration, collaborative forecasting and planning
V Executive Support Systems (ESS): sales trend forecasting, profit planning, facilities location planning, human resources planning
IV Decision Support Systems (DSS): contract cost analysis, profitability analysis Management Information Systems (MIS): sales management, annual business plans, capital expenditure, production planning, inventory control
III Knowledge Work Systems (KWS): knowledge-intensive collaboration systems, design workstations, knowledge bases
II Office Automation Systems (OAS): word processing, e-mail, document management, scheduling
I Transaction Processing Systems (TPS): order processing, machine control, payroll

As we climb higher up in the organization, the information requirements change markedly (Gorry and Scott Morton 1971). At the lower operational levels, the source of information is most often internal and based on historical data. The scope of information is well defined and narrow. Information is highly current, accurate and detailed and it is used frequently. At the higher strategic levels, the source of information is increasingly external, the scope is wide, and the time horizon opens to the future. Information is used infrequently, on an aggregated basis and may not be the most accurate or up-to-date.

Traditionally, information technology has served the information requirements at the operational levels. IT has been seen as mere 'cost of doing business' that is 'aligned' with business at best. As information technology has commoditized and the level of computing abstractions has risen, the focus has shifted to more strategic use of information and information technology.

When the decision support covers even more unstructured decision-making areas that do not lend themselves to formal "scientific" models, it becomes essential that models be built of the decision processes involved (Gorry & Scott Morton 1971). Governance of IT and management of business processes are increasing in importance. Indeed, early shimmer of BPM can be seen in Mintzberg's (1971) idea that managerial work should be seen as a system of programs. "First, it will be necessary to decide what programs managers actually use. --- Then, researchers will have to devote a considerable amount of effort to studying and accurately describing the content of each of these programs--the information and heuristics used. Finally, it will be necessary to describe the interrelationships among all of these programs so that they may be combined into an integrated descriptive model of managerial work."

Yet there is still a long, long way to Mintzberg's vision. If there ever is a way.

References

  • Davenport, T.H. (1994). "Saving IT's Soul: Human-Centered Information Management", Harvard Business Review, 72, 2, 119−131.
  • Gorry, G.A. and Scott Morton, M.S. (1971). "A Framework for Management Information Systems", Sloan Management Review, 13, 1, 55-70.
  • Kotter, J. P. (1982). "What Effective General Managers Really Do". Harvard Business Review, 60, 6, 156-167.
  • Laudon, K. C. and Laudon, J. P. (2000). Management Information System: Organization and Technology in the Networked Enterprise. 6th ed. Upper Saddle River, NJ: Prentice Hall.
  • McKenney, J. L. & Keen, P. G. W. (1974). "How Managers' Minds Work". Harvard Business Review, 52, 3, 79-90.
  • Mintzberg, H. (1971). "Managerial Work: Analysis from Observation", Management Science, 18, 2, B97-B110.
  • Waterman, R.H. Jr., Peters, T.J. and Phillips, J.R. (1980). "Structure is not organization", Business Horizons, 23, 3, 14−26.

Janne J. Korhonen provides insights into how information technology can be applied strategically to catalyze organizational change and responsiveness. Drawing from both theory and practice, he discusses agile enterprise and its governance.

Janne J. Korhonen

Janne J. Korhonen is an independent business and IT consultant,specializing in enterprise architecture, business process management,service-oriented architecture and pertinent governance models. He has over ten years of experience as an architect and consultant in a variety of extensive and mission-critical IT projects. With strong theoretical underpinnings, his consulting encompasses systemic co-development of business, organization and information technology.

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