What determines whether decisions are made below, in the middle or on top of the career ladder? The new study by Professor Raffaella Sadun shows that the answer is often based on a company’s technology. Key concepts are:
Enterprise Resource Planning software is a decentralized technology that provides information that allows child managers to make more decisions without consulting their supervisors.
Similarly, computer-aided design and manufacturing software creates a situation where it is less likely that the factory worker will have access to his supervisor to make a decision.
The better the data network, the easier it is for workers to rely on their superiors and rely on them to make decisions. It’s also easier for executives to do micro-management and keep all decisions in their offices.
Trust is also a key factor in making decisions centrally or locally at the local level. Research shows that the average confidence of a multinational country of origin influences the degree of decentralization of this company.
What determines whether decisions are made below, in the middle or on top of the career ladder? A new research offers a surprising conclusion: the answer often lies in the technology of a company.
Information-based systems, such as enterprise resource planning (ERP) software, will drive decision-making at the bottom of the enterprise. Communication systems such as e-mail and instant messaging applications will drive up the decision-making process.
Developing an IT strategy is not just about using the best possible technology, says Raffaella Sadun, Assistant Professor of Strategy at Harvard Business School.
“If a CEO CAN TRUST HIS LEADERS, HE WILL WANT TO DECENTRALIZE DECISION POSSIBILITIES”
“Ultimately, regardless of who’s responsible for acquisitions and IT strategy, he can not only think about technology, but also think about the organization,” she says. “Traditionally, technology is understood as an instrument for strengthening power, but it is not always the case.”
Sadun talks about the topic in “The Different Impacts of Information and Communication Technologies on Business Organization,” an article she co-wrote with Nicholas Bloom of Stanford University and Luis Garicano and John Van Reenen of the Center for Economic Performance of the London School of Economics ,
“Technologies that facilitate the gathering of information at the bottom of the hierarchy involve decentralizing the decision-making process,” Sadun said. “On the other hand, we have communication technologies that do exactly the opposite.”
They are different roles
However, companies often do not consider the different roles of their software systems and their impact on business behavior. On the contrary, they combine “information technology” into an amorphous idea – the “Informatics” department – which encompasses all the technologies of the organization.
“Technology tends to be categorized,” Sadun said. “In reality, arithmetic is a huge and heterogeneous set of technologies.”
Similarly, industry and science studies tend to view information and communication technologies generally as “a global and homogeneous capital stock,” the report said. Document. To this end, Sadun and his research colleagues wanted to show how and why managers had to consider the very different organizational implications of communication and information technologies.
“This difference is important not only for business organization and productivity, but also for the labor market, as changes in information and communication technologies can affect the distribution of information – wages in opposite directions,” the newspaper says.
The researchers examined non-production decisions such as capital investment, hiring and new product plans. These decisions are either centralized or decentralized at the top level of the enterprise level and delegated to the top of a particular business unit. And decision makers often rely on ERP software that facilitates the dissemination of information across a large organization and allows for detailed coordination between different business units.
They then examined the production decisions. The tasks required to achieve the objectives were set and their pace set. These decisions are usually the responsibility of a factory worker or supervisor. In these cases, researchers explored the role of computer-aided design (CAD) and computer-aided manufacturing (CAM) software in decision-making.
In both cases, researchers speculated that the information software would lead to decentralized decision-making. As the software facilitates access to the information needed to make important decisions, ERP and CAD systems increase the likelihood that factory managers and production staff make decisions and act accordingly without consulting a manager. in the main office.
In addition, the team speculated that increasing the number of corporate leased lines and intranets would increase centralized decision making at the top of the business scale.
In the past, communication was often dependent on faxing, overnight delivery, post, or on-site visits. Even when talking on the phone, it was difficult for everyone at headquarters to make informed decisions and share them with the stores. In these cases, it was natural to transfer control of day-to-day business to a local manager.
Today’s network technologies make it easier for executives to maintain a constant communication flow with branch offices. However, the network can really put off innovations. When technology facilitates communication, former freelance employees sometimes harass their boss with email questions throughout the day. Micro-management executives make decisions and constantly send company-wide mandates.
“When the cost of transmitting information decreases, the person at the bottom of the hierarchy can communicate more easily with the CEO,” says Sadun. “And the CEO can constantly monitor what that person is doing and just give orders instead of relying on the judgment of the people below.”
The research team evaluated data from around 1,000 manufacturing companies in eight countries, including detailed technology implementation histories and surveys that evaluated the relative decision autonomy of factory managers and floor workers. (In assessing the factors that determine whether a company applies a particular technology, the researchers considered geographic variables that could affect the cost of technology acquisition, such as the distance to Walldorf, Germany, the headquarters of the ERP The market leader is the fact that telecommunications regulations vary from country to country.
The results have always been in parallel with the hypotheses: The increasing penetration of ERP systems has significantly increased the autonomy of plant managers. A CAD / CAM deployment increased workers’ independence. However, communication technologies have reduced autonomy, making more decisions at the corporate level.
“I was reassured and surprised that these results were valid for all countries and all sectors,” said Sadun.
The meaning of trust
However, Sadun points out that it is not only technology that determines whether a company allows decisions at both the upper and lower levels. Another important factor is cultural differences between and within countries. In another study, Sadun revealed that otherwise similar companies had large differences in decision-making tactics, depending on their location. In the document “Business Organization Across Countries” co-authored with Bloom and Van Reenen, she explains that companies located in trusting areas are more systematically more decentralized than companies are low in trust
For example, Sweden and Portugal seem to be at both ends of the spectrum of confidence. “There is a great deal of heterogeneity between countries that even seemingly similar companies are deciding how to allocate decision-making rights within the company,” Sadun said. “Take, for example, the Swedish manufacturers, you see, that they are completely decentralized.The average manager is actually a mini-CEO with considerable decision-making powers.Then they take a company that produces exactly the same good, but in Sweden It is in Portugal and there the middle manager decides nothing and is totally dependent on the authority of the CEO.
“In our research,” she continues, “we say that difference in trust plays a crucial role in these differences, and when a CEO can trust senior executives, he tends to decentralize decision-making through the fact that managers use their power to defend their personal interests and not the interests of society. “