Strategy Organizations, and Chapter 3 Systems, Information · Management Information Systems Chapter 3 Information Systems, Organizations, and Strategy • • • • • • •

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3Chapter

InformationSystems,

Organizations, andStrategy


Chapter Outline

Management Information SystemsChapter 3 Information Systems, Organizations, and Strategy

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Organizations and Information Systems

How Information Systems ImpactOrganizations and Business Firms

Using Information Systems to AchieveCompetitive Advantage



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Information technology and organizationsinfluence one another

Complex relationship influenced byorganization’s structure, business processes,politics, culture, environment, and managementdecisions



The Two-Way Relationship BetweenOrganizations and Information Technology

Figure 3-1

This complex two-wayrelationship is mediatedby many factors, not theleast of which are thedecisions made—or notmade—by managers.Other factors mediatingthe relationship includethe organizationalculture, structure,politics, businessprocesses, andenvironment.





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What is an organization?Technical definition:

Stable, formal social structure that takes resources fromenvironment and processes them to produce outputsA formal legal entity with internal rules and procedures, aswell as a social structure

Behavioral definition:A collection of rights, privileges, obligations, andresponsibilities that is delicately balanced over a period oftime through conflict and conflict resolution



The Technical MicroeconomicDefinition of the Organization

Figure 3-2

In the microeconomic definition of organizations, capital andlabor (the primary production factors provided by the environment)are transformed by the firm through the production process intoproducts and services (outputs to the environment). Theproducts and services are consumed by the environment, whichsupplies additional capital and labor as inputs in the feedbackloop.




The Behavioral View of Organizations

Figure 3-3The behavioral view of organizations emphasizes grouprelationships, values, and structures.





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Features of organizationsAll modern organizations share somecharacteristics, such as:

Use of hierarchical structureexplicit rules and procedurestechnical qualifications for positionsAccountability, authority in system of impartial decisionmakingAdherence to principle of efficiencyOther features include: Routines and business processesand organizational politics, culture, environments andstructures




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Routines and business processesRoutines (standard operating procedures)

Precise rules, procedures, and practicesdeveloped to cope with virtually all expectedsituations

Business processes: Collections of routinesBusiness firm: Collection of business processes




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Organizational politicsDivergent viewpoints lead to politicalstruggle, competition, and conflict

Political resistance greatly hampersorganizational change




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Organizational culture:Encompasses set of assumptions that definegoal and product

What products the organization shouldproduceHow and where it should be producedFor whom the products should be produced

May be powerful unifying force as well asrestraint on change




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Organizational environments:Organizations and environments have a reciprocalrelationshipOrganizations are open to, and dependent on, thesocial and physical environmentOrganizations can influence their environmentsEnvironments generally change faster thanorganizationsInformation systems can be instrument ofenvironmental scanning, act as a lens



Environments and OrganizationsHave a Reciprocal Relationship

Environments shapewhat organizations cando, but organizationscan influence theirenvironmentsand decide to changeenvironmentsaltogether. Informationtechnology plays acritical role in helpingorganizations perceiveenvironmental changeand in helpingorganizations act ontheir environment.




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Organizations and Information SystemsThe organization's environment, culture, structure,standard operating procedures, politics andmanagement decisions are mediating factors thatinfluence the interaction between informationtechnology and organizations.No two organizations are identical. Organizations havedifferent structures, goals, constituencies, leadershipstyles, tasks, and surrounding environments.Differences in these characteristics will affect the typeof information systems used by the organization.




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Disruptive technologiesTechnology that brings about sweeping changeto businesses, industries, marketsExamples: personal computers, wordprocessing software, the Internet, the PageRankalgorithmFirst movers and fast followers

First movers – inventors of disruptive technologies

Fast followers – firms with the size and resources to capitalizeon that technology




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Organizational structureFive basic kinds of structure

Entrepreneurial: Small start-up businessMachine bureaucracy: Midsize manufacturing firmDivisionalized bureaucracy: Fortune 500 firmsProfessional bureaucracy: Law firms, school systems,hospitalsAdhocracy: Consulting firms




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Other Organizational FeaturesGoals

Constituencies

Leadership styles

Tasks

Surrounding environments



How Information Systems Impact Organizations and Business Firms


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Economic impactsIT changes relative costs of capital and the costs ofinformationInformation systems technology is a factor ofproduction, like capital and laborIT affects the cost and quality of information andchanges economics of information

Information technology helps firms contract in sizebecause it can reduce transaction costs (the cost ofparticipating in markets)

Outsourcing




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Transaction cost theoryFirms seek to economize on cost ofparticipating in market (transaction costs)IT lowers market transaction costs for firm,making it worthwhile for firms to transact withother firms rather than grow the number ofemployees


The Transaction Cost Theory of the Impact ofInformation Technology on the Organization

Figure 3-6

Firmstraditionally grewin size to reducetransaction costs.IT potentiallyreducestransaction costsfor a given size.






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Agency theory:Firm is nexus of contracts among self-interested parties requiring supervisionFirms experience agency costs (the cost ofmanaging and supervising) which rise as firmgrowsIT can reduce agency costs, making it possiblefor firms to grow without adding to the costs ofsupervising, and without adding employees


The Agency Cost Theory of the Impact ofInformation Technology on the Organization

Figure 3-7

As firms grow insize and complexity,traditionally theyexperience risingagency costs.






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Organizational and behavioral impactsIT flattens organizations

Decision making pushed to lower levelsFewer managers needed (IT enables faster decision makingand increases span of control)

Postindustrial organizationsOrganizations flatten because in postindustrial societies,authority increasingly relies on knowledge and competencerather than formal positionsWith IT, competent workers will be able to accomplish more ontheir own than they would under a more concrete hierarchy


Flattening OrganizationsInformation systemscan reduce thenumber of levels inan organization byproviding managerswith information tosupervise largernumbers of workersand by giving lower-level employeesmore decision-making authority.






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Organizational resistance to change

Information systems become bound up inorganizational politics because they influence accessto a key resource – information

Information systems potentially change anorganization’s structure, culture, politics, and work

Most common reason for failure of large projects isdue to organizational and political resistance to change




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The Internet and organizationsThe Internet increases the accessibility, storage, anddistribution of information and knowledge fororganizationsThe Internet can greatly lower transaction and agencycosts

Example: Large firm delivers internal manuals toemployees via corporate Web site, saving millions ofdollars in distribution costs


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Why do some firms become leaders within theirindustry?Michael Porter’s competitive forces model

Provides general view of firm, its competitors,and environmentFive competitive forces shape fate of firm

Traditional competitorsNew market entrantsSubstitute products and servicesCustomersSuppliers

Using Information Systems to Achieve Competitive Advantage



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Why do some firms becomeleaders within their industry? What is the Internet of Things(IOT)?

Individual Class Assignment due in 2 weeks20/02/18. Hand written



Porter’s Competitive Forces Model

In Porter’s competitive forces model, the strategic position of the firm and its strategies aredetermined not only by competition with its traditional direct competitors but also by four forcesin the industry’s environment: new market entrants, substitute products, customers, andsuppliers.




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Traditional competitorsAll firms share market space withcompetitors who are continuously devisingnew products, services, efficiencies,switching costs

New market entrantsSome industries have high barriers to entry, e.g. computer chip businessNew companies have new equipment,younger workers, but little brand recognition




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Substitute products and servicesSubstitutes customers might use if your pricesbecome too high, e.g. iTunes substitutes for CDs

CustomersCan customers easily switch to competitor’sproducts? Can they force businesses to compete onprice alone in transparent marketplace?

SuppliersMarket power of suppliers when firm cannot raiseprices as fast as suppliers




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Four generic strategies for dealing withcompetitive forces, enabled by using IT

Low-cost leadership

Product differentiation

Focus on market niche

Strengthen customer and supplier intimacy




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Low-cost leadershipproduce products and services at a lower price thancompetitors while enhancing quality and level ofserviceExamples: Wal-Mart, Dell

Product differentiationEnable new products or services, greatly changecustomer convenience and experienceExamples: Google, Land’s End, Apple iPhone




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Focus on market nicheUse information systems to enable a focusedstrategy on a single market niche; specializeExample: Hilton Hotels

Strengthen customer and supplier intimacyUse information systems to develop strong ties andloyalty with customers and suppliers; increaseswitching costsExample: Chrysler, Amazon




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The Internet’s impact on competitive advantageTransformation, destruction, threat to someindustries

E.g. travel agency, printed encyclopedia,newspaper

Competitive forces still at work, but rivalry moreintenseUniversal standards allow new rivals, entrants tomarketNew opportunities for building brands and loyalcustomer bases




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Business value chain modelViews firm as series of activities that add value toproducts or servicesHighlights activities where competitive strategiescan best be applied

Primary activities vs. support activitiesAt each stage, determine how information systemscan improve operational efficiency and improvecustomer and supplier intimacyUtilize benchmarking, industry best practices




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Information systems can improve overall performance ofbusiness units by promoting synergies and corecompetencies

SynergiesWhen output of some units used as inputs to others,or organizations pool markets and expertiseExample: merger of Bank of NY and JPMorgan ChasePurchase of YouTube by Google




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Core competenciesActivity for which firm is world-class leaderRelies on knowledge, experience, andsharing this across business unitsExample: Procter & Gamble’s intranet anddirectory of subject matter experts




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Sustaining competitive advantageBecause competitors can retaliate and copy strategic systems,competitive advantage is not always sustainable; systems maybecome tools for survival

Performing strategic systems analysisWhat is structure of industry?What are value chains for this firm?

Managing strategic transitionsAdopting strategic systems requires changes in business goals,relationships with customers and suppliers, and businessprocesses


Using Systems for Competitive Advantage: Management Issues


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Please answer any 2 of the questions below:

What is a Business process?

What is are Disruptive technologies

Give five basic kinds of organizational structure

Give Four generic strategies for dealing with

competitive forces, enabled by using IT

QUIZ 1


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Strategy Organizations, and Chapter 3 Systems, Information · Management Information Systems Chapter 3 Information Systems, Organizations, and Strategy • • • • • • •

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