Communications of the ACM

Virtual extension

Exploring the Dark Side of IS in Achieving Organizational Agility

By DongBack Seo, Ariel I. La Paz
Communications of the ACM, November 2008, Vol. 51 No. 11, Pages 136-139
10.1145/1400214.1400242
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Organizational agility is currently a popular topic in the academic and practitioner communities. While Information Systems (IS) has been identified as having a positive impact in the pursuit of the goal of the agile organization, we also want to present a set of forces that may act against agility by means of inefficient or ineffective design, use or understanding of the role of IS in the process of acquiring signals, responding and learning from experience. Here we mean IS to refer to both systems and technologies that support business functions such as collecting, creating, editing, processing, storing, retrieving, filtering, and delivering data, information, and knowledge. We intend to contribute to the practice by highlighting the 'dark sides' of IS that must be acknowledged and managed in order to make a balanced and wise use of IS. Practitioners may find this paper useful to evaluate, understand, and improve their IS for organizational agility and researchers may open another perspective to study IS for organizational agility.

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Organizational Agility

Based on previous research, we define organizational agility as a set of processes that allows an organization to sense changes in the internal and external environment, respond efficiently and effectively in a timely and cost-effective manner, and learn from the experience to improve the competencies of the organization.¹

The basic logic in pursuing organizational agility is this: The organization must be alert to perceive incoming signals from its internal and external environments. Then, it needs to process the signals and respond adequately, recognizing the impact that each piece of information may contain. Responding reactively and proactively may require a re-alignment of resources, processes, and even objectives if the changes are significant. With the incoming information processed, the organization has the opportunity to learn and improve its competencies. Competency refers to an organization's abilities to effectively perceive, respond, re-align, and learn from the experience of participating in dynamic environments. Agile organizations will move quickly in this cyclical process in near real-time sequences, prioritizing the actions by weighting the impact of signals of change and challenges, while considering costs.

Perception is the ability to sense changes in the environment. As a first step, organizations need to understand their internal and external environments to sense changes and trends that affect them, the sources and types of signals, and their characteristics (frequency, strength, form, etc). It is easier to perceive strong and visible signals rather than intermittent and weak ones. The role of IS in perception is to capture large amounts of data, which can be retrieved from multiple sources, in multiple formats, and make the data accessible, with limited compatibility problems. For example, POS (Point Of Sale) systems collect data about where, when, and what products are sold; organizations can track and monitor the movement of assets and inventory in real-time with RFID (Radio Frequency Identification). Appropriate use of these technologies makes available a multitude of signals to the agile organization.

Processing is the ability to filter, evaluate and process incoming signals, a crucial element for agility and a strength of IS. Organizations can easily fatigue their resources if they try react to every stimulus including irrelevant signals and noise. An organization must filter the raw signals it perceives and then convert them into accurate information to be used to drive decisions and actions in a timely way. Advanced information technologies make it possible for organizations to handle large amounts of data efficiently, reducing the time to make decisions and take actions. The increasing presence of mobile devices with enhanced features creates the ability to access, update, process, and retrieve information anywhere, anytime. Agility is about improving that cycle time in a timely and cost-effective manner for managerial action.⁸ IS involves not only managing databases but also conducting analytics or business intelligence functions such as correlations, regressions, and trend analyses.

Responding is an organizational pro- or re-action to the signals it collects or environmental changes. Once signals have been perceived and processed, determined to have been collected adequately and to represent accurate information, the agile organization must quickly formulate and execute appropriate responses.² Responses can be pre-determined for known and repeated signals, or can be formulated as innovative actions to new stimuli. In order to respond adequately, decision-makers must be able to access their organizational history of previous decisions and be ready to mobilize resources opportunely. The role of IS in responding is to present accurate, adequate and relevant information, gathered and appropriately analyzed through the perception and processing components, that allows organizations to make decisions for effective action in changing environments. For example, in supply chains, customers' demand fluctuations can be fed to the manufacturers who are upstream in the value-chain to help them better plan their production cycles; the use of just-in-time systems has been enhanced by connected systems. Interaction platforms like virtual groups, communication protocols, or tools for collaborative work need to function in near real-time to facilitate discussion, coordination, and control.

Aligning is the arrangement or rearrangement of IS in keeping with business environmental changes. When an organization senses, processes, and responds to signals of change, it may also need to re-evaluate and re-align processes and resources or even change its business objectives. Agile organizations must develop the capabilities to adjust their structures to align with new goals in a time-sensitive and cost-effective fashion.⁴ The new objectives and/or organizational structures can affect the need for sensing, processing and responding to new signals. IS plays a key role in quickly mobilizing resources and supporting agility by enabling ad-hoc, distributed, and virtual work environments. Control and coordination efforts can be greatly facilitated with IS as well, by using Web services and networks which are enhanced when standardized and modularized.

Learning refers to the ability to build on experience to continuously improve and be better prepared to deal with changing conditions. It is important for organizations to learn continuously and effectively³ from their internal processes so as to minimize bad practices and build on the good ones. An agile learning company will also pick up technology, skills, and processes from any external partners. IS supports managers and employees to learn organizational activities; for instance, by using directory services (yellow pages, active directories, and so on), organizations can manage expertise profiles of employees. IS can be used to support distance learning, training, discussion forums, building databases, and more. All of these should also help to improve the competencies and knowledge of the individuals in the organization. An employee may be able to respond to customers' problems based on his/her basic training or own experience, but individual employees can learn faster and more effectively from a shared knowledge system like a central electronic log book where all employees input customers' problems or complaints by searching similar problems from that knowledge database.

Competencies comprise knowledge and experience about the market and processes for how to do things internally and with external partners. Organizational competency is the expertise of organizations to support and balance the agility components. Competencies affect all the factors for organizational agility — perception, processing, responsiveness, alignment, and learning; in turn, all these factors become part of an organization's competencies. Organizational agility does not just depend on these attributes separately, but is dependent on how well they work together. If the organization is great at processing data but just perceives noise, the organization simply processes noise. If sensing, processing, and responding systems are not integrated, the organization will have difficulties achieving agility. IS supports organizational competency by allowing information flows to reach the corresponding levels and obtaining feedback in time. The integration of IS can result in flexible and robust support to overall organizational competencies and therefore agility. The role of IS in competency is to permanently improve the processes to perceive, process, and respond to signals, while learning from the experience and aligning with business goals through those activities.

Clearly the full impact of IS on organizational agility is affected by non-IS factors, such as industry, type of firm, firm size, and other aspects of an organization. The components presented above are simply those intrinsic to the role of IS itself in contributing to organizational ability. Having presented these basic IS components, the paper will address in the next section the dark sides of IS in pursuing agility that organizations should acknowledge and plan to manage.

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Dark Side of IS

The following points have been discussed by others as problems of IS. Here we will analyze them with specific regard to their impact on organizational agility.

1. Overwhelming collection of data: Most organizations face floods of data from a variety of sources, which creates noise and confusion generated by an excessive perception of data. Valuable information often gets lost in huge amounts of data which can congest the systems that process and respond and thus decrease organizational agility.
2. Lack of integration between perception systems and sources: Many companies have developed IS incrementally to solve specific problems that were important at some point. This may create overlaps and gaps in perceptions. Overlaps imply duplication in the use of resources, while gaps imply areas where signals may not be perceived. Missing data or resources wasted by duplicated data undermine an organization's agility.
3. Un-standardized perceived data: Data coming from different entities or from different contexts may have different formats or be incompatible with the organization's IS. This consumes time to convert the input into the centralized databases for processing, reducing an organization's ability to take action in a timely manner.
4. Scope of processing: Organizations may use multiple sources to perceive large amounts of data, but if their systems can only process a narrow slice of that data, then their ability to respond will be limited or misdirected. Insufficient responses can reduce the organization's effectiveness; misdirected responses can cause undesired side-effects or mistakes that require time and resources to fix. On the other hand, if data is over-generalized, "over-fit" or used in an inadequate context, it may lead to inappropriate conclusions or improper actions.
5. The perception and processing signals may be robust but significant signals in new or unexplored areas may be missed or drowned out, impeding appropriate responses because of a rigid IS architecture. This could cause the organization to miss important opportunities, and suppress organizational agility.
6. Information accuracy: The processing component may lack the capacity to analyze whether the data is correct, whether there might have been errors in perception or in the data received. If the correctness of the information is not validated, bad data will lead to bad analyses and probably incorrect responses.
7. Information overload for decision makers: The perception and processing capabilities of an organization can overwhelm decision makers with the amount of information they receive, which means that organizations can perceive and process adequately but fail to respond in a timely manner due to the bottleneck effect of decision makers.⁷
8. Time lag between installation of IS and organizational response: If the design and implementation of complex IS takes a longtime, it can be already out of date to support the changing business environments when it is finally implemented. This hinders effective perception and processing, and thus prevents timely and adequate responses.
9. Inflexibility of IS: IS that is tightly integrated to create high levels of stability can cause rigidity, because such systems are not flexible enough to be upgraded or realigned. Changing IS infrastructure often requires large investments including financial cost, time, and effort. In the unpredictable real world, the embedded base of IS can become obstacles to agility due to its inability to respond to the needs of the changing environment.⁹
10. Technology dependence: An automatic data collection and processing system provides operational efficiency, but it can also create complacency for the people who rely on them, avoiding learning. We depend on information technology tools for telephone numbers or schedules, like a cell-phone and e-planner. The simple failure of these IS can stop whole organizational procedures, because of the reliance of business operations on IS operations and job complacency from over-reliance on process automation.
11. Greater propensity for error: An incorrect or failed transaction can cause problems in subsequent processes in IS due to links. This phenomenon can cause unexpected consequences, especially when IS are not properly integrated together. For example, in 2000, an analytics management software 'glitch' at Nike resulted in damages to the company that ran in excess of $100 million in lost sales, which in turn depreciated the company stock price by 20%, and resulted in a number of class action lawsuits brought against the company by shareholders who claimed negligence in relation to knowledge management.⁶ The glitch occurred because the ERP system used by Nike was not properly integrated with the Supply Chain Planner. This lack of ability to integrate the components produced an incorrect forecast, and the situation was further exacerbated as the company's financial records were simultaneously receiving incorrect data from the order processing system. Managerial oversight led to the release of balance sheets with these faulty predictions to the financial media. It is interesting to note that if the entire system had not been integrated, the demand-forecasting glitch would have remained in-house, but since the integration between the demand module and the accounting component functioned in the manner it did, the damage caused by the initial glitch proved far more catastrophic.
12. Increase in management efforts due to the use of IT: Consider the case of emails. Email messages have moved from a secondary medium of communication to one that is core. Gartner predicts that the volume of business email will grow by 25–30% per year till 2009, and the Enterprise Strategy Group estimates that 75% of a company's intellectual property is contained in emails and attachments.¹² This prominence has resulted in increasing demands on the management of email systems. The Sarbanes-Oxley Act of 2002 requires public companies to save records of email messages for seven years for audit purposes; in addition, future provisions of the law require organizations to monitor the content of email messages. Hence, the nature of managing information from the source has changed. In the past, companies did not have to store copies of email; email messages made their way to employee accounts, and employees had the rights to download, reply to, or delete their email, such as through the use of the POP protocol. Today, most organizations store copies of email before they reach an employee's mailbox, so that recovery operations can be conducted.

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Recommendations and Conclusion

Recognizing the attributes of organizational agility and examining the dark side of IS, we can identify several factors to minimize the dark side of IS.

Standardization: Standardization of subsystem components can expedite perception, processing and responsiveness, whether it is a basic standardization such as color codes in the fashion industry to standardization in IS such as compatible IS between a fashion retailer and all its suppliers. Imagine a situation where different groups are using different color codes and suppliers are using different IS. How long will it take to convert the color codes to another that the retailer can recognize to process, convert, and adjust them? Here we mean standardization of IS components, modular parts, and database-formats, rather than standardization of an entire IS system, which often creates rigidity. Standardization of basic elements provides more flexibility at upper levels, while a standardized system itself brings rigidity. The advent of component based design methodologies and service oriented architectures are helping to lead the standardization effort. Through standardization an organization should be able to plug-n-play IS; components should be reusable; services should be made available as needed regardless of platform or architecture. The goal of standardization should be to promote interoperability across heterogeneous environments, while also making the design of IS more effective and efficient.

Buying, leasing or outsourcing: An organization has a choice to purchase, lease, or outsource its IS, including partial or total services. The outsourcing company, specialized in this field, can provide better maintenance at lower cost. It can be also a risk management tool for organizations to outsource their IS from distantly located firms in case of disasters or terrorism like 9/11 or Hurricane Katrina. Again, there are some risks in outsourcing, for instance, losing capabilities related to IS. The organization should answer questions such as "is it a core competency?", "are we efficient?", or "what are the advantages and disadvantages?" and evaluate and weigh advantages and disadvantages depending on the situation before making the final decision. Most companies that have been thinking about outsourcing have considered costs, but they should also consider questions of agility. Can organizations have the same, better, or worse perception, processing, responsiveness, and other abilities if they outsource some or all of their IS?

Management skills and individual agility: C.K. Prahalad, the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan, has said, "organizations can't be agile, but managers can be agile."⁴ This means that organizations can be agile if managers and individuals are agile, because the collection of individual mindful agility becomes part of organizational agility.⁵ This factor is also related to the above two factors, standardization and the decision to buy, lease or outsource. Logically, the organization that has more agile managers and individuals is likely to make the required standardizations and make better decisions about whether to buy, lease, or outsource its IS in an agile manner. The problem is how organizations can make their managers and individuals more agile. Are they just going to hire agile people? Human beings are not independent from their environments. Even if an organization hires only agile people, can they support them to keep being agile? Organizations need the right organizational structure and culture to support agility.

Organizational structure and culture: This is one of the foundations of the other factors. If managers and individuals don't know what to sense and how to sense incoming data, then the organization cannot perceive sensitive information, or respond adequately to changes. The organizational structure and culture must provide well-established instruments, training programs, and environments for its managers and individuals in order to exploit the systems, re-align resources, learn, and finally improve the competencies to reach agility, rather than a rigid workplace that emphasizes only effective and efficient daily operations. The organizational structure and culture should be open to encourage individuals' creativity, while carrying out daily operations.

A case study about the information design in the Commercial Financial Services division of Fleet Bank emphasized organizational structure and culture, management skills and individual agility.¹⁰ Integrated information brought tremendous knowledge that the company could use for different purposes such as decision making and customers' portfolios. The interesting points are the four critical success factors Rockart identified through his study: vision, executive backing, a new level of project leadership, and listening and learning.

It is imperative that IS helps organizations to reach real-time and agile operations. IS that suppresses an organization's ability to be agile cannot be tolerated as it may lead to the demise of the organization. In order for IS to act as an enabler of organizational agility, maximizing the positive sides of IS while minimizing the dark sides, firms need to evaluate their IS thoroughly, understand their dynamic environments, and modify and implement our suggestions for their own unique situations. It's not easy to deliver all the procedures we mentioned, but it's our hope that this paper provide some insights for organizations to be agile while being aware of the dark side of IS. Once organizations move in the right direction to be agile in the first loop, it becomes easier with every round, because they learn in every cycle and it becomes their competency and flexibility.

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