Management Decision

Organization design: the continuing influence of information technology

C. Clay Dibrell Thomas R. Miller
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Management Decision, Vol. 40 Iss 6 pp. 620 - 627
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 Journal of Management History
Organization design: the continuing influence of
information technology

C. Clay Dibrell
College of Business, Oregon State University, Corvallis, Oregon, USA
Thomas R. Miller
Area of Management, Fogelman College of Business and Economics,
The University of Memphis, Tennessee, USA

Keywords
Information technology,
Organizational structure,
Development
Downloaded by New York University At 02:58 12 April 2015 (PT)
``Forward the Light Brigade!'' the customer the focus of the strategy instead
Was there a man dismay'd? of allowing the top management team to
Not tho' the soldier knew
make decisions in isolation of the customers
Some one had blunder'd: (Byrne, 1998). For this strategy to be effective,

Theirs not to make reply,

Abstract an appropriate organizational structure or
Drawing from an information Theirs not to reason why,
form must be in place that can process the
processing perspective, this paper Theirs but to do and die,
examines how information into the valley of Death tremendous volume of information generated
technology (IT) has been a catalyst Rode the six hundred (The Charge of the Light from both internal and external sources.
in the development of new forms of
Brigade, Tennyson, 1864). These capabilities are possible through the
organizational structures. The
article draws a historical linkage
continuing advances of information
The concept of information has been vital technology (IT).
between the relative stability of an
throughout history to organizations. History
organization's task environment Chambers believes ``that the new rules of
is replete with examples when the presence
starting after the Second World competition demand organizations built on
War to the present environmental
of timely and accurate information would
instability that now characterizes change, not stability; organized around
have dramatically altered the course of
many industries. Specifically, the networks, not a rigid hierarchy; based on
events in uncertain environments. In The
authors suggest that advances in IT interdependencies of partners, not self-
have enabled managers to adaptCharge of the Light Brigade, if the correct
existing forms and create new sufficiency; and constructed on technological
information had reached the commander,
models for organizational design advantage, not old-fashioned bricks and
then the charge would have been halted.
that better fit requirements of an mortar'' (Byrne, 1998, p. 104). In addition,
unstable environment. Time hasAnother military example can be seen in one Cisco makes use of the advances in IT as it
seemingly borne out this
of the first applications of computer revamps or reengineers its organization to
hypothesis as the bureaucratic
technology. During the Second World War
structure evolved to the matrix to create a more flexible structure. Other
the network and now to the the creation of a code-breaking computer, competitors are forced to follow the industry
emerging shadow structure. IT has
called Enigma, enabled the British to
gone from a support mechanism to innovator or potentially lose competitive
intercept and decipher German messages,
a substitute for organizational position. As illustrated through this example,
structures in the form of the providing the British with a critical advances in IT enable changing
shadow structure. The article advantage in deciding how best to deploy
suggests that the evolving and organizational forms.
vital resources to defend Great Britain.
expanding role of IT will continue This paper will focus on the continuing
Within a business context, information
for organizations that face unstable impact of IT on the evolving designs of
environments. enables organizations to plan, allocate, organizations. We will first review historical
coordinate, and control resources more trends showing how an organization's
efficiently, while responding to a changing demands for information processing, coupled
The authors would like to
thank Richard H. Franke environment. The maxim, ``information is with continuing advances in IT, have been
and John C. Hannon for their power,'' has been consistently validated catalysts for new organizational forms.
helpful comments on earlier throughout history. Second, the present state of the relationship
versions of this manuscript. Drawing from this metaphor, the between IT and organizational architecture
information processing school of thought will be considered. Third, we will illustrate
suggests that organizations exist to process how advances in IT could influence
information to enable more effective decision organizational structures of the future.
making. For example, Cisco company has
altered its organization's boundaries by
creating two-way communication structures Organizational information
between the consumer and the organization. processing components
Management Decision CEO John Chambers' intentions are to make
40/6 [2002] 620±627 In his classic article conceptualizing the
# MCB UP Limited diversity of prospectives on the field of
The current issue and full text archive of this journal is available at
[ISSN 0025-1747] management, ``The management theory
[DOI 10.1108/00251740210434016] http://www.emeraldinsight.com/0025-1747.htm
jungle,'' Koontz (1961) identified and
[ 620 ]
 C. Clay Dibrell and described six schools of management
Thomas R. Miller thought. In a later extension of the ``jungle''
Organization design: the
continuing influence of metaphor, Koontz (1980) reported further
information technology fragmentation of the field, identifying 11
Management Decision approaches to the conceptualization of
40/6 [2002] 620±627 management. One of the schools he
considered, the ``social system'' school, was
based on Barnard's (1938) view of the
manager as one who maintains a set of
cooperative, interdependent social
relationships working toward a common
goal. This approach views the organization
as a social organism that is influenced by
forces and influences of the environment (e.g.
customers, vendors, suppliers, and
regulators), as managers attempt to integrate
the efforts of organization members to
achieve organizational goals. Koontz also
presented his ``decision theory'' school of
Downloaded by New York University At 02:58 12 April 2015 (PT)
thought, which focused on the analysis of the
choice processes of managers as they seek to
make rational decisions within organizations
(March and Simon, 1958). Utilizing
perspectives of these two conceptual streams,
a theory evolved that generated the
``information processing'' school which
proposed that a key function of an
organization is to process information
(Galbraith, 1973).
In addition to the influences of the social
systems and decision theory perspective, an
assumption underlying the information
processing school is contingency theory,
which suggests that there is no single best
method for organizing, and not all approaches
to organizing are equally effective (Galbraith,
1973). Rather, the underlying variables in the
individual situation determine which
approach will be the most effective.
Additionally, organizations can be defined as
(Galbraith, 1977, p. 3):
. composed of people and groups of people;
. in order to achieve some shared purpose;
. through a division of labor;
. integrated by information-based decision
processes;
. continuous through time.
The focus of the information processing
school is to provide relevant information that
enables managers to make better decisions in
the face of task uncertainty. Relating the
critical variable of task uncertainty to
information processing, Galbraith (1973, p. 4)
maintained, ``the greater the task
uncertainty, the greater the amount of
information that must be processed among
decision-makers during task execution in
order to achieve a given level of
performance''. Uncertainty can be defined as
``the difference between the amount of
information required to perform the task and
the amount of information already possessed
by the organization'' (Galbraith, 1973, p. 5).
The degree of task uncertainty is a
combination of the diversity of the outputs,
the number of different input resources, and
the level of goal difficulty. As the complexity
of the different variables increases, there is a
greater need to provide pertinent
information to decision makers.
In analyzing the impact of the task on
information processing requirements,
Perrow (1967) suggested that there are two
important dimensions of tasks: variety and
analyzability. Task variety is the degree of
unanticipated or novel events occurring in a
process, while analyzability is the
breakdown of a process into formalized steps
to reduce uncertainty. These two dimensions
of departmental activities have relevance to
organization structure as they classify the
complexity of a task. If a task has low variety
and high analyzability, it can be considered a
routine task. He argued that a routine task
consists of processes that are standard,
repetitive, predictable and well understood
by members of the organization. A task can
only be considered routine if the task
remains consistent over time. However,
Perrow (1967) believed that if a task has low
analyzability and high variety, then the task
is considered nonroutine since a nonroutine
task process does not consistently remain the
same over time. Examples of highly
nonroutine tasks are new product
development, research and development, and
software development.
These different task characteristics and the
classification of routine versus nonroutine
tasks have a strong influence on
organizational structures. Similarly,
analyses of the different types of tasks (i.e.
routine and nonroutine) provide insight into
an organization's environment. Duncan
(1972) postulated that a stable environment
could be characterized as having small and
similar numbers of external elements with
little environmental change, whereas an
unstable environment would be classified as
having large and dissimilar numbers of
external elements with more dynamic
change. The characteristics of the traditional
bureaucratic structure produce a good fit for
organizations in a stable environment.
Conversely, a group of tasks which are low in
analyzability and high in variety reflect an
environment that can be characterized as
highly volatile. In this setting, an
organization needs a flatter and more
decentralized structure than the
bureaucratic form as the flatter structure
permits greater information processing
among all members.
[ 621 ]
 C. Clay Dibrell and A critical element of the information
Thomas R. Miller processing organization is utilization of IT,
Organization design: the
continuing influence of the integration of telecommunications, data
information technology processing and computer-based information
Management Decision systems (Travica, 1999). Over 30 years ago,
40/6 [2002] 620±627 Perrow (1967) suggested that technology
enables organizations to receive more certain
information, so that a task that was once
considered nonroutine is now routine. IT
allows nonroutine tasks to be analyzed
more effectively and can eliminate some of
the variety or uncertainty from
the situation.
An example of how IT has transformed a
task with high variety to one of low variety
can be seen through the use of executive
information systems, which can be
programmed to scan a variety of different
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environmental variables from several
sources for relevant information that
decision makers may request. Paller and
Laska (1990) indicated that the executive
information system enables the decision
maker to be able to process information more
effectively and efficiently. Moreover, this
type of IT has increased processing abilities
of the organization. The advent of IT in
relation to the information processing school
led Whisler (1970) and Galbraith to consider
vertical and lateral information processing
integration.
Vertical and lateral integration
The different forms of organizational
structures reflect the environments within
which they operate. For example, between
the end of the Second World War and
through the early 1970s, the economy was
expanding and the environment of many
organizations was considered placid and
munificent.
The primary goal of business was to
provide products for hungry consumers, and
organizations operated in a stable
environment with limited uncertainty.
Therefore, organizations needed a structure
that was focused on efficiently producing a
steady and consistent flow of goods. The
mechanistic form provided a good fit with
this type of environment and can be
characterized by the following elements
(Daft, 1995, p. 91):
. tasks are broken down;
. tasks are rigidly defined;
. a strict hierarchy of control with many
rules employed;
. knowledge and control of tasks are
centralized at the top; and
. communication is vertical.
[ 622 ]
Vertical relations and structure
Whisler described how IT has impacted on
the structures of the organization through
increased vertical relations of information
resulting in a greater centralization of
information at the top of the hierarchy. He
hypothesized that IT would have a
tremendous influence upon the structure of
the organization, resulting in fewer
employees, a narrower span of control, a
reduction in the organizational levels. He
further proposed that the influence of IT
would not be limited to a single department
but would have a dramatic impact
throughout the organization. The results of
his empirical testing demonstrated that
reductions of personnel would come not only
from the ranks of clerical workers, but also
from supervisory and managerial workers.
The span of control and levels of the
organization were each reduced through the
introduction of computers to the
organization. IT has also allowed a number of
organizations to reorganize several tasks
through the automation of tasks (e.g.
replaced data retrieval personnel with a
computer-operated database). The
reorganization of tasks resulted in a greater
centralization of information.
Whisler argued for increased
centralization of decision making to enable
top management to make better decisions
under increasing environmental uncertainty
and to control the resources of the
organization more efficiently. A primary
tenet of Whisler's work is the concept of IT
acting as a control mechanism through
greater centralization of decision making. He
believed that the impact of IT upon the
structure of the organization would enable
the top management team to make better
decisions, as evidenced in the following
quotation:
Computers tie together and integrate areas of
decision-making and control that formerly
were relatively independent of one another.
The perpetual problem of information
overload that existed in precomputer days
provided a compelling reason for breaking up
the over-all task of assessment, evaluation,
and control within a company into
reasonably manageable subsystems . . .
computer-based systems, using the large
information-handling capacity of the
computer, can monitor, correct, and adjust
actions over a much broader area than could
any human group. Given this typical
pyramidal structure of business
organizations, this integration results in
shifting system control up higher in the
organization where it formerly was located . . .
before and after application of the computer
should provide evidence of increased
 C. Clay Dibrell and centralization of control (Whisler, 1970,
Thomas R. Miller pp. 98-9).
Organization design: the
continuing influence of The significance of this excerpt and his
information technology empirical validation of the statement is that
Management Decision IT facilitates information processing within
40/6 [2002] 620±627
vertical relations and thereby permits
greater centralization. Thus, as Whisler
demonstrated, IT through vertical
information processing enables
organizational structures to become more
bureaucratic through greater routinization
of tasks.
Lateral relations and structure
As the environment became more uncertain
during the early 1970s with increasing global
competition and the energy crisis,
organizations faced more ambiguous and
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volatile operating conditions. Organizations
needed not only the ability to provide a
steady flow of goods, but also the competency
to compete with other organizations on a
global basis. The tasks of the organization
were becoming more nonroutine while
demands for information were increasing.
The matrix structure aided organizations in
increasing their information processing
capabilities. Instead of an organization being
able to process information exclusively in a
vertical form, the matrix structure allowed
organizations to process information both
vertically and laterally. This structural
innovation allowed organizations to share
information across traditional functional
areas.
Galbraith provided insights into the
information processing functions of the
matrix organization, as he suggested that the
primary functions consist of rules, goal
setting, and a hierarchical structure. The
level of task uncertainty will dictate how
each of these processes is performed. If the
task uncertainty is low, then these three
processes can be conducted with limited
information processing. However, if the
uncertainty level of any of these three
increases, then the information processing
load on the organization's structure will
overload and create greater uncertainty.
As shown in Figure 1, Galbraith (1977)
proposed IT as an organizational design
variable along with structure, people, task,
and reward systems. His inclusion of IT as a
primary component illustrated its emerging
role as an integral component of lateral
information processing.
Determining the appropriate form of
lateral relations structure is dependent upon
the degree of task uncertainty. The need for
lateral relations in information processing
influences the specific mechanism to be used
(e.g. direct contact, liaison roles, task forces,
permanent teams, integrating managers, or
matrix design). For the highest level of
uncertainty, Galbraith advocated adoption of
the matrix structure that permits extensive
lateral communication and joint decision-
making processes. He maintained that the
matrix system is the most effective and
efficient structure for reducing information
overload.
The present
Utilization of the matrix form typically
occurs in large organizations where greater
information processing is needed. With the
effects of government deregulation in many
industries beginning in the early 1980s and
continuing today, coupled with ever-
increasing global competition, organizations
are being forced to become more efficient.
Managers are focusing on developing more
flexible structures to assist in adapting to
these more uncertain environments. One
approach to creating more flexible structures
is reengineering.
Reengineering has provided a means for
organizations to delineate their structure, as
they become more adaptable to their task
environment. Huff (1992) indicates that the
basic concept behind reengineering is to
reorganize tasks with the aid of IT through
greater automation of processes. According
to Hammer (1990, p. 107), reengineering
involves a change of mindset:
At the heart of reengineering is the notion of
discontinuous thinking ± of recognizing and
breaking away from the outdated rules and
fundamentals assumptions that underlie
operations . . . rather, we must challenge old
assumptions and shed the old rules that made
the business under perform in the first place.
Likewise, Hammer and Champy (1993)
suggested that an organization should look at
the best way to achieve an outcome and
thereby focus on the larger objectives by
embracing technology, seeing things from
the customer's perspective, removing
obsolete assumptions and imagining that one
individual was able to handle the entire
process.
As Hammer and Champy recognized in
their key points of reengineering, IT plays a
critical role. The IT staff acts as a catalyst in
the reengineering process, providing input
on what the limits of IT are and how to use it
most effectively. Through removal of middle
layers of management, flatter organizational
structures evolved that were more effective
in analyzing and responding to the
increasingly volatile environment. For
example, instead of owning a distribution
[ 623 ]
 C. Clay Dibrell and system, organizations are now selling these
Thomas R. Miller assets and outsourcing this function to other
Organization design: the
continuing influence of organizations to reduce overhead and to
information technology create greater flexibility.
Management Decision A structure that achieves the objectives of
40/6 [2002] 620±627 flatter and more flexible structures is the
network structure. The network structure
can be described as ``delayered, highly
flexible, and controlled by market
mechanisms rather than administrative
procedures, organizations with this new
structure arrayed themselves on an industry
value chain according to their core
competencies, obtaining complementary
resources through strategic alliances and
outsourcing'' (Miles and Snow, 1995, p. 5). As
indicated by the definition, network
structures are revolutionary in that most
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resources complementary to the
organization's core competencies are secured
through strategic alliances and outsourcing.
For these structures to operate effectively,
Miles and Snow (1995) believed that they
process high volumes of information and
have this information accessible by their
own employees and their strategic alliance
partners. Thus, a premium is placed upon the
availability of relevant information to all
components of the networked organization,
as enabled through continual advancements
in IT.
IT allows nonroutine tasks to be analyzed
more effectively and can reduce or eliminate
the variety or uncertainty from the task.
Pfeffer and Leblebici (1977) extended
Whisler's and Galbraith's works to suggest
that the task environment directly influences
Figure 1
Organizational design policy variables
[ 624 ]
the organization's structure and IT. In
addition, these researchers argued that IT
and structure covary; therefore
organizations that face highly unpredictable
environments should emphasize IT more
than organizations based in more predictable
environments.
IT enables an organization to be more
reactive and proactive in an environment.
Ciborra (1997) described how a shapeless
organization employs IT to remain flexible in
highly uncertain environments. For highly
unstable environments, she advanced that
the traditional environment-structure
linkage fails to create flexibility for
organizations that are highly centralized and
formalized. To alleviate this tension created
between the environment and structure, IT is
implemented to provide organizations with
greater flexibility, allowing them to process
more information about the environment.
Argyres (1999) established that IT replaced
a defined vertical structure among four
organizations involved in constructing the
stealth bomber. These organizations utilized
key information systems to enable them to
control and coordinate the design and
building. Argyres (1999, p. 162) offered two
reasons why the implementation of IT was
more effective than a more centralized and
formalized structure: ``First, the information
systems aided coordination directly by
making information processing less costly.
Second, this enhanced information
processing made the governance of the
project more efficient''. In effect, IT served as
a proxy for an organizational structure by
providing a virtual, cyber or shadow
structural forms characterized by greater
decentralization and less formalization.
The future
The extant literature suggests that
organizational structure and IT can be
applied similarly to the control and
coordination of organizational resources.
According to Galbraith (1973, 1977), the
information processing perspective suggests
that organizations exist to process
information and that an organization
structure should reflect the type of task
environment surrounding it. Likewise,
researchers indicated that IT can be utilized
by organizations to process information and
to distribute the information throughout the
organization, as demonstrated through the
task process (e.g. Argyres, 1999; Homburg
et al., 2000; Pfeffer and Leblebici, 1977;
Travica, 1999).
 C. Clay Dibrell and Pfeffer and Leblebici (1977) further
Thomas R. Miller demonstrated this perspective. They
Organization design: the maintained that the environment affects both
continuing influence of
information technology an organization's IT and an organization's
Management Decision structure. As the perceived environment
40/6 [2002] 620±627 becomes more uncertain, organizations will
move toward flatter organizational
structures and embrace IT more effectively
than organizations with taller, more
centralized and formalized structures that
reside in fairly predictable environments
(Robey, 1977). In addition, the authors
postulated that IT ``substantially alters the
mechanisms and the nature of organizational
coordination and control, and, therefore, has
direct causal effects on the structure of the
organization'' (Robey, 1977, p. 247). In this
manner, IT acts as a substitute for
organizational structure (Travica, 1999).
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Homburg et al. (2000) discovered that IT
enables an organization to employ a more
decentralized structure, as employees are not
geographically bound to projects within a
local proximity. In his study, Lal (1991) found
a positive relationship between
decentralization and IT. Similarly, Hitt and
Brynjolfsson (1997) discovered that extensive
users of IT had flatter, more decentralized
organizational structures. Additionally,
these authors found that heavy investment in
IT was linked to more decentralized
organizational structures.
IT enables an organization to be both more
reactive and proactive in an environment.
Ciborra (1997) described how a virtual
organization employed IT to remain flexible
in highly uncertain environments. For
highly unstable environments, she argued
that the traditional strategy-structure
linkage fails to create flexibility for
organizations that are centralized and
formalized. To relieve this pressure, which is
generated between strategy and structure, IT
is implemented to provide organizations with
greater flexibility, allowing them to process
more information about the environment.
This greater information processing enables
decision makers to make better strategically
informed decisions regarding their
environment. These findings are further
validated by Argyres (1999) in his study of the
construction of the B-2 stealth bomber for the
US Military.
Zornoza and Alcami (1999) stated that IT
enables organizations to adapt to a network
organizational structure characterized as
having low centralization and low
formalization. Likewise, the enterprise will
be able to adopt emerging forms of
organizational structures that will have IT as
a core attribute and could be considered a
virtual or shadow structural form. Travica
(1999) supported this argument through his
study on newly emerging organizational
forms or nontraditional forms and how IT
acts a flexible substitute for centralization
and formalization. In this manner, usage of
IT allows managers to be free of bureaucratic
controls.
The future structures of organizations will
continue the historical trend toward more
flexible organizations that will be able to
react more effectively and efficiently to the
environment. The role of IT will continue to
evolve from a tool that supports
organizational structures to a mechanism
that acts as a proxy for organizational
structures in the form of a ``shadow''
structure. Hence, the shadow structure
consists of the IT substituting for the
traditional organizational structure,
providing a greater, more efficient and
effective information processing capacity.
The information processing model suggests
that the more complex a task, the greater the
uncertainty and the greater the need for
information. In addition, more adaptable,
decentralized organizations with shadow
structures operating in volatile industries
will be able to compete more directly with
larger organizations as competitive gains are
attained through more effective usage of IT.
Conclusion
This paper has attempted to show how the
application of IT to organizational needs for
information processing has influenced
organizational structures over the last half
century. It has examined how IT has enabled
organizations to address demands for
increased information processing and how IT
has allowed the manager to design
organizations that are more flexible, while
processing more information.
The authors propose that the impact of the
evolution of information processing on
organizational structure can be
conceptualized in four phases, as
summarized in Figure 2. Supporting these
innovations in organization design, advances
in IT have enabled greater processing of
information. The bureaucracy in its various
adaptations was an effective structure during
the period of stability when the environment
was characterized as placid and munificent.
IT enabled organizations to first attain
greater centralization of control through
vertical integration, which was efficient for a
bureaucratic structure. Nonetheless, matrix
forms of organizations became the
appropriate organization structure during
the period of transition. Advancements in IT
[ 625 ]
 C. Clay Dibrell and Figure 2
Thomas R. Miller
Organization design: the Environmental conditions and the evolution of organizational structures
continuing influence of
information technology
Management Decision
40/6 [2002] 620±627
permitted horizontal integration to be used
more effectively through the matrix
structure, aiding the role of the integrator.
Downloaded by New York University At 02:58 12 April 2015 (PT)
Presently, the matrix form is giving way to
the network form as organizations attempt to
reengineer their tasks to compete in an
increasingly volatile global environment. IT
has allowed organizations to reengineer
processes that at one time were considered
nonroutine tasks, consequently making
organizations more flexible. Lastly, IT has
enabled the shadow organizational form to
emerge as the potentially dominant structure
of the future.
Another significant theme revealed in this
review is IT's influence on the evolutionary
rate of change in organizational structures.
Within only the last 25 years, as
organizations have adapted to the
requirements of changing markets and
technologies, there have been dramatic
changes from the bureaucratic structure to
the matrix, to the network, and now possibly
to the shadow structure. Based on historical
trends, the volatility of the environment is
expected to increase, and, consequently, the
demand for organizational forms that can
handle demands for increased information
processing. Thus, one can reasonably project
the continued application of advanced
information technologies to future
organizational designs as managers strive to
reduce the uncertainty of doing business in
tomorrow's market.
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Byrne, J.A. (1998), ``The corporation of the
future'', Business Week, 31 August, pp. 102-6.
Ciborra, C.U. (1997), ``Improvising in the
shapeless organization of the future'', Steps to
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