By: Patrick Wall B.Sc.,

Department of P&Q,

Waterford Institute of Technology,

Republic of Ireland.

Information Systems are a part of Organizations (Laudon & Laudon, 1995). From a business perspective, information systems can be defined as an information technology orientated solution to organizational and management challenges. The interaction between the organization’s IT unit and other units is a key determinant of organizational success (Gordon & Gordon, 2000). Information systems can be centralized or decentralized (Laudon & Laudon, 1995). There has been a strong emphasis on the centralization/decentralization issue in existing IT structure research (Gordon & Gordon, 2000). This has meant that the other IT research issues of a business unit have not been explored in detail. An organization’s IT structure should support its strategy and engage in research beneficial to this. However, current research into strategy supportive structures has stopped at the strategy-structure interface and did not look in detail at the IT-business unit interfaces (Gordon & Gordon, 2000). The key to better research is exploring the interface between business units and IT at a deeper level.

Organizations have become increasingly global (Edberg, Grupe & Kuechler, 2001). IT managers have realized that their strategies have to support a global rather than a local market. One of the most obvious issues in global IT management is that of language. Should the one language be used throughout an organization or should native languages be used in the different branches of organizations in various countries? Should English be used as the main language in organizations or not? The language issue raises these questions and others. In a similar manner, different countries may also have different laws, currencies, time zones, cultures and terminology. Delegating various degrees of authority to the different organizational branches also has raised many important issues. All these issues have to be considered when managing IT.

Gordon & Gordon (2000) have researched many organizations and found that in all of them, the business units drove the IT decisions. Thus, the business units set the priorities. However, they also found that the standards set for the hardware and software was enforced by the IT sector in most organizations. In some organizations, the business units enforced these standards.

In many organizations, the development plans and activities in IT systems development is the responsibility of the business units. If the IT sector of an organization is too technical in nature for most of the business units the IT units of organizations may lay down the development schedules and plans (Gordon & Gordon, 2000). However, many organizations see the need of joint IT unit and business unit responsibility for IT development.

Business strategies are usually defined first and then IT and other technologies are then aligned to them (Feurer, Chaharbaghi, Weber & Wargin, 2000). This sequential approach defines strategies, processes and actions related to the technologies available. However, the technologies that drive the critical success factors of an organization are not identified in such approaches. A much better approach therefore is one in which strategies, processes, technologies and actions are defined and aligned concurrently. The aim of such an approach is to present a business alignment approach that enables the integration of new business processes with new generations of information systems.

Organizational culture is often overlooked or underestimated as a factor on the initial success or failure of the introduction of some new technology into an organization (Hoffman & Klepper, 2000). The culture within an organization is a vast issue. The literature is huge and the strands are broad. Therefore, organizational culture issues are imprecise, cannot be easily measured or changed and are not seen as giving any practical benefit to managers looking for quick answers. Managers should understand organizational culture in terms of sociability and solidarity so they can effectively deal with potential problems in the new technology assimilation.

2. The current Global Business Environment:

The current global business environment is characterized by customer-driven markets, shorter product life cycles and narrow niches (Palaniswamy & Frank, 2000). This makes the need for the functional units of an organization to coordinate and collaborate imperative. IT has been a major bridge between the many disparate departments that exist in organizations. However, without integration, a corporation may have many different "islands of automation", all of which have their own autonomous information systems. Therefore, as information systems software differs from section to section, integration and coordination is lacking. This prevents firms from utilizing the full potential of the benefits that information systems have to offer.

3. Organizational Transformation and Business Reengineering:

Moreton & Chester (1997) state that the purpose of organizational transformation and business reengineering was to change radically how the organization behaved. He then points out that organizational transformation needs the reappraisal and redesign of business processes to create dramatic organizational performance improvements.

According to Moreton, the desire to make such fundamental changes in organizations is driven by three major aims (Moreton & Chester, 1997):

1. The need for an inbuilt capability for detecting and responding to changing circumstances.
2. To obtain economic benefits as a result of streamlined operations and increased customer satisfaction.
3. To achieve higher employee benefits which directly benefit the two other aims.

Information is more critical in organizations as change and uncertainty increase (Moreton & Chester, 1997). IT is an important enabler and integrator of various different business units within an organization. Moreton believes, however, that information is not being exploited to its full potential. Therefore, information must be managed strategically and no corporate strategy can be considered complete without taking IT concerns into account.

Moreton identified four main characteristics of a transformed organization (Moreton & Chester, 1997). These are:

1. A vision that is shared throughout the business:

Everyone in the organization has the same views of how things in the organization could be. Thus, great emphasis is placed on accurate and detailed communication to develop this perspective.

2. The priority for satisfying customers’ needs:

Giving the customers what they want when they want it is the major priority in any transformed organization.

3. The high priority of satisfying staff needs:

An important aim in a transformed organization is providing employees with benefits they see as positive that contribute to the aims and objectives of the organization.

4. The vital nature of the effective management of change:

In any changing organization, emphasis must be placed on the management of change skills and responsibilities. Resistance to change must be incorporated and time must be allowed for people to adapt to the changes made.

In his research, Moreton also examined the contribution of IT to organizational transformation (Moreton & Chester, 1997). He found that some organizations found information and information technology to be crucially important while in other organizations he found that it was considerably less important. He concluded that information intensity determines the contribution of IT. Information intensity refers to how important information is to the overall organization.

2. Centralized Systems and Decentralized Systems:

The nature of the IT structure in relation to other business units within an organization has yielded a choice between control or coordination (Gordon & Gordon, 2000). In other words, this can be recast as centralization versus decentralization.

Centralization refers to the allocation of all IT resources to one particular business unit that provides IT services to the whole firm (Gordon & Gordon, 2000). The main characteristics of a centralized approach include control, efficiency and economy. Centralized approaches are effective in gaining or regaining control over an organization’s information system (Robson, 1997). A centralized IS may have always been centralized or it may be a cost saving regrouping of an organization’s IS to one particular location.

Decentralization gives individual business units autonomy over their own IT resources without any major considerations over other units unless it is essential to the overall organization policy (Gordon & Gordon, 2000). The main traits of a decentralized approach include flexibility, empowerment of individual business units and service orientation. Decentralized approaches tend to be just as efficient as centralized ones in regard to meeting individual’s needs.

The main advantages of centralized systems are that they provide centralized control using established technology and vendors (Kroenke & Hatch, 1994). They thus involve less technical risks. Information Systems professionals providing highly reliable operation maintain such systems. There should be no confusion over responsibilities and the software and hardware used should interface easily (Robson, 1997). Duplication of effort, resources and expertise is also reduced, saving cost and time.

Centralized systems entail a high initial cost disadvantage (Kroenke & Hatch, 1994). Furthermore, the information systems professionals who install and operate such systems are also expensive. The bureaucracy and inflexibility of such systems also can cause costs to escalate (Robson, 1997). Due to one central system carrying out all the requested tasks, this system is obviously going to be much slower than a decentralized arrangement where each business unit has its own autonomous system for local tasks (Robson, 1997). Similarly, local, independent processing is not allowed and the entire information system is dependent on the one CPU (Kroenke & Hatch, 1994). If the CPU fails, the entire system is inoperable. In addition, many centralized information systems are isolated from real business priorities and concerns (Robson, 1997). Personal attentions to individual groups are not possible.

In decentralized information systems, startup costs are relatively low (Kroenke & Hatch, 1994). Tailoring and scaling the system to individual needs is also possible. Thus, local processing is enabled. In other words, there is increased autonomy (Hodgkinson, 1996). Organizational flexibility and responsiveness is a major advantage brought by autonomy. Due to this autonomy, there is greater scope for motivating and involving users (Robson, 1997). Due to the fact that local individuals control their own information system, the logic is that they will have to act in a much more responsible way because they control their own destiny. Perhaps the most important advantage is that reliability is increased greatly because multiple computer systems are involved (Kroenke & Hatch, 1994). If one computer system fails, the system or at least part of it will still be able to function.

Decentralization also offers benefits of increased accountability, motivation and management responsiveness (Hodgkinson, 1996). Decision-makers are brought closer to customers, too. Customers provide the information to make important decisions. This applies to all aspects of the organization and not just the IT section.

By their very nature, decentralized systems lack a centralized control (Kroenke & Hatch, 1994). This can be very disadvantageous as conflicting ideas arise and clashes in policy leading to delays and inefficiency arises as a result. Similarly, the one vendor may supply not all the many different components of the overall systems. This can lead to similar problems as those resulting from the conflicting ideas. There also is a high degree of duplication of resources, effort and expertise, which wastes time and causes cost increases.

It is interesting to note that end users have often perceived Information Systems as being centralized (Earl, Edwards & Feeny, 1996). End users often felt remote from and disenchanted with IS specialists within the organization.

In many organizations, the potential benefits of the contribution of IT in organizations have been sorely under-appreciated (Moreton & Chester, 1997). IT can enable information sharing, support business processes and transactions and link customer information. Thus, the organization will have closer links with suppliers, customers and other business partners. IT can have a strong influence on the bargaining relationships between buyers and sellers. Internal information sharing in organizations, for example between departments, is also enhanced by IT. Information can be stored and retrieved far easier than in non-IT enabled organizations while management can communicate with employees or each other more easily. As well as this, teamwork and group collaboration is also made easier. More indirectly, IT provides the employees of an organization with new skills, helps with the design plans of an organization and provides tools that enhance education among employees

A fundamental question to ask is whether or not IT will lead to centralization or decentralization (Dewett & Jones, 2001). In terms of centralization, Management Information Systems enables management to obtain information more quickly and accurately, reducing uncertainty. Managers may make better decisions than they would have made without the aid of IT. With regard to decentralization, electronic bulletin boards and discussion groups enable lower and middle level managers to stay better informed about organizational issues.

It can be deducted that IT is both a provider of centralization and decentralization (Dewett & Jones, 2001). Therefore, any organization does not have to choose rigidly between either a centralized or a decentralized approach. IT permits simultaneous centralization-with-decentralization. The parts of an organization that are best suited to be centralized are centralized while other parts may be best rewarded by a decentralized approach.

The availability and use of information systems and technologies has grown enormously over the last decade (Dewett & Jones, 2001). The terms ‘information systems’ and ‘information technology’ have become so linked to each other that they are often used interchangeably to mean the same thing. The relationship between information technology and organizational structure is becoming more and more complicated because of the rapidly changing IT environment as well as the environmental turbulence that many organizations face (Earl, 1996). These are some of the many IT issues that management literature has addressed.

IT is a variable that can enhance the timeliness and quality of organizational intelligence and decision-making promoting organizational performance (Huber, 1990). It is interesting to note that Huber viewed several organizational characteristics as dependant variables with IT positioned as an independent variable. Huber’s analysis was made at a time when IT was making its first major inroads into organizational life (Dewett & Jones, 2001). Therefore, Dewett & Jones’ paper extended and updated Huber’s work. The major update made by Dewett & Jones was that IT should be viewed as a moderator of the relationships between organizational characteristics and outcomes, the most important of these being efficiency and innovation.

Memory is subject to erosion and error (Dewett & Jones, 2001). However, IT has greatly facilitated organizational memory. Organizational information is easier to store, retrieve, communicate, codify and assimilate with IT. Expert systems are a good example of IT systems that memorize facts. Also, the amount of information that is available to the organization is increased significantly by the use of IT, in particular the Internet. Thus, the information that is needed can be provided instantly saving valuable time.

Anderson (1986) summarized the reasons for introducing computer technology into an organization as follows:

• To save time and money.
• To improve information handling and provision.
• To increase revenue.
• To improve the competitive position of the business.
• To expand the business by enabling easy interaction between business units at different geographical locations.
• To remedy existing systems defects.
• For emotional reasons. For example, a business’ management has an interest in computing and knows that it will in some way be beneficial.

Information efficiencies are the cost and time savings created by IT such as individual employees performing their tasks at a higher level, assuming additional tasks and generally expanding their roles in the organization (Dewett & Jones, 2001). Thus, information efficiencies can be viewed as having within-person or within-group effect. Individuals or groups perform a great amount of work and provide a gain in organizational efficiency.

On the other hand, Information Synergies are performances gains created when 2 or more individuals or groups pool their resources and cooperate and collaborate across corporation boundaries (Dewett & Jones, 2001). Thus, this can be termed a between-person or between-group approach.

IT promotes many communication efficiencies such as the ability to communicate more easily and less expensively across time and geographic location (Dewett & Jones, 2001). This enhances rapid communication with greater precision to specifically targeted groups. The information communicated can be stored and indexed more easily with reduced costs. Therefore, the opinions of experts on many topics can be stored and retrieved easily when needed. This is especially vital in times of organizational transition. IT also enables an organization to more accurately combine, control, reconfigure and access external information.

Improvements in Information Technology in organizations have made communication faster and easier between countries (Rollinson, Broadfield & Edwards, 1998). The availability of the Internet means that organizations may not need to set up operations in overseas markets because the internet makes the organization international itself. Also, products not available in a local market are made available to that market through the Internet.

Communication is also made faster by computers within one particular branch of the organization (Rollinson, Broadfield & Edwards, 1998). This speeds up the decision-making process and strengthens organizational links such as those to suppliers and customers. However, there are some major drawbacks as well. There is less personal contact and this reduces the social aspects of organizational life. On top of this, many individuals’ power bases are lost within organizations because the information is available more quickly to all. For example, a secretary’s office may become less important than it used to be. Perhaps most important of all, employees have to run at the pace dictated by the computer technology. Decisions have to be made faster and therefore stress is greatly increased and the right decisions may sometimes not be made.

Myers & Marquis (1996) defined innovation as "a complex activity that proceeds from the conceptualization of a new idea to a solution of a problem and then to the actual utilization of economic or social value". Another way to view innovation is "as the process of bringing any new problem-solving ideas into use" (Kanter, 1983). West and Farr (1990) broadly define innovation to "include the intentional introduction and application within a role, group or organization of ideas, processes, products or procedures new to the relevant unit of adoption designed to significantly benefit the individual, the group, organization or wider society".

The efficiency of IT in organizations has been covered by IT and management literature in great detail, at the expense of the role of IT as a promoter of innovation (Dewett & Jones, 2001). In fact, efficiency is on average addressed three times as much as innovation. IT is a major source of innovation because it brings new problem solving ideas into use in organizations. Knowledge or information availability on its own will not lead to innovation. It is the ability to use the knowledge creatively that leads to innovation and thus competitive advantage.

The design process of IT projects has traditionally involved sequential phases (Davidow & Malone, 1992). Parallel processing and concurrent engineering made possible through the application of IT has replaced this linear process. Employees are allowed to work simultaneously with continual interaction through electronic communication. This can promote innovation throughout the organization. The ability of IT to enhance a person's domain relevant skills is also an important part of the innovation process (Dewett & Jones, 2001).

4. Absorptive Capacity:

The firm’s ability to recognize the value of new external information, assimilate it and apply it commercially is known as the concept of absorptive capacity (Dewett & Jones, 2001). The Absorptive capacity method is based on building on knowledge that members of an organization have already by recognizing new information that can be applied usefully to what happens within a firm already. Innovation and efficiency are the aimed results of Absorptive Capacity. The use of IT to promote efficiency and innovation as discussed is an example of absorptive capacity.

Absorptive capacity has two dimensions: knowledge assimilation and knowledge integration (Dewett & Jones, 2001). Knowledge assimilation involves collecting as much useful internal and external information as possible. IT in general makes the collection of information a far easier task than the one it would be without its aid as boundaries otherwise unthinkable to cross can be broadened. Information is circulated and integrated throughout a corporation by various IT application such as GroupWare, video-conferencing or project management programs. This builds the potential for innovation. Information is shared and thus many ideas can be generated and merged into a potentially innovative strategy.

Due to its characteristics of reduced duplication, more centralized control and better standardization, utilization of resources can be more efficient in centralized environments (Ahituv, Neumann & Riley, 1994). Keep in mind that initial startup costs are high and can reduce the benefits of efficiency. The risk of entire system failure is always a major threat but one that can be eased if a proper backup is in place. Even so, such failures hinder efficiency.

Keeping an organization centralized and thus bureaucratic can greatly reduce the effects of innovation (Morgan, 1988). As system users are less involved with the system, they feel less responsibility (Ahituv, Neumann & Riley, 1994). This results in users feeling less satisfied and less motivated, reducing the potential for innovation.

In a decentralized environment, control and coordination is delegated to various organizational subunits (Ahituv, Neumann & Riley, 1994). This leads to the disadvantages of duplication of resources, difficulty in imposing standardization and increased security problems, which in turn lead to delays and inefficiency. For example, it is not easy to complete such rudimentary tasks as obtaining integrated information for management or to access a local database for the use of another local user in many cases.

On a more positive note, decentralization means that users are directly responsible for the IS budget and their demands tend to be more restrained as they are paying for it (Ahituv, Neumann & Riley, 1994). Costs of electronic and physical transport of data are also reduced greatly and the risk of an entire system breakdown vanishes.

Innovation is encouraged in decentralized organizations due to the elimination of bureaucracy (Earl, Edwards & Feeny, 1996). IT enabled firms are much more innovatively responsive to such environmental pressures as market volatility, business globalization, increased uncertainty and demographic changes (Dewett & Jones, 2001). System users are much more motivated and satisfied overall because they feel more involved and more responsible, meaning that room for innovation is increased (Ahituv, Neumann & Riley, 1994).

IT flattens organizational hierarchies because it reduces top-down communication (Morgan, 1988). As a result, workers are given responsibilities that were once reserved for management. Innovation and decentralization is encouraged greatly by IT in such cases. However, to take advantage of these opportunities, a firm must break free of any bureaucratic constraints.

7. Classification of Organizational Systems:

Organisational structure can be divided into two distinct groups of thought: formal and informal (Fincham & Rhodes, 1992). Formal organisations are technical and process orientated in nature. Informal organisations are much more socially orientated. This is far too simplified, however, and is not the case in practice (Checkland, 1993). In systems thinking, the organisation is considered as a mixture of formal and informal subsystems (Mullins, 1996). Also, the interaction between the organisation and external factors is taken into consideration.

1. Formal Organisations

Formal Organisations are deliberately planned (Mullins, 1996). They are structured in a hierarchical way with objectives stated, tasks specialised and relationship of authority and responsibility defined. Their main concern is the coordination of activities.

Relating to information systems, structured or technical (bureaucratic) methodologies do not address the social relationships among participants in a project and therefore it has resulted in higher costs for the project (Stapleton, 2000). The primary concern is to get the work done and follow a set of rules and procedures to do so. It is thus impersonal and time consuming as set roles are rigid and thus not easily adjustable to changing organisational roles (Fincham & Rhodes, 1992).

As Avison & Shah (1997) explain, computer systems are very much based around the bureaucratic theories of task specialisation and organisational functions. That is, one program or system component does one function or set of related functions and nothing else.

Why is this so?

The main reason for computer system bureaucracy and formality fall under these main areas:

1. People in general do not like change (Avison & Shah, 1997). If a company is already bureaucratic, their computer system will follow suit.
2. It is important to remember that the computer technology is only one aspect of a computer system (Avison & Fitzgerald, 1995). Therefore, if a company is bureaucratic, the computer system will be built to implement bureaucracy.
3. Lack of knowledge of how an Information Technology system really works (Kern, Galup & Nemiro, 2000).
4. Modern large-scale organisations cannot function without implementing at least some aspects of bureaucracy (Mullins, 1996). Therefore, some form of bureaucracy will be in existence in most modern organisations and computer systems will have to incorporate this.

Centralized systems tend to be formal in nature (Robson, 1997). Formal organizations and centralized systems share such attributes as task specialization, hierarchies, rigid rules and bureaucracy (Robson, 1997; Mullins, 1996).

Informal Organisations are flexible and loosely structured (Mullins, 1996). Relationships may be left undefined in many cases. Membership does not require large commitment and involvement. There is greater scope for social relationships, task variation, cross-functional communication and personal innovation. Flexibility, autonomy, reduced bureaucracy and role variations are important similarities that can be made between decentralized systems and informal organizations (Gordon & Gordon, 2001; Mullins, 1996).

In the 1920s, many organisational theorists paid greater attention to the social factors of the workplace (Mullins, 1996). If the work environment was a more pleasant one, they claimed that more productive work was done. Elton Mayo is one of the most important researchers with regard to the human relations approach. His Hawthorne Experiments showed that a more socially orientated workplace (no matter what the type of task to be accomplished was) resulted in far more productive work. Informal organisations concentrate primarily on human and social aspects of organisations.

Human Computer Interaction (HCI) is concerned with the interaction between humans and computers (McCauley, 1995). HCI can be thought of as the point where the users of an organisation interact with the technical computer system. The computer system is developed by a person who must ensure the system is user friendly and easy to learn. The systems developer may or may not be part of the organisation the system is designed for.

The designer has to understand the management principles of the organisation (McCauley, 1995). Also, the system should ideally be designed so it can be easily adapted to change.

The ways that different users may use a system have to be taken into consideration when designing any system (Avison & Wood-Harper, 1990). Different users have different privileges, passwords, etc. Once this is completed successfully, the systems designer must design the system that best suits the needs of all involved.

Contingency approaches try to fit the company structure and strategy with the centralization/decentralization argument (Gordon & Gordon, 2000). Firms that use an organization-level structure can have IT services and their management that are both centralized and decentralized with IT specialists at business units as well as at a corporate level. The shared internal services model also is a hybrid of centralized and decentralized approaches. In this case, the main organizational decisions are centralized but individual IT functions are allocated to the various business units.

A distributed system is a system that is partly centralized and partly decentralized (Ahituv, Neumann & Riley, 1994). It is often hard to designate a preferable approach between centralized and decentralized systems. It is sometimes hard to understand the distinction between decentralized and distributed systems. The term 'distributed system' refers to controlled policy-guided decentralization. It generally comprises of various areas of responsibilities all located in different places.

Distributed systems, when used appropriately, can realize the advantages of both centralized and decentralized systems (Ahituv, Neumann & Riley, 1994). The structure of such a system has to match the organization's strategy, goals and hierarchy - not the other way around. Therefore, a system should be designed to best suit the organization and should be changed or updated when required.

An Enterprise Resource Planning (ERP) system is an enterprise wide management system that is made possible by information technology (Palaniswamy & Frank, 2000). Therefore, an ERP can help an organization to automate their entire business processes within the entire organization as opposed to within some functional units. As a result, cycle time and inventory stored is reduced. Furthermore, information is shared and storage space is reduced. It has been noted that in companies that have implemented ERP systems, cross-functional coordination and business performance have greatly improved.

The Hard Systems Methodology bases itself primarily on the use of traditional systems engineering and systems analysis theory to solve real-world problems (Checkland, 1993). Hard systems methodologies are more suited to systems of a technical nature but have often been applied to systems far 'softer' than the methodology. The latter has created mixed results.

Soft systems methodology (SSM) is an organized way to tackle messy tasks in the real world in an organized way (Checkland & Sholes, 1990). It has its basis in the systems approach and contingency theories, which enables it to be highly defined and applied but broad in scope and flexible in use. However, it is important to note that while soft systems methodologies have made systems more flexible and broad, social aspects are still considered to be not as important as the system's technical aspects (Stapleton, 2000). In fact, the SSM is based around what technology or processes are involved in a system and not what personalities exist in the system.

Checkland & Scholes (1990) define ‘Soft Systems Methodology’ as a procedure that helps managers of all kinds and levels to cope with their tasks. At the center of the soft systems theory is the relationship between science and engineering thinking and improving human problem situations. This boils down to the concept of using the right scientific method for the right situation, not the same method for all situations.

Checkland states that the Soft Systems methodology is structured the following way (Checkland & Scholes, 1990):

1. A real world situation of concern is identified.
2. This yields choices and then the relevant purposeful actions are made.
3. Comparisons of the real world situation with models are then made.
4. Once again, the process begins because an action is needed to improve the real world situation and make it closer to the theoretical model.

The following are the main criteria that distinguish hard and soft systems (Harry, 1994):

• Boundary: does the definition clarify what is and what is not the problem?
• Separation: can issues be dismissed as not being part of the problem as a result of the boundary.
• Responsibility: does the definition and separation of the problem indicate who should and who should not be involved.
• Information: if the problem and who is responsible for its solution is known, is the information needed for its solution also known.
• Description: if the above criteria are met, is it known what a solution would and would not look like.

If the answer to all of the above questions is yes, the problem is hard (Harry, 1994). If the answer to all or any of the questions is no, then the problem could be soft, hard uncertainty or a mess. A hard uncertainty is a problem that appears at first glance to bear the hallmarks of a hard problem but does not fit neatly into the definition of what hard problems actually are. Messes are problems that are a mixture of hard and soft.

The desired result of a Soft System is its effectiveness (Checkland & Sholes, 1990). In order to achieve effectiveness, a soft system has to enable efficacy (does the means work?) and efficiency (this is measured by the amount of output divided by the amount of resources used). In other words, does the system do what it should do to achieve what it should achieve by saving the greatest possible amount of resources?

Outsourcing can be viewed as a third party company taking care of information systems issues on behalf of a client company that wants to concentrate on non-IS issues (Lacity & Hirschheim, 1995). In a similar way, insourcing can be defined as keeping what is internally done internal.

Hirschheim noted that published literature takes an overtly positive view of outsourcing (Lacity & Hirschheim, 1995). There are many reasons for the popularity of outsourcing. Cost reduction is one of the most popular reasons for outsourcing but it is not the only one. There are also technical, business and political reasons. Myths such as "Outsourcing is popular only for its cost reduction advantages" are sweeping statements that camouflage the big picture. Cost efficiency is, however, the primary reason for outsourcing.

Outsourcing can provide organizational efficiency not only due to cost reduction but also due to its ability to eliminate decision making regarding the IT concerns of the organization (Lacity & Hirschheim, 1993). The external company taking responsibility for outsourcing not only inherits many of the IT costs but also is given responsibility to make many of the decisions. Outsourcing also provides efficient access to new resources of another firm that may be of benefit.

There is a perception that outsourcing vendors bring more efficiency due to economies of scale (Lacity & Hirschheim, 1993). Company size determines the need for outsourcing or insourcing and the most efficient choice varies from organization to organization. Even in larger firms, the internal IS department may improve efficiency more than any external vendor could.

The main conclusion drawn from this research was that total insourcing or outsourcing is a poor-sourcing strategy (Lacity & Hirschheim, 1995). Insourcing or outsourcing strategies should be given equal attention and one or the other should be identified with a particular sector of the organization as being best suited.

Information Technology provides several advantages to the organization; one such advantage is the ability of IT to link and enable employees (Dewett & Jones, 2001). Electronic communication increases the overall amount of communication within a firm. The most important aspect is that people from the various units of a corporation can interact with each other and thus horizontal communication is promoted. All the obvious advantages of quicker information availability is the outcome of this function of IT but it must also be remembered that too much electronic communication leads to increased alienation of employees due to increased impersonality. Relating to this, IT also increases boundary spanning. An individual can access any information in any part of the organization with the aid of the appropriate technology. This eliminates the need for the repetition of information and thus promotes non-redundancy.

IT’s ability to store information means that the organization does not have to rely solely on the fallibility of human error, which is subject to error and erosion (Dewett & Jones, 2001). Information can be stored, retrieved and communicated far more easily and effectively. However, IT can often lead to information overload, meaning that managers have to sift through an insurmountable amount of stored data and thus hindering timely decision-making. This problem is not as serious as first thought, though. Information overload is not an IT problem but more of a documentation problem. Furthermore, management tend to adapt to IT problems once it gets used to the idea of the new technologies.

Dewett & Jones (2001) outline the link between IT and the organizational characteristics and outcomes as follows:

Linking organizational structure to outcomes such as efficiency and innovation has always resulted in conflicting findings due to contingency factors such as strategy, technology or the environment. The following are common structural issues within an organization:

Specialization: Specialization refers to the number of different task types within a firm. It typically leads to a number of subunits whose orientations are local rather than organizational. As a result, people’s abilities to understand the wider context within which they are using their talents are reduced. IT can mitigate this tendency through such technologies as GroupWare, email, the Internet, company Intranets and so on.

Employees have a better understanding of organizational goals and objectives with the aid of IT. They can realize what the function of their own work in the organizational context actually is. With the absence of IT, employees may only find out about organizational policies and goals only after they completed a given task if at all. With IT, the organizational policies can be communicated easily and task specialists can work usefully with exactly what the organization needs in mind. Unnecessary work is thus eliminated.

Formalization: Formalization involves developing routine responses to recurring opportunities or problems. These responses specify how individuals and functional units should react to a given situation. To achieve formalization, a certain set of rules, procedures, norms and values should be implemented with a firm. IT’s role and the tasks it is best suited to within an organization is part of the formalization process. A common forte of IT is its abilities for storage and retrieval of information.

Vertical Differentiation: Vertical differentiation deals with the function of the hierarchies within organizations. Centralized organizations tend to have a pyramidal hierarchical shape whereas a decentralized organization has a flatter hierarchy. IT tends to eliminate a substantial amount of vertical (i.e. top-down) communication in organization and increases horizontal, cross-functional communication.

Numerous forms of network organizations based on the many different available IT structures have appeared. Since networks permit firms to increase the value they create and forego the need to increase their size in terms of employees or assets, IT may limit or even reduce firm size in the traditional sense. This is because networks reduce the need for middle management and some administration staff because more direct communication between firm branches is made a lot easier.

On the other hand, networks can enlarge firms without affecting efficiency or innovation. Mergers and acquisitions are made more efficient via network technology. Also, the ability of large firms to communicate is made much more efficient.

Learning is a key antecedent of innovation within organizations. Techniques to increase organizational efficiency such as Total Quality Management are dependent on workers and management learning new ways of thinking and behaving. IT plays an important role in organizational learning by providing employees with easy, flexible access to information. In addition, problem solving is also facilitated by IT. This promotes learning.

Culture comprises of the beliefs, expectations, ideas, values, attitudes and behaviors shared by the members of an organization IT facilities culture because it allows for quick and vivid transmission of information between people and organizational subunits. The motivational effects of culture that are supportive of efficiency and innovation can be enhanced with IT. Communicative IT such as email, voicemail and Intranets can help promote the cultural norms and make available supportive messages and statements to employees. This can motivate the employees, resulting in increased efficiency and innovation.

It is important to note that IT can be used to achieve very different outcomes in an organization. An understanding of the organizational culture the information technology is proposed to support is paramount. In many organizations, this is not the case.

Inter-organizational relations in such tasks as transaction processing, inventory movement (the use of IT to move information or materials relating to inventory across organizational boundaries), process links (connecting interdependent processes across organizational boundaries) and knowledge leveraging (sharing expertise with other organizations or departments) can be enhanced with the use of IT. Partnerships, customer and supplier relationships, mergers, takeovers and other alliances can be completed more efficiently in terms of time and, therefore, cost with the aid of IT.

Information Systems are a valuable part of the modern organization. With organizations becoming increasingly global, their IT systems have to be as well. This gives rise to the centralization versus decentralization argument. In a centralized environment, everything is done in the one location, whereas in a decentralized environment work is done across many locations.

IT has the ability to promote both efficiency and innovation. Efficiency deals with saving cost and time to provide better results. On the other hand, innovation is defined as the conceptualization of a new idea that provides new benefits.

A centralized system in general is efficient due to reduced duplication, more centralized control and better standardization. Risk of entire system failure and high startup costs have the potential to hinder or even halt this efficiency, though. Innovation can be stifled in centralized system due to its bureaucratic nature.

The reverse of the above paragraph is true for decentralized systems. In addition, decentralized environments mean that local users are more responsible for IS budgets and their demands may be more restrained than if someone else was paying for it. Also, transport costs are significantly reduced.

Organizations can be classified as formal or informal. Formal organizations are bureaucratic in nature and share many of the attributes of centralized systems. Informal organizations put a lot more value on social aspects and are more flexible and loose in structure. They share many similarities with decentralized systems. Contingency approaches implement centralized and decentralized systems where either is the most appropriate in an organization. A system that is part centralized and part decentralized is termed a distributed system. This is more representative of the real world than purely centralized formal or decentralized informal organizations are. Hard systems base themselves on traditional, formal theory whereas soft systems base themselves on the more contingency-based approach.

IT, it can be concluded, is paramount to all modern organizations no matter what their background or management style. Information Systems promotes efficiency as much as it does innovation and it also provides as much important benefits to centralized systems as much as it does to decentralized systems.

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