3.1 3 Chapter Information Systems, Organizations, Management, and Strategy.

3Chapter

Information Systems, Information Systems, Organizations, Organizations,

Management, and Management, and StrategyStrategy

Information Systems, Information Systems, Organizations, Organizations,

Management, and Management, and StrategyStrategy

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 itsbusiness model to maintain online dominance.

• Purchase of PayPal, deal with Buy.com allowed eBay togrow and diversify its business.

• Demonstrates IT’s role in the development of eBay’sorganization as it expands and makes acquisitions

• Illustrates the challenges of maintaining a competitiveadvantage in a fast-moving, constantly-changingmarketplace.

ORGANIZATIONS AND INFORMATION SYSTEMS

The Two-Way Relationship between Organizations and Information Technology

Figure 3-1

• 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.”

• 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.

The Technical Microeconomic Definition of the The Technical Microeconomic Definition of the OrganizationOrganization

Figure 3-2

• Collection of rights, privileges, obligations, and responsibilities

• Delicately balanced over a period of time through conflict and conflict resolution

Behavioral Definition of Organization:Behavioral Definition of Organization:

The Behavioral View of OrganizationsThe Behavioral View of Organizations

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

• All organizations have some similar “structural” features.

• 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

Features of OrganizationsFeatures of Organizations

• Business firms are a collection of business processes.

• Business processes enable organizations to cope Business processes enable organizations to cope with all recurring expected situations.with all recurring expected situations.

Routines and Business ProcessesRoutines and Business Processes

Routines, Business Processes, and FirmsRoutines, Business Processes, and Firms

Figure 3-4

• Divergent viewpoints lead to political struggle, competition, and conflict.

• Hamper organizational change- especially information systems

Organizational PoliticsOrganizational Politics

• 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.

The assumptions about:

• What products the organization should produce

• How and where it should be produced

• For whom the products should be produced

Organizational CultureOrganizational Culture

• If we all share the same basic cultural assumptions, agreements on the matters will be easy.

• Structures

• Goals

• Constituencies

• Leadership styles

• Tasks

• Surrounding environments

Management Information SystemsChapter 3

Information Systems, Organizations, Management, and Strategy

Unique Features of OrganizationsUnique Features of Organizations

• Entrepreneurial structure: Small start-up business Small start-up business

• Machine bureaucracy: Midsize manufacturing firm

• Divisionalized bureaucracy: Fortune 500 firms

• Professional bureaucracy: Law firms, school systems, hospitals

• Adhocracy: Consulting firms

Organizational StructuresOrganizational Structures

• Organizations and environments have a reciprocal relationship.

• Organizations are open to, and dependent on, the social and physical environment.

• Organizations can influence their environments.

Organizations and Environments: Organizations and Environments:

Environments and Organizations Have a Environments and Organizations Have a Reciprocal RelationshipReciprocal Relationship

Figure 3-5

• Ultimate goals

• Different groups and constituencies

• Nature of leadership

• Tasks and technology

Other Differences Among Organizations:

Organizing the IT FunctionOrganizing the IT Function

• Hardware

• Software

• Data storage

• Networks

The information systems department is responsible for maintaining:

Information Technology ServicesInformation Technology Services

Figure 3-6

Includes Specialists:Includes Specialists:

• Programmers: Highly trained, writers of the ighly trained, writers of the software instructions for computerssoftware instructions for computers

• Systems analysts: Translate business problems Translate business problems into solutions, act as liaisons between the into solutions, act as liaisons between the information systems department and rest of the information systems department and rest of the organizationorganization

• Information system managers: Leaders of various Leaders of various specialistsspecialists

• Chief Information Officer (CIO): Senior manager in Senior manager in charge of information charge of information systemssystems function in the firm function in the firm

• End users: Department representatives outside Department representatives outside the information system department for whom the information system department for whom applications are developedapplications are developed

HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS

• 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.

Economic Impacts:Economic Impacts:

• Transaction cost theory:Transaction cost theory: Firms seek to Firms seek to economize on the cost of participating in markets economize on the cost of participating in markets (transaction costs).(transaction costs).

• Using markets is expensive Using markets is expensive • Costs of locating, communicating, with distant Costs of locating, communicating, with distant

suppliers, buying insurance, obtaining info on suppliers, buying insurance, obtaining info on products is expensiveproducts is expensive

Economic Impacts: (Continued)Economic Impacts: (Continued)

• IT lowers market transaction costs for firm, making it IT lowers market transaction costs for firm, making it worthwhile for firms to transact with other firms worthwhile for firms to transact with other firms rather than grow the number of employeesrather than grow the number of employees.

The Transaction Cost Theory of the Impact of The Transaction Cost Theory of the Impact of Information Technology on the OrganizationInformation Technology on the Organization

• Agency theory:Agency theory: Firm is nexus of contracts among Firm is nexus of contracts among self-interested parties requiring supervision.self-interested parties requiring supervision.

• Firms experience agency costs (the cost of Firms experience agency costs (the cost of managing and supervising).managing and supervising).

• IT can reduce agency costs, making it possible IT can reduce agency costs, making it possible for firms to grow without adding to the costs of for firms to grow without adding to the costs of supervising, and without adding employees.supervising, and without adding employees.

The Agency Cost Theory of the Impact of The Agency Cost Theory of the Impact of Information Technology on the OrganizationInformation Technology on the Organization

Figure 3-8

Management Information SystemsChapter 3

Information Systems, Organizations, Management, and Strategy

• 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.

Organizational and Behavioral ImpactsOrganizational and Behavioral Impacts

• 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.

Organizational and Behavioral ImpactsOrganizational and Behavioral Impacts

IT Flattens Organizations:

• Facilitates flattening of hierarchies

• Broadens the distribution of timely information

• Increases the speed of decision making

• 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

IT Flattens OrganizationsIT Flattens Organizations

Flattening OrganizationsFlattening Organizations

Figure 3-9

Postindustrial Organizations and Virtual FirmsPostindustrial 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.

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

• 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

• 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.

Understanding Organizational Resistance to Change: Understanding Organizational Resistance to Change:

Organizational Resistance and the Mutually Adjusting Organizational Resistance and the Mutually Adjusting Relationship between Technology and the OrganizationRelationship between Technology and the Organization

Figure 3-10

Source: Reprinted by permission of James G. March.

• 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.

The Internet and Organizations

PORTER’S COMPETITIVE FORCES MODEL

• 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.

• 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.

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.

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

Value Chain Model: • Highlights the primary or support activities that add Highlights the primary or support activities that add

business value business value

• A good tool for understanding strategy at the business A good tool for understanding strategy at the business firm levelfirm level

Primary Activities: • Directly related to the production and distribution of a

firm’s products or services

Support Activities: • Make the delivery of primary activities possible

• Consist of the organization’s infrastructure, human resources, technology, and procurement

The Firm Value Chain and the Industry Value ChainThe Firm Value Chain and the Industry Value Chain

Figure 3-11

• How can IT be used at each point in the value chain to lower costs, differentiate products, and change the scope of competition?

Strategic question:

Internet-enabled Web of cooperating firms

• Customer-driven network of independent firms

• Uses information technology to coordinate value chains of separate firms chains of separate firms for collectively producing a product or service

Value Web:

The Value WebThe Value Web

Figure 3-12

Business-level StrategyBusiness-level Strategy

Figure 3-14

Firm-Level Strategy and Information TechnologyFirm-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 Information systems encourage the sharing of knowledge across business units and therefore knowledge across business units and therefore enhance firm competencyenhance firm competency

Firms operate in a larger environment composed of other firms, governments, and nations

Information partnership: • Cooperative alliance formed between two or more Cooperative alliance formed between two or more

corporations for sharing information to gain strategic corporations for sharing information to gain strategic advantageadvantage

• Help firms gain access to new customers, creating Help firms gain access to new customers, creating new opportunities for cross-selling and targeting new opportunities for cross-selling and targeting productsproducts

Industry-Level Strategy and Information Systems:Competitive Forces and Network Economics

• Business ecosystems are interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

IT plays a powerful role in creating new forms of business ecosystems.

Business Ecosystems:

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

An Ecosystem Strategic ModelAn Ecosystem Strategic Model

Figure 3-16

• 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

Network Economics:

• 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.

Network Economics: (Continued)

MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS

• Firms face a continuing stream of IT-based opportunities to achieve strategic advantages

Management Opportunities:

• 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.

Management Challenges:

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

Solution Guidelines:

3.1 3 Chapter Information Systems, Organizations, Management, and Strategy.

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