Chapter 3
Information Systems,
Organizations,
Management, and
Strategy
3.1
EBay Fine-Tunes Its Strategy
• Problem: Losing market share to other online retailers,
ultra-competitive and constantly changing marketplace.
Solutions: Acquire other businesses and adjust its
business model to maintain online dominance.
• Purchase of PayPal, deal with Buy.com allowed eBay to
grow and diversify its business.
• Demonstrates IT’s role in the development of eBay’s
organization as it expands and makes acquisitions
• Illustrates the challenges of maintaining a competitive
advantage in a fast-moving, constantly-changing
marketplace.
3.2
ORGANIZATIONS AND INFORMATION SYSTEMS
The Two-Way Relationship between Organizations
and Information Technology
3.3
Figure 3-1
ORGANIZATIONS AND INFORMATION SYSTEMS
• As a manager you would be the one
deciding that which will be built, what they
will do, and how they will be implemented.
• WHAT IS AN ORGANIZATION?
– “It is a stable, formal social structure that take
resources from the environment and
processes them to produce outputs.”
3.4
• This definition focuses on three elements
of organization.
– Capital and labor are primary production
factors provided by the environment.
– The firm transforms these inputs into products
and services in a production function
– The products and services are consumed by
the environment in return for supply inputs.
3.5
ORGANIZATIONS AND INFORMATION SYSTEMS
The Technical Microeconomic Definition of the
Organization
3.6
Figure 3-2
ORGANIZATIONS AND INFORMATION SYSTEMS
Behavioral Definition of Organization:
• Collection of rights, privileges, obligations, and
responsibilities
• Delicately balanced over a period of time through
conflict and conflict resolution
3.7
ORGANIZATIONS AND INFORMATION SYSTEMS
The Behavioral View of Organizations
3.8
Figure 3-3
How these definitions relate to Information
System?
• The Technical and Behavioral definitions
of organizations are not contradictory, on
the other hand they complement each
other.
• Earlier tell us how thousand of firms in
competitive markets combine capital, labor
and IT , whereas the latter takes us inside
the individual firm to see how the
technology effect the firm
3.9
• All organizations have some similar
“structural” features.
3.10
ORGANIZATIONS AND INFORMATION SYSTEMS
Features of Organizations
• Routines and Business Processes
• Routines for producing goods and services
(Standard Operating Procedures) are developed
by firm to become time efficient and productive.
• Business processes are the collections of these
routines
3.11
ORGANIZATIONS AND INFORMATION SYSTEMS
Routines and Business Processes
• Business firms are a collection of business
processes.
• Business processes enable organizations to cope
with all recurring expected situations.
3.12
ORGANIZATIONS AND INFORMATION SYSTEMS
Routines, Business Processes, and Firms
3.13
Figure 3-4
ORGANIZATIONS AND INFORMATION SYSTEMS
Organizational Politics
• Divergent viewpoints lead to political struggle,
competition, and conflict.
• Hamper organizational change- especially
information systems
3.14
• Virtually all large information systems investments
by a firm that brings about the significant changes n
strategy, business processes, business objectives,
and business processes become politically charged
events.
• Internal politics defeats the best-laid plans for an IS.
3.15
ORGANIZATIONS AND INFORMATION SYSTEMS
Organizational Culture
The assumptions about:
• What products the organization should produce
• How and where it should be produced
• For whom the products should be produced
3.16
• If we all share the same basic cultural
assumptions, agreements on the matters
will be easy.
3.17
Management Information Systems
Chapter 3
Information Systems, Organizations, Management, and Strategy
ORGANIZATIONS AND INFORMATION SYSTEMS
Unique Features of Organizations
• Structures
• Goals
• Constituencies
• Leadership styles
• Tasks
• Surrounding environments
3.18
ORGANIZATIONS AND INFORMATION SYSTEMS
Organizational Structures
• Entrepreneurial structure: Small start-up business
• Machine bureaucracy: Midsize manufacturing firm
• Divisionalized bureaucracy: Fortune 500 firms
• Professional bureaucracy: Law firms, school
systems, hospitals
• Adhocracy: Consulting firms
3.19
ORGANIZATIONS AND INFORMATION SYSTEMS
Organizations and Environments:
• Organizations and environments have a
reciprocal relationship.
• Organizations are open to, and dependent on, the
social and physical environment.
• Organizations can influence their environments.
3.20
ORGANIZATIONS AND INFORMATION SYSTEMS
Environments and Organizations Have a
Reciprocal Relationship
3.21
Figure 3-5
3.22
ORGANIZATIONS AND INFORMATION SYSTEMS
Other Differences Among Organizations:
• Ultimate goals
• Different groups and constituencies
• Nature of leadership
• Tasks and technology
3.23
ORGANIZATIONS AND INFORMATION SYSTEMS
Organizing the IT Function
The information systems department is
responsible for maintaining:
• Hardware
• Software
• Data storage
• Networks
3.24
ORGANIZATIONS AND INFORMATION SYSTEMS
Information Technology Services
3.25
Figure 3-6
ORGANIZATIONS AND INFORMATION SYSTEMS
Includes Specialists:
• Programmers: Highly trained, writers of the
software instructions for computers
• Systems analysts: Translate business problems
into solutions, act as liaisons between the
information systems department and rest of the
organization
• Information system managers: Leaders of various
specialists
3.26
ORGANIZATIONS AND INFORMATION SYSTEMS
• Chief Information Officer (CIO): Senior manager in
charge of information systems function in the firm
• End users: Department representatives outside
the information system department for whom
applications are developed
3.27
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Economic Impacts:
• IT changes both the relative costs of capital and
the costs of information.
• Information systems technology is a factor of
production, like capital and labor.
3.28
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Economic Impacts: (Continued)
• Transaction cost theory: Firms seek to
economize on the cost of participating in markets
(transaction costs).
• Using markets is expensive
• Costs of locating, communicating, with distant
suppliers, buying insurance, obtaining info on
products is expensive
3.29
• IT lowers market transaction costs for firm, making it
worthwhile for firms to transact with other firms
rather than grow the number of employees.
3.30
The Transaction Cost Theory of the Impact of
Information Technology on the Organization
3.31
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
• Agency theory: Firm is nexus of contracts among
self-interested parties requiring supervision.
• Firms experience agency costs (the cost of
managing and supervising).
• IT can reduce agency costs, making it possible
for firms to grow without adding to the costs of
supervising, and without adding employees.
3.32
Management Information Systems
Chapter 3
Information Systems, Organizations, Management, and Strategy
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
The Agency Cost Theory of the Impact of
Information Technology on the Organization
3.33
Figure 3-8
Organizational and Behavioral Impacts
• There is no magic wand companies can wave that
will solve all their problems just because they
installed the latest information system.
• People using technology efficiently and effectively,
however, can transform organizations.
• Technology can enhance communications up and
down the organization and from one department to
another on the same managerial level.
3.34
• Technology makes virtual organizations more
feasible, cheaper, and easier to set up and tear down
than before.
• If you had a small group of people from each
functional area of the company collaborating on a
new production method, you can bring them
together, hammer out the new methodology, and
then return them to their regularly assigned units.
3.35
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Organizational and Behavioral Impacts
IT Flattens Organizations:
• Facilitates flattening of hierarchies
• Broadens the distribution of timely information
• Increases the speed of decision making
3.36
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
IT Flattens Organizations
• Empowers lower-level employees to make
decisions without supervision and increase
management efficiency
• Management span of control (the number of
employees supervised by each manager) will
also grow
3.37
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Flattening Organizations
3.38
Figure 3-9
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Postindustrial Organizations and Virtual Firms
Postindustrial Organizations:
• Authority increasingly relies on knowledge and
competence rather than formal positions,
therefore it supports the notion that IT flattens
hierarchies
•Information technology encourages task
force-networked organizations.
3.39
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Virtual Firms:
• Use networks to link people, assets, and ideas
• Can ally with suppliers, customers to create
and distribute new products and services
• Not limited to traditional organizational boundaries
or physical locations
3.40
• Accenture is the example- no operational
headquarter, many of its 186,000 employees move
from location to location to work on project for
different clients in 49 countries
3.41
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Understanding Organizational Resistance to Change:
• Information systems become bound up in
organizational politics because they influence access
to a key resource.
• Information systems potentially change an
organization’s structure, culture, politics, and work.
• Most common reason for failure of large projects is due
to organizational and political resistance to change.
3.42
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
Organizational Resistance and the Mutually Adjusting
Relationship between Technology and the Organization
Source: Reprinted by permission of
James G. March.
3.43
Figure 3-10
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
The Internet and Organizations
• The Internet increases the accessibility, storage,
distribution of information and knowledge for business
firms.
• The Internet lowers the transaction and agency costs
of firms.
• Businesses are rapidly rebuilding their key business
processes based on Internet technology. Example:
online order entry, customer service, and fulfillment of
orders.
3.44
PORTER’S COMPETITIVE FORCES
MODEL
3.45
• PORTER’S COMPETITIVE FORCES MODEL
– contends that much of the success or failure of a
business depends on its ability to respond to its
external environment.
• Traditional competitors: always nipping at your
heals with new products and services trying to steal
your customers.
• New market entrants: not constrained by traditional
ways of producing goods and services, they can
easily jump into your markets and lure customers
away with cheaper or better products and services.
3.46
• Substitute products and services: customers may
be willing to try substitute products and services if
they decide your price is too high or the quality of
your products and services is too low.
• Customers: they are now armed with new
information resources that make it easier for them to
jump to your competitors, new market entrants, or
substitute products.
• Suppliers: the number of suppliers used may
determine how easy or difficult your business will
have in controlling your supply chain. Too few
suppliers and you lose a lot of control.
3.47
Using Information Systems to Achieve Competitive
Advantage
Four generic strategies for dealing with
competitive forces, enabled by using IT
• Low-cost leadership (e.g., Wall-Mart)
• Product differentiation (non-commodity)
• Focus on market niche
• Strengthen customer and supplier intimacy-results in
high switching costs and brand loyalty.
3.48
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Business-Level Strategy: The Value Chain Model
The most common generic business level strategies are:
• Become the low-cost producer
• Differentiate your product from competitors’ products
• Change the scope of competition by enlarging the
market or narrowing it to a specialized niche
3.49
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Value Chain Model:
• Highlights the primary or support activities that add
business value
• A good tool for understanding strategy at the business
firm level
Primary Activities:
• Directly related to the production and distribution of a
firm’s products or services
3.50
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Support Activities:
• Make the delivery of primary activities possible
• Consist of the organization’s infrastructure, human
resources, technology, and procurement
3.51
INFORMATION SYSTEMS AND BUSINESS STRATEGY
The Firm Value Chain and the Industry Value Chain
3.52
Figure 3-11
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Strategic question:
• How can IT be used at each point in the value chain to
lower costs, differentiate products, and change the
scope of competition?
3.53
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Value Web:
Internet-enabled Web of cooperating firms
• Customer-driven network of independent firms
• Uses information technology to coordinate value
chains of separate firms for collectively producing a
product or service
3.54
INFORMATION SYSTEMS AND BUSINESS STRATEGY
The Value Web
3.55
Figure 3-12
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Business-level Strategy
3.56
Figure 3-14
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Firm-Level Strategy and Information Technology
Synergies:
when one output is the input of another, or two things
are joined together to make another product
Core Competency:
• Activity at which a firm excels as a world-class leader
• Information systems encourage the sharing of
knowledge across business units and therefore
enhance firm competency
3.57
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Industry-Level Strategy and Information Systems:
Competitive Forces and Network Economics
Firms operate in a larger environment composed of
other firms, governments, and nations
Information partnership:
• Cooperative alliance formed between two or more
corporations for sharing information to gain strategic
advantage
• Help firms gain access to new customers, creating new
opportunities for cross-selling and targeting products
3.58
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Business Ecosystems:
IT plays a powerful role in creating new forms of
business ecosystems.
• Business ecosystems are interdependent networks of
suppliers, distributors, outsourcing firms,
transportation service firms, and technology
manufacturers.
3.59
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Examples:
• Microsoft: 1 billion PCs worldwide and hundreds of
thousands of businesses rely on Microsoft’s platform.
• EBay: Millions of people and thousands of business
firms use this platform.
• Wal-Mart: Enterprise systems used by suppliers to
increase their efficiency
3.60
INFORMATION SYSTEMS AND BUSINESS STRATEGY
An Ecosystem Strategic Model
3.61
Figure 3-16
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Network Economics:
• IT products and services exhibit powerful network
effects and create potential “winner take all” situations.
• Network effects occur when adding more resources to
a process incurs little or zero cost, but large gains in
output.
• Contrary to the law of diminishing returns typical of
industrial and agricultural products
3.62
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Network Economics: (Continued)
• Example: Value of the Internet grows exponentially
with the linear increase in users.
• Example: Because certain software can become a
standard (like Windows operating systems or Windows
Office), people can get locked into that standard and
the value of Windows grows as more and more people
use it.
• Good strategy: Use IT to build products and services
that exhibit network effects.
3.63
MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
Management Opportunities:
• Firms face a continuing stream of IT-based
opportunities to achieve strategic advantages
3.64
MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
Management Challenges:
• Some firms face big hurdles in implementing
contemporary systems.
• Once an advantage is achieved, there are difficulties in
sustaining the advantage.
• Organizations often cannot change fast enough to
accommodate new technologies.
3.65
MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
Solution Guidelines:
Perform a strategic systems analysis
• Understand the structure and competitive dynamics of
the industry where your firm operates
• Understand the business, firm, and industry value
chains
• Consider how your firm can manage “strategic
transitions” as it seeks to implement systems that
provide competitive advantages
3.66