Organizational Structure and Information Technology

By: Brittany Ziegelbaur

There are several elements in the business world that work hand-in-hand with the organizational structure of a business.  One element, in particular, that may slide under the radar for most people is information technology.  Many people may not think of the correlation between information technology and organizational structure as being that important, because many people don’t even know what information technology is.  To clear things up a bit, information technology is "a tool designed to collect, store, process, disseminate and use information" (Lee, Cheng, & Chadha, 1995).  With this being said, there are several elements of information technology that correlate with business structures.

The first segment of organizational structures that we will be looking at is the number of departments within the business and the number of levels of hierarchies within these departments.  In a study conducted, a strong positive correlation was found between the number of departments and levels of hierarchies with the level of information technology for the business (Pfeffer & Leblebici, 1977).  In other words, the more elaborate the information technology was in a business, the more departments and levels of organization’s hierarchy there were (Pfeffer & Leblebici, 1977). 

The next segment of interest in the study was the measure of decentralization within the business.  For the purpose of this study, they are referring the measure of decentralization to the “amount of money department heads can spend without high authorization” (Pfeffer & Leblebici, 1977).  The results, again, showed a strong positive relationship between the two elements.  This means that the more information technology used within the business, the more decentralization there is within the different departments (Pfeffer & Leblebici, 1977). 

Moving further along in the study, they next examined the correlation between the formalization of decision procedures in advance and the amount of information technology within the business.  When talking about how formal in advance the decision procedures are they are referring to the extent of the information that will be provided ahead of time to guide the employees through the work procedures.  After the study was conducted, they found that the more intricate the information technology, the less formalized in advance the decision procedures are (Pfeffer & Leblebici, 1977).   

The last element of this particular study was determining if there is correlation between information technology and the formality of reviews for departmental performance, and if these reports are oral, written, or with detailed statistics (Pfeffer & Leblebici, 1977).  This, however, was the one component of the survey that did not show any correlation between the two elements.  This was different from their hypothesis that stated: utilizing information technology would lead to more formal reviews with the implication of detailed statistics for reviewing the performance of the employees (Pfeffer & Leblebici, 1977).

After finding the correlation between different elements of organizational structures and information technology, businesses are able to implement their own strategies for operation.  One strategy that is becoming popular in several businesses is having high-centralized control over the company without having the risk of decentralized decision making between departments.  To explain this further, with the high advancements in information technology and technology, itself, management has the ability to obtain large amounts of information at their fingertips (Lee et al., 1995).  This allows upper level management to observe different business processes and how well they are performing, no matter how many departments there are in the business (Lee et al., 1995).  This makes it possible for a business to make all of their decisions through a few executives at the top of the organization, rather than by individual department managers.  There are both advantages and disadvantages to this process.  In one sense, it is very good for the business in terms of having a tightly monitored system of control over the information.  They are able to observe the information easily and efficiently.  On the other hand, it doesn’t give managers/employees of the business the freedom and confidence to make their own decisions.  Although there are positives and negatives to this business process, it is an efficient and effective way to operate a business.

Another strategy that many businesses are beginning to use to maintain an effective organizational structure is having decentralized decision making, without the expense of having centralized control (Lee et al., 1995).  Again, this process is made possible through the use of information technology.  With these high levels of information technology and technology in businesses today, it is very common that every employee will have a desktop computer or laptop at their desk.  This makes it possible for everyday employees to “generate, own, and access a great volume of information” (Lee et al., 1995).  This allows business decisions to be made more efficiently throughout the business.  These decisions can be made faster because there is more freedom among the employees.  Lower-level employees have the ability to evaluate the information they have accessed/found and infer a logical and appropriate decision, on their behalf, for the company (Lee et al., 1995).  Although this specific type of structure deals with less extensive centralized control over the business, there is still the ability for higher authority to track the information being processed throughout the business through the information technology programs implemented into the business process. 

These two examples of how organizations are altering their organizational structures with the implementation of information technology are perfect examples of how businesses are reacting to the greater amounts of information that run through the business.  One of the main reasons for implementing information technology into business structures is to work with the complexity of information that is entering the company (Sor, 2004).  Since today’s business world is so large and chaotic, the information coming into the business is more complex in quantity, quality, and type (Sor, 2004).  By implementing innovative business structures that involve the use of information technology, like the examples stated above, businesses have an easier way of dealing with large amounts of information.  Past theories of Thompson and Galbraith have carried over into today’s society and state that by implanting information technology into businesses structures, “uncertainty is reduced, the number of elements necessary for decision making are reduced, and task interdependence is reduced” (Sor, 2004). 

With all of this being said, information technology can greatly improve the organizational structure of a business.  Studies have shown that there is great correlation between different elements of organizational structures and information technology.  By having clarity that information does, in fact, improve organizational structures, businesses can now start implementing different techniques to improve the efficiency within the company. 

References:

Lee, A., Cheng, C., Chadha, G.  (1995).  Synergism Between Information Technology   and Organizational Structure: A Managerial Perspective.  Journal of Information Technology, 10(1).  (37-43).  http://search.proquest.com/docview/901450981/fulltextPDF?accountid=1 2924

Pfeffer, J. and Leblebici, H.  (1977).  Information Technology and Organizational       Structure.  The Pacific Sociological Review, 20(2).  (241-261).              http://www.jstor.org/stable/pdfplus/1388934.pdf

Sor, Roger.  (2004).  Information Technology and Organisational Structure:   Vindicating Theories From the Past.  Management Decision, 42(1/2).  (316-  329).  http://search.proquest.com/docview/212071031/fulltextPDF?accountid=1 2924