Information, Organization and Management

There have been drastic changes in a variety of corporations’ competitive conditions. Goods, labor, and information markets are increasingly globalized. The use of new communication networks provides worldwide access to previously difficult to reach markets. Competition is intensified through new competitors’ entrance into formerly local or proprietary markets. East Asian suppliers’ success, especially in the field of industrial mass products, is impressive. Since the opening of the borders to East European markets, suppliers have emerged whose national economies allow the production of industrial goods at substantially lower costs and – while simultaneously improving the quality of their goods and services – are increasingly gaining access to world markets. Today, qualified service providers offer their services worldwide by means of data networks.

In addition, we observe a shift from seller to buyer markets. Buyers have become more demanding and are no longer willing to accept organization-related coordination problems such as long product delivery times or interface problems. With the current demand for greater product quality, this new buyer behavior has a substantial influence on new goods and service development. This holds true for the consumer goods industry, investment goods, and all types of services. Many competing products are of very high quality, which is taken for granted today. Real product differentiation often occurs only in the service offered after a product’s sale. Above all, buyer markets require corporations to be customer orientated and flexible. Competitive strategies must fundamentally reevaluate the business and management goals of ‘flexibility’, ‘time’ (development and delivery times), ‘quality’ and ‘costs’. Turbulent markets, time, and flexibility are often the decisive criteria for competition: Consequently, corporations have to adapt to changing demands quickly and efficiently.

The basic intention of economic activity is to satisfy human needs. Although human needs are infinite, the goods with which to fulfill them are scarce. This scarcity has led to the formation of economic institutions that, while they cannot eliminate scarcity, at least minimize it. This scarcity sets the stage for various economic phenomena such as the exchange of goods, the division of labor, competition, markets, and corporations. In keeping with ‘modern’ standards, few natural commodities can be directly consumed, requiring a combined process to largely transform them into consumables. This process is divided into a variety of individual steps resulting in a complex nexus of economic activities. The fundamental premises to address the scarcity problem are (Picot 1998c):

The term “production detour” is attributed to the Austrian economist Böhm- Bawerk (1909), and is derived from Menger (Menger 1871). He classifies economic goods according to their proximity to final consumption. Consumer goods are therefore first order goods. They are produced from preliminary products through specific means of production, which are second order goods, which in turn stem from pre-products and higher order means of production.

Information and communication are essential for human interaction and are the cornerstones of its very existence. The ever-increasing variety of information and communication forms, as well as the various forms of media in both the business and private world demonstrates their escalating significance. In order to fully grasp the advancements in this field, it is necessary to explain the various principles of information and communication in conjunction with their theoretical models. While the previous chapter served as an introduction to this topic, this chapter aims to explain the concept in more detail.

Information and communication models and theories are valuable tools that can be used for the interpretation of entrepreneurial behaviors, as well as for the design of new entrepreneurial structures (Wahren 1987; Picot / Wolff 1997; Kieser / Hegele / Klimmer 1998; Reichwald 1999). Interestingly, information and communication behavior models and theories were not developed until long after other areas in economic phenomena had already received considerable attention. One reason for this is the relatively late acknowledgement of information as a production factor in economics. When one considers that other production factors such as land, labor, and capital have been studied in great detail and that their influence on economic activity has been demonstrated, the construction of models that describe information and communication phenomena is a relatively new concept. Although information was recognized in most situations addressed by economists, it was considered a given and thus did not receive proper attention.

Information and communication may be examined in various contexts. Both promote interpersonal understanding (section 3.2) and are associated with various behavioral options, restrictions, and problems (see section 3.3). Information should furthermore be regarded as a type of commodity similar to other types of commodities that must be produced and maintained. Many different theories and models have been developed while focusing on these particular aspects. These theories and models are used to identify certain key factors that influence the quality of the actions and institutions associated with information and communication. In turn, these are decisive in overcoming information and communication barriers. This chapter discusses the intricacy of communication barriers and the necessity of using not only one but several approaches to solve practical information and communication problems.

New information and communication technologies (ICT) harbor novel potentials for our way of life, the development of society, for the future of the industrial democracy, and for new and innovative organization structures. Nevertheless, assessments of such technical potentials and predictions of technology utilization are rarely confirmed by subsequent development, and often they are just plain wrong.

When Johann Philipp Reis presented his telephone prototype in 1861 or Alexander Graham Bell transmitted his famous line, “Watson, come here; I want you.” to his assistant Thomas Watson in 1876, the exact utility of this medium was not at all clear. At best, modest success was expected. At the turn of the 19th century, the telephone was therefore used, for example, to transmit operas and concert events. Not until 1919 did the number of telephone connections exceed a million subscribers. In 1994 there were more than 600 million landline connections worldwide and the way the phone was utilized had changed as radically as the perception of time and space had (Becker 1995; Sterling 1995; Flichey 1994). Meanwhile, cell phone connections far exceed landline connections. In 2006, there were more than 2.7 billion mobile phones in use (“2.5 billion …,” 2006). China Telecom alone is adding more than four million subscribers a month or close to two every second (Cyran / Hutchinson 2007). The historical development of the phone is by no means an isolated case as far as the failure to predict potential and realization is concerned: “I think there is a world market for maybe five computers,” predicted Thomas Watson, the president and founder of IBM in 1943. Likewise, the graphic user interface, without which no operating system can function today, was regarded as an interesting gimmick and its potential underestimated.

In the last few years, research and experience from business practice have provided increasing evidence that changed competitive conditions require companies to reorganize. The crux of this criticism concerns large-scale companies with strong hierarchical and dysfunctional organization structures. Much has been said about the end of the “dinosaurs” and that they will be replaced by modularly built, highly flexible, “flotilla” organizations (Drucker 1990). Many authors are of the opinion that company reorganization should be undertaken by flattening hierarchical structures (Bennis 1993; Davidow / Malone 1993; Picot / Reichwald 1994; Wigand 1985). These theories will be discussed in detail in this chapter.

Modularization as an independent organizational principle needs to be defined before the causes and economic explanatory approaches of the above developments are discussed. An analysis of the proposals suggested in the literature for the reorganization of the value chain by means of “fractals,” “segments” or “modules” (Warnecke 1992; Zenger / Hesterly 1997; Wildemann 1998) indicates considerable similarity between these concepts. By combining their fundamentals, one arrives at the following:

Modularization means a reconstruction of the company organization on the basis of integrated, customer-oriented processes with relatively small, observable elements (modules). These are revealed through decentralized decision competency and results-based responsibility, which leads to stronger coordination between the modules through non-hierarchical coordination forms. The common fundamentals of modularization concepts are applicable on different organizational levels (Gerpott / Boehm 2000): From modularization on different working levels to the development of autonomous groups up to breaking up the entire organization into largely independent profit centers.

There is an increasing trend in business practice for traditional entrepreneurial structures and firm boundaries to be dissolved into hybrid alliances with external partners. The fundamental idea behind such alliances is based on the notion of global cooperation, which can be described as follows: An enterprise enters into an intensive relationship with other – legally and economically independent – firms by incorporating these firms into the execution and completion process of its tasks. Consequently, alliances are formed that may have negative (dependencies), as well as positive (synergies) effects (Gemönden / Ritter 1998).

In order to prevent partners from opportunistically limiting or exploiting dependencies, these hybrid arrangements are usually of a long-term nature. They aspire towards a tightly networked relationship between the partners that is based on mutual trust. The various manifestations of such arrangements, such as networks and / or joint ventures, change the legal and economic boundaries of the enterprise: Company boundaries become pliable as the intersection between enterprise and market can no longer be described appropriately. While the company has to date merely dealt with standardized partial market tasks, external market partners are now being increasingly involved in the company’s original tasks. This blurs the traditional market-near company boundary (specific vs. standardized services) ever more and, at the same time, almost leads to the company dissolving. These hybrid forms of organization are also increasingly shifting legal boundaries. In fact, a new, legally independent business unit is created for joint ventures that cannot be clearly associated with any partner. Internationally oriented, dynamic networks traverse national legal boundaries, which may lead to a clash between differing national laws.

In the following three cases, the traditional economic boundaries have been changed or dissolved: Dissolving occurs when, in an effort to optimize its real net output ratio, a company is increasingly disintegrated vertically and thereafter procures standardized services from the market. On the other hand, dissolving of a company also occurs when business location boundaries and limits can be over come through the use of information and communication technology and when office workplaces can be moved to employees’ homes (see chapter 8). Thirdly, a company undergoes a dissolving process when external third party involvement in the original (i.e. specific and / or precarious) entrepreneurial tasks becomes compulsory through company-internal (e.g., a lack of know-how or capital) or company- external factors (e.g., EDI, see chapter 4), or when this involvement occurs voluntarily. This outsourcing of tasks and competencies to third parties leads to a cutback of the company’s field of activity, as well as its boundaries becoming increasingly diffuse; they can no longer be exactly demarcated. The company task to bridge supplier and buyer markets in a well-conceived way and to offer customeroriented services (see section 2.2) are now seldom achieved in traditional markets, but are increasingly achieved within a shifting symbiosis with third parties. This chapter will focus on these forms of dissolving entrepreneurial boundaries.

The concept of electronic markets has been discussed in-depth in the literature eversince Malone, Yates and Benjamin (1986; 1987) published “Electronic Markets and Electronic Hierarchies.” Many authors have continued to develop this concept in numerous ways since then (Picot / Reichwald 1991; Ciborra 1993; Schmid 1993; Krähenmann 1994; Picot / Reichwald 1994; Benjamin / Wigand 1995; Picot / Bortenlänger / Röhrl 1995, 1996; Schmid 1995; Choi / Stahl / Whinston 1997; Wigand 1997; Shapiro / Varian 1998; Koch / Möslein / Wagner 2000; Bieberbach 2001; Schött 2006). The Internet’s rapid worldwide growth has increased interest in electronic markets from a scientific, economic, and political perspective. The development of electronic markets has led visionary authors to assume that the world is on the threshold of a new business age in which previous economic rules will no longer be in force (Rayport / Sviokla 1994; Kelly 1997) and small companies will compete with multi-nationals through their access to global markets (Applegate et al. 1996). Nevertheless, skeptics point out that the actual development of electronic markets is still a far cry from these assumptions (Bichler / Segev 1998). Despite this criticism, the constant growth in revenues attained from trading an increasing number of physical goods and services over the Internet can be observed.

To date, the literature has not provided a uniform definition of the term electronic market. “E-terms” are overzealously used for all economic activities taking place by electronic means (e.g., “electronic commerce,” “electronic business,” “electronic markets,” “electronic marketplaces,” “electronic marketspaces,” etc.). These terms are usually applied vaguely and inconsistently. This is not surprising, since the field of electronically aided market and corporate processes is subject to strong dynamic forces due to the rapid development of the supporting technology.

In the current context, the collective term electronic commerce denotes any type of economic activity conducted via electronic connections. The range covered by electronic commerce extends from electronic markets to electronic hierarchies, and also includes types of electronically supported corporate networks and alliances (electronic networks). Electronic markets therefore form a single selected institutional and technical platform for electronic commerce. Their common feature is the market coordination mechanism.

Large areas of business applications are increasingly contradicting the traditional picture of the enterprise as an integrated, methodically organized, and relatively stable product of the production of tangible assets and services: Strict hierarchies dissolve themselves into flat, modular structures (chapter 5). Traditional organizational boundaries blur in symbiotic, network-like entrepreneurial relationships (chapter 6). Technical infrastructures revolutionize markets (chapter 7) through the step-wise dissolution of spatial and temporal restriction. The increasing dissolution of locations, as well as the conditions for and implications of this for actual and future organizational forms, is the focal point of this chapter.

Virtual organizations are an outgrowth of these developments. They therefore function more like spider-webs than networks. They are opposites of organizations that, with regard to ownership and contracts, have relatively well-defined boundaries, have a steady location, relatively permanent resource assignments, and controlled process structures. According to Aristotelian philosophy, virtuality may be regarded as an idealized goal of a boundless organization (Legrand 1972, p. 269). It may also be regarded as an organizational form that considers virtuality in the same sense as information systems researchers might, i.e. as a concept of performance improvement. This perspective also regards concrete locations where the actual work is carried out as systematic and dynamic (Mowshowitz 1991; Szyperski / Klein 1993).

We will next address fundamental aspects of the dissolution of the work location, as well as questions pertaining to the drivers and organizational manifestations of dispersed work locations. The virtual organization as a specific result of telecooperative work forms is presented later.

Overcoming an organization’s technical, organizational, legal, market, and spatial boundaries (see chapters 4 through 8) can significantly impact the working environment of managers and employees. It creates new challenges (required competencies, abilities, qualifications), as well as new possibilities (the development of personality, efficiency, and responsibility potentials).

New organizational concepts such as modularized, networked, and / or virtual structures imply a paradigm shift in terms of the image of humankind (Hesch 1997): Holistically, people play a vital role in the new work structure. Changing competitive environments and new work structures are the primary reasons for individuals being rediscovered as a primary resource in the boundaryless organization.

This chapter focuses on the consequences of the above for the management of boundaryless organizations. These consequences are less concerned with what is required from a modern corporation’s managers, as discussed in section 9.2.3, than with the actual instruments that management-oriented controlling functions employ to support boundaryless corporation management. Controlling is consequently a means of steering, monitoring and governing. While management defines goals, strategies, and organization structures, controlling steers the ongoing process as an integral function of the management process (Picot / Böhme 1999). Certain instruments and methods are available for this purpose. However, before describing which controlling methods are required for the new demands in the following section, the change in what is understood by strategy and corporate strategy creation will be discussed first as a starting point and as a point of reference.