IT shapes Top-Down and Bottom-Up Decision Making
Wed 17 November 2010
, Maurice Eykman, LEAP
IT shapes Top-Down and Bottom-Up Decision Making: it is all about (a lack of) trust.
What determines whether decisions happen on the bottom, middle, or top rung of the corporate ladder? New research offers a surprising conclusion: The answer often lies in the technology that a company uses. Information-based software systems, will push decision-making toward the bottom of the corporate ladder. Communication systems, such as e-mail and instant messaging applications, will push the decision-making process toward the top if there is a lack of trust by senior management. We knew that, it was one of the clear conclusions of the discussion at LEAP! Ambition Event, but it is interesting to read how senior managers with a lack of trust start micromanaging!
And that means developing an IT strategy isn't all about deploying the best technology, says Raffaella Sadun, an assistant professor of strategy at Harvard Business School who cowrote a paper titled "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," with colleagues from Stanford University and the London School of Economics.
Enabling micromanagement
In the past, communication often depended on faxes, overnight delivery services, "snail mail," or site visits. Even with phone calls, it was difficult for anyone at headquarters to make educated decisions and communicate them to branch offices. In those cases, it was natural to cede control of daily operations to a local manager.
With today's networking technologies, it's easier for top executives to keep a constant flow of communication with branch offices. However, the network may actually deter innovation. When technology makes it easier to communicate, erstwhile independent workers may find themselves pestering their bosses with e-mailed questions throughout the day. Micromanaging executives find themselves making all the decisions and constantly sending mandates down the corporate ladder.
"Whenever there is a reduction in the cost of transmitting information, it's easier for the person down in the hierarchy to communicate with the CEO," Sadun says. "And the CEO can monitor constantly what this person is doing and just give orders, rather than rely on the judgment of those below."
The research team evaluated data from some 1,000 manufacturing firms in eight countries, including detailed technology rollout histories and surveys that gauged the relative decisional autonomy of plant managers and floor workers.
The importance of trust
Sadun notes that technology is hardly the only factor that determines whether a firm allows decision-making both up and down the corporate ladder. Another major factor lies in cultural differences across and within countries. In a separate study, Sadun found that otherwise similar companies showed huge differences in decision-making tactics, according to their geographical location. Firms located in areas with high levels of trust tend to be systematically more decentralized than those in areas with low levels of trust.
Sweden and Portugal, for example, seem to be on opposite ends of the trust spectrum. "There's huge cross country heterogeneity in the way even apparently similar firms decide how to allocate decision rights within the firm," Sadun says. "Take Swedish manufacturing companies, for example. You see that they are completely decentralized, and the middle manager is basically a mini-CEO with loads of decision-making power. And then you take a firm that produces exactly the same good, but instead of in Sweden, it's in Portugal. And there, the middle manager doesn't decide anything and is completely dependent on the authority of the CEO.
"In our research," she continues, "we argue that different levels of trust are a key determinant of these differences. If a CEO can trust his senior managers, he will be more willing to decentralize decision-making. For example, there might be a lower concern about the fact that managers will use their power to pursue their personal interests instead of those of the firm."
More? Read the article by Carmen Noble in HBS Working Knowledge.
Print
