Impact IT on Organizational Performance

Degree project in

Impact of IT on Organization'sperformance

Md Saifullah

Stockholm, Sweden 2013

XR-EE-ICS 2013:007

ICSMaster thesis

Impact of IT on Organizations performance

Md. Saifullah

May 30, 2013

Abstract

Organization Performance Analysis Framework (OPAF) is a Metamodelwhich analyzes performance of organizational structure using Enterprise Ar-chitecture Analysis Tool (EAAT). This quantitative analysis is used to findout which structure is good at learning, motivation, efficiency, productivity,etc. and how to change it. Current framework does not include IT and howit affects the organizational structure. This thesis work will try to find outhow IT affects organizational structure, directly and indirectly. The effect istranslated in Object Constraint Language (OCL) and inserted in the model.The framework IT-OPAF is used to analyze three real life organizations andsee the changes in performance when IT is introduced. This will validatethe findings and also recognize pattern of the effect of IT on organizationalstructure.

Keywords: IT impact on Organizations performance, OPAF, Analy-sis Framework, Enterprise Architecture, Performance Analysis, Case studyvalidation

Acknowledgements

My greatest gratitude goes to my supervisor Pia Narman for her contin-uous support, patience, motivation, enthusiasm, and encouragement. Herguidance helped me in all the time of research, and her advices inspired meto improve the project and without them, this thesis would not have beenpossible.

Thanks to my examiner Pontus Johnson for his support during the devel-opment process of this thesis.

I would also like to thank my parents, brother, sister, and sister-in-law fortheir patience and support despite the distance. Special thank goes to myniece Tasneem for just being present in our lives. Thanks also to my friendswho were always there when I needed them. Thanks to all my colleaguesin IT division of UCB, especially to my friends in software section for theirunequivocal support throughout, as always, for which my mere expressionof thanks likewise does not suffice.

Needless to say, this thesis would not have been possible without the uncon-ditional support of my loved ones.

Contents

1 Introduction 71.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1.1.1 Organizational Structure . . . . . . . . . . . . . . . . 81.1.2 Information Technology . . . . . . . . . . . . . . . . . 9

1.2 Goal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.3 Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2 Research Method 112.1 Overview of the Method . . . . . . . . . . . . . . . . . . . . . 112.2 OPAF Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.3 Literature Study . . . . . . . . . . . . . . . . . . . . . . . . . 122.4 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3 Literature Review 143.1 Area of Changes in Organizational Structure . . . . . . . . . 14

3.1.1 IT effect on Differentiation . . . . . . . . . . . . . . . 143.1.2 IT effect on Coordination . . . . . . . . . . . . . . . . 153.1.3 Decentralization and Formalization . . . . . . . . . . . 153.1.4 Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . 16

3.2 Previous Research Point-of-View . . . . . . . . . . . . . . . . 17

4 Effect of IT on OPAF 224.1 What is OPAF . . . . . . . . . . . . . . . . . . . . . . . . . . 224.2 Effect of IT on OPAF . . . . . . . . . . . . . . . . . . . . . . 23

4.2.1 Effect on Coordination . . . . . . . . . . . . . . . . . . 254.2.2 Effect on Formalization . . . . . . . . . . . . . . . . . 264.2.3 Effect on Performance . . . . . . . . . . . . . . . . . . 264.2.4 Effect on Quality . . . . . . . . . . . . . . . . . . . . . 274.2.5 Effect on Mutual Adjustment . . . . . . . . . . . . . . 27

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4.2.6 Effect on Centralization . . . . . . . . . . . . . . . . . 284.2.7 Effect on Structure . . . . . . . . . . . . . . . . . . . . 29

4.3 Indirect effect of IT to business performance measurements . 294.3.1 Effect on Unit.employeeMotivation . . . . . . . . . . . 304.3.2 Effect on Unit.externalCoordination . . . . . . . . . . 314.3.3 Effect on Unit.internalCoordination . . . . . . . . . . 324.3.4 Effect on Unit.flexibility . . . . . . . . . . . . . . . . . 334.3.5 Effect on Quality . . . . . . . . . . . . . . . . . . . . . 344.3.6 Effect on Unit.efficiency . . . . . . . . . . . . . . . . . 354.3.7 Effect on Unit.learningPace . . . . . . . . . . . . . . . 354.3.8 Effect on Unit.variability . . . . . . . . . . . . . . . . 35

4.4 Non-matching effect of IT on OPAF . . . . . . . . . . . . . . 36

5 Case study 395.1 Loan Processing System . . . . . . . . . . . . . . . . . . . . . 39

5.1.1 Sonali Bank . . . . . . . . . . . . . . . . . . . . . . . . 415.1.2 Janata Bank . . . . . . . . . . . . . . . . . . . . . . . 445.1.3 United Commercial Bank . . . . . . . . . . . . . . . . 46

5.2 Similarities & Dissimilarities between study subjects . . . . . 495.2.1 Importance of the workflow . . . . . . . . . . . . . . . 495.2.2 Unit structure . . . . . . . . . . . . . . . . . . . . . . 505.2.3 Decision rights . . . . . . . . . . . . . . . . . . . . . . 505.2.4 Central office involvement . . . . . . . . . . . . . . . . 505.2.5 Environment . . . . . . . . . . . . . . . . . . . . . . . 51

6 Result & Analysis 526.1 Performance Measurements Result . . . . . . . . . . . . . . . 526.2 Effect of IT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

6.2.1 Effect on unit.employeeMotivation . . . . . . . . . . . 566.2.2 Effect on unit.externalCoordination . . . . . . . . . . 586.2.3 Effect on unit.internalCoordination . . . . . . . . . . . 606.2.4 Effect on quality . . . . . . . . . . . . . . . . . . . . . 616.2.5 Effect on unit.timeEfficiency . . . . . . . . . . . . . . 626.2.6 Effect on unit.flexibility . . . . . . . . . . . . . . . . . 636.2.7 Effect on unit.variability . . . . . . . . . . . . . . . . . 646.2.8 Effect on unit.learningPace . . . . . . . . . . . . . . . 65

7 Conclusion 67

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A Case Subject Introduction 681 Sonali Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 Janata Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 693 United Commercial Bank Ltd . . . . . . . . . . . . . . . . . . 70

B Questionnaire 71

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List of Figures

3.1 Effect of Information Technology [16] . . . . . . . . . . . . . . 17

4.1 IT effect on OPAF . . . . . . . . . . . . . . . . . . . . . . . . 234.2 Direct effect of IT to OPAF 1 . . . . . . . . . . . . . . . . . . 244.3 Direct effect of IT to OPAF 2 . . . . . . . . . . . . . . . . . . 254.4 Indirect effect of IT to performance measurements attribute . 304.5 Effect on employee motivation . . . . . . . . . . . . . . . . . . 314.6 Effect on decision coordination 1 . . . . . . . . . . . . . . . . 324.7 Effect on decision coordination 2 . . . . . . . . . . . . . . . . 334.8 Effect on units flexibility . . . . . . . . . . . . . . . . . . . . 344.9 Effect on units learning pace . . . . . . . . . . . . . . . . . . 35

5.1 Loan Processing Workflow . . . . . . . . . . . . . . . . . . . . 405.2 Organogram for Loan Processing System of Sonali Bank . . . 415.3 Sonali Bank Learning viewpoint 1 . . . . . . . . . . . . . . . 425.4 Sonali Bank Motivation viewpoint 2 . . . . . . . . . . . . . . 435.5 Sonali Bank Learning viewpoint 2 . . . . . . . . . . . . . . . 435.6 Sonali Bank Motivation viewpoint 2 . . . . . . . . . . . . . . 445.7 Organogram for Loan Processing System of Janata Bank . . . 455.8 Janata Bank Learning viewpoint . . . . . . . . . . . . . . . . 455.9 Janata Bank Motivation viewpoint . . . . . . . . . . . . . . . 465.10 Organogram for Loan Processing System of UCB . . . . . . . 475.11 Committee structure of UCB in Loan Processing Workflow . 485.12 UCB Learning viewpoint . . . . . . . . . . . . . . . . . . . . . 485.13 UCB Motivation viewpoint . . . . . . . . . . . . . . . . . . . 49

6.1 Performance measurements result - before IT effect . . . . . . 536.2 Learning vs Motivation . . . . . . . . . . . . . . . . . . . . . 546.3 Effect of IT to Sonali Bank . . . . . . . . . . . . . . . . . . . 556.4 Effect of IT to Janata Bank . . . . . . . . . . . . . . . . . . . 56

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6.5 Effect of IT to UCB Bank . . . . . . . . . . . . . . . . . . . . 566.6 Indirect effect of IT to units motivation . . . . . . . . . . . . 576.7 Indirect effect of IT to units motivation . . . . . . . . . . . . 576.8 Indirect effect of IT to units external coordination . . . . . . 586.9 Indirect effect of IT to units external coordination . . . . . . 596.10 Indirect effect of IT to units internal coordination . . . . . . 606.11 Indirect effect of IT to units internal coordination . . . . . . 606.12 Indirect effect of IT to quality of units decision and output . 616.13 Direct effect of IT to information . . . . . . . . . . . . . . . . 616.14 Indirect effect of IT on unit.efficiency . . . . . . . . . . . . . . 626.15 Result of effect of IT on unit.efficiency . . . . . . . . . . . . . 626.16 Indirect effect of IT on unit.flexibility . . . . . . . . . . . . . 636.17 Indirect effect of IT to units flexibility . . . . . . . . . . . . . 646.18 Indirect effect of IT on unit.variability . . . . . . . . . . . . . 656.19 Result of effect of IT on unit.variability . . . . . . . . . . . . 656.20 Indirect effect of IT on unit.learningPace . . . . . . . . . . . . 666.21 Indirect effect of IT to unit.learningPace . . . . . . . . . . . . 66

A.1 Sonali Bank Organogram[23] . . . . . . . . . . . . . . . . . . 69

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List of Tables

3.1 Findings from literature study . . . . . . . . . . . . . . . . . . 18

4.1 Non-matching findings from literature study . . . . . . . . . . 36

5.1 Similarities & Dissimilarities between the study subjects . . . 51

6.1 Result on average value based on all viewpoints . . . . . . . . 536.2 Direct effect of IT on CreditSection unit . . . . . . . . . . . . 546.3 Indirect effect of IT on CreditSection unit . . . . . . . . . . . 54

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Chapter 1

Introduction

1.1 Background

Information Technology (IT) has changed the traditional ways of peopleto acquire and process information by drastically changing the communica-tion medium and processing power. It also profoundly change organizationstructure in space and time, breaking the balance of organizations interestsboth inside and outside of the organization, which leads to changes in or-ganization structure.[1][2] Not only are we observing rapid changes in ITbut also organizations increasingly invest in IT for their concern about theirmarket competitiveness and organizational performance.[3] Many organiza-tions have become totally reliant on IT for success and recognize that IT isbecoming one of their main organizational assets.[4]

The performance of an organization is said to be greatest when they em-phasize on both IT and organization structure. Measuring the contributionsof IT in isolation, without considering contextual variables like organizationstructure cannot produce a meaningful indication of ITs business value.[5]Also it should be said that measuring the benefit of IT and its impact onorganizational performance is a complicated task.[3]

To measure the performance of organization, many framework/tools havebeen used. The framework in question in this thesis work is OrganizationPerformance Analysis Framework (OPAF). Using this model based frame-work along with Enterprise Architecture Analysis Tool (EAAT), one cananalyze the performance of an organization. This quantitative analysis canbe used to find out which organization structure is good for different per-formance measurements. Although a number of enterprise architecture soft-ware tools are available on the market, including etis, System Architect,

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Aris, Qualiware, etc. and some of these provide possibilities to sum costsor strategic value of a set of modeled objects. But none of them have suchsignificant capabilities for quality analysis as presented in EAAT.[6] Usingthis we can find quantitative analysis between organization structure and itsperformance, but the framework uses technology as a helping object, ratherseeing it as a viewpoint.

The literature on information technology and organizational changesdoes not currently support reliable generalizations about the relationshipsbetween information technology and organizational change. One of thereasons for this is the conflicting and unclear definitions and measures ofinformation technology and organizational structure by biased researchersfrom several academic disciplines.[7] It is also seen that, although technologyseems to be everywhere, over 95% of the articles published in leading man-agement journals do not consider or take into account the role and influenceof technology in organization life.[8]

So, even though no one can deny the significance of Information Tech-nology as an organizational variable, but there is disagreement over whethertechnology is an independent or dependent variable, and over the weightto be given to technology compare to other variables.[9] This defined thequestion about whether or not Information Technology (IT) has significanteffect on the changes of organization structure, and the significance of itseffect.

This thesis is based on work done in the context of creating a frameworkto measure performance of organization, and analysis tool that is used todesign the organization structure as per the organizations need. Accord-ing to Narman[10] there are nine viewpoints present in the OPAF. Theyare Motivation, Learning, Information, Productivity, Efficiency, Variability,Coordination, and Flexibility. Using these frameworks, the tool allows orga-nization to design and analyze the outcome from these nine viewpoints. Inthis framework, Technology is used as a helping object rather seeing Infor-mation Technology as a viewpoint. Also it lacks empirical data to performa validation.

1.1.1 Organizational Structure

According to wiki, the definition of Organizational Structure is an organi-zational structure consists of activities such as task allocation, coordinationand supervision, which are directed towards the achievement of organiza-tional aims. It can also be considered as the viewing glass or perspectivethrough which individuals see their organization and its environment.[11]

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It is interesting to see how the structure of an organization changesover time, as it needs to adjust with changing environment and businessstrategies.

In the field of Information Systems (IS), the relationship between infor-mation technology and organizational changes is one of the central concerns.There are few researchers in the IS field questions the importance and roleof information technology in organizations and its implications for organi-zational design[7].

To understand the effect of Information Technology on organizationstructure we need to first look into what organization structure consistsof. According to Baligh [12], contingency theory suggest that an appro-priate organization design is contingent/dependent upon factors like size,technology, etc. and to find out the effect of Information Technology onorganization structure we can see how does it affect the contingency factor.

1.1.2 Information Technology

Wiki defines it as, Information technology (IT) is the use of computers andtelecommunications equipment to store, retrieve, transmit and manipulatedata.[13]

IT System in an organization now takes on many shapes and sizes, fromreplacing the typewriter with computer with a word processor, to state-of-the-art computer-aided manufacturing machinery. For organizations, IT isan enabling technology. It may also play the role of a constraint, in thesense of not being enabling enough. IT applications can help develop corecapabilities in companies. It can also play an active role in the difficulttask of making the slow evolving organizational context change faster. Itcan contribute effectively to firms competitiveness. To sum up, organiza-tional capabilities are developed by going through organizational routineswhereas IT helps to turn these capabilities to core capabilities/competenceby enhancing the learning. [14]

1.2 Goal

The goals of this thesis can be present as follows:

Investigate whether IT has any effect on organizational structure

Identify through reading previous research papers

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Find any qualitative data in those research papers that shows the effectof IT on organizational structure dimensions, examining documentaryevidence in case study form.

Identify how IT effect the dimensions of the structure, directly, orindirectly

Verify the framework through collecting data from different orga-nization

Translate the effect in to OPAF

Investigate three financial organization in Bangladesh and create 3model using OPAF

Introduce the changes on OPAF and investigate the changes in theirperformance

Validate the framework through analyzing the changes

1.3 Outline

The rest of the thesis is organized as follows: In Chapter 2 research method-ology is introduced. Then in Chapter 3 in literature review, I will discussabout the research done previously and the findings related to the effectof IT in organizational structure. Then I will move to chapter 4, whereI will discuss about the effect of IT on Organization Performance AnalysisFramework (OPAF) and how does it effect. Then I will discuss which effectsare not being mapped in OPAF and why not. Next chapter 5 case study,the next part of my thesis will get started and will discuss how I modelstudied subjects using Enterprise Architecture Analysis Tool (EAAT) andwill follow-up in chapter 6 result & analysis will be performed. Then I willclose this paper with conclusion and future work.

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Chapter 2

Research Method

This thesis work is about exploring a different side of an existing frame-work, OPAF. The knowledge about OPAF is taken from studying paperby Narman[10] and through exploring the framework using Abstract Mod-eler. The knowledge about how IT effect organizations structure is takenby studying different research paper published in different time period.

2.1 Overview of the Method

To examine the effect of IT on organization structure, it is also necessaryto first define what belongs to an organization structure. This is in thiscase the organizational structure dimension. Then the search is performedthrough previous research, which was done in this field on how IT affects thedimensions. After finding out the key sections, where previous researcherspoints out how IT affects the organizational structure, those key points arethen translated in to OPAF.

This allows us to extend OPAF while keeping its original stature, byadding a new class that will represent the effect of IT on structure. Thisnew class will affect its connected class and this will show some differencein performance of the organization, and will validate the new model.

To validate the model and to have some empirical data, I, then willmodel a workflow of three real life organizations. The model that is designedby using original OPAF will provide the performance data of organizationwithout IT, and the modified model that is designed by using IT-OPAFmetamodel, will provide the performance data of organization with IT. Thedifference in performance data should validate our finding.

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2.2 OPAF Model

Organization Performance Analysis Framework (OPAF) is an object basedmodel, which uses OCL language to define how object should behave. Itcan be used in EAAT to analyze the performance of an organization. Theobjects in this model represent the entities in organization and objects areconnected with different objects based on the rule defined in the metamodel.These rules include how they should be connected, what is the minimumrequirements for a model, and can be used to give an initiation value foreach attribute.

OPAF also have viewpoints, which represent how objects affect anotherobject according to that viewpoint. This defines the relationship of theobjects and also creates requirements for modeling. In this thesis work, anew viewpoint will be introduced which will reflect the changes IT introducein an organizational structure.

2.3 Literature Study

To collect information related to whether IT has any effect on OrganizationalStructure/Performance, I search through previous research done in this fieldwith keywords like IT + Organization Structure, IT + OrganizationDimension, IT Capability + Organization Structure, etc. which gave methe opportunity to study both part, whether or not IT has any effect onOrganizational Structure/Performance.

I choose organization structure design parameters that are mentioned inresearch paper[12], which is the basis for OPAF (Organization PerformanceAnalysis Framework). They are Contingency factor like Size, Strategy, En-vironment, etc., Design parameter such as Structure, and Properties such asComplexity, Formalization, Centralization, Span of control, etc. and manymore.

I also choose to study the effect of IT on organization structure thatdoes not fit into OPAF. This is necessary to eliminate the biased view ofthe study by studying the effect on organization structure in broader sensethan to study specific structure which are mentioned in OPAF. In my beliefthis unfit affect on structure will help me to validate the effect on OPAFby answering the question what else is out there? Also hopefully this willleave a trail for future study.

After finishing the study, the list of required changes is made, andchanges are incorporated within OPAF to create an IT-OPAF Meta model.

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These changes should reflect during case study and the analysis part willtell us that.

2.4 Case Study

To validate the findings on how IT affects the organizational structure, Ineed to model organizations structure without IT and with IT, and see theeffect. To model organizations structure, I choose 3 banks as case subjects.To model a bank with huge number of workers and tasks, it would have beenvery challenging with the time that I have. So, I choose to model one of theworkflow that all 3 banks uses. To understand the basic of this workflowprocess and to validate the workflow, I interviewed 3 different officials fromthese banks, Assistant General Manager from Sonali Bank, Divisional Gen-eral Manager from Janata Bank, and Assistant Vice President from UnitedCommercial Ltd. Bank. The process is defined and changed according totheir description which helps me to define the workflow according to theirinterpretation. To specify a boundary of this process, I limit myself to onlyretail loan processing workflow. Although it is true that specific loan pro-cessing workflow does have specific task/decision relate to it, but for studypurpose it was needed to specify the boundary.

This study will show how performance varies with different organiza-tional structure. As this study is conducted on different financial institutewho perform this same workflow using different structure, so it will tell uswhether the performance did vary or not. Also we can perform the studyusing IT or without using IT, so that it will be interesting to observe if anychanges occur or not. In this way it will fulfill my goal for this thesis.

To perform this study, one can follow the questionnaire and map dif-ferent parameters value in OPAF. The result should concur with currentstudy. Although as different organizations have different structures and fol-low different strategies, so it is unlikely to get the exact same result fromtwo different studies.

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Chapter 3

Literature Review

Chapter 2 already discusses how the research is conducted. It also discussesthe structure parameters of an organization in this study, contingency factorlike Size, Strategy, Environment, etc., design parameter such as Structure,and properties such as Complexity, Formalization, Centralization, Span ofcontrol, etc. and many more. In this chapter I am going to discuss moredetail about them and will try to find out how IT affects them.

3.1 Area of Changes in Organizational Structure

As the study is conducted using some key focus term, like IT + Organiza-tion Structure, IT + Dimension Organization, IT Capability + Organi-zation Structure, etc., some key areas are noted through out the literaturestudy. These can be depicting in Figure 3.1, and these areas are definedbelow.

3.1.1 IT effect on Differentiation

Vertical differentiation reflects how information is transported, integrated,coordinated among all levels of the organization. Higher score in this meansorganizations operation is more effective and more efficient. On the otherhand lower score means organization structure is more complex and man-agers have to spend more time in communicating and coordination. IT helpsorganization to continue a smooth communication to convey message fromheadquarter to employees.[1]

Grouping employees into unit is done by organization based on market/

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functionality, where market grouping is based by output, client, or place,while functionally grouping is based on knowledge and skills or work pro-cesses and functions. Workers in such grouping should share supervisor,resources, and have common measures of performance[10]. Complexity be-tween such groups exists, and horizontal differentiation reflects the degreeof professionalism and differences in such groups[1].

Using IT application organizations can greatly save money and time ingathering information, and worker can handle more extensive and volatilework and activate their full potential. Also by using it, cooperation betweendifferent group increased and thus complexity of organization structure isdecreased. As a result, organization can have higher score, which meanshorizontal differentiation is more reasonable.[1]

Also, to the extent information technology (IT) is employed; the man-ager is aided in controlling and coordinating the differentiated structure,and thus, can effectively manage a more complex organization. So we cansay that information technology (IT) would be positively associated withhorizontal differentiation in organizations.

3.1.2 IT effect on Coordination

Information Technology (IT) reduces the need for coordination itself, ratherthan primarily be used for supporting existing coordination mechanisms.Sometimes it is argued that computers take over routine decision making atlower and middle levels, thereby increasing the capacity of these levels tohandle less routine decisions[15]. It also substantially alters the mechanismsand the nature of organizational coordination and control, and, therefore,has direct causal effects on the structure of the organization[16]. Also itis being proposed that IT not solely focusing on internal coordination costminimization, but a powerful tool to enable the reduction of coordinationneed[17].

3.1.3 Decentralization and Formalization

Decentralization means decentralized decision rights, which according towiki, is any process where the decision making authority is distributedthroughout a larger group. It also connotes a higher authority given tolower level functionaries, executives, and workers[18]. On the contrary,centralized decision rights mean the decision rights are concealed withinhigher authority. In a fully centralized organization, the decision power lieswith one person[10]. Formalization of organization structure denotes how

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the work processes and methods are formalized and normalized by buildingup operation rules and procedures[2].

A key reason that IT may lead to centralization is the coordinationadvantages that it provides by increasing the processing capacities of man-agers or decreasing communication costs which equips managers with moreinformation[19]. Henry C. Lucas [20] talks about 4 new organizational struc-tures induce by IT and they are virtual, negotiated agreement, traditionalwith electronic components, and vertically integrated conglomerates. Allmentioned structure talks about how they differ from traditional structureby distributing decision making.

In favor of decentralization, IT increases available information (infor-mation overload) reduce burden on top management and cut unnecessarycommunication up and down the hierarchy[19]. Both IT and organizationalstructure are caused by the organizations environment. Heterogeneity - ho-mogeneity and stability-change causes centralized or decentralized decisionmaking, which means rapid changes in the organization environment inducemore decentralized decision making. It is when the organization faces acomplex and rapidly changing environment that information technology isboth necessary and justified, thus it is associated with decentralization, lessformalization, and more differentiation within the organization[16]. IT alsoprovide rapid and accurate performance feedback concerning aspects of or-ganizational and managerial performance, thus make it decentralized andless formalize.

On the other-hand some argue that by using Information Technology,working processes are integrated and more standardized, as well as IT ap-plications requires higher workers education and personal quality. So itformalizes organizations processes[1]. According to some, superior IT in-frastructure provides a globally integrated platform that enforces standard-ization and integration of data and process[21].

Previous study shows that changing decision right structure with thehelp of IT has positive performance impact on both centralized decision anddecentralized decision rights. Rapid changes produce more performancethan changing slowly, whereas big size organizations induce more positiveperformance than smaller sized organization[19].

3.1.4 Hierarchy

In an organization, the hierarchy usually consists of a singular/group ofpower at the top with subsequent levels of power beneath them[18]. Hier-archical organization means structure with more levels and structured that

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we can see more in large organization, whereas, flat organization structuremeans few or less level of management between staff and manager.

By the introduction of IT, it enhances managers capability to deal withorganizational complexity, and further can provide the manager with morerapid and comprehensive feedback concerning the performance of the organi-zation. It also permits the manager to control and coordinate more complex,and differentiated organization[16]. All of this emphasizes on flattening theorganizational structure.

In Structure category of traditional variable Staffing, which representthe size of a unit/organization, mentioned by Mintzberg becomes Technolog-ical leveling in IT design variables. Technology makes it possible to increasethe span of control and possibly eliminate layers in the organization, levelingit in the process[20].

Figure 3.1: Effect of Information Technology [16]

3.2 Previous Research Point-of-View

Among the two task in this thesis, my first task is to find out the effect ofIT on organization structure and map that to OPAF. To find out how ITaffects the structure of an organization, I studied a range of articles andtable 3.1 shows some important note from the papers.

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Table 3.1: Findings from literature study

Quotation Translate toFramework

Cost-effective IT reduces external coordination costs in a va-riety of ways and can lead firms to turn to markets ratherthan to integrate vertically with factor suppliers. [Gurbax-ani et al.][22]

Positive effectson Unit .market-Based and Unit.externalCoordi-nation

Horizontal differentiation reflects the degree of profession-alism and differences in departments. IT capability haspositive impact on horizontal differentiation of organizationstructure.[Gao et al.][1]

Negative effectson DecisionType.horizontalSpe-cialization byincreasing theamount of tasksworkers canperform

Vertical differentiation reflects how information is trans-ported, integrated, coordinated among all levels of the firm.IT capability has positive impact on vertical differentiationof organization structure.[Gao et al.][1]

Positive effects onUnit .verticalEn-largement by al-lowing workers toperform variety oftasks and deci-sions

Formalization of organization structure denotes how theprocesses and methods are formalized and normalized bybuilding up operation rules and procedures. IT capabilityhas positive impact on formalization of organization struc-ture.[Gao et al.][1]

Positive effecton TaskType.behaviourFor-malized, if ITimposes any rule

Information Technology is associated with decentralization,less formalization, and more differentiation within the orga-nization.[Pfeffer et al.][16]

IT, through its provision of more rapid and accurate perfor-mance feedback, would be associated both with more decen-tralization and less formalization.[Pfeffer et al.][16]

Positive effectTask .Perfor-manceMeasured

Continued on next page

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Table 3.1 Continued from previous page


Modern IT can reduce the costs of communicating informa-tion by improving the quality and speed of information pro-cessing and managements decision making, leading to morecentralized management.[Gurbaxani et al.][22]

for rapid andaccurate perfor-mance feedback,and positive effecton Information.quality

IT should not primarily be used for supporting existing co-ordination mechanisms, but to reduce the need for coor-dination itself, thus emphasizing on flattening the organi-zational structure, i.e. reducing hierarchical depth (scalarchain length) and width (span of control).[Cordella et al.][17]

Improve Decision.mDecisionCo-ordination andnegative effect on.horizontalCen-tralization

IT is not simply a tool for automating existing processes, butis more importantly an enabler of organizational changes,such as in communication and coordination, that can leadto improve firms performance.[Chen et al.][5]

& .verticalCen-tralization byflattening thestructure

IT substantially alters the mechanisms and the natureof organizational coordination and control, and, therefore,has direct causal effects on the structure of the organiza-tion.[Pfeffer et al.][16]

In Structure category of traditional variable Staffing men-tioned by Mintzberg becomes Technological leveling in ITdesign variables. Technology makes it possible to increasethe span of control and possibly eliminate layers in the or-ganization, leveling it in the process.[Lucas et al.][20]

Positive effect onUnit .directSu-pervision whichreflect the span ofcontrol

According to Whisler IT cause following changes: 1. Sub-units are consolidated; 2. Number of level in hierarchy isreduced; 3. Span of control reduced; 4. Functional depart-ment replace parallel department; 5. Control become morecentralized; etc.[Pfeffer et al.][16]

Huber(1990) IT independent variables and 1) characteristicsof organization integelligence and decision-making, 2) as-pects of organization design (size and heterogeneity of deci-sion units, number of levels), is dependent to IT.[Orlikowskiet al.][8]

Effect the size ofthe organization,thus effect Unit.mutualAdjust-ment


19



IT enables organizations to process decision-relevant infor-mation in a more cost-effective way, thus improving the qual-ity and speed of upper managements decision making pro-cesses. This phenomenon may lead decision rights to moveupward in the organizational hierarchy, leading to more cen-tralized management. [Gurbaxani et al.][22]

Effect on decisionright.

A firm may use IT to centralize some decision rights whiledecentralizing others, leading to a hybrid structure. Clearly,the choice depends on the specific cost structures of the firmand the industry. All in all, therefore, the net effect of cost-effective IT on the location of decision rights is not so obvi-ous.[Gurbaxani et al.][22]IT capability has positive impact on decentralization of or-ganization structure.[Gao et al.][1]IT provides the ability to improve monitoring and perfor-mance measurement, reducing agency costs and thus in-ducing the decentralization of decision rights.[Gurbaxani etal.][22]Firms that were able to use IT to radically centralize ordecentralize generally experienced a positive effect, whereasnot as many firms that performed only minor changes indecision rights perceived such an effect.[Kanamori et al.][19]4 new organizational structure induce by IT and they areVirtual, Negotiated agreement, Traditional with electroniccomponents, and Vertically integrated conglomerates. Allmentioned structure shows how they difer from traditionalstructure by distributing decision making.[Lucas et al.][20]The degree of centralization and formalization of organiza-tional structure is negatively related to the cross-functionalteam interaction during the new product development pe-riod.[Chen et al.][5]


20



The broad hypothesis holds good; technology and structureare related; but the strength of multivariate research designis that it prevents premature conclusions. Data have alreadydemonstrated that although technology does have a diffusedrelationship with the structural dimensions, it always takessecond place to other variables.[Aldrich et al.][9]

Effect by IT tostructure.

The reduction of uncertainty due to the introduction of ITbasically results in a reduction of both coordination costsand transaction costs. However, due to the investments ininfrastructure and technology, higher fixed costs are gener-ated initially.[Cordella et al.][17]

Effect on cost.

Information technology can be used for reducing the costbeing associated to transactions, This argument is basedon the idea of using information technology to make moreinformation available to decision makers, thus contributingto the reduction of uncertainty.[Cordella et al.][17]

There are positive correlation between IT and number ofdepartments, and levels in hierarchy.[Pfeffer et al.][16]

Effect on struc-ture.

Data support the fact that conceptualization of organiza-tional structure being affected by the information and con-trol technology that is employed, rather that environmenteffect both IT and structure.[Pfeffer et al.][16]IT can become disabler for agility by the limitations of in-flexible legacy IT systems, rigid IT architectures, or complexnests of disparate technology silos.[Lu et al.][21]Dewett & Jones (2001) - IT thus moderates the relationshipbetween organization characteristics (size, structure, inter-organizational relations) and strategic outcomes (efficiencyand innovation).[Orlikowski et al.][8]

Attewell & Rule (1984) view IT as an independent variableaffecting: 1) Number and quality of jobs, 2) centralization ofmanagement decision-making, 3) organizational interactionswith their environments.[Orlikowski et al.][8]

Effect on size, de-cision right, com-munication.

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Chapter 4

Effect of InformationTechnology(IT) on OPAF

This chapter will try to explain in detail about OPAF, how we can changeOPAF to introduce the effect of IT and the new design of IT-OPAF model.Then it will also explain in detail about how the effects are introduced, bothdirect effect and indirect effect. At the end of this chapter, I will talk abouthow some of the findings from literature study did not get introduced in thisIT-OPAF model and why not.

4.1 What is OPAF

OPAF stands for Organization Performance Analysis Framework, uses model-based architecture. As I have mentioned already in chapter 1, there areseveral viewpoints in this framework, they are Motivation, Learning, Infor-mation, Productivity, Efficiency, Variability, Coordination, and Flexibility.Using this framework, organizational structure can be designed and ran foranalysis, and the outcome of this analysis is performance.

OPAF uses Partial Positive Contingency theories to define the rules inIf A Then B manner and my work in this thesis is to try to find if andhow Information Technology (IT) effect A and ultimately B or effect Bdirectly.

Enterprise Architecture Analysis Tool (EAAT) is used to analyze theorganization performance. It uses OCL language to define properties orconstraints. It also guides the creation of enterprise information systemscenarios in the form of enterprise architecture models and generates quan-titative assessments of the scenarios[6].

22

Another task for this thesis is to try to verify the existing framework bycollecting input data from the selected 3 banks. These data will help us todefine the structure of each organization in the framework, and it also shouldhelp us to find the performance output of the organization and validate thefindings regarding the effect of IT on these performance outputs.

4.2 Effect of IT on OPAF

To design organization structure, there are 23 classes, like- Organization,Worker, Unit, Task, Decision, Skill, Artefact, Environment, and many more.These classes represent entities of an organizational structure. There is aInformation class exists in OPAF but it is shown as the knowledge youget/need to perform a task/decision. So, to introduce the effect of IT inOPAF, I had to introduce a new class named ITSystem, whose connectionwith classes like Task, Decision, and Worker reflects the changes onorganization structure, which is shown in figure 4.1.

Figure 4.1: IT effect on OPAF

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Based on the literature review and opinion from experts of OPAF, Ifound that classes that are directly affected by ITSystem are Unit, Decision,DecisionType, TaskType, RuleBook, and Information. These direct effect toOPAF by IT means that, the attributes value gets affected by introducingIT, thus ITSystem represents changes in their internal code. Figure 4.2shows how ITSystem effect the attribute of the classes inside the frameworkand in which way (positive or negative) they affect them. Figure 4.3 showshow IT effect OPAF which can be represent by structural changes only.These direct effects translate to OCL code as a direct association.

Figure 4.2: Direct effect of IT to OPAF attribute

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Figure 4.3: Direct effect of IT to OPAF attribute represent by organizationalstructure changes

4.2.1 Effect on Coordination

As shown on table 3.1 it has been said many times that IT improve decisioncoordination by enhancing the capabilities and by reducing coordinationcost or need [17, 5, 16]. To map the effect, all the decisions that needs to becoordinated, if those decisions involve the ITSystem, then their coordinationvalue will increase.

IF getDependentDecisions().iTSystem THEN Decision.mDecisionCoordinationINCREASE

The OCL code to represent such effect is:

i f getDependentDecisions ( )>notEmpty ( )then

i f getDependentDecisions ( ) . iTSystem >notEmpty ( )then 1 .0e l s e i f committee>notEmpty ( ) and decisionMaker>notEmpty ( ). . . . . . . . . . . . . . . . . .

This effect on decision also effect ExternalCoordination, which will beexplained in next section.

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4.2.2 Effect on Formalization

The impact of IT on how the behavior is formalized is divided into bothways. On one hand, Gao [1] suggest that IT helps organization to be moreformalized by building up rules and procedures. But on other hand, Pfeffer[16] mention several times on his article about how IT makes the struc-ture less formalized. But as Pfeffers definition lack how does it make lessformalize.

So I choose to map the effect in such way that, if there exists a ruleBook,that is created by IT system, then the process is more formalized.

IF ruleBook.iTSystem THEN TaskType.behaviourFormalized IN-CREASE


. . . . . . . . . . . . . . . . . .e l s e i f ruleBook . iTSystem >notEmpty ( )

then 1 .0e l s e 0 .0. . . . . . . . . . . . . . . . . .

This effect on formalization also effect the externalCoordination & theflexibility on unit level, which will be discussed in section 4.3.

4.2.3 Effect on Performance

According to Pfeffer, IT improve performance measured by providing rapidand accurate feedback. So if the task involve a iTSystem, then the perfor-mance measured value will be high.

IF Task.iTSystem THEN Task.performanceMeasured INCREASE


i f taskType . performanceData >notEmpty ( )then 1 .0

e l s e i f iTSystem >notEmpty ( )then 1 .0

. . . . . . . . . . . . . . . . . .

And this value will affect the motivation of employee and the unit, thiswill be discussed in section 4.3.

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4.2.4 Effect on Quality

According to Gurbaxani[22] IT can be used to reduce cost of communicat-ing information by improving the quality, so I can map that, the qualityattribute of Information will get higher, if the task/decision that producethe Information involves ITSystem.

IF producingDecision.iTSystem or producingTask.iTSystem THENInformation.quality INCREASE


. . . . . . . . . . . . . . . . . .i f producingDecision>notEmpty ( )

then i f producingDecision . iTSystem>notEmpty ( )then 1 .0e l s e producingDecision . qualityendif

e l s ei f producingTask>notEmpty ( )

then i f producingTask . iTSystem>notEmpty ( )then 1 .0e l s e producingTask . qualityendif

e l s ei f producingEnvironment >notEmpty ( )then 1 .0e l s e 0 . 0endif

endif

endif

. . . . . . . . . . . . . . . . . .

This effect on information quality also effect DecisionQuality and Out-putQuality on unit level, which will be discussed in section 4.3.

4.2.5 Effect on Mutual Adjustment

MutualAdjustment on Unit, reflects the effect on size of the organization,and as IT is an independent variable affect size, according to Orlikowski [8],thus it affect the value of MutualAdjustment, by increasing it. This effectwill come to play when a unit in that organization will use IT, by that, theirmutual adjustment value will be increased.

IF unit.iTSystem THEN Unit.mutualAdjustment INCREASE

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. . . . . . . . . . . . . . . . . .e l s e i f iTSystem>notEmpty ( )

then 1((0.05 worker>size ( ) ) /( iTSystem>size ( )+1) ). . . . . . . . . . . . . . . . . .

This effect on mutual Adjustment also effect on units flexibility, whichwill be discussed in section 4.3.

4.2.6 Effect on Centralization

According to Cordella[17], IT effect the organization structure by flatteningit, so this decrease the value of horizontalCentralization & verticalCentral-ization.

IF decision.iTSystem THEN DecisionType.horizontallyCentralizedDECREASE

IF decision.iTSystem THEN DecisionType.verticallyCentralizedDECREASE


i f ( decision>asOrderedSet ( )>includesAll ( decision . decisionMaker .performedTasks . decision>asOrderedSet ( ) ) )then 0 .0

e l s e i f decision . iTSystem >notEmpty ( )then 0 .165

. . . . . . . . . . . . . . . . . .

, and

i f decisionInfluencing>notEmpty ( )then i f decision . iTSystem >notEmpty ( )

then 0 .0e l s e decisionInfluencing . influence>sum ( )endif

e l s e 0 .0endif

The OCL code represent such effect by stating that- if the decisionTypeinfluence other decisionType, then this value should increase, but if the

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decisions are taken by the help of the ITSystem, then this value shoulddecrease.

This verticallyCentralized attribute also has a direct effect on unit.verticallyCentralized.

4.2.7 Effect on Structure

DirectSupervision attribute in unit represent the span of control, and ac-cording to Lucas and Pfeffer[20, 16] IT effect the span of control, thus ITeffect this attribute.

Gurbaxani suggest that IT helps the organization turns to MarketBased,which should affect unit.MarketBased. Also according to Gao[?], IT has adirect effect on Worker.horizontalSpecialization (which means workers per-form how many task and how many times, IT will have a negative effect onthis attribute as it will allow user to perform more task with less special-ization), and on Worker.verticalEnlargement (which means how variety oftask/decision can a worker perform).

But these effects are on structural level, where by introducing IT, thestructure will be changed to accommodate the effect. The changes I amrefereeing states that by introducing IT, more decisions are taken by workeror more tasks are performed by the worker. These effects can be visibleonly by modeling an organization without IT and again model the sameorganization after they implement IT (clearly the structure will be different,i.e. IT will make it possible for worker to perform more task/decision).

4.3 Indirect effect of IT to business performancemeasurements

The attributes from different entity (class in OPAF) affect the value ofattributes of Unit entity, which is known as Business Performance Measure-ments (BPM). These affect are already mapped in OPAF. For example, thequality of a units output depends on quality of information that it receives.This logical map is already exists in OPAF. So as IT affect some of theattributes of different entity, it has an indirect effect on the Business Per-formance Measurements (BPM). This is known as indirect effect of IT onorganizational structure. This section will investigate these effects as shownby figure 4.4.

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Figure 4.4: Indirect effect of IT to performance measurements attribute

4.3.1 Effect on Unit.employeeMotivation

Figure 4.5 shows how IT indirectly affecting unit.employeeMotivation, whichis a collection of all workers motivation value. Workers motivation dependson several attributes, among them if workers performance is measured thenthe motivation should increase, if worker get to perform more task/decisionthrough Worker.horizontalSpecialization then the value should increase, alsoif they get to perform variety of task/decision that should also increase themotivation.

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Figure 4.5: (a) Indirect effect of IT to Motivation attribute, (b) direct effectof IT to Worker.horizontalSpecialization, Worker.verticalEnlargement, andTaskType.performanceMeasered

As the figure 4.5 suggests, IT has a positive effect on TaskType.performanceMeasuredand Worker.verticalEnlargement, but has a negative effect on Worker.horizontalSpecialization.If the structure where worker get more task/decision is not changed, thenwe can say that IT has a positive effect on unit.employeeMotivation.

4.3.2 Effect on Unit.externalCoordination

Figure 4.6 shows how IT indirectly affecting unit.ExternalCoordination. Asthe figure shows, the attribute has positive impact of Decision.mDecisionCoordination,TaskType.variability, and negative impact of Worker.horizontalSpecialization.

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Figure 4.6: (a) Indirect effect of IT to externalCoordination attribute,(b) direct effect of IT to Decision.mDecisionCoordination, (c) indi-rect effect of IT to TaskType.variability, (d) direct effect of IT toWorker.horizontalSpecialization

As IT has direct impact of Decision.mDecisionCoordination and Worker.horizontalSpecialization,it increases the value of Unit.externalCoordination. But, IT has indirect ef-fect on TaskType.variability, where it may decrease the value, and by doingso, may decrease the value of Unit.externalCoordination.

4.3.3 Effect on Unit.internalCoordination

Figure 4.7 shows how IT indirectly affecting unit.internalCoordination. Asthe figure shows, the attribute has positive impact of Unit.DirectSupervision,TaskType.behaviourFormalized, and Unit.MutualAdjustment. This meansthat, if there is direct supervision, more task are formalized, there is bettermutual adjustment in the unit, then the internal coordination score will behigh. These all three attribute have direct positive effect from IT, thus wecan say:

IF unit.iTSystem AND ruleBook.iTSystem THEN Unit.internalCoordinationINCREASE

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Figure 4.7: Indirect effect of IT to internalCoordination attribute

4.3.4 Effect on Unit.flexibility

Flexibility score of a unit represent the fact that they there is mutual ad-justment inside the unit, task are less formalize, there is more task toperform which means more options. Figure 4.8 shows how IT indirectlyaffecting unit.flexibility. As the figure shows, the attribute has positiveimpact of Decision.horizontallyCentralize, and negative impact of Task-Type.behvaiourFormalized, and Unit.mutualAdjustment.

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Figure 4.8: (a) Indirect effect of IT to flexibility attribute, (b) direct effectof IT to DecisionType.horizontallyCentralize, Unit.mutualAdjustment, andTaskType.behvaiourFormalized

As IT has direct impact of DecisionType.horizontallyCentralize and Unit.mutualAdjustment,it increases the value of Unit.flexibility. But, IT has positive effect on Task-Type.behvaiourFormalized, where it may increase the value, and by doingso, may decrease the value of Unit.flexibility.

4.3.5 Effect on Quality

If the decision/task that produce a information involve ITSystem, then thequality of the information will be high, and thus the quality of the outputfrom the decision/task, or the quality of the decision taken from that in-formation will be high too. As figure 4.4 shows, IT has a positive impacton Information.quality, which has a positive impact on Unit.OutputQualityand Unit.decisionQuality. So we can say,

34

IF producingDecision.iTSystem OR producingTask.iTSystem THENUnit.outputQuality AND Unit.decisionQuality INCREASE

4.3.6 Effect on Unit.efficiency

If worker perform routine task, and the information quality is high, thenthe efficiency will be higher. As figure 4.4 shows, IT has a positive impacton Information.quality and negative impact on Unit.verticalCentralization,which has a positive impact on Unit.efficiency. So we can say,

IF producingDecision.iTSystem AND decision.iTSystem THENUnit.effeciency INCREASE

4.3.7 Effect on Unit.learningPace

Figure 4.9: Indirect effect of IT to unit.learningPace

As figure 4.9 shows, IT decrease horizontalSpecialization of the worker,which means worker will perform more task/decision, which means learningpace will be increased as worker will learn faster by performing task/deci-sion.

4.3.8 Effect on Unit.variability

Variability of a unit depends on the finale artefact variability, which de-pends on the variability of the taskType that produce the artefact. If thebehavior is formalized, then variability will be low. As figure 4.4 shows, IThas a positive impact on TaskType.behaviourFormalized, and if the finaleartefact belong to this taskType, then the artefacts variability is loweredby this effect. Thus it will lower the Unit.Variability value. So we can say,

35

IF ruleBook.iTSystem THEN Unit.variability DECREASE

4.4 Non-matching effect of IT on OPAF

Following table will explain how some of the findings from literature studycannot be placed inside the IT-OPAF model.

Table 4.1: Non-matching findings from literature study

Quotation Reason for nonmatch

IT enables organizations to process decision-relevantinformation in a more cost-effective way, thus improv-ing the quality and speed of upper managements de-cision making processes. This phenomenon may leaddecision rights to move upward in the organizationalhierarchy, leading to more centralized management.[Gurbaxani et al.][22]

It effect the decisionright and thus effect thestructure of the organi-zation and this also ef-fect the motivation ofthe employees. So indi-rectly IT effects the

IT capability has positive impact on decentralizationof organization structure.[Gao et al.][1]

motivation of a organi-zation [10]. But this ef-fect

IT provides the ability to improve monitoring andperformance measurement, reducing agency costsand thus inducing the decentralization of decisionrights.[Gurbaxani et al.][22]

to organization perfor-mance is relevant toeach and every organi-zation itself. althoughstudy

4 new organizational structure induce by IT and theyare Virtual, Negotiated agreement, Traditional withelectronic components, and Vertically integrated con-glomerates. All mentioned structure shows how theydiffer from traditional structure by distributing deci-sion making.[Lucas et al.][20]

shows that this effectalso dependent on sizeand transaction strat-egy of the organization.Bigger organization find


36



Firms that were able to use IT to radically centralizeor decentralize generally experienced a positive effect,whereas not as many firms that performed only mi-nor changes in decision rights perceived such an ef-fect.[Kanamori et al.][19]

performance spike thansmaller organization,and it also dependenton whether structure isshifted from being cen-tralize to decentralizeor vice versa.

A firm may use IT to centralize some decision rightswhile decentralizing others, leading to a hybrid struc-ture. Clearly, the choice depends on the specific coststructures of the firm and the industry. All in all,therefore, the net effect of cost-effective IT on the lo-cation of decision rights is not so obvious.[Gurbaxaniet al.][22]

As per the author, thenet effect is not so obvi-ous.

The broad hypothesis holds good; technology andstructure are related; but the strength of multivariateresearch design is that it prevents premature conclu-sions. Data have already demonstrated that althoughtechnology does have a diffused relationship with thestructural dimensions, it always takes second place toother variables.[Aldrich et al.][9]

In this study it is shownthat, IT act as a in-fluencing helper. So tofind out the effect of ITafter the effect of an-other variable to organi-zation structure is diffi-cult to find out.

The reduction of uncertainty due to the introductionof IT basically results in a reduction of both coordina-tion costs and transaction costs. However, due to theinvestments in infrastructure and technology, higherfixed costs are generated initially.[Cordella et al.][17]

The effect of IT in thiscase is too broad to putin OPAF

Information technology can be used for reducing thecost being associated to transactions, This argumentis based on the idea of using information technol-ogy to make more information available to decisionmakers, thus contributing to the reduction of uncer-tainty.[Cordella et al.][17]


37



There are positive correlation between IT and num-ber of departments, and levels in hierarchy.[Pfeffer etal.][16]

This is too specific onorganization structure

Attewell & Rule (1984) view IT as an indepen-dent variable affecting: 1) Number and qualityof jobs, 2) centralization of management decision-making, 3) organizational interactions with their en-vironments.[Orlikowski et al.][8]

rather than organiza-tion performance.

Huber(1990) IT independent variables and 1) char-acteristics of organization integelligence and decision-making, 2) aspects of organization design (size andheterogeneity of decision units, number of levels), isdependent to IT.[Orlikowski et al.][8]Dewett & Jones (2001) - IT thus moderates the re-lationship between organization characteristics (size,structure, inter-organizational relations) and strate-gic outcomes (efficiency and innovation).[Orlikowski etal.][8]

38

Chapter 5

Case study

In this chapter, I will try to describe the workflow that I am going to modelon OPAF, and the organizational structure of each of the studied subject.This chapter will also describe the properties of the studied subject on howthey are similar or dissimilar from each other.

5.1 Loan Processing System

Figure 5.1 shows a basic loan processing workflow which involve actorslike Customer, FrontDesk, LoanOfficer, HeadOffice, and 3rd Party.Workflow starts when Customer initiates the process through front desk. In-volvement of front desk worker is optional for some cases, but in some casesit requires certain skill and also some output depends on it. Loan Officerperform most of the tasks and take most of the decisions, but after evalua-tion from loan officer the process involve committee of some decision makerfrom head office or senior executives. It also involves some 3rd party ac-tors to evaluate loan security, which in some cases performed by loan officerworkers. Expert opinion has been taken to design the process, along withthe opinion from the interviewee. Although there are several process likethis is involved in every one of the studied bank, but I choose to work withthis workflow because it is generic and most of the task in Loan ProcessingSystem has been covered in this workflow.

39

Figure 5.1: Loan Processing Workflow

40

After these evaluating and processing the request, loan disbursementhappens and loan application goes to monitoring stage from which it finishesafter loan credit is fully paid. During this workflow all the decisions caneither pass the application to next stage or decline the request thus finishthe workflow.

5.1.1 Sonali Bank

In figure 5.2 unit structure of loan processing system of sonali bank is shown.The unit HeadOffice is parent for unit CreditCommittee, BranchLevelwhere role of each unit is described by the tasks they performed. Branch-Level unit also has two sub unit FrontDesk and CreditSection wheremost of the decision related to loan take place. Each of these units con-tains one or more worker. The structure of this workflow is such that lineworker such as Loan Officer 1 have sufficient decision power to process theworkflow.

Figure 5.2: Organogram for Loan Processing System of Sonali Bank

The task and decision distribution between the lower level to upper levelmanagers confirm this that the decision rights are very much decentralized

41

where some of the critical decision can be taken by lower level management,thus their skill level has to be very good.

This workflow depends heavily on the skill of LoanOfficer, as these work-ers on the CreditSection unit perform most of the task related to loan pro-cessing, and take initial loan evaluation decisions to whether or not pass theapplication to higher authority. So in a way, they work as an initiator forthis workflow. In this case study, we have two LoanOfficer, where one ofthem perform task with less significance, and other one perform task andtake decision on proper loan request. Figure 5.3 shows a snapshot of skills,Tasks, and Decisions that are associated with LoanOfficer1 worker. Taskslike CreditReportCreation and SelectionOfBorrower belongs to tasktype ApplicationProcess which requires skill like RetailBanking. Tasklike LoanDocumentCreation requires both RetailBanking and General-Banking skill.

Figure 5.3: LoanOfficer1 Task and Decision based on Learning viewpoint

From figure 5.4 we can see depending on this performed task type, it cre-ates artifact type PreliminaryLoanDocument and FinaleLoanDocu-ment which holds artifact such as ProofOfIdentity, SanctionLetter, CIBRe-port, CreditReport, etc and these artifact get used in taking decisions typeApplicationEvaluation and ApplicationValidity.

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Figure 5.4: LoanOfficer1 Task and Decision based on Motivation viewpoint

As we see in figure 5.5 compare to LoanOfficer1, LoanOfficer2 does notrequire to perform a task which requires GeneralBanking skill. Similar toLoanOfficer1, as we can see in figure 5.6 the viewpoint looks similar, andsometimes the task of FrontDeskOfficer1 is performed by LoanOfficer2.

Figure 5.5: LoanOfficer2 Task and Decision based on Learning viewpoint

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Figure 5.6: LoanOfficer2 Task and Decision based on Motivation viewpoint

5.1.2 Janata Bank

As we can compare the organogram of Janata Bank to Sonali bank is thatthe involvement of Head Office unit, over here, Branch Level unit have theultimate say to these sample loan scenario. Here the Head of Branch actsas CEO for this workflow and provide the ultimate decision. Here, mid levelmanager from different unit come together as a committee to evaluate theloan and evaluate the different aspect of each loan (Foreign Exchange unit,General Banking unit, etc).

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Figure 5.7: Organogram for Loan Processing System of Janata Bank

We can see from figure 5.7 that the structure is very much centralized.The task allocation come from the head of the branch and it also gets eval-uated by top management.

Figure 5.8: Head of Branch Task and Decision based on Learning viewpoint

45

Figure 5.8 shows us a snippet of how much Head of Branch gets involvedin this workflow. From accepting the application task to Application Ap-proval decision, he is involved. HeadOfBranch have to heavily depend onHOBRetailSkill to perform the tasks and take decisions.

Lower level employee SODIncharge1 and SODIncharge2 involved inpreparing the documents and taking decision about the routine evaluationof the loan like CRG calculation, Transaction Profile evaluation, etc andall their decision type and task type involve both FinaleDocuments andInitialDocuments artefact type. Figure 5.9 shows the task and decisionperformed by SODIncharge based on motivation viewpoint.

Figure 5.9: SOD Incharge Task and Decision based on Motivation viewpoint

5.1.3 United Commercial Bank

In figure 5.10 unit structure of loan processing system of united commercialbank (UCB) is shown. The unit HeadOffice is parent for unit Credit-Committee, BranchLevel where role of each unit is described by thetasks they performed. BranchLevel unit also has two sub unit FrontDeskand CreditSection where most of the decision related to loan take place.Each of these units contains one or more worker. The structure of this work-flow is such that line worker such as Loan Officer 1 have sufficient decision

46

power to process the workflow.

Figure 5.10: Organogram for Loan Processing System of United CommercialBank

All the mentioned cases require a committee to judge the loan requestbefore approving them, In figure 5.11 the committee structure is differentfrom other cases. Here two committee require to validate the loan request,RetailCredit committee validate the loan request with internal retail di-vision and only after approving though this committee senior managementgets to take decision on those.

47

Figure 5.11: Committee structure of UCB in Loan Processing Workflow

In figure 5.12 shows the task and decision performed by RetailDivisionworker, as he takes most of the decision.

Figure 5.12: Decision Task performed by Retail Officer of UCB Head Officebased on Learning viewpoint

In figure 5.13 shows the task performed by CreditSection unit and shows

48

how the performance is measured.

Figure 5.13: Task performed by Credit Officer of UCB credit section basedon Motivation viewpoint

5.2 Similarities & Dissimilarities between studysubjects

To understand the result, we need to understand the similarities and dis-similarities in the structure, their way of doing task, and the circumstancethat they are in.

5.2.1 Importance of the workflow

The workflow that I am studying is one of the most recognized and importantworkflow for a bank. It is also one of the money making & core functionalityfor each of these banks.

So for obvious reasons, they invest a fair amount of resources in thisworkflow. Although the number of people involved in this workflow varydue to different size of the branch and number of functionality they have inthe branch. But they all have specialized skilled employee in the core of thisworkflow. These specialized employees have training about how to work ina credit section of a branch, internally and from outside of the organization,before joining the unit. They also have this trainee program for junior

49

employees to work in credit section on a mentoring program, which wouldrequire a training object to calculate how they learn by doing the work.

5.2.2 Unit structure

All of these banks have functional hierarchy, Head office and branches. Eachbranch has CEO who is known as Head of Branch. Their structure is furtherdivided based on functionality, such as Credit Section deals with loan/ad-vance.

The structural difference between the banks can be found on how theyperform certain task, For example, Janata bank form a committee with allother functional units head in the branch, but Sonali bank form more likea traditional committee with only the credit units personal. UCB, on theother hand has two committee, Retail division committee to assess risk ofloan proposal, and Approval committee to assess the potential of the loanand approval.

5.2.3 Decision rights

Decision rights in Janata Bank are more centralized as the main decision istaken by Head of the Branch. But Sonali bank is a little more decentral-ized, as some of the decision on evaluating the loan, is taken by the creditofficer. UCB, credit unit in branch take very less or no decision on the loanapplication. They perform some predefined task on the application and passit to their Retail division of head office, where most of the decisions takeplace. So we can say, they also take centralized decision making approach.The involvement of Head of Branch of Janata Bank is much higher thanother banks and the involvement of credit officer in this workflow is higherin Sonali Bank.

5.2.4 Central office involvement

The involvement of Head office in the model is limited for Sonali Bank forspecial circumstance. As the limit of loan depends on the designation anddisbursement right of the Head of branch, thus the involvement of HeadOffice is also defined by that. The involvement also depend on the out-side environment of the branch, previous credit history of the branch, loanamount, applicant, etc and based on the interview, I choose to accept thedefault situation. As for UCB the involvement is much higher and in theircase the head office takes the role of centralized decision maker.

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5.2.5 Environment

The environment where the studied branch was placed is different. Thebranch of Janata Bank is placed in a high density small and medium businessplaces, where as branch of Sonali Bank is placed in places which involve somebig business loan. For UCB the study has to be done on head office as theinvolvement of the head office is much higher than the involvement of thebranch.

Table 5.1: Similarities & Dissimilarities between the studysubjects

Parameter Sonali Bank Janata Bank UCBL

Specializedworker for theworkflow

Yes Yes Yes & Learnby doing

Hierarchy Functional Functional Functional

Decision Rights Somewhat De-centralized

More Central-ized

Centralized

External environ-ment

Large businessclient

Small/Mediumbusiness client

Head office

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Chapter 6

Result & Analysis

In this chapter, I will present the result found from EAAT, without IT andwith IT. Then I will explain the difference, if any. After that, I will try tovalidate the new IT-OPAF framework.

The calculation is performed with 200 samples and the average value istaken for each of the attributes. For analysis purpose, data from only therelated unit is taken, which in this case is CreditSection.

6.1 Performance Measurements Result

Figure 6.1 shows the calculated value of all performance measurements, with-out IT. The value differs due to the fact that we have so far discussed in thesimilarities and dissimilarities section of previous chapter, different organi-zational structure will return different performance measurements values.

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Figure 6.1: Performance measurements result of a) Sonali bank, b) Janatabank, and c) UCB bank [Productivity & Coordination values are adjustedaccording to scale]

Table 6.1: Result on average value based on all viewpoints

Viewpoint Attribute Sonali Janata UCB

Learning learningPace 0.45 1.21 3.60

Motivation employeeMotivation 0.57 0.57 0.55

Coordination internalCoordination 0.85 0.5 0.61

Coordination externalCoordination 6.33 17.42 2.99

Effort timeEfficiency 0.75 0.62 0.84

Productivity productivity 0.001 0.01 0.02

Variability variability 0.5 0.2 0.19

Flexibility flexibility 0.19 0.64 0.33

From the data and figure 6.2, we can clearly see that the UCB bankis better in case of learning, as it have a training object to teach theiruntrained credit officer, so the learning pace is much higher. For motivationviewpoint, they all have similar values. Flexibilty viewpoint does reveal thatthe structure of Janata bank is more flexible than Sonali or UCB. Higher

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score in Unit.standardized makes Sonali bank less flexible, whereas UCBholds the second position.

Figure 6.2: Learning vs Motivation

6.2 Effect of IT

On unit level, IT has direct effect on Unit.mutualAdjustment, Unit.verticalCentralization,and Unit.directSupervision. In all three case subjects the unit size is toosmall to be affected by IT, so the value of mutualAdjustment has no effectfrom ITSystem. Also as we are looking at CreditSection unit, that does nothave any child unit, so the value of verticalCentralization remains the same.Although, by introducing IT, the span of control is affected, but the value ofdirectSupervision was low before the introduction of IT, so it is not possibleto decrease the value to show the effect of IT, as shown in table 6.2.

Table 6.2: Direct effect of IT on CreditSection unit

Attribute Sonali Bank Janata Bank UCB

before after before after before after

mutualAdjustment 1 1 1 1 1 1

verticalCentralization 1 1 1 1 1 1

directSupervision 0 0 0 0 0 0

Table 6.3: Indirect effect of IT on CreditSection unit


before after before after before after


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employeeMotivation 0.56 0.57 0.56 0.57 0.54 0.56

externalCoordination 6.33 6.33 17.42 21.42 2.99 3.15

internalCoordination 0.85 0.85 0.5 0.5 0.60 0.61

decisionQuality 0.87 0.89 0.90 0.92 0.90 1

outputQuality 0.60 0.64 0.93 0.94 0.93 1

timeEfficiency 0.75 0.84 0.62 0.64 0.83 0.97

flexibility 0.19 0.19 0.64 0.64 0.31 0.31

variability 0.5 0.5 0.2 0.2 0.19 0.20

learningPace 0.45 0.47 1.21 1.22 3.60 4.54

If we want to compare each of the case subjects to see how IT effect thebusiness performance measurements, then figure 6.3, 6.4, 6.5 shows theeffect in all viewpoints.

Figure 6.3: Effect of IT to Sonali Bank

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Figure 6.4: Effect of IT to Janata Bank

Figure 6.5: Effect of IT to UCB Bank

6.2.1 Effect on unit.employeeMotivation

As figure 6.6 shows the result of the indirect effect of IT on employeeMo-tivation and figure 6.7 show the reason for this result on how IT effect thevalue.

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Figure 6.6: Indirect effect of IT on unit.employeeMotivation

Figure 6.7: (a) Indirect effect of IT to Motivation attribute, (b) direct effectof IT to Worker.horizontalSpecialization, Worker.verticalEnlargement, andTaskType.performanceMeasered

Although IT has a negative effect on Worker.horizontalSpecialization,

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but as we know from the previous section that in our case study, the valueremains the same. Thus, we can clearly see that the value of performance-Measured affect the value of motivation, after the introduction of IT.

The value in Sonali bank seems more than other banks, as the CreditSec-tion unit of this bank involved in more task than other banks CreditSectionunit. Thus the performanceMeasured value gets more affected by IT and itgets higher. That is the reason why unit of Sonali bank is more motivatedthan others.

6.2.2 Effect on unit.externalCoordination

Figure 6.8: Indirect effect of IT on unit.externalCoordination

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Figure 6.9: (a) Indirect effect of IT to externalCoordination attribute,(b) direct effect of IT to Decision.mDecisionCoordination, (c) indi-rect effect of IT to TaskType.variability, (d) direct effect of IT toWorker.horizontalSpecialization

As figure 6.8 shows the result of the indirect effect of IT on externalCoor-dination and figure 6.9 show the reason for this result on how IT effect thevalue.

The attributes value depend heavily on the decision, task, and on howmany task does the worker perform. The value for Janata bank is higheras the Credit Officer of Janata bank takes more decision than the otherbanks credit officer. For this reason the value is higher before the ef-fect of IT. As we can see from the figure 6.9, IT effect more on decision-Type.mDecisionCoordination, this effect cause the increase in external co-ordination, as a result the effect is most in Janata bank.

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6.2.3 Effect on unit.internalCoordination

Figure 6.10: Indirect effect of IT on unit.internalCoordination

Figure 6.11: Indirect effect of IT to internalCoordination attribute

As figure 6.10 shows the result of the indirect effect of IT on internalCoor-dination and figure 6.11 show the reason for this result on how IT effect thevalue.

The value as expected did not change after the introduction of IT, be-cause as I have mentioned the value of unit.DirectSupervision and unit.MutualAdjustmentdoes not change, so in this case unit.internalCoordination depend on Task-Type.behaviourFormalized value.

But in this case, there is no ruleBook implemented by ITSystem to

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enforce formalization, thus the value did not differ and internalCoordinationvalue remains the same.

6.2.4 Effect on quality

Figure 6.12: Indirect effect of IT on unit.outputQuality andunit.decisionQuality

Figure 6.13: IT effect Information.quality, thus effect decisionQuality andoutputQuality

As figure 6.12 shows the result of the indirect effect of IT on decisionQualityand outputQuality. IT affects Information.quality by increasing its value,which has a positive effect on unit.decisionQuality and unit.outputQuality.Figure 6.13 shows the explanation, and figure 6.12 clearly states the increasein value of decisionQuality of all three banks, which validate the hypothesisthat:

IF producingDecision.iTSystem OR producingTask.iTSystem THENUnit.outputQuality AND Unit.decisionQuality INCREASE

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6.2.5 Effect on unit.timeEfficiency

As figure 6.14 shows the indirect effect of IT on unit.efficiency. IT affectsthe quality of information that is required for task/decision to perform intime. Thus, if the quality of information increases, so does the efficiency.

Figure 6.14: Indirect effect of IT on unit.efficiency

Figure 6.15: Result of effect of IT on unit.efficiency

As figure 6.15 suggest, all the banks efficiency increased after intro-ducing IT. Information.quality influence unit.timeEfficiency by increasing itand by decreasing units verticalCentralization it has a positive impact onefficiency. As IT increase the value of information.quality and decrease thevalue of unit.verticalCentralization, thus has a positive impact on efficiency.

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6.2.6 Effect on unit.flexibility

As figure 6.17 shows the indirect effect of IT on unit.flexibility. As we cansee from the result shown on figure 6.16, the value remains the same afterthe introduction of IT.

Figure 6.16: Indirect effect of IT on unit.flexibility

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Figure 6.17: (a) Indirect effect of IT to flexibility attribute, (b) direct effectof IT to DecisionType.horizontallyCentralize, Unit.mutualAdjustment, andTaskType.behvaiourFormalized

As the unit that I am monitoring, does not have any ruleBook thatis implemented by ITSystem, so the TaskType.behaviourFormalized valuedoes not get affected. Also as I have mentioned before, the unit is not so bigon worker size to get affected by IT on unit.mutualAdjustment attribute.So this effect cannot be shown through the result that we have.

6.2.7 Effect on unit.variability

As figure 6.19 shows the indirect effect of IT on unit.variability. IT effectTaskType.behaviourFormalized by increasing a non-formalize structure ordecreasing a formalize structure. This effect the artefact.variability, as moreformalize behaviour will give less variability. So they have an inverse rela-tionship, which then effect the value of unit.variability.

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Figure 6.18: Indirect effect of IT on unit.variability

Figure 6.19: Result of effect of IT on unit.variability

But as the figure 6.18 shows, ITSystem did not change the value. As theTaskType.behaviourFormalized value is not changed due to the fact that ITdid not create any ruleBook that make task more formalized. So as a result,IT did not affect unit.variability.

IF ruleBook.iTSystem THEN Unit.variability DECREASE

So the hypothesis cannot be verified with this data.

6.2.8 Effect on unit.learningPace

As figure 6.20 shows how learningPace differ in all the bank. Learning pacegets effected by worker.horizontalSpecialization, as shown on figure 6.21.Although the value of worker.horizontalSpecialization does not change bythe effect of IT, but the indirect effect to other attribute change the valuelearning pace and increase it.

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Figure 6.20: Indirect effect of IT on unit.learningPace

Figure 6.21: Indirect effect of IT to unit.learningPace

UCB have the highest value, as they have a formal Training object, sothe learningPace value is high.

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Chapter 7

Conclusion

The goal of this thesis work is to identify the impact of IT on OPAF. For that,key points of view from previous research papers have been taken. These keypoints are being analyzed on how IT affects organizational structure. Thetype of effect has been identified and these relations have been investigated.

Then to validate the findings, those key points are being translated intoOCL code, and they are placed inside new IT-OPAF model. This new IT-OPAF model represents the OPAF model with IT. After that, three real lifebanks have been selected to study one of their workflows. Interview has beentaken and with their information, three models for these three banks havebeen created. Then the model has been run with framework without ITand with IT. These two sets of data have been collected and they are beingcompared. The comparison shows us that, the data corresponds with thefindings. Thus it can be concluded that the effect of IT has been successfullymapped into this new IT-OPAF model.

The impact can be more visible after mapping the whole organizationand not only a workflow, and the effect that IT makes by changing theorganizational structure requires to model a organization without IT andthen model it again after when they implement IT.

This investigation about how IT effect organizational structure may pro-vide us a lot of research background, but the specifics of organizational struc-ture does present a problem on finding previous work. In future, more andmore previous study can be collected to this and more quantitative analysisshould be performed, to validate the IT-OPAF model.

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Appendix A

Case Subject Introduction

1 Sonali Bank

Sonali Bank is the largest state owned leading commercial bank in Bangladesh.It has 1200 branches with 21,839 employees, among them 854 branches arerural branch and rest are urban branches. It also have 2 foreign branches inUSA & UK.[23]

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Figure A.1: Sonali Bank Organogram[23]

Interviewee introduction:

Name: Md. SanaullahCurrent Designation: Assistant General ManagerBranch: B.Wapda Corp. branchYears of banking experience: 33 yearsYears of experience as a Head of Branch: 20 yearsContact: [email protected]

2 Janata Bank

Janata Bank Limited, is also one of the state owned commercial banks inBangladesh. It has 886 branches with employees more than 15,000. It alsohave 4 foreign branches in UAE. The bank have won numerious awards in-cluding The Asian Banking & Finance Awards 2012. [24]


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Name: Md. Ahsan UllahCurrent Designation: Deputy General ManagersBranch: Tipu Sultan Road BranchYears of banking experience: 25 yearsYears of experience as a Head of Branch: 15 yearsContact: NIL

3 United Commercial Bank Ltd

United Commercial Bank Ltd. (UCB), is one of the first generation bankin private sector, operating since 1983. It is operating with 113 branches allover the country. [25]


Name: Sajjad HossainCurrent Designation: Assistant Vice PresidentBranch: Head OfficeYears of banking experience: 13 yearsContact: [email protected]

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Appendix B

Questionnaire

This is a sample questionnaire that is used to interview the personal ofpreviously mentioned case subjects.

1. Units in organization

2. Objectives in organization

(a) What objectives do the unit(s) have?

3. Task type (group of tasks) in the organization

(a) Task(s) inside the task type

i. How frequent do you perform the task in a week?

ii. Is there any technical assistance for this task?

iii. Is the task using any external product/service? Please ex-plain.

iv. How relevant is the task to satisfy the Objective?

(b) Skill needed for this task type (group of tasks)

i. What are the skills require to perform this task type?

ii. How much time does it require to master this task type?

iii. Can you learn this skill by performing the task?

iv. How large knowledge do the Worker have of the this Skills(WorkerSkill)?

(c) What is the outcome (service/product) of this group of tasks

(d) Is the task type standardized or specified by rules?

(e) Which objects does this group of tasks satisfy?

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4. Decision type (group of decisions) in the organization

(a) Decision inside the Decision type (group of decisions)

Who perform this decision? How important is the information qualitys and impact to

make the decision?

How often are these Decisions performed (On a weekly ba-sis)?

Does this decision effect any group of tasks? which one andhow?

What is the outcome (service/product) of this decision? What kind of Information is required For this Decision? and

how much time does it require to understand the informa-tion? also which environment does this information belongsto?

Is this decision aligned with objectives? If yes, how wellaligned?

(b) How much time would the decisionType require under perfectconditions?

(c) Is the decisionType standardized or specified by rules?

5. Committee inside the organization

6. Performance Control System

(a) Which taskTypes are measured in a Performance Control Sys-tem?

(b) Which services/products are measured in a Performance ControlSystem?

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Bibliography

[1] S. Gao, J. Chen, and D. Fang, The influence of it capability on di-mensions of organization structure, in Future Information Technologyand Management Engineering, 2009. FITME 09. Second InternationalConference on, pp. 269 273, dec. 2009.

[2] S. Gao, D. Fang, and J. Chen, Empirical study on it capability basedon resource-based view and or

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