Tengelmann Group’s Information Systems Change

Introduction

Implementation of information systems is influenced by strategic goals and aims of the company, demands of the internal and external environment. The impact perspective argues that information systems have a major influence on the shape of organizations and the nature of managerial work. From this perspective, information systems will have inevitable effects on corporations, since external technological forces will drive internal structures. This deterministic perspective, best characterized by the word ‘impact’, contends that computers are changing the nature of organizations. The underlying premise is that the outcome of information systems implementation can be predicted. Since information systems are a strategic enabler of one of the most basic tasks within organizations, namely information processing, it has to be viewed as a unique technological tool for organizations. This uniqueness implies that information systems not only have an impact on organizations but transcends all organizational activities. Although the technological impact perspective provides insights into the determining aspects of technology, the actions of humans in developing, accepting, and changing technology have largely been ignored by this group of researchers. The paper will examine and analyze the role o information systems in the retail industry and their application by Tengelmann Group, a German retailer.

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Organization Analysis

Tengelmann is a privately owned food retailer based in Muelheim, West Germany. The company was founded in 1867 by Wilhelm Schmitz and is now managed by his great-grandson Erivan Haub. When Schmitz started his business in the late nineteenth century, German merchants were often considered to be of low societal standing. To preserve the honor and dignity of his own name, Schmitz named his first grocery store after one of his salesmen, Emil Tengelmann. Tengelmann has store operations in West Germany, Austria, the Netherlands, and the United States, Tengelmann is an excellent example of a true multinational retailer (Tengelmann Group 2008). While they retain a global definition of their marketing strategies, they adapt their operations to the local culture. Tengelmann tried to use a global strategy when they acquired A&P by converting some of the A&P stores into box stores based on German models. Merchandise was displayed in cardboard boxes and prices were posted on signs rather than on each individual item. The experiment failed, resulting in a loss of $75 million over the two-year trial period. Tengelmann abandoned the concept of no-frills discount stores, and refocused on store modernization, upscaling, and acquisitions. Tengelmann has concentrated its activities on a few foreign countries to achieve a large local presence. Tengelmann uses a growth-induced intentional approach to its international involvement as it strives to penetrate new markets and thereby consistently enhance its financial performance (Tengelmann Group 2008).

Information Systems and Corporation

In order to determine the directional influence of particular information systems on organizational decision-making, it is necessary to look at associated cost-reduction effects (Baschab et al 2007). Corporations like Tengelmann Group can employ new information systems to allow the cost-reduction effect to work in the direction of either centralization or decentralization. For example, the implementation of a network may allow managers to exercise greater control over a large number of employees and thereby reduce agency costs, yet it also allows lower-level managers to gain access to more information, thereby lowering decision information costs.

Following Carr (2004) the combined cost-reduction effect may work in the same direction but it can also work in opposite directions. It is, therefore, necessary to look at the area and purpose of information systems use within organizations. In some organizations, information systems may be employed to lead to more centralization, while in others it leads to more decentralization. By looking at the specific situation, a differentiated view of the role of information systems is provided. Rather than viewing information systems as a criterion for the allocation of decision-making authority, it has also been proposed that organizations shape the information systems to conform to their needs. This means that it can be employed to work in the direction of both centralization and decentralization. It is argued that it is essentially managerial action that influences the outcome. One stream of research has suggested that those with power in organizations use information systems to reinforce the existing power structure, this, in turn, affects the way information systems are employed.

Rather than viewing organizational decision-making as an outcome of the employment of information systems, it has been suggested that information systems facilitate organizational design by providing managers with choices. For example, if decentralization is the desirable outcome, then information systems are the tool by which managers may bring about the outcome. This managerial action imperative suggests that managers are in control of organizations and can shape them to their needs, yet managers often do not have this control, since they lack the power or resources to push for either more centralization or more decentralization. There are a number of organizational circumstances, such as availability of technology and expertise, social and legal structures, and community opinion, which influence the decision-making authority in such a way that the outcome of managerial action may not work in the desired direction (Carr 2004).

Technology: Internal and External Demand

While the impact perspective suggests that particular technologies predispose corporations to exhibit certain structures by constraining available options, the choice perspective emphasizes the possibility of making managerial decisions regarding the desired outcome of implementing information systems. External demands for Tengelmann Group were increased competition and internationalization of the retail industry, market-entry, and new opportunities created by globalization. Rather than viewing the organization as being predetermined towards a specific structural outcome, technology is the product of human interaction, design, and appropriation. This perspective is supplemented by the normative suggestions of information systems specialists, who decide upon an ‘optimal’ information architecture based on an organizational needs analysis (Baschab et al 2007). The inherent assumption is that information systems specialists can satisfy the demands of technological, political, and social concerns when making decisions about the appropriate system to implement. Empirical evidence to support the choice perspective remains limited, primarily because of the difficulty in operationalizing the match between the technological, political, and social demands of the organization and the intentions of managers or information systems specialists. For Tengelmann Group, the internal demands were ineffective communication and a lack of coordination within the corporation (Laudon & Laudon 2005).

Internal and External Drivers

For the Tengelmann Group, the emergent perspective posits that the use and consequences of information systems are a result of complex social interactions between the institutional framework and the actions of individuals. Because of the dynamics of organizational settings, the frequently changing preferences of individuals, and the adapting organizational context, neither the intentions of managers nor the technological environment within the organization can fully predict the outcome of information systems employment within modern corporations. The interplay of time, objectives, given institutional frameworks, individual preferences, and choice processes are the central concepts of the emergent perspective (Laudon & Laudon 2005). Rather than ascribing the cause of outcomes to the role of either technology or actors, this perspective adds a third dimension, namely dynamic processes over time. This makes the operationalization of the concept more difficult to investigate empirically. Introduction of groupware into the organization and concluded that the groupware application enabled and constrained work practices at the same time. These studies suggest that technology does not determine the trajectory of organizational change, but that the implementation of the technology leads to rules for its use, which in turn influence rules of new work practices that become legitimized by a new organizational policy. More recently, the emergent perspective has received growing support, because the impact perspective of information systems has produced contradictory empirical findings. Introducing information systems, the Tengelmann Group paid special attention to the new structure and coordination of international activities. Information systems allowed Tengelmann Group to coordinate and improve communication between regional officers and simplify routine work and improve the communication process (Baschab et al 2007).

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New Structure

Information systems allow Tengelmann Group to acquire and distribute internal information to carry out the critical functions of decision-making. These activities require the processing of information. For Tengelmann Group, the vertical and horizontal perspectives. Vertical information processing involves the acquisition of information from the environment and the distribution of information from boundary-spanning units to organizational members at various hierarchical levels. Horizontal information processing involves the coordination of internal tasks by distributing information between organizational members within and between departments. In addition to these two information-processing perspectives proposed by Snyder (2007), organizations interact with other organizational entities to exchange information that is mutually beneficial. (Baschab et al 2007). This involves crossing organizational boundaries. First, the relationship between the vertical information-processing perspective and information systems is investigated. Next, the horizontal information-processing perspective and information systems are explored. Finally, the role of information systems in changing the traditional boundaries of the organization is examined (Laudon & Laudon 2005).

Organizational Design

For Tengelmann Group, the organizational design dimension, which relates the hierarchical level to the information-processing tasks at hand is the degree of centralization versus decentralization of decision-making. Since decision-making requires the availability of unambiguous information, new information systems have the potential to shift the level of decision-making by providing access to information. Internal coordination costs are a function of agency costs and decision information costs. Decision information costs are costs associated with the sending of information upwards in the hierarchy, with miscommunication and opportunity costs caused by delays in communication (Laudon & Laudon 2005). Agency costs result from costs in monitoring the organizational members who execute tasks, bonding costs resulting. from frequent communication between employees and managers, and any other residual losses that may arrive as a result of a lack of information. Since decision information costs increase as decision-making authority is moved higher in the hierarchy, a possible conclusion appears, that decentralization is the answer to the problem. Yet, as decision information costs decrease, agency costs increase. Thus it is necessary to minimize total internal coordination costs (Baschab et al 2007).

Information systems reduce both decision information costs and agency costs spent on communication between regional officers located in different countries. Information systems reduce decision information costs by improving the speed, and potentially the quality, of information processing. Information systems also reduce agency costs by improving monitoring and bonding capabilities (Olson, 2003). To reduce agency costs, an organization requires an appropriate incentive system, so that workers use their decision-making authority in the interests of the firm. In essence, Information systems serve as a monitoring tool for agents’ actions. Decentralization requires information and expertise to solve problems at the level of the organizational unit making decisions. Improved expertise and access to knowledge through information systems facilitate this autonomy (Baschab et al 2007).

For Tengelmann Group, information systems specifically lower the costs of context-independent knowledge transmission, promoting the allocation of decision rights to those individuals who have access to specific knowledge. On the other hand, information systems increase trust by making remote decision-makers more effective, by helping to monitor, and by socializing remote decision-makers. This will allow central decision-makers to trust local decision-makers in both their implementation and decision-making processes. In addition, organizational members are likely to be more motivated if they have a higher degree of autonomy in decision-making. Increased motivation can thus be viewed as a result of decentralization (Olson, 2003).

Information systems involved knowledge-based group support systems provide organizational units with the technical capability for complex problem-solving at the local decision-making level. Communication obstacles such as time and space constraints have hindered the provision of decisional autonomy to organizational units since these constraints meant that information was frequently sent upwards and then communicated laterally between two individuals before being sent downwards again. The advance of information systems has enabled direct contact between knowledge workers, thereby allowing decisions to be made at a lower hierarchical level (Baschab et al 2007).

In addition, advances in telecommunication, diffusion of personal computers across the organization, and improvements in end-user computer literacy facilitate decentralization, since lower-level knowledge workers have easy access to information and have acquired the skills to obtain information when needed. The decrease of telecommunication costs and new telecommunication technology is providing reliable and cost-efficient networks for problem-solving at lower organizational levels. The increasing use of videoconferencing is an example of this tendency (Snyder, 2007). Access to and literacy in the use of computers allows knowledge workers to satisfy specific needs in end-user applications, thereby increasing their productivity and autonomy in decision-making. Centralization is appropriate when communication is costly and central decision-makers are able to digest vast amounts of information. Informational economies of scale support the centralized ownership of assets. Information can be collected centrally, processed, and redistributed to various units throughout the organization. Centralization is also appropriate in situations of indispensable coordination between the activities of subunits.

For Tengelmann Group, technological trends supporting centralization include the increasing storage potential of hardware; database capabilities; and the advance of personal-computer-based networks (Snyder, 2007). The storage potential of hardware helps in maintaining databases, avoiding duplication of effort at several levels within the organization. Large databases, which provide routine transactions centrally are well suited for more centralization within organizations – for example, national hotel reservation systems, or customer service systems. Computer networks allow managers to control operational activities centrally by being able to track important indicators of individual sites from a central point. This is especially true for middle managers, who can use information systems to facilitate control over a large number of employees and monitor an organizational unit’s performance. At the same time, information systems can be used to obtain data from outside the department to align decisions with the overall strategy of the company (Baschab et al 2007).

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Possible Threats

For Tengelmann Group, the danger of allocating decision rights at the top management level only is the increased inefficiencies of information overload. This may demand that the decision-making process is decentralized. The extent to which information systems can decrease communication costs, thereby making knowledge less specific, is one factor determining the allocation of decision rights. The ability of information systems to relieve the burden of handling the increased flow of information and complement human judgment is another factor. If information systems have the capacity to replace mental efforts and thereby increase the information-processing capacity of individuals, it truly has an impact on organizations. Information is, however, not a scarce resource in organizations; it is the processing capacity of individuals that is scarce. Therefore, information has to arrive at a level within the organization where information can be processed at the lowest cost to the organization (Snyder, 2007).

Authority

The existing organizational authority structure is reinforced when knowledge workers have superior access to information systems. By having superior access to decision-making tools they also have preferential access to the knowledge associated with it. Thus, information becomes a source of power, and information systems as a decision-making tool can facilitate differential access to information. If information systems are implemented on the basis of existing patterns of organizational authority, then it will reinforce these patterns within organizations by institutionalizing decision-making routines (Snyder, 2007). An electronic mail group is an example of a technological tool that potentially reinforces the existing hierarchy of authority by providing preferential access to information by a small group of users. Monitoring an organizational unit’s performance by using a management information system is another example, where a selected group of users (for example, managers), gain access to information that is not shared widely within the organization (Baschab et al 2007).

Management Change

In addition to predicting increased centralization as a result of employing communication technology, Information systems lead Tengelmann Group to the downsizing of management functions. It can be concluded that the degree of information systems penetration has an impact on the number of middle managers. When a critical mass of information systems penetration has been achieved, middle managers are more likely to be affected. A time lag is suggested before the information systems investment shows its desired effectiveness (visible through a reduction of staff) (Snyder, 2007). In order for time savings from information systems to be translated into a reduction in numbers of middle managers, the impact on the informational role of managers has to be large enough to justify any downsizing. Since information systems necessitate more educated workers at lower levels of the organization, it takes time for a higher level of education to be achieved for professionals before any decreases in managerial staff can be considered (Baschab et al 2007).

Results of Change

According to the findings, electronic communication introduced by the Tengelmann Group leads to an increase in communication linkages, since knowledge workers are getting into contact with the same people more often, and establish contacts with new people. At the same time, managers receive fewer calls. This means that knowledge workers may have access to information from a larger pool of communication partners. The increase in electronic communication did not offset the decrease in face-to-face communication (Snyder, 2007). As visual displays through new information systems increase, groups replace face-to-face communication with new information systems to interrelate time and task activities so that the different knowledge workers’ perceptions of tasks and the activities they are likely to perform correspond. A risk in reducing face-to-face interaction lies in providing fewer opportunities for casual conversation, which allows individuals to assess a person’s communication trustworthiness in social settings. It is, therefore, important to encourage knowledge workers to treat opportunities for casual contact as an important part of their work (Carr 2004).

More participation by knowledge workers in decision-making could be a function of equating participation with message-sending. Since electronic mail changes the traditional communication mechanism of face-to-face meetings and telephone by decoupling message-sending from message-receiving, higher participation may easily be explained, since electronic systems facilitate the sending of messages to a high number of receivers without demanding their feedback. Knowledge workers can ‘participate’ and accomplish their tasks without having to respond to comments made by other organizational members. This can have two effects on communication within organizations (Carr 2004). The increase in participation by organizational members could lead to delays and stalemates, as an increase in the number of individuals may neither contribute to decision quality nor decision acceptance. It could, however, also lead to a greater commitment by organizational members in pursuing a particular course of action. In the following section, the influence of electronic communication systems on group decision-making situations will be investigated in more detail (Snyder, 2007).

In Tengelmann Group, parallel communication creates an environment that is more likely to lead to divergent than convergent communication, since knowledge workers have fewer cues available from their communication partners and are busy keying in their own comments rather than paying attention to the comments of others. Knowledge workers may thus not recognize that they have diverging or unshared information. The use of information systems in facilitating group decision-making processes is a result of the combined positive effects of group process gains and the negative effects of group process losses (Snyder, 2007). These process gains and losses determine the impact of information systems on group decision-making. Depending on the type of task, new information systems may enhance or impede group decision-making. For the purpose of idea generation, information systems have generally been found to have a positive influence. information systems have a negative impact on the task of reaching consensus and an ambiguous effect on conflict resolution. It can be concluded that information systems have an impact on lateral communication in a limited number of situations. For brainstorming tasks, information systems increase participation in decision-making, yet for consensus tasks, participation in decision-making decreases. Information systems have an inconclusive effect on conflict resolution. The biggest impact of information systems is in situations where organizational members have to exchange information across time and space. In this context, information systems can lead to a less formalized organization (Laudon & Laudon 2005).

Conclusion: Success Factors

The example of the Tengelmann Group shows that the diversity and relative nature of the various possible success criteria derive from four factors. First, there are many different kinds of success – for example, economic, strategic, or behavioral. Different theoretical perspectives vary in their focus on the effectiveness criteria of information systems. The economic perspective, for instance, focuses on cost-benefit analyses or returns on investment. Industrial economists propose measures such as return on assets or average growth (Laudon & Laudon 2005). Strategic management researchers emphasize the importance of matching the information systems strategy with the organizational strategy. Behavioral scientists often speak of user acceptance or decision-making quality when discussing information systems’ success. Second, the level of analysis is important. Information systems can support individual decision-making, but can also enable the competitive advantage of the organization. From the macro perspective, Information systems are judged by their ability to help the organization gain competitiveness, which will lead to higher returns on investment. From the micro perspective, knowledge workers require information to execute their tasks, so information systems are judged against the requirements of organizational members. Organizational level measures tend to focus more on criteria such as return on asset measures, while individual-level indicators rely on measures such as system use, system satisfaction, or decision confidence. Evaluations tend to differ, depending on whether they are made by the users of information systems, by information systems specialists, or by the executives responsible for supporting the investment. Effectiveness measures essentially have no objective referent. They are mental abstractions used by individuals to interpret their own understanding of the situation. The outcome of information systems employment may be a result of opposing forces that enable and constrain information systems to have the desired effects in the social context in which it is being implemented.

Bibliography

Baschab, J., Plot, J., Carr, N. 2007, The Executive’s Guide to Information Technology. Wiley; 2 edition.

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Carr, N. G. 2004m Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. Harvard Business School Press.

Laudon, K. C. & Laudon, J. P. 2005, Management Information Systems: Managing the Digital Firm, 9th Edition.

Olson, D. 2003. Information Systems Project Management. Web.

Snyder, L. 2007, Fluency with Information Technology: Skills, Concepts, and Capabilities (3rd Edition). Addison Wesley; 3 edition.

Tengelmann Group. 2008. Web.

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