Journal of Scientific & Industrial Research Vol. 58, March - April 1999, pp 267-277

IT Networks and Organizational Design Complexity in Japanese Firms

Sam K Steffensen ISICS University of Tokyo/ CBS, Denmark Hongo 7-3-1, Bunkyo-ku, Tokyo 113, Japan

e-mail: ss.tyo@isics.u-tokyo.ac.jp

The current state of Japanese corporate information systems has been examined to find out which specific organizational design issues and features are entailed with the introduction of network information technology. On the basis of newer theoreti­cal works, empirical studies, and data sources it is argued that: (i) The progress in networked info-communications technology poses momentous challenges to the hitherto celebrated taci t knowledge structures and organizational learning in Japanese firms , while the activation of new forms of multimedia conveyed knowledge creation becomes essential; (ii ) In recent years informatization trends have resulted in a generally widening gap in the informational production level between large and small firms, particularly in manufacturing; and (iii ) The introduction of networked informat ion technology in Japanese-type corporate organizations is normally involving transformat ions primarily driven by supplementary adjustment logi cs rather than drastic substitutionary interventions, leading to corporate organizational structures characterized by high degree of complexity which IT networks can instrumentally support.

Introduction The development and spread of digitized information

technology (IT) networks is expected to impel essential transformative socio-economic activities. Fundamen­tally, the expectations move in two, usually interrelated, directions, namely : (I) the conversion of existing struc­tures, and (2) the emergence of new innovative modes of conduct.

From a business perspective these directions prima­rily correlate with the ongoing processes of corporate restructuring and the advances of new business ventures. This paper primarily focuses on some of the transitional aspects being imposed on existing Japanese corporate organizations.

Due to their generic socio-technological characters, the design and introduction ofIT-based network and mul­timedia services make up an interesting testing ground for managerial and organizational change studies. Ar­guably, this perception is gaining particular relevance in the case of Japan, being in the process of undertaking fundamental industrial restructuring, while usually be­ing recognized for its pronounced reliance on human networks and social exchange dynamics. Duly recog­nizing that the introduction of IT networks is far from the only factor influencing corporate restructuring, the

interest largely concentrates on impacts and strategic issues embodying IT mediated organizational designs . It is assumed that IT offers a new ground of opportuni­ties for designing complex and competitive organiza­tions. Concurrently, the speed and volatility of techno­logical progress tend to force social organizations into reactive positions. The basic research interest of this paper is, therefore (a) what is the current state of Japa­nese corporate informatization? and (b) which specific organizational design issues and features are entailed with the introduction of networked IT into Japanese cor­porate systems?

The research work embraces newer theory, Japanese data sources, empirical survey reports, and own inter­view materials. Methodically, The paper is organised in four tightly interrelated main sections, dealing with:( I ) Theoretical issues and approaches; (2) Networks, Knowl­edge and Organizational Transformations ; (3) IT and Open-Style Management Requirements; and (4) Design and Redesign of Organizational Complexity

IT networks and Japanese-style Organizations -Theoretical Issues and Approaches

With a tendency to flatten organizational structures, open networks, incite direct decision-making, enhance

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differentiation among workers, put less emphasis on face­to-face contacts, and so forth, it is believed that the in­troduction of IT represents a challenge to the Japanese organization and management style.) Information tech­nologies, like many other new technologies, simulta­neously pose a threat and opportunity in relation to ex­isting social networks, societal principles, and spheres of human interactivity. In the discussion and planning of social usage of new technologies, many scholars tend to belittle social evolutionary forces. Nohria and Eccles2,

for example, point out that

network organizations are not the same as electronic networks, nor can they be built entirely on them. . .. The question is whether these electronically mediated exchanges can be as effective [as relationships based 0 11 face-to-face illteraction 1

Such observation is, however, trivial, and the gener­ated discussions of little interest. Moreover, the subse­quent question is misleading. Besides being meaning­less when posed generally, it is caught up in a categori­cal dichotomy that is not, and should not be, real in the information age. Essentially, electronic information net­works are not representing equal substitutes to inter-per­sonal relationships . IT based corporate networks are work tools introducing different types of efficiency per­formance and opportunities. These cannot, however, be matched, neither ignored, by personal relationship based interactions, and vice versa. IT systems have to be shaped and selectively adjusted to needs and reality. The deriv­ing multiplicited supplementary utility framework re­sults in a widening space of possible strategic choices and approaches to organizational design .

Evidently, face-to-face contacts are characterized by co-presence and widely scaled human interactivity. As such, these cover an extremely varied spectrum of sub­tly rooted relational moods and objectives . Other means, or media, of communicative action may, however, in certain situations be deliberately preferred in case such are available and appro riate. Many of the features be­ing unique to face-to-face interaction may be regarded as noise in given situations, or as simply not desirable in the present state of affairs. The constant increase of com­munication flows will produce distinctive limits to how many full-scale communicative impressions it is pos­sible to cope with individually. Indeed, agents may see electronic network mediated communication as being the potential carrier of liberation from hampering social

structures such as traditionalized behavioral rules, preju­dice, and appearances. Based on this understanding, net­worked info-communication technologies possess instru­mental features of great relevance to corporate organi­zational restructuring.

First, from a Japanese intra-firm organizational per­spective, a different approach to the heretofore theoreti­cal views on uncertainty and ambiguity environments is suggested. In general, the challenges related to imper­fect information in organizations are increasingly being part of an agenda shifting its main focus from scarcity to overflow. Moreover, ever growing speed and rich­ness of flows are chief factors sustaining the threat of information uncertainty both internally and externally to organizations. Not surprisingly, most theory on IT networks and organizations is premised on the assump­tion that complete information certainty and unambigu­ity is the commonly perceived goal to be attained. How­ever, this is not always the case in the real world . Many Japanese organizations are inclined to maintain a cer­tain degree of uncertainty and intransparency, primarily as internalized mobilization incentive. It is hypothesized that , in such cases, the uncertainty and equivocation pervaded environments are particularly serving as sup­port mechanisms for unitive interdependency structures, immanence, and tacit knowledge-oriented learning or­ganizations. Forces within organizations can easily have an interest in sustaining uncertainty and (managerial) imperfections in order to protect and promote inherent relational structures. Considering IT as a force ' unfreez­ing culture' it is, actually, conceivable that the more in­troverted a corporate culture is , the higher the likelihood that some intrinsic anti-moods prevail and will achieve a saying.)

The fact that information management studies in Ja­pan have predominantly been displaying an infornlation­processing perception of organizations points in the same direction. Accordingly, organizations in themselves are understood as information processing systems. Ifuncer­tainties raise their process capability is assumed to grow accordingly in a somewhat organic task-group centered manner.4 This is , however, far from implying that social dimensions are being ignored. Rather, the so-called 'J­firm' corporate network organizations, their distinct com­plex information systems and accompanying indigenous information coordination and processing skills are al­most taken for granted . As proved by Castells, this per­ception can, actually, be verified socio-structurally by

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STEFFENSEN IT NETWORKS & ORGANIZATIONAL DESIGN COMPLEXITY 269

looking at the actual employment figures and classifica­ti ons for Japan in an international comparison .' The fig­ures substantiate that Japanese !nformation processing tasks to a great extent have been , and still are , function­ally embedded in the produc tion process . Organizations have, in a rather natural and 'invisible' manner, tended to in tegrate information process ing into the entire pro­duct ion flows. Consequently, soc ial dimensions of or­ganizations in Japan are frequently being discussed in respect to company/sector managerial cultures either constraining or facil itating the introduction of particu­lar IT networks and multimedia systems ."

Almost unanimously, top management leadership within the company is assessed to be of growing impor­tance to the successful promotion ofIT systems and mul­timedia services. Also the upbringing and activation of OA leaders in every department is regarded important. Furthermore, it is widely contended that management styles and work processes should be reformed synchro­nously. Conversely, high initial and operation costs, and the lack of top-management leadersh ip, recognition , lit­eracy, and system technology are regarded as primary obstructi ng factors.7 Consistently, constructive top man­agement participation is judged as be ing crucial to suc­cess. However, studies and interviews reveal wide dis­tance between 'good ' top-down (progressive and flex­ible) and ' bad ' top down structure (conservati ve and rigid) in Japanese organizations. The former can be cat­egorized as successful participatory management prac­tice whereupon top management clearly takes the lead by setting examples. Managers are expected to launch actual design examples and 'spirits' that strive to bal­anCt~ the introduction of new business process strate­g ie~; , embracing the potentials ofIT, with generally con­vincing transformations of existing human resource man­agement cultures. Managemen t by examples, in respect to the introduction of info-communication technologies, does not necessari ly imply that CEOs and top managers stand up and promote themselves as role models.x Rather, in a Japanese context, it implies promotion of progres­sive spaces (e.g. project teams and departments) which deliberately serve as visualizers and benchmarkers in front of the entire organization. Case evidence among Japanese SMEs, introducing IT systems into their orga­nizations, indicates that some of the best results are achieved under the leadership of so-called 'hybrid man­agers', i.e. managers commanding an adequate blend of technical skills and business knowledge. Y Such leaders often become the entrepreneurial founder and manager

of the firm . However, formal hybrid manager ski ll struc­tures alone do not automatically imply sufficient capa­bility to spur organizational designs apt for socio-tech­nical change. In general, a quest for more profess ional and convincing managerial leadership and responsibil­ity latently exist in Japanese organizations .

It Networks, Knowledge, and Organizational Trans­formations

An information economy sustains the belief that a flat organizational mode, in which operational task s and coordinational tasks are integrated, will be more pro­ductive than traditional hierarchies. Concurrently, in­creasing demands are put on firms' creativity and fl ex­ible organizational switching capacities. III The progress of information technology shortens the lifecycle of prod­ucts while enhancing the importance of speedy business processes, e.g. time-to-markets and swift localized de­cision-making. Moreover, the current trend of globaliz­ing network industrialization sets focus on firm's ab il­ity to enter into strategic alliances and cooperative rela­tions . Much suggests that the present international busi­ness environment increasingly forces firms to act ac­cording to the dictates of what fro m a game-theoretic viewpoint has been coined 'co-opetition' . 11 Evidently, as the distance between production and science con­stantly narrows, this applies in particular to R&D inten­sive operations. According to Konsynski and Karimi 12

Coordination and partnership across complex networks of organizationally and geographically distinct entities dispersed worldwide is becoming a primary source of

competitive advantage.

In support of this set-up lies the fact that, besides be­ing remarkable processors and calculators, computers (including computer integrated devices) are playing a core function as coordination technology, linked into ex­tending networks ordering and coordinating activities and information flows. Electronic IT network systems, such as EDI, LAN, CALS, Intranets and groupware, are, for example, becoming indispensable state-of-the-art so­lutions to cost-efficient coordination of large supplier networks and HRM. Essentialiy, the coordination power induced competitiveness synergism of these corporate information systems predicates strategic formation of open decentral ized networks

Concurrently with software standardization, integra­tion, and open flexible network systems becoming the

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norm, many of the social-exchange ensphered coordi­nation skills of Japanese organizati ons are becoming less important. Confronti ng a present-day bus ine s en­vi ron ment , demanding more stress on creativ ity, bottom­line results, and speedy alliances beyond company frame­works than on internal coordination, the Japanese-style organization needs to reduce its attention to internal con­sensus features. The question therefore ari ses how to make effecti ve use of IT in the process of transforming traditional organization sty les? Accord ing to Malone and Rockart, a first-order effect is to substi tute information technology for human coordination. I} With the typical Japanese hierarchy being di stinctly inflated in its middle layers this translates into an immediate limination of clusters of middle managers . Evidently, stra ight-for­warded lay-o rfs in labour intensive sectors have played a central role in the Western business res tructuring ex­perience. Again, however, substitution represents a too si mplified managerial approach. First, it is conce ived that some inveterate social structures may constitute real assets if wi sely formi ng part of a network organization fit for the info rmation age. Secondly, the overall social envi ronment thoroug hl y di scourages such conduct. Th irdl y, an agenda for IT medi ated transformation s should be careful not inflicting setbacks in organizational strength features underpinning human resource deve l­opment practices and knowledge creation .'4

Generalists-oriented middle-management organiza­tional redundancy has, for instance, been interpreted as part of an entrepreneurial 'middle-up-down' manage­ment style in Japanese firms ." The role of these middle­layers as processors and mediators of tacit knowl edge has especially been appraised in the context of incre­mental process innovation and organizational knowledge creation processes. According to Nonaka. 'o

Intense interactions where infonnation is redundant fa­c ilitate the transfer of tacit knowledge among team members. Since members share overl apping informa­tion, they can sense what others are trying to articulate. Especially in the concept deve lopment stage , it is criti­cal to articulate images rooted in tacit knowledge. Mean­ingful information ari ses as a result of the conversion of tacit knowledge into articul able kno~ledge . Redun­dancy of information facilitates this process.

Following this argumentation, the elimination of re­dundancy structures among the middle-layers would in many instances lead to unintended results.

Although there is a lot of tru th to th is view, notabl y in respect to human resource development and working task flexibility, it lacks soc io-technological dynamic . Along with the progress of networked IT and the scientific methods of production new forms of workforce intel­lect and creativity are in demand. Knowledge being ef­fect ively integrated into innovative global partner-based R&D activities is increasingly sc ientific and stahdard­ized in nature. 17 Shared information (both stock and fl ow), subjecthood orientati on and end-use r comput ing are forming basic user princ iples behind Data bases, Warehousing, Groupware, Intranet, and many othe r IT system services. Presumably refl ecting the typical team­oriented work styl e of most Japanese organizati ons Groupware solutions (e.g. Lotus Notes) have gained considerable popularity. Also the implementat ion of In tranet systems have grown rapidly since 1996, although user surveys and cases report some diff iculties in mak­ing comprehens ive use of the ir potentia ls. I II Obvious ly, the introduct ion of IT systems, in whatever ca tegory, implies that Japanese organi zations need to culti vate much more 'computed' knowl edge exchange upon the base of former tacit knowledge structures. 19 One issue at stake, is to recon struct company's internal communi­cation via Groupware in ways transcending barriers of immanent tacit knowledge dependencies . It is , for in­stance, conceivable that Japan's hitherto backwardness in organizational computing may partially refl ec t workforce redundancy and deliberate stress on tacit knowledge within and between organizations. In any case, the very speed of international business processes outdistances institutionalized middle-up-down manage­ment (whether really existing or not) and much of the redundancy entailed . Much of the ' tacit knowledge-ism' attributed to Japanese firms represents inveterated ways of sustaining introverted information uncertainty envi­ronments and configured power relations. In support, recent research confirms that tacit knowledge thrives particularly well in definite demarcated systems and long-time interconnected worker communities.20 The in­terwoven nature (e.g. sustained through intensive work force transfers) of Japanese organizat ions, therefore, needs critical considerations vis-a-vis the implementa­tion of indispensable reforms complying to the chal­lenges posed by networked IT and global industrial com­petition dynamics.

What new organizational design outlines based on the impact of IT are then under emergence? Eccles and Nolan, for example, identify two basic levels of des ign

STEFFENSEN IT NETWORKS & ORGANIZATIONAL DESIGN COMPLEXITY 271

entailed, namely superordinate des ign and self-design ('adhocracies') .21 The superordinate design implies se­nior management respons ibilities, primarily related to framing contexts for swift decision making processes and outlining infrastructural support for se lf-designed knowl­edge-worker activities. Self-design underscores the au­togenous team-centered organic character of the network organization. Such design princ iple is being indicative of a rising tendency towards task-oriented organizations which, inc li ned to quick individuali zed j udgments and responsible decision-making, are being more concerned wi th the efficient accompl ishment of tasks than firm boundaries and traditions. Hence, greater leeway to self­design, either within project groups or subsidi aries, is reported as be ing one of the restructuring aims of many Japanese firms . Naturally, th is objective contributes greatly to exert influence on the ex ist ing inst ituti onal­ized Japanese human resource management system and invites IT based databank support and coordination sys­tems. In the case of superordinate design, the framework for such practice should, in general, not be al ien to Japa­nese organizations. The entailing requirements do, how­ever, challenge some current inert ia syndromes prima­rily deri ving from internalized management st ructures and corporate governance practice .

IT and Open-style Management Requirements

A large share of the constant product innovat ions done by Japanese manufacturers, particul arl y in electronic goods , has taken outset in the conquering of 'Ford ist ic ' consumer markets, proprietary standard creation, and ' lock- in ' oriented value-adding strateg ies. The, hitherto­int roverted nature of Japanese producti on management and business processes is be ing reflec ted in the current inter-fir m organizat io na l structure . The Japanese keiretsu- type busine"s groups ha e each formed the ir extended multi- level hierarchical supply cha ins and linked these up with own network information exchange standards. However, network economics per se invol ves competition dynamics of diverging nature from those instigated in the 1980s by fl exible specialization strate­gies based on computer-a ided product ion automation technologies. For example, the dynamic de facto user standard spreading effect - n(n- I )/2 - of networked prod­ucts and services engenders economics of scope and, in most instances, scale strategiesY Such network effect is, for instance, framing many of the crit ical mass and inter-connecti vity prospects embedding the progress of

new business strategies relating to CS digital broadcast­ing and onl ine marketi ng services. Fundamentall y, the more users (customers), the more utility-value (satisfac­tion) paradigm const itu tes an immanent driving force behind de facto standard objectives and open networks. For most indu strial sectors this implies that a tran sfor­mation from ' introverted-type management ' to more 'open style management' is required. 23

In terms of in troducing organizational computing and open computer networking, a striking di screpancy ex­ists between large manufacturers and small lower- level subcontractors. Authoritative survey data collected dur­ing 1997 among manufacturers, confirm that small-scale enterprises are lack ing conspicuously behind in terms of computer use and electronic network ing. As regards the internal online situat ion , 42.6 percent of the small­sized manu fac turers (>20 employees) reported that they were not made onl ine, while 46 .3 percent responded "no re levance" as they operated only one computer. For middle-sized manufacturers (20-299 employees) the fi g­ures were 25.2 percent and 46.5 percent , while figures fo r larger manufacturers were stated as 3.2 percent and 6.4 percent , respecti ve ly.24 Obviously, the shop- floor

centered work , learn ing and management practices of most Japanese SMEs facilitate c lose face-to-face con­tact between top-managers and workers , as well as among workers. Because of these, usually highly val ­ued, close face-to-face interchange structures, internal use of online computers is ra rely judged an urgent , or even relevant , management goa\. In fact , data reveal that internal online use of computers is comparativel y far more widespread in these SMEs where managers prac­tice indirect cantroi of work and busi ness processes.

Another expl anation is rooted in the industrial struc­ture . With a comparatively high rati o of its prodl1ction subcontracted to its elite compollent suppliers on a stable long-term basis, the parent manufacturers usually only deal d irectly (online) with these first-level business part­ners. While it is not unusual for a large Western manu­facturer to lin k directly to some thousand suppliers, the number in Japan is normally only a quarter to a third of this. Hence, stable hierarchical transaction patterns fa­ci litated by distinct di versification processes of the Japa­nese industri al system have, so far, reduced the need fo r open computer networking. Actually, top-effi cient pro­prietary electronic communication sys tems between par­ent manufacturers and their in timate elite suppliers have

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ex isted for long and supported fine-tuned logistics up­holding ex ce llent industrial performance records. This in ternalized system infrastructure has, however, also translated into a dependency on expensive cLlstom de­veloped software solut ions. In an era of packaged soft­ware, Japanese firms are now impe lled to embrace more standard ized solutions. Hereby, they are not only saving considerable costs but also getting access to prec ious updates and innovation s, for in stance, assisting them in address ing changing markets . Characteristically, firms are not embarking on total switch strategies. Rather they are lead ing the demand for new types of fl exible pack­aged mix-and-match products (e.g. SAP R/3 ERP). Struc­tural facts also point to the importance of studying ex­isting network formations in user env ironments . ~5 An additiona l reason, rooted in the soc io-pol itico structure, relates to the fact that the comprehensive public SME­oriented policy programs in Japan have largely perceived the ir leading mission as 'protecting' their target group. Thi s reac ti ve logic has in subtle ways penetrated the managerial mind of many small-scal e enterpri ses.

For Japanese industry, in general, required costs and management resources have been two recurring main concern s related to informat ization. Moreover, along with the diffusion of c lient-server information systems and network computing, transmi ssion security and pro­tection of know-how, privacy and property rights are being real , and often unprecedented and unforeseen is­sues of growing concern to Japanese firm s.21i The spread­ing use of Internet-based (including Intranet) informa­tion systems in recent years has given further impetus to thi s concern . In many instances the security concern has a particular obstructing effec t on the informatizat ion of SMEs, which seldom are sufficiently servi ced by pro­fess ion al system specialistsY Furthermore, seen in the light of narrow industrial producti vity measures a cer­tain re luctance could, at least up till recently, be justi­fied in various industrial sectors. Known as the 'pro­duc tivity paradox ' of IT, essential discuss ions have evolved around the fact that ordinary economic statis­tics generally end up indicating a negati ve ly, or largely neutral , correlating trend between IT deployment "nd productivity. 2x Indeed, in the face of an economic reces­sion and ongoing restructuring processes, such di scus­sions are of relevance to Japanese firms. Thi s paradox, however, primarily reflects transformati ve instabilities and irrationalities, for instance in respect to technology and contents maturity, during the formation period of a

global izing informational economy. And, to a still larger ex tent, it rather reports about the inadequacy of tradi ­tional economic statistics in grasping the generic char­acter of organizational and economic dynam ics of the information age. Such inadequacy surfaces, for example, in respect to market expansions, integrated value-chain effects, professional quality standards, management of 'intangible ' intellectual assets, digitized network dynam­ics, technol ogy convergence, etc.29 Hence, recent d is­cussions in Japan, on reasons why investment effects are not showing as expected, have directed much of their focus toward s latent frictions in the organizational set­ting and operational environment of the firms.'f)

In fact, against much hype, lotal Japanese investments (public and private) into informati zation took a down­ward turn in the earl y 1990s . The growth in private informatization investments went negative in 1991 , but recovered duri ng 1993. Finally, reflecting the mu lt ime­dia and Windows 95 boom, an overall growth was re­corded in fiscal 1996, to reach 6,9 trillion yen." Up­holding the trend, 5 1.2 percent of large companies re­ported increase in allocated informatization budgets for fiscal 1997 (26.9 percent no change), against 52.4 per­cent (31 .3 percent no change) for middle -s ized compa­nies. Internet use, in particular, jumped from 11 .7 per­cent (regardless of firm size) in fi scal 1995 to 50.4 per­cent in fiscal 1996. A survey of April 1997 reveals that while LAN is the dominant network in use within the domestic company framework, business Internet is the most frequent used network as soon as communication exceeds the company framework (domestic and over­seas).'2 The LAN market (service, soft ware, hardware) has recorded some fifty percent yearly growth in the period 1995-1997. Thi s testifies to the fact, that many Japanese companies are graduall y implementing open network structures. Moreover, many Japanese compa­nies have thoroughly started to realize the opportunities of the Internet, also as part of their expanding Groupware support system. Again, however, remarkably few small manufacturing suppliers have started to · tilize the open Internet structure strategically to colonize new markets and enhance competitiveness. In 1997, almost eighty­five percent of the large manufacturers ( ~300 employ­ees) were familiar with the Internet, compared to less than ten percent of small-size manufacturers (>20 em­ployees); 21.4 per cent of the small manufacturers had no knowledge of the Internet.

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STEFFENSEN IT NETWORKS & ORGANIZATIONAL DESIGN COMPLEXITY 273

EDI is another IT network system area (data controll process controllnetwork control) reflecting the Japanese industrial structure and part of its restructuring agenda. Japanese company groups have, for years, built up costly proprietary and customized solutions ultimately result­ing in a fragmented infrastructure of numerable incom­patible EDI systems. Lately, however, Japanese busi­nesses have shown a coercive effort to unite to a set of national compatible 'CII syntax rules' designed partiCll­larly for Japanese transaction practices. The cn stan­dard parallels, and subordinates architecturally to, the internationally accepted EDlFACT standard and the syn­tax rules handled by ISO. The use of EDI began early in Japan, especially in the retail industry (e.g. EOSIECR/ POS), and is now manifestly developing its management domain from only embracing company groups (propri­etary/online system) in the 1970s to a fully international scope (public/global network system) in the I 990s.33 Ac­cording to MPT, the corporate EDI ratio reached almost forty percent in 1996, but is still conspicuously concen­trated among larger sophisticated ones.34 Still, reluctance among many SMEs exists despite the obvious poten­tials and institutional support being offered . Public sur­veys demonstrate, for instance, that far more than half of the manufacturing and trading SMEs have no knowl­edge of EDI and CALS. This is further confirmed by 1997 surveys on computer-based tele-ordering (in/out) among Japanese manufacturers. Here 95.7 percent of small-size manufacturers , and 72 .3 perecent of middle­size manufacturers , report they currently are not using computers (but telephone or fax) to place or accept or­ders .3s Moreover, the introduction ratio of LAN among SMEs is about half of that of their American counter­part. It is conceivable, however, that cheap, secure, easy­to-handle, customized Internet EDI solutions (e.g. TV mediated) aimed specifically at SMEs in general will make up a technological key approach leading to a real breakthrough . Most Japanese corporate users of EDI also point out that efficient day-to-day operations tend to be founded on carefully executed face-to-face pre-arrange­ments , hereby underpinning the supplementary utility orientation. Meanwhile, an overwhelming eighty per­cent of the users recognized increased efficiency in busi­ness operations. Improvements relate, for example, to lead time reduction in component procurement and shrinking component storage. Again, the case of EDI use gives indication of a general widening gap betwe~n the international competitiveness of primary suppliers and lower level suppl iers.

Design and Redesign of Organizational Complexity

As also underlined by EPA, the growing use of IT is increasingly placing limits on the traditional practice of fostering internal supplier-manufacturer relationship embedded technological development processes. on

Hence, in compliance with globalizing techno-economic competitive principles, the progress in information tech­nologies causes Japanese companies to reorganize their supplier networks. The design of open and flexible ex­tended networks are required to upgrade fast-product­cycle industrial management, take advantage of value­adding synergy effects, and make increased strategic use of external resources on a global scale. Indispensable specialist-oriented team dynamics behind continuous R&D based innovation processes and the influx of new technologies constitute major push factors. Also, grow­ing cross-national collaboration agreements and R&D intensive corporate alliances involving Japanese manu­facturers compel these to diversify their networks and supply linkages. Rearrangements are often prompted by international business developments and influencing de­velopment patterns of overseas production networks. For instance, Japanese manufacturers are increasingly incited to extend their hitherto transactional relations, such as OEM contracts, to outsourcing oriented strategic R&D collaboration agreements with foreign manufacturing partners. Just judging narrowly from an ordinary eco­nomics of transactions perspective, an intensified use of IT interchange incites Japanese companies to make in­creasing use of organization external sources of produc­tion and specialist skills. Decisive is, however, the fact that companies concurrently are capable of imposing their minutely systematized supply and quality control standards. The elaborate manufacturer (procurer)-sup­plier relationships and logistics in the complex Japanese industrial network formations are rooted in technical perfection and interlinked activity spin-offs. Such branching-out dynamics show that tightening and loos­ening of company boundaries occurs constantly. Mean­while, Japanese firms tend to nurture a clear perception of their structural boundaries internally, as a disciplined meaning embedded system of spaces . This is , for in­stance, reflected in Takagi's stress on the internal-model concept in his 'poly-agent systems theory' for informa­tional networks .'7 The theory claims that a 'poly-agent society' is under format ion , where firms, as corporate network agents , each construct their own internal mod­els and link up with external systems to enter market

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transactions through the form of 'poly-agentical' client­server relations.

The international firm of the information network age must be conceived as an entity which commands an ex­panding variety of synchronically managed industrial network relations developing over time. Indicatively, the spread of digital information networks gives rise to vir­tual corporation concepts and, especially, provokes a range of new coherence-concerned theories on the firm .ox What in newer business literature often is denoted 'the extended enterprise' is essentially reporting about ex­tending operations and alliances beyond organizational frameworks due to extended flexible network structures. Seen from the viewpoi nt of a typical inter-networked Japanese firm, increased open strategic transaction pat­terns beyond the company framework represent almost a third dimension in the organizational texture (for in­stance, embodied in rapidly dispersing Extranet designs). Intra-firm reforms, diversified organizational external­izing patterns, and genuine outsourcing strategies are now often forming part of the same managerial agenda. In fact, Japanese manufacturers have lucid interests in selectively maintaining some of their well-established closed-network features. Anchored to the technological leadership and capital goods export orientation strategy of Japanese economy, manufacturers are consciously eager to upgrade internally while preventing core know­how and skill-formation outflows. Moreover, Japanese­type production networks often command a built-in flex­ibility against external fluctuations . On this backdrop, Japanese firms often endeavor to design IT strategies for complex organizational frameworks serving competi­tive strengths linked to both open and more closed net­work structures.

In order to understand how Japanese organizations manage such transformation, the importance of space creative solutions must be taken into consideration. Or­ganizational space creation clearly conjoins with recent theoretical attempts to order and explain corporate modularization concepts, but from a somewhat differ­ent outset less rooted in outright vertical integration para­digms and production-economic typologies.>') However, both categories apply that advanced info-communica­tion technologies are fundamental prerequ isites fo r effi­cient and process-oriented organizational design. In this context, space creation may be perceived as a socio- mor­phologic activity, or approach, aimed at facilitating en­visioned organizational behavior and transformation . The creation of organizational spaces can as well represent

forced strategic responses, building up complexity less driven by managerial visions than by customized accom­modating reactions, in the contlictual zone between so­cial integrity and structural challenges. Due to the flex­ible organizational patterns and integrated group-based work-sharing and learning processes in Japan, space cre­ation strategies are turning especially relevant in the man­agement of change. For many managers spin-off opera­tions represent space creation strategies potentially ca­pable of realizing what often is an uphill task in the ex­isting internal organization. The primary role of new organizational space designs can be highly diversified, stretching from parking sites for surplus workers to highly specialized international R&D hubs or head-quar­ter functions. A growth in number of subsidiaries, com­pany ventures, and related company constellations bear witness to increased restructuring efforts, particularly in respect to human resource management (primarily personnel transfers) and technological innovation (pri­marily new business development). Meanwhile, these externalized entities are expected to, one way or another (i.e. rarely systematized), become capable of transfer­ring technologies, knowledge and 'spirits' back to the parent company. In this respect, complex organizational space creation can be seen as manageria l strategies to construct evolutionary learning organizations and seek innovation potential through the formation of network resource complementarity.

Concluding Remarks The findings and theoretical propositions suggest that

Japanese organizations, supported by info-communica­tions technology systems, both in their internal and ex­ternal relations, are gradually opening and diversifying their network relations. In most instances, their approach tentatively takes outset in supplementarity to existing complex information systems, somewhat different from the way many US firms have adapted their organiza­tions to their strategic information systems. In respect to the introduction of advanced IT systems, it mean s that their implied open network infrastructure is often initially dealt with as superstructures to existent organi­zation infrastructures . Spaces for open networking are being created and introduced piecemeal to the entire organization. Meanwhile, existing organizational assets, for instance inter-personal and inter-organizational com­munication exchange structures are, to a considerable extent, sheltered from dramatic changes and efforts are mobilized to prevent techno-paradigmatic clashes. More-

STEFFENSEN IT NETWORKS & ORGANIZATIONAL DESIGN COMPLEXITY 275

over, an IT infrastructure supporting inter-organizational information flows and shared information is important in order to benefit from the externalization synergy and sustain organizational coherence. However, the coordi­nating power of computer networks and the quest for explicit knowledge performance, among other things, will impel a shift from redundancy to well-defined complementarity structures , for instance on external contract terms, and slimmer organizational profiles.

The global move towards more open network indus­trialization, management and standards will expose Japa­nese firms to fierce competition forcing production man­agement upgrading, value-chain refinement, and clever strategic use of external resources. However, it is seen that Japanese firm s intend to embark on wide-ranging, and largely irreversible, outsourcing strategies at the expense of organizational spin-offs. The Japanese case of industrial organization may, however, lend structural support to the hypothesi s that spreading IT networks generally are leading to smaller organizations. Such net­works, as be ing especially apparent in the case of rap­idly diffusing Internet-based systems, are technologically fit for supporting the complex Japanese-type industrial networks. Meanwhile, IT network designs inherentl y functi on as strategic tools for stepping up the value-chain and time-to-market processes. Hence, an ongoing effect of the present industri al upgrading in Japan , vi s-a-vi s comprehensive IT sys tem integration and the implemen­tation of new sys tems, eventuall y turns out to be increas­ing co-sourcing and more open strategic network rela­tions, combined with rationali zation of traditional non­networked bottom-level suppliers. In general , an infor­mational backwardness of small manufacturers is ob­servable. Data indicate that this situation may aggravate under the present economic recession , inflicting an im­pact on the Japanese industrial system.

Finally, it is obvious that complex organizational space creation has its limits as pure ' pretext devi ce '. On the other hand, the proactive venturing role in regard to ac­tiv ity expansion and transformation holds noteworthy potential which can not be ignored . Organizational spaces can be designed as laboratories for new IT-based work, learning and management practices with a solid working capital base. In such cases, one can argue that these spaces have a management supporting role to play in respect to the growing ques t for management by ex­amples practices. Likewi se, organizational spaces are being created as speciali st-o riented entrepreneurial units fit for new business activities. Such units are, for ex-

ample, created with the aim of exploring and develop­ing the largely indigenous principles of network eco­nomics constituted by the progress of digital informa­tion networks. For instance, the conceptualization and operation of innovative platform businesses on the elec­tronic market and the factual existence of entrepreneur­ial knowledge-workers in self-designed open networks are tightly intertwined. Hence, the corporate tran sfor­mation process towards open network management hinges in several ways upon the ability to attain con­structive feedback from these entrepreneurially miss ioned organizational spaces . Simultaneously, this has to be balanced against the requirements of these for optimum independence and extroverted engagement. A primary strength of the supplementary approach is founded on the fact that it builds upon existing multi­faceted networks and a strong manufacturing base.

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STEFFENSEN IT NETWORKS & ORGANIZATIONAL DESIGN COMPLEXITY

Sam K Steffensen obtained M.A. degree in socio-technological plan­ning. Furthermore, he holds a Ph D from University of Copenhagen in Denmark, and one from Kyushu University in Japan. Professionally he has been working with Ernst & Young for several years. Presently, he is assistant professo~ at Copenhagen Business School , independent business consultant, and JSPS fellowship researcher at ISICS, Uni­versity of Tokyo.

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