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4 Impacts of Information Technology at the Activity Level INTRODUCTION Faced with a myriad of pressures to change the way they do business, many managers in different types of firms have found it fruitful to focus on activities or major processes, rather than just on products, organizational units, specific tasks, or reporting relationships. They are attempting to redesign the work flow from beginning to end, breaking it down into com- ponent segments and asking hard questions: What should we be doing? What is the best way to do it? Which components should remain within the firm? How should the activities that continue to constitute the firm be structured into a better-functioning whole? Companies are using many of the innovative technologies and organizational methods available to answer these questions. The current attention given by researchers and corporate decision makers to "business process redesign" or reengineering is one ap- proach to process innovation, the most recent to emerge in organizational literature. ~ Today's information technology (IT) which embeds the tools for spe- cific tasks and operations within networked infrastructures whose reach can extend well beyond a firm's boundaries provides vehicles for such changes. IT permits many of a firm's information-based tasks to be reconfigured and linked in alternative ways to generate new work flows and processes. Put differently, the use of IT permits the uncoupling and rearranging of key orga- nizational processes to achieve much more effective organizational designs. 136

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 137 Past efforts to deploy IT have often focused on the level of tasks or subactivities and limited the scope of changes to existing and/or narrowly defined processes. The result has often been suboptimization (although the committee does not intend to suggest that each task or activity must be optimized), or, at best, optimization of a subset of existing tasks. By con- trast, a purposive and holistic focus on the activity level where activities are regarded as relatively complete elements of a firm's work flow that often cross functional departments (e.g., departments such as marketing, production, or research and development)- will often yield better results. Examples of activities include product design, logistics, order processing, purchasing, maintenance, and accounting. More complete redesign of pro- cesses and changing organizational relationships is possible when an activi- ties-level view is taken. The committee believes that the investments in IT made to date, in many instances, are on the verge of providing companies unprecedented degrees of flexibility in changing the ways activities are designed and orga- nized. This is so for several reasons: A broader installed base of technologies makes new, more complex or integrated applications possible. For example, widely deployed worksta- tions, interconnected network software, and sophisticated communications links are required for many collaborative and cross-organizational work applications to be effective. IT vendors are beginning to produce software that is easier to use and whose capabilities match user and customer needs more closely. As a result, relatively untutored users can do substantially more, more quickly, with the IT at their disposal. . Early implementation experiences provide opportunities for learn- ing about both the technology and the management of change. Thus man- agers are beginning to have more realistic expectations for what IT can and cannot do, and to understand better the time frames required to achieve dramatic chances. . New technologies are being designed and introduced to increase capacities as well as integrate capabilities provided by older technologies. Resulting changes in activities in turn make possible more far-reaching changes in enterprises. Overall, the use of IT has the effect of diminishing the parts played by place. time, and hierarchy in the structure and management of organiza . ~ ~ .. .. lions.' Furthermore, the range of activities to which IT is being applied is still expanding. The committee believes that activity-level analysis yields a deeper un- derstanding of process innovation and its effects on performance. Focusing on activities means paying detailed attention to the actual work being done

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138 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY BOX 4. ~ Conceptual Frameworks for Analysis of Activities and Processes The value-chain model. Work processes are sometimes understood through the use of value chains that depict the sequence in which activi- ties typically occur and how they interact. In the simplest model, ~ linear one, each activity receives an input from the previous activity, adds value to that input, and passes it on to the next activity as an output. (0! course, value chains are not necessarily linear.) The value-chain model provides a useful lens for looking at how activities are linked one to another to generate the overall net benefit of an Organizations proce- dures, and the analytical problem Is the determination of how much and what kind of Value is added by each activity. The process management model. The principles of process manage- ment can serve as a disciplined basis for analyzing how work is done the activity level. Recently, enterprises in all types of industries have applied 'process management techniques to Varied activities. Their goals have included both continuous or incremental Improvement and radical change or in popular terms reengineering of Weir business processes. Sociotechnical systems analysis. From this perspective, activities are sets of tasks carried out by pe`:>ple whose work is united by OUtpUt and by work-Bow technology The analysis treats social and technological aspects of task processes as inherently interrelated and thus suggests that social and mchnalogical issues In process redesign cannot be separately resolved. The socic~techn~cal systems approach affords insights into both how a~ivi- t'es may be conceptualized arid why technological change should be ex- pected to have significant impacts an activities as well as their linkages. Or being planned, taking into account the interplay of work flows, organiza- tional structures, staffing, and tools including IT, both within and between firms. Interfirm effects are particularly interesting where they involve mul- tiple firms in different industries or shifts in work among firms. Activity-level analysis is a more refined level of analysis than has tradi- tionally been used in assessing the aggregate outcomes of investments in IT. Activity-level insights are also not captured either in sector- or firm- level analyses. Thus, hard data are generally unavailable, and the literature suffers from a paucity of analytic models and substantial empirical research at the activity level.3 A number of ideas from the current organizational literature may be applied to assist with analysis at the level of activities (Box 4.1~. Although these ideas do not exhaust the paradigms that might be helpful in under

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 139 standing the role and influence of IT's use at the activity level in firms, they are useful as working constructs for an exploratory investigation. Activity-level analysis may well require the development of new metrics for performance (especially ones that reflect the changing values and expec- tations of "customers") in part because the output of service activities may be intangible.4 The committee hopes that the discussion presented in this chapter can stimulate further research at the activity level that will eventually provide a more thorough empirical base and a foundation for new paradigms and concepts with which to conduct activity-level analysis. The discussion in this report is based on material derived from the committee's interviews with senior managers as described in Appendix D, the experiences of committee members, accounts from secondary sources, conceptual models in current organizational literature (some of which have only recently appeared), and views developed in the course of the committee's deliberations.5 Although the discussion in this chapter is more conceptual than that presented in Chapters 1 through 3, the committee believes that it is essential for completing its exploration of the relationships between invest- ments in IT and service-sector performance. WHAT IS AN ACTIVITY? An activity is a structured set of tasks (work) leading to a specified output for a specified internal or external client. This report uses the term activity in a broad sense to refer to relatively self-contained or complete work processes regardless of level of granularity. From this broad perspective, examples of service activities include many functions performed both in manufacturing and in specialized service organizations, such as accounting, research, design, planning, marketing, advertising, or distribution firms. So viewed, service activities contribute value, in varying degrees, to an organization's major products. (Box 4.2 illustrates how one analyst relates activities to other concepts.) Within particular enterprises and work groups, activities can be defined much more specifically in relation to tasks and outputs: writing insurance policies, opening bank accounts, selling products in a department store, routing airline tickets, and providing nursing care in a hospital may all be treated as instances of activities in the sense intended in this chapter. Activities have several important characteristics: . Activities operate on inputs from other activities (either internal or external to the firm). . Activities have customers. In other words, there is a recipient for the outcomes of all activities in the work flow. Activities may or may not correspond to functional departments in organizations, and their linkage into the overall work flow of the organiza

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140 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY BOX 4.2 Process Hierarchy Almost everything we do or are involved in is a process .... Prom the macrov~ew, processes are the key activities required to nonage andJ or run an organization New-product definition is a good exam,~le of a macroprocess .... A macroprocess can be subdivided into subprocesses that are logically related, sequential activities that contribute to the m~s sion of the macroprocess ~ . . . Every macroprocess or subprocess is I ~made up of a number calf activities . . ~ . Activities are things that go on I within all processes As the name implies, they are the actions required l to produce a particular result . . . ~ Each activity is made up of a number of tasks Normally, tasks are performed by an individual or by small I teams. They make up the very smallest microview of the process. I SOURCE: Harrington, H.~. I99l. Strategy for Total QuaJ`ty, Productivity, I and Competitiveness, McGraw-Flill, New York | lion may or may not correspond to reporting structures on an organizational chart. Activities may span external organizational boundaries on either the input or output side (or both). To the extent that activities form relatively complete segments of a work flow (starting with an input and ending with an output to a client), they lend themselves to many forms of measurement (e.g., throughput time, client satisfaction). Activities are often the target of investments in IT, which are undertaken as projects to support changes in relatively self-con- tained processes. These characteristics of activities underlie the utility of activity-level analysis for understanding service-sector performance and the potential ef- fects of IT. Most important is the built-in customer orientation: the customer's expectations and value system can be used to set the standard against which the service activity is judged.6 And it is at the activity level that it is possible to assess whether the customer may be better served even if mea- sured productivity declines. For example, IT is being applied to a growing range of complex medical diagnostic procedures (such as magnetic reso- nance imaging or genetic testing) without apparent improvements in pro- ductivity in terms of cost but with other benefits to customers. The independence of activities from functional and organizational boundaries is critical, since clients, whether internal or external, do not care about formal organizational boundaries nearly as much as they care about results. The measures of value added by activities (such as time to produce, time to l

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 141 delivery, cost, and the quality of an activity's output) enable analysts to track changes in the performance of an activity over time and to compare or "benchmark" against similar activities within the same enterprise or in other companies. (The latter measures are especially important complements to internal measures of client satisfaction in cases where performance that satisfies the short-term needs of recipients in the organization's work flow may be relatively unsatisfactory from the perspective of the ultimate cus- tomer or the firm as a whole.) SOME OBSERVATIONS ABOUT SERVICE ACTIVITIES The pervasiveness of service activities, their growing importance in generating value, and their generic nature make activities a critical level of analysis for understanding the impact of IT on service-sector performance. Service Activities Are Everywhere Service activities occur in all enterprises, not just those in so-called service industries; this is the essence of the service economy. Even within a manufacturing company, these activities often account for 60 to 75 per- cent of all nonmaterial costs. In fact, within most enterprises whether in the manufacturing, services, government, or nonprofit sectors-a majority of all employment (well over 80 percent) is in service activities. Service activities thus provide units of analysis that are directly comparable be- tween manufacturing and service firms. Table 4.1 summarizes the employment distribution from the most re- cent Bureau of Labor Statistics projections.7 Total U.S. employment is projected to grow by about 20 percent from 1990 to 2005. During this period, all blue-collar categories (agricultural workers, production and craft workers, and operators and laborers) will grow at rates substantially below the average, whereas most white-collar categories and service occupations will grow substantially faster than average. These projections are fully consistent with a continuing shift of labor to service activities as applica- tions of IT lead to organizational restructuring and job redefinition. Service Activities Are Increasingly Important Not only are service activities present in all enterprises, but they also now contribute most of the value added within both manufacturing and service firms. Their elevated role is especially striking in manufacturing, where more value added now derives from service-related or intellectual activities than from physical production activities. For example, research and clinical activities (rather than chemical processing, pill punching, and

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142 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY TABLE 4.1 Employment Projections Employment by Major Occupational Group, 1990 and Projected 2005 (Moderate Alternative Projection) Number Employed (thousands) Percent Change Major Occupational Group 1990 2005 1975-1990 1990-2005 Total, all occupations 122,573 147,191 37.4 20.1 Executive, administrative, managerial 12,451 15,866 83.1 27.4 Professional specialty 15,800 20,907 59.9 32.3 Technicians, related support 4,204 5,754 75.7 36.9 Marketing, sales 14,088 17,489 55.1 24.1 Administrative support, including clerical 21,951 24,835 33.9 13.1 Service 19,204 24,806 36.1 29.2 Agricultural, forestry, fishing, and related occupations 3,506 3,665 -9.9 4.5 Precision production, craft, repair 14,124 15,909 28.9 12.6 Operators, fabricators, laborers 17,245 17,961 6.7 4.2 NOTE: The data on employment for 1990 and 2005 and the projected percentage of change from 1990 to 2005 are derived from the industry-occupation employment matrixes for each year. The data on the percentage of change from 1975 to 1990 were derived from the Current Population Survey (CPS), because a comparable industry-occupation matrix for 1975 is not available. SOURCE: Adapted from Silvestri, G., and J. Lukasiewicz. 1991. "Occupational Employment Projections," Monthly Labor Review 114(November), Table 1, p. 65. packaging) create the major value in pharmaceuticals; sophisticated cus- tomer understanding and software concepts (rather than building circuit boards and boxes) create the predominant value in computers; understand- ing flavorings, customer preferences, and product texturing creates value in prepared foods; and so on. Service Activities Are Generic and Elemental Service activities have two features that make them amenable to IT- based change. The first is that many service activities have a generic qual- ity. That is, service activities within a given enterprise may be fundamen- tally similar to those performed in other, quite different enterprises. For instance, most large firms have departments that are responsible for ac

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 143 counting, payroll processing, legal services, and so on. Commonalities may prevail even among firms in entirely different lines of business, and so it is not surprising that Xerox (a durable-goods manufacturer) opted to compare its distribution activity against that of L.L. Bean (a catalog retailer) despite the differences in products and industries. Similarities between activities in different organizations may reflect the influence of common bodies of law, professional standards, or general practitioner knowledge.9 The fact that activities operate on relatively well defined inputs and generate specific products for their customers makes activities elemental. That is, they are subject to separation from each other and to recombina- tion; they are modular components of a business or enterprise. Thus link- ages between activities can be restructured, limited only by the technology and management infrastructure available to support interconnections. The elemental and generic nature of service activities is the foundation for attempts to improve activity performance by the use of IT. If the activities that compose an organization's work flow are relatively complete components whose inputs and outputs can be received from other sources and transmitted to customers via IT-based links (and perhaps largely per- formed via IT as well), the IT infrastructure opens up new possibilities for designing or reorganizing processes and entire firms; even industries may be restructured as a consequence. The conceptual independence of activi- ties from organizational boundaries assumes increasing significance given the growing perception that organizational and functional boundaries often stand in the way of opportunities for improvement. ROLES FOR INFORMATION TECHNOLOGY IN THE EVOLUTION OF ACTIVITIES The use of IT has been an important contributor to the prominence of service activities. For example, computer-assisted design has helped manu- facturers deliver more sophisticated goods (from automobiles to integrated chips) in less time. For such goods, service activities become the vehicles for customization and differentiation whether upstream (through design), or downstream (through marketing and post-sales service). Similarly, ser- vice products (such as loans and insurance policies) can be tailored to the needs of particular clients directly using IT; data on customers are more easily collected and analyzed; forms are more easily modified; change or- ders are more easily developed and communicated; and so on. As one executive in a service firm put it, "There's a sense in which we never sell the same product twice." In other words, "mass customization" is increas- ingly the order of the day; service firms would ideally deliver to every customer service products that are customized to his or her own individual needs. A

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44 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY In general, IT is being used to play an important role in the flexible and rapid adaptation of outputs to suit the needs and expectations of clients. According to executives interviewed by the committee, new and anticipated applications rely heavily on databases, client-server systems, and local- and wide-area networking generally; as the scale and scope of databases grow and as sophisticated modeling becomes more practical, high-performance systems, such as massively parallel technology, are being contemplated. Noted a senior vice President of a major supermarket chain, In the 1970s and 1980s, 90 percent of the weighting given by decision makers on IT has been on hard savings, 10 percent on soft. I think the future is going to be very much oriented toward "soft savings," and it might even go to 60 to 40 on that side. The important thing is the credibil- ity and accuracy of the information coming out of the front end.... In the past the drive was on the hard savings, productivity end of IT. In the future it will be in the utilization for merchandising and marketing of all that wonderful data that's coming off. In addition, the demographic infor- mation from a customer standpoint is something we're just getting into now. If the customer walks in with a magnetic-strip-reader card and iden- tifies herself as customer X, we can track every single thing she buys and do all kinds of wonderful things with that information.... We can have frequent-purchaser programs, and so on. New Tools and Tasks AS process technology, IT enables changes in the ways that the tasks that make up an activity are undertaken. Applied to information-intensive ser- vices, the use of IT can change the nature of what is delivered to clients (such as highly customized business or financial services) as well as the processes of its production. Examples of both sorts of changes abound, such as the shift from keying in data to optical scanning for data entry, the use of telephone- computer system combinations to solicit new business in lieu of "cold-call" field visits, and the use of on-line databases instead of paper files and reports to deliver customer financial data. For example, Larry Bacon, senior vice president, Information Systems Department at the Travelers Companies, de- scribed the impact of putting policy information on line. If you look back a few years, our personal lines operation, for example, had 80 to 100 field offices. And all of the policies . . . were in tub files and desks in those offices. So if you wanted to see all the policies you would have to go to 90 offices and read through 2 million policies in tubs and desks. Then all of a sudden a person could just issue a few commands to the computer and we'd zip through it for him. That's a huge change. Bacon went on to enumerate such benefits as accurate and consistent calculation of premiums. Another example is provided by Merrill Lynch &

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 145 Company, which was able to substantially reduce its printing requirements by shifting to electronic delivery of information. Explained Howard Sorgen, senior vice president and chief technology officer, During the three-year period from 1989 through 1991, we reduced our annual output of computer-generated print from 1.3 billion to about 400 million pages. And that's not because the information provided wasn't needed by our internal and external clients. What we did was to change the way we provide that information, by shifting to downloading print files electronically to client desktops and providing the ability to view informa- tion directly from computer screens. IT has been used to reduce the number of tasks involved in an activity, to change the nature and sequence of tasks, to change the total time in- volved in an activity, and so on (Box 4.3~. By supporting changes in what tasks are done, as well as when, where, and how they are done, IT opens up new options for designing and structuring service activities. For example, according to Larry Bacon at the Travelers Companies, a computer-based system containing essential and optional pieces of text en- ables insurance sales representatives to construct group insurance policy documentation with the customer and deliver laser-printed copy the next day, in contrast to the previous approach of repeated iteration among repre- sentative, client, company lawyers, and others over a period of 3 to 9 months. SOURCE: Hammer, Michael. i 990. ``Reengir~eering Work [Don't Auto- mate, Obl~terate,i' Harvard Business Review, July-August pp. 104-1 12. BOX 4.3 Accounn Payable at the Ford Motor Company Prior to reengineering its accounts-pa)rable process, Ford Motor Company employed more than 500 people. The process involved a labor-intens~ve matching of three documents: the purchase order Prom the ordering department) Me receiving document (from the materials control depart- men4, and the invoke (from the vendor). When these documents matched, payment was issued. As a result of reengineer'ng, the ordering depart- ment now places information about the order into an incline database When goods are received in materials control, the database is checked to see it they corres~or~d to an outstanding purchase order. If so, they are accepted, their receipt Is Jogged into the database, and a check Is auto- matically issued. Invoices are eliminated because Ford asks vendors not to sired them. The result? A reduction by 75 percent in the accounts payable work force.

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46 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY A more elaborate example is provided by Josh Weston, chairman and chief executive officer of ADP, who described the evolution of his company's payroll processing service. The original ADP payroll system had a lot of little vehicles going out on routes every morning, where drivers picked up paper from our clients hav- ing all the necessary information to do a payroll. Then we went into data entry in those days it was called keypunch and took over from there. And when everything was all done, the vehicles went back and delivered all that paper to the clients. In today's mode, just to take a few aspects of contrast, the vast bulk of our payroll input is coming from client-site PCs, where PCs dial directly into our mainframes with no people in between. And because the data is coming through a client-site PC, it's been edited and error checked before it ever gets to us, which eliminates a whole round of recycling that often used to happen. And when our mainframes are done, in a good number of cases our mainframes talk right back to those PCs, without people, communicating certain information to the client-site PCs which they can then massage as they see fit.... Also, ... previously you'd have to have hundreds of preprinted checks that had to be preregis- tered before you could print the checks for Client X, and then you had to change the paper for Client Y. Thanks to laser technology, now, in one single pass, the mainframes drive laser printers that absorb blank sheets on the way in, and not only does a paycheck come out with all the logos in the background and so on, but the laser printer also "signs" the checks. It makes life much simpler. As Weston's example illustrates, the movement from relatively distinct instances of automation such as the original ADP processing systems and the original client systems that generated the paper printout used by ADP- to far more integrated systems that involve direct computer-to-computer communication can provide a much greater degree of streamlining and other performance benefits. This movement toward greater integration over the past few years is expected by many technologists to increase the contribu- tions of ITi2 in ways that can be best understood by examining changes at the activity level. One consequence of such IT-related changes in tasks is that there are many new ways to substitute goods and services for each other, enabling organizations to provide what a customer really wants by different means. For example, as discussed in Chapter 3, companies can invest in IT that allows them to use less of their own labor and invoke more labor effort by the customer all the while providing more convenience and possibly lower costs to customers.~3 This concept is fundamental to many instances of do- it-yourself "services" provided by businesses (e.g., credit card gas pumps, long-distance dialing, machine-operated parking facilities, automated teller machines, corporate treasury systems). Further, a product itself may em- body trade-offs between using goods and services to meet customer needs;

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154 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY service activity internally or to buy it from an outsider the decision about whether to "outsource." The ease with which different IT operations can be coupled across institutional boundaries (e.g., through standardized electronic data interchange and networking protocols) and the external specialty ser- vice firms that are enabled by such coupling increase the range of options for redesigning overall work flow. Activities that are highly generic in nature (such as payroll) are most susceptible to being provided by external service specialists, even when rapid turnaround is required. In fact, the development of IT-service industries (contract software development and maintenance, third-party network-based services, systems integration, com- puting facilities management services, and so on) reflects in part a long- term trend toward outsourcing service activities (from legal work to ac- counting to data processing) to firms that specialize in them. To obtain faster cycle times and lower investment costs and risks, high-technology companies often outsource many specialized activities, from component de- sign and product styling to distribution and field warehousing. Outsourcing a given service activity may make particularly good sense when that activity involves what might be called "economies of knowledge scale." Typically, the competent provision of a service subject to econo- mies of knowledge scale requires highly specialized (and thus costly) infor- mation tools as well as the specialized expertise required to use these tools effectively, for example, some specialized databases or knowledge systems. An individual firm that needs such a service may not find it worthwhile to use its resources to develop or provide this service in-house at truly com- petitive levels of cost or quality. However, an external unit might launch that activity as its core business, taking advantage of its ability to spread costs over a large number of external users and to develop specialized expertise that enables it to perform that activity particularly well. In this way, IT-enabled specialization is especially valuable for entrepreneurs seeking to focus an entire business on a given activity or set of activities. Decisions to outsource a critical service activity can have negative con- sequences as well. Outsourcing may require a company to expend much more effort in establishing and maintaining stable, reliable, and high-quality interactions with external providers of services, since outsiders are by defi- nition not conversant with the relevant corporate culture. Opportunities for synergy may be lost, since outsiders may be less motivated to look for ways to improve a client's operations, less knowledgeable about a client's opera- tions, and less likely to seek frequent interactions between themselves and the client organization. Further, employees at the outsourcing company may lose jobs, although other jobs will be created in supplier companies. Perhaps more serious for managers is the potential of losing control over a critical aspect of a company's operation. Reliance on external ser- vice providers may well lead to the loss of specialized skills (indeed, reduc

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 155 ing personnel costs may have been a major reason for turning to an external provider), making it difficult for the client company to audit the quality and cost of the services being provided. Asking for changes in the nature of the services being provided may become more difficult if the external provider is large relative to the buyer or if the company's dependence on the exter- nal service provider increases for other reasons. Unless the company has available substitute suppliers, external service providers can raise the prices they charge for their services as the cost to the client of switching to an alternative service provider increases. IT may influence the perceived costs and benefits of a decision to outsource. The capacity to coordinate large programs has undoubtedly led to a greater number of strategic and operational alliances in recent years. Whether man- agement decides to undertake an activity internally or to have it done by an outside source depends on many factors- such as the number of suppliers available and the criticality of the activity to the core business (this may be illuminated by value-chain analysis); an activity's synergy with or complementarily to other, critical activities; the relative costs of conducting or buying the activity; the extent to which economies of scale and scope are present; the firm's capacity to manage outsourcing; and so on. CONSEQUENCES FOR EMPLOYEES IT is associated with a number of direct and indirect effects on people working within organizations that use IT. Most directly, the introduction of IT can trigger redesign of jobs, restructuring of work flows, or changes in the physical location of work. These effects arise because of the nature of IT; IT consists of tools that affect what people do and how they do it. Less directly, applications in one part of an organization can alter the work and working conditions elsewhere: management systems can be used to craft reorganizations, database and communication systems that supply informa- tion at top and bottom levels can eliminate the need for certain middle levels, and so on. The activity level is where the first effects of change will be experi- enced by employees, effects that will then influence performance at the firm and industry levels. Users are important stakeholders in the introduction of new information tools. Employee expectations that the benefits as well as the burdens of continued technological advance will be equitably shared may be a key factor in the successful implementation of IT. Further, al- though employee satisfaction with new job designs often depends upon choices that may be made for reasons unrelated to satisfying worker inter- ests, accommodating employee concerns by explicitly dealing with them during the design phase frequently results in both improved task design and employee acceptance. Obtaining the maximum return from investments in

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156 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY IT may hinge on providing avenues for employees to exercise their knowl- edge and skills, and it is possible to design and implement IT systems that encourage and reward extra effort and ability on the part of users. For many employees, a first concern, naturally enough, is fear of job loss. The inherent capabilities of IT, combined with job and organization redesign permitted by the technologies, can result in substantial reduction in the demand for, or outright elimination of, particular activities. For ex- ample, a top executive of a major supermarket chain described the reduction in labor requirements associated with supermarket scanning systems. A large supermarket will carry 30,000 to 60,000 items. Every day, every week, there's a dynamic system of price changing and updating and deals with everything that is happening in the marketplace across all those tens of thousands of items. A typical store has some kind of pricing activity on 1500 to 2000 to 3000 of those items depending upon what inflationary, deflationary, or other outside environments it is exposed to. In the past, that meant that somebody a person physically had to go out there, erase every price off every one of those items, stamp a new price on it, put a new tag on it, and . . . to do that in a store took about 100 to 150 hours a week. Thus the relative growth in jobs associated with service activities, as indicated in Table 4.1, does not guarantee substantial job growth in absolute terms. The one white-collar category showing much less than average growth is administrative support occupations, including clerical workers; this is also consistent with the observation that PCs and other office technologies are enabling professional and managerial workers to bring more of their work to completion with less need for administrative assistance. For ex- ample, Larry Bacon of the Travelers Companies described a major shift in the insurance industry from clerical to professional personnel, with work- stations being manned by professional customer service representatives, un- derwriters, claims specialists, and nurses, for example. In addition, changes in professional, technical, and managerial jobs that are evident at the activ- ity level suggest that growth rates in these job categories will slow (and are indeed beginning to do so).~7 Since service-sector job growth has been concentrated in industries with relatively low efficiency, the potential for those industries to streamline their processes using IT or other means sug- gests further constraints on service job growth, other things being equal. Nevertheless, merely installing IT-based systems does not guarantee job reductions. For example, as an executive of a major diversified service firm observed, the use of IT in a lean company does not necessarily result in less staff in front-of-the-house activities: the check-in line may be shorter and the service faster and more accurate, but the number of clerks may stay the same. Nonetheless, fears of job loss in the work force as a whole can strongly affect the ability of an organization to adopt new tools and systems in a

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 157 timely and cost-effective manner. Moreover, these fears may arise even when management adopts IT for reasons other than staff reduction. This issue should be addressed directly and dealt with to the greatest extent possible through the adoption of such actions as expansion of internal re- training programs, shifts of affected personnel to other activities within the organization, sweetening of early-retirement packages, and when necessary, provision of substantial outplacement services. These measures can help foster a positive attitude about change. Applications of IT also affect career prospects more generally, includ- ing professional development, pay and promotion opportunities, the ability to stay in a given geographic area, and reporting relationships and require- ments. This broad complex of changes in the content of jobs will affect job satisfaction and the quality of working life. Both the levels and the extent of supervision may change with new applications of IT. As organizations become flatter and more decentralized, the line between staff and line func- tions will continue to blur. One executive at a major communications com- pany described the changing role of managers: The whole character of the relationship between a manager and employees changes. Teams are empowered, which means that the role of the manager switches from being a director of activities to a facilitator, a coach, and a thought leader. Line managers may not only decrease in numbers, as suggested by flatter organizations, but are also likely to need new substantive and managerial skills. Even when job loss is not perceived as a potential result of the intro- duction of IT, employees may resist change because they do not understand what is being imposed on them. Smooth transitions depend on employee acceptance, and a major factor in obtaining that acceptance is the extent of employee participation in planning. Moreover, early and genuine employee involvement in system planning also enables the resulting system to incor- porate and complement employees' domain knowledge and process skills. For these reasons, employees and their representatives should be involved as early as possible in technology-related decision-making and implementa- tion processes. IT applications alter the knowledge and skill requirements of personnel. They are likely to increase the intellectual demands on knowledge work- ers the workers who are responsible for interpreting, analyzing, and taking action on the basis of information received throughout the company. For example, access to previously unavailable data enabled by the use of IT (e.g., hour-by-hour sales in a retail establishment), and the potential of such data to lead to competitive advantage, create a requirement for knowledge workers to develop appropriate analytical skills, both to interpret relevant

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58 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY data and to disregard irrelevant data. In addition, the cooperative work that IT enables among dispersed workers means that these workers must now know how to cooperate and share information with each other in order to use groupware (collaboration technology) and shared information resources to the best advantage. Substantially redesigned activities (e.g., complete redesign of insurance claims-processing procedures) generally require much more extensive edu- cation and training programs. For example, the product management and engineering vice president of a major communications company noted, We're expecting people to be able to be more than just technically able. We're expecting them to have the capacity to make decisions. That's what we're trying to do. Our objective is to move decision making lower so we're asking people to be able to acquire skills to do that, and, of course, working in team kinds of arrangements people, by necessity, have to have much, much stronger interpersonal skills. On the one hand, as indicated by Larry Bacon of the Travelers Compa- nies, the resulting jobs may be more professional than the original ones. On the other hand, some applications of IT may require less cognitive effort on the part of employees (as in the case of IT-based systems that can provide real-time guidance or advice to users, or even IT-based cash registers and bar-coding that eliminate the need for cashiers to do arithmetic).~9 Combined changes in organization, job content, tools, and infrastruc- ture will make it necessary for managers to develop new skills and new hiring strategies; they may also change demand for retraining.20 The new skills go far beyond those traditionally associated with "retraining" or IT, such as the skills needed to use spreadsheets or word processors. In many cases, specific training related to new IT applications may need to be supplemented with broader education in a variety of areas e.g., supervising a different kind of work force, integrating a variety of separate activities into team processes, making better use of enhanced communications capabilities, leading technological change, and so on. Questions about who will train whom, how, when, and where, need to be answered before any hardware or software changes are instituted. Fur- ther, given the anticipated rate of technological change in the decades to come, (restraining can be expected to be a continuing rather than a one-time or infrequent need. Depending on how it is implemented, IT affects learn- ing curves for both individuals and organizations overall. Individuals at all levels of the organization may be affected as the use of IT permeates a company's activities. Many may have increased respon- sibilities, in part because using IT may make it possible for each individual to do more. Employees may feel more empowered or have a greater sense of ownership of work, although not necessarily as a result of intentional

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 159 organizational redesign. For example, high-level managers can use IT to exercise a greater degree of control over their work, even when assistants would be available to perform such work. Such ownership may lead to the reduction or elimination of intermediate rungs in the corporate hierarchy (a job-loss issue), but as importantly it may also lead to a more finely tuned match between the ultimate work product and the understanding and in- sights of senior management. At the same time, greater ownership may tempt managers to appropriate the benefits of using IT more for themselves than for their enterprises; specifically, some managers may try to decrease their personal risks of error by uneconomically increasing the amount of data they seek before making decisions.22 Such changes in organization and management are often not anticipated initially by companies embarking on new applications of IT but emerge as the use of IT diffuses through the company. Companies that do not pay deliberate managment attention to organizational issues often find that previously existing roles and relation- ships reassert themselves in ways that put a ceiling on how much benefit can be achieved with the new technology andlor subvert and undermine the changes that the new technology has enabled, thereby pushing the organiza- tion back in the direction of the status quo. IT-enabled decentralization is often associated with changes in job con- tent and hierarchies.23 Specifically, IT can be used to combine multiple tasks within jobs and to support cross-functional teams. Customer service affords an example: telephone and computer systems provide tools for a single individual to receive and handle a variety of inquiries. Cross-func- tional jobs and teams imply more comprehensive knowledge and the ability to manage flexible and loosely coupled staff resources. For example, one communications company vice president described the movement toward cross-functional jobs as a trend toward "caseworkers"24 for applications in customer service, provisioning, and network configuration activities, sug- gesting that database and expert-system technology made such jobs pos- sible. This approach to reengineering has reduced time requirements by a factor of 10 and costs by a factor of 3 to 4. Similarly, IT can be used to support the flattening of hierarchies, as fewer people and fewer jobs are needed to relay and concentrate informa- tion when electronic databases and communications provide some of those functions. Middle managers, as well as technical and administrative staff in service activities, thus face special challenges in their work and careers. As currently deployed, IT systems handle particularly well activities that re- quire complex collections of repetitive and routine tasks, including such things as data collection, information transfer, reproduction, monitoring, scheduling, and the like. For example, Roger Ferkenhoff described a recent restructuring of Sears' vertical business groups (automotive, home appli- ances, and so on) where the elimination of a layer of management was made

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160 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY possible by company-wide access to computing and communications sys- tems. Both elimination or simplification of some jobs and enhancement of others are possible. Finally, IT-based systems may also be a necessary part of a work environ- ment that is on the cutting edge of expanding business frontiers. The leaders of an industry seek the best talent available, and such people are most often attracted by the challenge of working on state-of-the-art business problems. Craig Goldman of Chase Manhattan, for example, pointed to the value of investing in good desktop technology to reduce attrition of technical staff. To the extent that exploitation of IT is a necessary component of a successful approach to such problems, firms that hope to lead an industry cannot afford to scrimp on the technology needed to stay at the cutting edge. CONCLUSIONS Intense domestic and international competition, a lackluster economy, and other business pressures are leading companies to look beyond incre- mental change. They are redefining their purposes, goals, and images, redesigning work processes in fundamental ways, making major changes in both management structures and work locations, and reconstituting their employee work forces. Such changes will continue throughout the coming decade, and many analysts feel this circumstance will become the norm for the foreseeable future.25 Although it is not possible, in a general sense, to say that a "right way for firms to use IT" has emerged, IT can be used by firms to develop a vast new array of alternatives for organizing activities. Some of that opportu- nity for choice can be seen in the different approaches (in terms of tech- nologies and processes overall) that companies in a given industry have taken to carry out the same fundamental activity. However, IT can also be used with homogenizing results. For example, producers of a wide range of products may be interconnected by the same EDI system, a system that imposes a common process for order-related activities. The trend toward interconnectivity and the possibility of a national information infrastructure suggest that, to at least some extent, technical standards will increase com- monalities for IT-related tasks across organizations. The chief conclusion to be drawn from the committee's activity-level inquiry is that the use of IT has so greatly increased the opportunities for designing service activities to meet a variety of performance goals that new perspectives are required for organizational learning, understanding, and assessment. Neither researchers nor decision makers have a base of empiri- cal evidence or well-established precedents on which to rely in understand- ing how IT can be used most effectively to support work flows within and across enterprises. Further, as discussed in other chapters, the actual out

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 161 comes of such efforts are influenced by a number of factors in addition to IT (such as competition, employee skill base, and especially managerial capability in organizational and activity design). IT alone does not create impacts; its effects reflect a host of decisions made and actions taken- wisely or not-by a range of stakeholders including senior managers, technical professionals, and users. Because the rapid pace of IT change does not appear to be slowing, new possibilities for designing activities, restructuring them within firms, and linking them across firms will continue to emerge. And because continuous change is to be expected, today's right answer is perhaps tomorrow's wrong solution. Moreover, as suggested by Merrill Lynch's Howard Sorgen, what is a right answer today is not always clear. What we are going to suffer through, I believe, for the next 3 years in the application of information technology is a significant number of false starts, as technology organizations attempt to deploy workstation-based solutions for large-scale problems. Since many of these organizations lack the management experience and technical maturity to make the proper choices in hardware and software, some of their experiments will fail due not only to their own lack of appreciation of the requirements of a robust "production-ready" operation, but also because the support tools available for many years for the mainframe environment are simply not mature enough to support high-volume, transaction-processing applications on a worksta- tion-based technical platform. At the same time, smarter decisions can be made today about how to use investments introduced some time ago. This observation was made by Larry Bacon of the Travelers Companies: One of the things we've seen has been enormous cost reduction over the last 2 or 3 years in our industry, and a great deal of that has been that people have reached down and really gone and taken advantage of the things they automated years ago. So if they automated something and they could eliminate 200 positions, maybe they reduced 150 initially. Now they go back and they not only get the other 50 they should have, but they say, "Now that we're doing business this way, I can do this and I can do that, and I can do these things better, and maybe I can close these 6 offices because now I can do it with this number of offices." They have made much bolder strokes. But that's a recognition of where they are today rather than a premeditated, "We're going to automate and do this." The volatility in the application of IT and the restructuring of activities entails an organizational need for flexibility, an ability to change quickly, and the capacity to experiment regularly with the expectation of some successes and some failures. The cost of continued experimentation and the likelihood of both successful and unsuccessful trials-should be consid- ered explicitly in firms' strategic planning for technological change. More

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162 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY over, within organizations "training" will, in consequence, become an ev- eryday issue. However, it has been observed that within firms the pace of implementation of new technologies has slowed; technology push is being weighed against organizational needs, available resources, and capabilities for assimilation. This more cautious approach to the use of innovative IT may result in better planning, evaluation, and implementation. How to value or assess the performance of service activities is an issue that calls for more data and analytical models than are currently available. Repetitive activities are much easier to measure than others, and service performance metrics in the past have usually been based on what is easy to measure.26 Since it is difficult to measure the more complex and nonroutine things that organizations do, it is inherently problematic to determine whether the acquisition of new IT has made their performance better. This conclu- sion underscores the need for new activity-level metrics. The availability of such metrics would have important policy consequences. The capacity of both service enterprises and service activities within manufac- turing and other enterprises to create value added for customers and to in- crease their own real productivity is important to the levels of wealth created by the nation. With 77 percent of all U.S. employment in service industries and another (approximately) 10 to 12 percent in service activities within goods- producing companies, increasing the productivity of service activities whether within a company or in a separate service company seriously affects the nation's capacity to increase real wages over time. One of the more important conclusions that emerges from the study of the impact of IT on service performance at the activity level is the profound effect it will have on employees. Use of IT is an important factor in helping to increase the value added, and hence the wage potentials, of ser- vice jobs at all levels from the high-paying professional and managerial levels to the low-paying entry level. Because service jobs provide the entry- and early developmental-level jobs for the country and many of these depend on extensive use of IT to create high value added effective deployment and implementation of IT in services are critical to developing the output potentials of recent entrants into the nation's work force. More- over, as companies redesign their processes and structures, their needs for particular skills and numbers of employees in their work forces will un- dergo major shifts. These changes call for preparations and responses by individuals, employers, and government at all levels. The IT-enabled ability to relink activities in a myriad of configurations will profoundly influence the structure of U.S. industry, the organization of companies, and the nature and location of future jobs. How firms and industries restructure themselves will have major policy implications for job design, changes in occupational mix, and education and training. The outcome of such restructurings will have profound effects on productivity

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IMPACTS OF INFORMATION TECHNOLOGY AT THE ACTIVITY LEVEL 163 in all industries, the competitiveness of U.S. companies and industries in international markets, the number and nature of employment opportunities, and the effectiveness of huge and ongoing investments in IT. NOTES AND REFERENCES lit should be noted that process innovation is not a new construct. However, unlike product innovation, process innovation has not been widely recognized until relatively recently as a potential source of significant organizational performance improvements. For further discussion of this point, see, for example, Tornatzky, L., T. Solomon, T.K. Bikson, and others, 1982, "Contributions of Social Science to Innovation and Productivity," American Psycholo- gist 37(7):737-746; Tornatzky, L., W. Hetzner, J.D. Eveland, and others, 1983, The Process of Technological Innovation: Reviewing the Literature, National Science Foundation, Washing- ton, D.C.; and Tornatzky, L., and M. Fleischer, 1990, The Processes of Technological Innova- tion, Lexington Books, Lexington, Mass. 2Kiesler, Sara, and Lee Sproull. 1992. "Group Decision Making and Communications Technology," Organizational Behavior & Human Decision Processes 52(1):96-123. 3Recent changes in services at the department and process levels of organizations have spawned new families of measures, but the committee believes that most of these efforts are still narrowly defined (see The Master Measurement Model of Employee Performance. n.d. The Society of Incentive Travel Executives Foundation, New York). An activity-level analysis can help broaden the viewpoint and open the way to making revolutionary changes. 4When the use of new technologies and approaches leads to new combinations of previ- ously separate activities, for instance, traditional measures of performance are problematic at best and perhaps outright misleading or useless. SThe committee also examined the work of several prominent European scholars on the impact of information technology on work in service industries. However, since these indi- viduals tend to study non-U.S. institutions, and institutional and national differences between the United States and Europe (e.g., the German apprenticeship system, government funding of industry) are often profound, it is very hard to compare macroeconomic-level issues such as productivity. In addition, the work of these people focuses on levels of analysis that are finer- grained than even the activity level, with no particular ties to economic performance. Thus, such work was considered relatively peripheral to the issues the committee was addressing. 6A good treatment of the use in measurement of data indicating customer satisfaction can be found in Zeithaml, Valarie A., A. Parasuraman, and Leonard L. Berry, 1990, Delivering Quality Service: Balancing Customer Perceptions and Expectations, Free Press, New York. 7Bureau of Labor Statistics employment projections are developed using a detailed input- output model and a variety of economic and demographic data. In addition, analysts determine factors that have previously exerted a strong influence on the behavior of important projection results, and then make assumptions, based on past experience and professional judgment about future trends in specific industries and occupations, about their influence in the future. This exercise includes evaluation of particular technologies in specific jobs or industries. The entire process is repeated every 2 years. 8Service occupations include cleaning and building service occupations, food preparation and service occupations, health service occupations, personal service occupations (such as bar- bers and child care workers), private household workers, and protective service occupations. 9This is not to deny the existence of activities that are relatively industry-specific, such as patient care activities in the health care industry. Billing, an activity that is relatively generic across many industries, is handled in a unique way within the telecommunications industry due to industry-unique regulatory requirements.

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64 INFORMATION TECHNOLOGY IN THE SERVICE SOCIETY 10See Boynton, A.C., B. Victor, and B.J. Pine II. 1993. "New Competitive Strategies: Challenges to Organizations and Information Technology," IBM Systems Journal 32(1):40-64. 1lThe close intermingling of properties of new technologies with properties of technol- ogy-dependent tasks is not a new outcome; indeed, such reciprocal effects have long been described by sociotechnical systems theory. Still, that theory has typically been applied to help explain relationships between new manufacturing tools and tasks involving the production of goods; IT bears a similar relationship to information-intensive service activities in both manufacturing and service firms. 12Computer Science and Telecommunications Board, National Research Council. 1991. Keeping the U.S. Computer Industry Competitive: Systems Integration, National Academy Press, Washington, D.C. 13The increase in convenience can be contrasted with the notion of "quality service" defined as a high level of service. Thus in some instances IT and other tools are helping to provide more personalized service, while in other instances, IT is helping customers be served more quickly by diminishing interactions with service-provider personnel. 14Camp, Robert C. 1989. Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance, Quality Press, Milwaukee, Wisconsin. 1sStrom, Stephanie. 1992. "Computerized Record-Keeping for Retailers," New York Times, May 20, p. D-6. 16See, for example, Carey, Susan. 1992. "Airlines Seek to Cut Back-Office Costs by Establishing Off-Shore Operations," Wall Street Journal, November 30, p. B-6D. 17See Prokesch, Steven. 1993. "Service Jobs Fall as Business Gains," New York Times, April 18, p. 1. 18Baumol, William J., Sue Anne Batey Blackman, and Edward N. Wolff. 1989. Produc- tivity and American Leadership: The Long View, MIT Press, Cambridge, Mass. 19A good discussion of this issue can be found in Bulkeley, William, 1992, "Computer Use by Illiterates Grows at Work," Wall Street Journal, June 9, p. B1. 20However, when an activity remains substantially unchanged (e.g., typing reports on a word processor rather than a typewriter), specific task training may be all that is necessary. 21 Note that some needs for new skills can be met by the use of IT, both through IT-based training systems (satellite classes, computer-aided instruction systems, and so on) and through the incorporation of knowledge and reference information into production systems (help func- tions, knowledge-based systems, and so on). 22Doorley, T., A. Gregg, and C. Gagnon. 1988. "Professional Service Firms and Infor- mation Technology: Ongoing Search for Sustained Competitive Advantage," Managing Inno- vation, National Academy Press, Washington, D.C. 23For more discussion of this point, see Zuboff, Shoshana, 1988, In the Age of the Smart Machine: The Future of Work and Power, Basic Books, New York. 24This term is attributed to business analyst Michael Hammer, who has written and consulted widely on reengineering. 25Davenport, Thomas H., 1993, Process Innovation: Reengineering Work Through Infor- mation Technology, Harvard Business School Press, Cambridge, Mass.; Davenport, Thomas H., and James E. Short, 1990, "The New Industrial Engineering: Information Technology and the Business Process Redesign," Sloan Management Review, Summer, pp. 11-17; and Hammer, Michael, 1990, "Reengineering Work: Don't Automate, Obliterate," Harvard Business Re- view, July-August, pp. 104- 112. 26In addition to the reference provided in Note 3, see also Thor, Carl, 1986, "Using Nominal Group Technique to Establish a White-Collar Productivity Measurement System," Productivity Brief, No. 51, American Productivity Center, Houston, Texas; and Thor, Carl, 1991, "Performance Measurement in a Research Organization," National Productivity Review, Autumn, pp. 499-507.