Information Technology, Organizations and People

Transformations in the UK Retail Financial Services

Jeff Watkins

• Publisher: Routledge
• Year: 2002
• Print ISBN:
  9780415181655
• eBook ISBN:
  9781134676095
• Topic: Business
• Subtopic: Business General
• Index: Business

This wide-ranging volume presents in-depth research into the effect of new information technologies on organizational structure, assesses their progress towards transformation and describes the changes they are making to long-established business process roles, cultures and working practices. The book is based upon a series of rolling surveys carried out between 1989 and the present day, and funded by leading organizations such as IBM and KPMG. It provides a detailed picture of a sector in transition during a period of anxiety and doubt dominated by restructuring, downsizing and experimentation with re-engineering. As the 'lean and mean' emerge, they must now ask themselves if their competencies will enable them to survive into the next decade as competitors, such as Sainsburys, Virgin, Microsoft and Ford position themselves to become major players in the sector. This book is a major contribution to the debate on the growth of knowledge work, the need for core organizational competencies in the information age and the need for evolutionary, or radical, change.

Part I

THE RESEARCH

1

BACKGROUND TO THE RESEARCH

This chapter describes the shift from the automating to informating uses of IT in the organisation through the 1980s to the 1990s, and the importance of integration in providing a platform for business transformation. It traces key shifts in IT/IS and organisational thinking and its influence on the strategies that organisations adopt to keep in step with rapidly changing conditions. It states the research questions and identifies the contribution of the research to the wider debate on IT for transformation. The treatment is not exhaustive but it is hoped that it is sufficient to give a taste of the key changes and to provide the context in which business transformation in the retail financial services sector is considered in the chapters that follow.

Information technology for transformation

In the early 1990s research reports in journals such as Business Week and the Harvard Business Review (Scott-Morton, 1991; Keen, 1991; Roach, 1991) focused on the disappointing results of the massive investments in IT in the services sector. Spending on technology had tripled between 1970 and 1990, yet white collar and office productivity in US businesses and organisations remained flat. Roach (1991) argued that the maintenance of current outdated IT infrastructures was adding to the burden of increasing costs in the services sector and that, for the majority of firms, the potential of IT had still to be realised. He advocated a strategic focus based on an efficient delivery system, a high quality product, and a flexible cost structure to ensure continued growth and global market presence. He stressed that the challenge was primarily managerial; that more effective ways of measuring and evaluating white collar productivity, quality, and IT were needed; and that outsourcing arrangements or strategic alliances would allow for economies of scale by sharing the costs of certain resource-hungry in-house functions.

Whilst making it clear that ‘economic efficiencies’ and radical change were necessary, Roach also warned that ‘overzealous cost cutting’ would ‘hollow out the sector’, affecting abilities to innovate, respond to customers, or provide quality service over the long-term.

Similar themes were developed in the The Corporation of the 1990s: Information Technology and Organisational Transformation, a collection of papers edited by Scott-Morton (1991). These papers described the findings of the ‘MIT90s Research Programme’, a five-year survey (1984—1990), supported by US industry and government agencies. It involved a multidisciplinary team with over 40 academics from the Sloan School of Management at the Massachusetts Institute of Technology in partnership with participants from sponsoring organisations. Its aim was to develop a better understanding of the managerial issues of the 1990s as they relate to anticipated advances in information technology.

Scott-Morton, like Roach, argued that, for the majority, the expected benefits of IT had yet to be reaped:

No impact from information technology is yet visible in the macro-economic data available. A very few individual firms are demonstrably better off and there is a larger group of isolated examples of successful exploitation in particular individual functions or business units. However, on average the expected benefits are not yet visible.

(Scott-Morton 1991)

Whilst the automating potential of IT had been exploited in the different functional areas, few organisations had a clear understanding of how to realise the potential of the data collected by their automated systems. Zuboff (1988) coined the term ‘informating’ to describe the process whereby these data can be combined or integrated to produce information that can be used to improve not only the process of production but also business coordination and control.

Advances in technology, especially the convergence of telecommunications and computing technologies, including corporate databases, present increasingly sophisticated ways of tapping the potential of integrated information. They can facilitate a level of connectivity between individuals, teams and organisations which enables a ‘quantum leap’ in the quantity, quality and range of stored organisational knowledge.

The combination of improved connectivity and improved organisational knowledge provides managers with increasingly flexible ways of managing and structuring their organisations. Using connectivity to leverage organisational knowledge and core competence is a key management concern in the 1990s. Knowing how to tap the potential involves a leap of the imagination. Moving from vision to practice involves the participation of all stakeholders in the organisation, directors, managers, employees, suppliers, and customers. It also requires a clear understanding of the risks. For example, whilst integration can generate information that broadens and deepens organisational knowledge and corporate memory, it can erode it too. There is already evidence in the field of inappropriate implementations leading to the loss of much of the specialist knowledge held in the separate functional areas.

New technologies support a whole range of new applications which create major challenges for managers and employees in shaping new ways of working and in balancing opportunities and risks to achieve mutual benefits and commitment (see Table 1.1).

Making the transition will be difficult without major changes in the way IT is managed, in employee competencies and in management processes. The MIT90s research stressed that IT cannot be considered in isolation, its potential for business transformation can only be understood if IT is viewed within its organisational context:

... to benefit from these shifts companies must learn one key lesson from the past and present – IT can’t be divorced from its organisational context.

(Yates and Benjamin 1991)

It stresses that IT’s role is an enabling role and that people, political and cultural issues, particularly as they relate to leadership, management control and employee participation, are central to successful change:

IT is only an enabler ... to actually change the jobs takes a combination of management leadership and employee participation that is, thus far, extremely rare.

(Scott-Morton 1991)

Table 1.1 New applications and ways of working: supported by connectivity
• Coordination of business tasks both within and between firms	electronic communication links facilitate integration between procedures, functions and organisations
• Freedom of location for individuals, teams and organisations	electronic communication links allow teleworking for home-based individuals; teams with different skills in different locations can work collaboratively, allowing organisations to set up in countries with low labour costs
• Support for group work and collaboration	electronic communication links allow multiple authorship, online tracking and monitoring of projects
• Electronic marketing, purchasing and trading	electronic communications link multiple buyers and sellers

In describing the ‘informating’ potential of IT, Zuboff(1988) highlighted the deskilling/reskilling and control/empowerment conundrum it presents. How far would the information generated be used by management to exert tighter control on their workforce or to empower them and encourage their participation in designing new processes? Would the skill content of their work be reduced or increased? Would there be more ‘knowledge work’ where those involved not only add value to the original information but also continually monitor and adapt their own work processes? Understanding the potential risks of informating is clearly of critical importance in realising the potential benefits for all, not just the power elites.

The MIT research suggested three broad reasons to explain why the expected benefits of the new technologies were not being realised and why the transition was so difficult in the early 1990s. Their arguments, which are summarised below, are consistent with the findings of other researchers in the field, and focus on the stage of IT development reached:

• Organisations are stuck in the automation stage. Many organisations have a legacy of isolated automated systems based on outdated technologies. Most of their IT investment is being used to add to these systems, to update them and to keep them going.

• They have made no real changes in the way they work or are organised. Much of the new sophisticated hardware is used to automate more of the existing procedures to speed up outdated tasks rather than to rethink them from scratch (Caulkin, 1991). Advocates of radical BPR such as Hammer (1991) argued that as new technologies, for instance document image processing, are introduced, organisations must reshape themselves around business processes instead of the traditional functional departments. Other authors, for example Nolan, stressed that there is no point bolting new technology on to systems designed to support traditional hierarchical structures.

• Their stage of IT development is not advanced enough to exploit the potential for transformation. IT in most organisations is still at a relatively early stage of development and its impact will be much greater with the assimilation of converging new technologies. Organisations which have passed through the early stages have gained much relevant expertise in managing technology assimilation and this should ensure smoother progress in the later stages of development (see, for example, Galliers, 1990; Earl, 1989).

IT in the UK retail financial services sector

The UK retail financial services sector faced similar problems in the 1980s and early 1990s to the rest of the services sector, with massive investments in information technology resulting in diminishing returns and growing top management dissatisfaction (Scarbrough, 1992).

During this period, research showed that some leading companies were in the process of developing integrated infrastructures, but that most were in the very early stages. Fincham et al.’s (1994) case studies of two strategic IT projects – the Bank of Scotland’s ‘Cabinet Project’, and Mutual Life’s introduction of a new customer database system – illustrate some of the difficulties they faced in the integration process in the late 1980s.

Research in the insurance industry (Watkins in Sturdy, 1989; Watkins and Harding, 1990) and the building society sector (Watkins and Wickrama-Sekera, 1991) found evidence of two stages of IT development. Most firms in these sectors had reached a stage, summarised as Stage 1 in Table 1.2. Their focus was on short term tactical IT solutions to meet their immediate needs for new kinds of systems to support new business. A few leading-edge companies were moving on from using IT for administrative efficiency to the improvement of service quality. They were trying to introduce new customer administration systems, marketing information, point of sale and branch systems which would provide better customer service, and opportunities for strategic advantage and business transformation, but their progress towards full integration was slow.

Table 1.2 IT development: the transition from Stage 1 to Stage 2
Stage 1: Automation		Stage 2: Towards Integration
• IT used for short-term tactical reasons		• IT as part of long-term strategic plan to gain competitive edge
• Reactive business IT strategy		• Integrated business IT strategy
• Administrative IT concentrating on efficiency and back office functions		• Market-led IT focusing on improved quality of service and flexibility of response
• Policy-based or account-based systems		• Integration of client administration, POS, marketing information and branch systems
• Static, administrative and paper-based management information systems		• Continuously updated quality management information systems

These new systems facilitated rapid communications and decision making which enabled new ways of working. However, the hierarchical organisational structures, so typical of the financial services sector, with many layers of command and with business processes broken down into narrowly defined tasks or procedures and spread amongst several departments, were too inflexible to accommodate new working practices. Whilst the technical constraints on creating an integrated infrastructure were gradually being surmounted, difficulties relating to the organisational and human factors, for example, the entrenched cultures and traditions of the status quo, were more problematic. Fincham et al. (1994) describe a management culture at Mutual Life in the late 1980s which was common in the sector at that time:

With product departments run almost as independent fiefdoms . . . with historic hostilities . . . there was strong evidence of a bureaucratic and fragmented structure.

(Fincham et al. 1994)

By 1990, most organisations in the UK financial services sector, as in most other sectors, were intent on tracking and controlling IT expenditure and on maintaining and updating IT infrastructures and applications to keep pace with the rapid advances in technology. They were looking for productivity improvements and were particularly keen to get more value from their IT investment by tapping the strategic potential of their information systems for competitive advantage. The notion that IT used in this way could enable the kind of transformation that would ensure their survival in existin...

Table of contents

• Front Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of figures
• List of tables
• Acknowledgements
• Introduction
• Outline of the study
• PART 1 The research
• PART 2 The financial services sector
• PART 3 Technology
• PART 4 IT and organisations
• Conclusion
• Appendix
• References
• Index