Organization Design – the Link with IT Governance and Knowledge Management

“Competitiveness does not lie in downsizing it lies in design” (Dodds, 1993)

In the highly competitive business environment of today, the creative and effective use of information technology has the potential to transform organizations and contribute to enhanced and sustainable value.  In many companies Information Technology is the second highest cost to employee costs, and IT employee costs are generally the highest cost in the overall IT budget.  It makes incredible sense to harness these costs to drive the effectiveness of the organization as a whole.

Traditionally IT was used to improve the effectiveness of the operation of the organization, i.e., provide better information, improve information accuracy, and speed up the processes within, initially, Finance and Accounting then over the past 20 to 30 years, Sales and Distribution, Marketing, and Human Resource Management.

We are now embarking on the “third wave” of information technology utilisation within organizations – that of creating competitive advantage, creating value-added products and services, and recording and disseminating organizational knowledge.  This goes much more to the fundamental drivers of organizational competitiveness, and brings with it much greater risk.

IT Governance, Knowledge Management and Organizational Design are three key areas that facilitate and enable this effective use of information technology while at the same time ensuring return on investment and mitigating the risk.

IT Governance

IT Governance is “an integral part of enterprise governance and consists of the leadership and organizational structures and processes that ensure that the organization’s IT sustains and extends the organization’s strategies and objectives”[1].

IT Governance takes cognisance of the shift of the issues facing IT management from the technology related areas, to management related areas.  IT Governance focuses on five key areas:

• Strategic Alignment The question of whether or not the investment in IT is in harmony with the organization’s strategic intent, current strategy and goals, and is thereby building the capabilities necessary to delivery business value.
• Value Delivery        The value of systems that support the organization and are delivered on time, within budget, with appropriate functionality and achieve the intended benefits, and the creation of infrastructures that enable the organization to grow by breaking into new markets, increasing overall revenue, improving customer satisfaction, assuring customer retention and driving competitive strategies.
• Risk Management  Enterprise risk does not only imply financial risk, there is also operational and systemic risk, of which technology risk and information security are foremost.  Risk should be analysed because, even if not action is taken, the awareness of risk will influence strategic decisions for the better.  Often, the most damaging IT risks are those that were not well understood.
• Resource Management        Key to achieving successful IT performance is the optimal investment, use and allocation of IT resources, including people, applications, technology, facilities, and data.  In order to maximise IT assets and optimise costs, the biggest challenge lies in identifying core and non-core resources, and outsourcing appropriately and effectively.  Of all IT assets, human resources represent the largest cost base and, on a unit basis, the one most likely to increase.  It is essential to identify and anticipate the required core competencies required in the workforce to ensure that the organization has the skills to utilise IT effectively to achieve the organization’s objectives.
• Performance Management   For organizations facing the new information-based global economy, the means of value creation has shifted from tangible to intangible assets, which are not generally measurable using traditional financial measures.  Newer methods of deriving and using performance measures that measure relationships and knowledge-based assets are required.  The Balance Scorecard method of Kaplan and Norton and derivatives of this methodology, are fast becoming essential tools to compete in the information age.

The overall objective of IT Governance is to provide the leadership, organizational structures and processes that ensure that the organization’s IT sustains and extends the organization’s strategies and objectives.

Knowledge Management

There are a number of definitions of Knowledge Management – here are a few:

• “The collection of processes that govern the creation, dissemination, and leveraging of knowledge to fulfil organizational objectives”
• “Knowledge Management is a business philosophy. It is an emerging set of principles, processes, organizational structures, and technology applications that help people share and leverage their knowledge to meet their business objectives.”
• “Knowledge is the capacity for effective action”

What is clear from these definitions is that Knowledge Management puts focus and responsibility on the individual – the knowledge worker – and on the holistic nature of knowledge management.  Knowledge Management is not an end in itself, it is fundamentally about sharing knowledge and putting that knowledge to use in order to meet business objectives.

Knowledge Management has recently been divided into First Generation (or Supply-side) Knowledge Management and Second Generation (or Demand-side) Knowledge Management[2].  First-generation knowledge management had its emphasis on sharing existing knowledge throughout an organization with emphasis on the use of technology in most first-generation initiatives.  The belief in first-generation knowledge management is that better organizational performance is achieved by enhancing the transfer of knowledge.

Second-generation knowledge management suggest that accelerating the production of new knowledge is a far more valuable proposition to the organization.  Demand-side knowledge management initiatives, therefore, focus on enhancing the conditions in which innovation and creativity naturally occur.  Helping organizations to create new knowledge faster (i.e., to accelerate their rates of innovation) is seen as a powerful new way of increasing a firm’s competitive stance in the marketplace.  The emphasis of second-generation knowledge management is on high-performance learning and signals the convergence of the knowledge management and organizational learning communities.

The overall objective of second generation Knowledge Management is, therefore, to focus on organizational learning with business innovation and competitive advantage in mind.  In other words, it is an implementation strategy for organizational learning

Organization Design

Organizational Design is about aligning the structure of an organization to its objectives and improving the relationships between individuals and groups.  There is no one right design or structure that will suit all organizations.  The structure must be aligned to the particular strategies the organization is pursuing.

Appropriate Organizational Design enables organizations to execute better, learn faster, and change more easily, whereas poor organizational structure can lead to, slow decision making can, lack of co-ordination between work and functions, rising costs, a general failure to share ideas, and motivation may decrease as people don’t know what is happening or why.

Organizational Design is a process rather than an end goal.  Steps in this process include:

• Determine Design Framework – translating strategy into “design criteria” (where do we want to be) and an analysis of the current situation (where are we now) to systematically identify improvement potential in the organization
• Design the Organization – determining structure and organizational roles to meet the strategic design criteria, defining how work is co-ordinated and integrated across business units, measuring and rewarding performance at an individual, team and organization level, and defining the selection and deployment of people into new roles, managing performance and supporting development.
• Developing the Details – defining the details for structural elements and processes to ensure that the new organization will be functional.
• Implementation – planning and implementing the transition to the new design.

The objective of Organizational Design is to ensure that people are employed within a structure that both enables and encourages them to make the full range of their expertise available to the task of implementation of the organization’s strategies.

The Link

The Link is ensuring that the organization has the key skills and competencies, a structure that drives the required processes, and the ability to deliver the achievement of the organization’s goals and objectives.

The future success of any company – whether it is a large holding company, a subsidiary, or a public administration – depends on how effectively the organization adjusts to the challenges, such as global competition, aftermath of mergers and acquisitions, strategic shifts, competitive pressure, and customer demand changes.

The Link between IT Governance, Knowledge Management and Organizational Design is the ability of the IT organization to utilise its knowledge assets and harness it’s competitiveness to delivery strategy and drive the effectiveness of the organization.  This ability is reflected in the flexibility of its organizational capabilities, the actual organizational structures, processes, and the quality and motivation of its people.