Information systems have a great impact on modern organizations, their development, growth opportunities and performance. Information systems processing activities of organizational units are changing, since access to new technologies is leading to a change in practices and activities. Given the uncertain influence of information systems on core managerial activities, the relationship between information systems and organizations needs to be addressed, since the use of these information systems mediates and contributes to the changing character of strategic planning and control. At the beginning of new millennium, Information systems play the role of strategic weapon which helps companies to create a competitive advantage and compete on the global scale.
Information Systems Advantage
Such researches as Argyris and Schön (2007), Boden (2008) describe and analyze the impact of technology on learning and organizational change in different organizational settings. Argyris and Schön (2007) state that learning and knowledge creation cannot exist in a vacuum. The information systems show that in learning the emotional and social as well as the cognitive context is significant. Employees can benefit from information systems through dialogue and interaction. Although the integration of tasks across teams has the potential for redesigning the entire organization in terms of job descriptions or promotion schemes, management frequently lacks the commitment to change the entire control structure of the organization. It may take time to realize the potential of integrating tasks through teams. These new processes create new environment and new strategic vision of reality and human communication (Tiwane 2009).
The organization selected for analysis is Raiffeisen Zentralbank. It is the third largest banking system in Austria founded in 1827. Since that time, its operations nad understanding of business and communication has changed significantly. New technologies and the Internet open new opportunities for the bank and allow Raiffeisen Zentralbank to remain competitive on the global scale. In this organization, information systems are a strategic weapon as they facilitate the establishment of interorganizational links, yet success depends on the inherent business necessities of such ties, and top management’s commitment to making them work.
Since knowledge employees become accessible to a number of legally independent banking organizations, they are assets to a wider community, making them a valuable resource to be protected. In order to keep control over the assets that are invested into these new business alliances, banking organizations may establish a hierarchical structure of formal control for them. This depends on the significance of the alliance and the potential danger associated with losing key internal resources (Frappaolo, 2009). The main tools introduced by the bank involve banking software and security measures, the Internet banking and partnership in global banking system (Raiffeisen Zentralbank home page 2009).
In banking sector, control of operations is an important factor described by Newell et al (2008) which helps to integrator tasks across teams and has the potential for redesigning the entire banking sector in terms of job descriptions or promotion schemes, management frequently lacks the commitment to change the entire control structure of the organization. Raiffeisen Zentralbank shows that it may take time to realize the potential of integrating tasks in service sector. Personal change is a crucial element of scholarship and organizational change (Tiwane 2009). The potential may lie in a reduction of the number of middle managers or a change in the authority structure. It is, however, only when the full potential of technology has been realized that organizational structure changes become more visible. It may therefore take time to notice the long-term effect of increased technology use on organizational design (Newell et al 2008).
Information systems can facilitate the establishment of interorganizational ties, yet success depends on the inherent business necessities of such ties, and top management’s commitment to making them work. Since knowledge workers become accessible to a number of legally independent organizations, they are assets to a wider community, making them a valuable resource to be protected. In order to keep control over the assets that are invested into these new business alliances, banking organizations may establish a hierarchical structure of formal control for them. This depends on the significance of the alliance and the potential danger associated with losing key internal resources (Boden 2008).
Porter’s Five Forces
Application of Porte’s five forces model allows to say that technology and information systems create competitive advantage for Raiffeisen Zentralbank. Porter’s model enables the competitive environment in which Raiffeisen Zentralbank operates. It shows that competition among existing banks in Austria is fierce based on improved efficiency and technology management. The main competitors of Raiffeisen Zentralbank are Bank Austria, Erste Bank and Investkedit. In Austria, possibilities new entrants are low because entry barriers are high and competition among companies is strong.
The problem is that volume size does not significantly change the cost base. In banking sphere, competitors provide commodities’ with little differentiation and customer loyalty is very high. In addition, high inventory costs and competence barriers prevent many companies to enter this market. Threat of substitute products is not possible thus the majority of clients will not easily switch purchasing to the substitute without penalty. Banking services cannot be produced through a different technology and enter the market. Banking services and reputation of the country of origin is a unique product which can be substitutes only by cheap products or cheap Banking services. Bargaining power of suppliers is high because the Bank relies heavily on investments and on time interest returns.
Raiffeisen Zentralbank’s suppliers have a unique availability product they can exert a strong influence over prices and conditions of money supply, therefore potentially putting pressures on the businesses purchasing their product. As the most important, there is a limited number of suppliers in this industry. Bargaining power of buyers has a great impact on Raiffeisen Zentralbank because there are a limited number of clients who can afford exclusive banking services. These facts show that competitive forces are strong and the rivalry is based on financial management and ability of banks to deliver their products in the shortest period of time. In banking industry fixed costs are very high, and Raiffeisen Zentralbank has fewer inventories relative to annual sales than other companies (Boden 2008).
Information Systems as A Source of Competitive Advantage
Information systems have been found to have the potential to change organizational behavior by decreasing response time, by speeding up information processing and altering the time and place of work, there are unavoidable second-order effects that may constrain learning. These effects relate to the increased dependence on information systems, the stimulation of unanticipated responses from competitors or customers, or the need to manage a more complex banking organization. These may hinder learning taking place.
Although information systems has been found to have the potential to change organizational behavior by decreasing response time, by speeding up information processing and altering the time and place of work, there are unavoidable second-order effects that may constrain learning ((Boden 2008). These effects relate to the increased dependence on information systems, the stimulation of unanticipated responses from competitors or customers, or the need to manage a more complex banking organization. Another constraint for learning arises from the failure to use information systems effectively at an early stage (Argyris and Schön 2007).
This is related to the pressure for immediate success. Since banking organizations are faced constantly with external pressure, organizational members find it difficult to spare the extra time, energy and resources to identify the problems inhibiting the effective use of information systems. In addition, established patterns of use in the early period of introduction are difficult to revise, as employees in banking sector adapt themselves quickly to their new information systems. In the banking service system, once functions have become habitual or automatic, organizational members resist changes to technology use (Tiwane 2009; Dosi et al 2008).
Although the new technology may have initially been intended to lead to more information distribution, evaluations may lead to an adaptation of expectations regarding actual achievements or the capability for them, thereby lowering the standard set. Once the initial enthusiasm of organizational staff for the new information systems have waned, it becomes difficult to adjust the technology (Tiwane 2009; Newell et al 2008).
When managers observe the environment, they often find that external information cues are ambiguous. This uncertainty may be a result of diverse interpretations by different organizational employees and managers, or it may be due to the inability of employees to make sense of confusing information. As a result of uncertainty, banking employees are unsure about the consequences of that observation on organizational action. In order to resolve the ambiguity surrounding the information, there is a need to develop minimal shared interpretations in order to produce organized action (Newell et al 2008).
This may be achieved by negotiating a solution based on accumulated experience in order to establish mutual understanding. A major difference between uncertainty and ambiguity is the required information-processing response. Acquiring additional information through the process of search reduces uncertainty (Tiwane, 2009). Exchanging personal constructions of reality among organizational stakeholders to enact a solution jointly reduces ambiguity. Organizational employees resolve disagreements based on ambiguity to arrive at a shared understanding. Thus, to reduce ambiguity, individuals within the organization have to define information jointly. Information systems vary in their capacity to reduce uncertainty or ambiguity.
Following Newell et al (2002): “the organization, which is often the case in knowledge-intensive organizations populated by a highly skilled, diverse workforce. This perspective acknowledges ambiguity” (Newell et al 2002, p. 35). Since the information-processing context connected with each learning process varies, managers need to match the context – that is, one of uncertainty or ambiguity – with the appropriate environment.
This information autonomy enables banking sector to make choices with a relatively high degree of independence. Though, banking managers need to be aware of the strategic techniques patterns of their communication partners outside the banking organization. Similar to Dosi (2008), Newell et al (2008) suggest that obtaining a report through electronic mail from an industry association, for instance, requires knowledge about the availability of electronic mail within the banking sector. “The more groups and interests affected by a particular innovation, the wider the range of perceptions and views on the technology, and the greater the possibility of conflict.” (Newell et al 2008, p. 162).
The differences in approaches are found in their understanding of banking environment and its impact on an employee and banking organization. Following Frappaolo (2009), information systems can influence banking organizations through an incremental process starting at the individual level, transcending teams, affecting the entire banking organization, and eventually redefining the boundaries of the banking organization. The immediate effect of technology use may therefore only become visible after technology has been used intensively for a longer period of time.
The impact of technology on middle managers depends on the level of penetration within the banking organization. Newell et al (2008) underline that the greater the level of technology penetration, the more likely it is that technology will have an impact on middle managers. Without some critical mass of penetration, however, the impact will be insignificant, as the capital investment will not be able to show its potential in reducing labor costs (Galliers et al 2007). The advantage of this framework is that it decomposes the overall learning phenomenon into a number of smaller and more observable processes. Although these processes are distributed over time and space, this classification makes the learning construct more readily identifiable (Boden, 2008).
In order for information systems to serve as a learning tool, knowledge workers need to be prepared to use it for the purpose of information acquisition, distribution, interpretation and storage. This involves changing people’s mindset and creating the willingness to use information systems as a facilitator. Without the willingness to apply IT technology to enhance the organizational knowledge base, the instrument will not serve its purpose (Frappaolo, 2009). Thus the first and most important step is to change the existing mindset of knowledge workers to accept information systems as a new tool. It is top management’s responsibility to encourage knowledge workers to take this first step. It is easier for managers to create this willingness in a crisis situation, as organization stakeholders are aware of the danger of failure, so they may be more ready to accept new practices within the organization at such a time (Dosi et al 2008).
There are similarities between Dosi et al (2008) approach to innovation with the codified approach and organizational change described by Newell et al (2002). According to Dosi et al (2008), the operationalization of the cognitive construct, which is an indicator of one of the organizational information systems, is problematic, since it does not have tangible characteristics that would measure the effects of change in a person’s understanding. Information-processing as an activity of organizational stakeholders can provide an indicator of change in the state of knowledge.
According to Scarbrough and Lannon (1989 cited Boden 2009, p. 123), “organizations learn when they increase their knowledge of action–outcome relationships by obtaining information that they recognize as being potentially useful”. Information sharing involves sharing information sources among organizational employees and banks as it is needed or can be applied. Information interpretation refers to the development of establishing a shared understanding based on distributed data. For banking sector, storing data plays a critical role in organizational knowledge, since socially accepted past experiences need to be accumulated for future use
In sum, information systems allow banks and banking service industry accumulate experience in order to establish mutual understanding. A major difference between enabling technology and strategic weapons is the response to current needs and demands of the industry. The Porter’s Five forces show that systems are the strategic weapon of banking sector which helps Raiffeisen Zentralbank to create a competitive advantage. Exchanging individual data among organizational employees to enact a solution jointly reduces ambiguity. Banking sector employees resolve disagreements based on ambiguity to arrive at a collective understanding.
Thus, to reduce doubt, employees within the banking sector have to define information jointly. The degree to which these repositories serve knowledge and information depends on the interconnectedness, integration and trust of employees within the banking sector. The potential may lie in a decrease of the number of banking managers or a change in the authority structure. It is, though, only when the full potential of information systems has been realized that organizational structure changes become more observable. In this case, information systems are performed through effective application of technology and the Internet.
A comprehensive scheme of performance measurement of information systems effectiveness should include both individual and organizational level measures. Findings and evaluation of Raiffeisen Zentralbank suggest that there is the link between individual- and organizational-level variables. Information systems as communication and learning tool are required, since a shared definition of data is primarily created through communication and interactions, quick feedback and multiple cues. Information systems effectiveness is a multidimensional construct, consisting of a great many measures.
- Argyris, C and Schön, D 2007, Theory in Practice: Increasing Professional Effectiveness, Jossey-Bass, London.
- Boden, M. 2008, Services and the Knowledge-Based Economy (Science, Technology & the Ipe). Routledge.
- Dosi, G., Teece, D., Chytry, J. 2008, Technology, Organization and Competitiveness: Perspectives on Industrial and Corporate Change. Oxford University Press.
- Frappaolo, C. 2009, Knowledge Management. Capstone; 2 edition.
- Galliers, R. D., Baets, W. R. J. 2007, Information Technology and Organizational Transformation: Innovation for the 21st Century Organization. Wiley.
- Newell, S., Robertson, M., Scarbrough, H., Swan, J. 2008, Managing Knowledge Work, Palgrave, London.
- Raiffeisen Zentralbank Home Page. Web.
- Tiwane, A. 2009, Knowledge Management Toolkit, The: Practical Techniques for Building a Knowledge Management System. Pearson Education; Pap/Cdr edition.