Monthly Archives:March 2012

2. Management of organisations and its effectiveness – a short discussion of definitions and examples of the involvement of new technologies

Admin post on March 25th, 2012
Posted in Banking

The relevant literature emphasises that changes to the environment in which an organisation operates undoubtedly affects its internal subsystems, and thus the entire system. As A. Peszko describes, an organisation consists of ordered and correlated sets of elements. Thanks to this order and correlation, the system’s elements can function together as an entire system.  According to the author, this system is opened by close links with the environment in which the organisation continues to exist and develop at the same time. He indicates that changes to the environment may be an opportunity for the organisation, but also a risk which could threaten its existence. Thus the organisation must observe its external environment, and consequently adapt to changes. It must therefore be an adapting system. This is because it is the effective adaptation to currently prevailing conditions that makes it possible for an organisation to achieve its planned objectives.  Such adaptation also relates to banks, which must “keep up” with the process of modernization in the technological environment and societal expectations associated with the desire to make active use of technological advancements. Changes in the organization of banks cannot be based on “occasional” activities but must instead involve strategic thinking to equip banks with modern technology.1

L. Krzyżanowski describes the objective of the organisation as a future oriented state, requiring the organisation to act by a specified date (or within a specified period) to achieve its specified action plans. The author also asserts that the most important goal of an economic organisation (such as a company) is the maximisation of profit, which exists, for example, when the value of goods sold or services performed exceeds the costs of producing those good or services, and where this excess value is maximised.  The amount of this excess is dependent upon many factors, such as: the quantity of goods sold or services performed, the cost of acquiring those goods or services, the productivity of the labour involved in production, and the amount of other expenditure incurred in production. These factors are related to another objective of an economic organisation, and that is to improve efficiency.

The term efficiency initially related to the achievement of certain results, but in time it started to be compared with achieving favourable results or favourable actions in the scientific vocabulary. O. Lange notes that a principle of rational action is to act in a manner to maximise results in accordance with organisational objectives while using minimum resources. The effective action praxeology distinguishes the constituent elements of such action: efficiency (which is the degree by which an intended results are achieved) and economy.

Striving to raise the economy is in turn economization, which relies on choosing the most effective among possible actions based on assumed objectives and also on conditions that may limit desired goals. Based on these considerations regarding the purpose, as well as the effective operation of the organization, it can therefore be said with certainty that their achievement, particularly in times of crisis, is dependent on optimal management that adapts to the conditions currently prevailing in the organisational environment. This includes the use of modern technology, which affects the level of effectiveness and the attractiveness of actions that are taken.

As A. Peszko notes, the management of an organisation is undoubtedly an extremely complex process. Although it might be regarded by some commentators as overly simplified, Perzko asserts that the process consists of management taking many mutually related decisions and actions in order to achieve the objectives pursued by an organisation. J. Trzecieniecki contends in his deliberations concerning the management of organisations, that basic managerial operations, when logically arranged, constitute specific subsystems that hold together organisational functions that govern the organisation’s actions. He lists among them: planning, organising, motivating employees to perform tasks, and monitoring activities which are designed to implement the organisation’s mission. These operations are also known as the executive functions of management, and, for the purposes of this paper, the organising function is regarded as particularly important, especially as it relates to issues concerning the operational risk management organization, which accompanies financial institutions at every stage of their functioning.

4An example of the need to engage new technologies in the management of banks, especially on the operational risk management of financial institutions is the introduction by the European Parliament in 2007 of the CRD (Capital Requirement Directive). The document stressed the need for the development of risk management methods that have lead to better protection of investors, increased confidence in financial institutions and increased financial stability and competitiveness in the economy. As S.Zawadzki notes, since the passage of the CRD, there have been a rapid development in these areas, and the new solutions have been imitated by banks in their information technology tools. In his opinion, professional operational risk management without specialized IT tools is not possible, and banks that are not investing in operational risk management are not able to properly identify areas of inefficiency and risks. A good information system helps in the process of risk management at all stages, starting with the identification of risk through to various methods of measuring risk limitation and reporting. It is evident that this is an extremely broad area of ​​activity for businesses, which, without adequate tools to support would be difficult to effectively manage, even in medium-sized banks.

The above organizing function, in addition to the management process also applies to issues related to the production process. Despite the literature referring to the organising function mainly in the context of industrial organisations, the literature is nevertheless relevant to both the implementation of new technology in organisations that is designed to assist employees in performing their duties, and also to improving the competitiveness of an the organisation through enhanced customer service. As A. Peszko notes, technology can be used to offset distortions and compensate for errors in the continuity and maintenance of production. For example, technology can be used to implement multifunctional tools, instruments, machinery, or equipment, in order to create flexible production systems. Despite the obvious reality that banks offer services and products associated with finance and that they are not conventionally regarded as entities of a purely production character, they nevertheless, just like industrial organisations, increasingly use the latest technologies in their businesses, which is another example of the increasingly active use of modern technology in the management of banks.