Information Systems, Organization, and

Strategy

Business needs to fine-tune

its strategy to keep profitable

eBay

• Internet auction

or the best marketplace

• Hosting 532,000 online storefront

• 83 million active users

• 2007 revenue: 77 billions– Fee & commission from sale transactions– Direct ads– End-to-end service: PayPal

• eBay’s growth strategy– Expansion in geography & scope

• Innovation to enhance the variety and product of its site

• PayPal– Service enable the exchange of money between

individual– Standard payment method for online transactions

• Shopping.com– Online shopping comparison

• Skype– Free internet phone– Low cost voice calls– Provide communication among buyers and sellers

• StubHub: ticket-selling website• Craiglist: classified ads • ProStores:

– Technology used to help users setup online store

– Business model change• Selling items at a fix price

– “Buy it Now”– Work with buy.com

» DVD, electronic books, …

– Objections from pop and mom dealer

• Internet auction

or the best marketplace

3.1 Organization & Information systems

3.2 How information systems impact organizations & business firm

3.3 Using systems to achieve competitive advantage

3.4 Management Issues: using systems for competitive advantage

3.1 Organization and

Information systems

組織建立資訊系統to serve the interest of firms

will transform the operations of firms資訊系統影響作業方式高鐵 -- 雙色優惠票價

• What is organization?– Stable, formal structure – Take resources from the environment and process

them to produce output

Technical Definition

• What is an organization?– Collection of rights,

privileges, obligations, and responsibilities

• Delicately balanced over a period of time

• Through conflict and conflict resolution Behavioral definition

– Who own and control information– Who has the right to access and update

information– Who make decisions about whom, when, how

Factors affect the success of information systems

• Features of organizations– Routines and business processes– Organizational politics

• Struggle for resources, competition, and conflict within every organization

– Organizational culture• Bedrock, unassailable, unquestioned assumptions

that define their goals and products

• Features of organizations– Organizational Environments

• Organizations depend on the social and physical environment

– 創新的環境 創新的公司 • Organizations influence their environment

– 創新的公司 創新的環境

• Features of organizations– Organizational structure

Org. Type Examples

Entrepreneurial Start-up

Machine Bureaucracy Midsize Mfg

Divisional Bureaucracy General Motor

Professional Bureaucracy Law firms

Adhocracy Consulting

• Other organizational features– Goal

• Coercive (ex: prison)• Utilitarian (ex: firm)• Normative (ex: university)

3.2 How Information Systems Impact organizations and Business Firms

• Economic impacts– Transaction cost theory

• Using the market is expensive– Obtaining information on products– Locating and communicate with suppliers– Monitoring contract compliance– Buying insurance

Information systems lower the cost• Chrysler Corporation

– Outsource 70% of its parts

– Agency cost theory• A firm is a “nexus of contracts” among self-

interested individuals• A principal (owner) employs “agents” to perform

work on his or her behalf

Information systems make it easier for managers to oversee

• Organizational and behavioral impacts– IT flattens organizations

• Increase the management span of control– Broaden the distribution of information– Higher education level of workforce

– Postindustrial organizations• Authority increasingly relies on

– Knowledge and competence– NOT merely on formal positions

• Understanding organizational resistance to change– Information systems

• Bound up in organizational politics• Influence access to a key resource – Information

– New information systems• Requires changes in personal, individual routines• Potentially change structure, culture, …

3.3 Using Information systems to achieve competitive advantage

• Competitive advantage– Always “do better” than others

• Access to special resources• Use resources more efficiently

– Superior knowledge– Superior information assets

• Porter’s competitive forces model– 五力分析

Traditional competitors

• Traditional competitors– All firms share market space with other

competitors• Brands• Switching cost

• New market entrants– Entry barriers

• Low: internet auctions• High: steel mill

– Advantages of new companies• New equipment, young workers (less expensive,

more energetic), flexible business process

– Disadvantages• Less capital, less experienced workforce, little

brand recognition

• Substitute products and services– Fiber-optic telephone

• Carry TV program

– Cable TV lines

• Customers– To be a profitable company:

• Ability to attract and retain customers• Charge high prices

Product differentiation

• Suppliers– The market power of suppliers can have

significant impact on firm profit• Microsoft/Intel vs. PC manufacturers

• Information system strategies for dealing with competitive forces– Low cost leadership– Product differentiation– Focus on market niche– Strengthen customer and supplier intimacy

– Low cost leadershipWal-Mart

• Continuous replenishment systems– Shelves well stocked– Inventory low

Keep price low

• Efficient customer response system– Direct link consumer behavior to

» distribution and production» Supply chain

– Product differentiation• Information system to enable new products

– Apple (iPod, iTune)– Dell (Build to order)

» Manage business customers’ computer services

• Mass customization分眾生產– Offer individually tailored product or service– Using the same production resources as mass

production

– Focus on market niche• Serve a narrow, specific market

– Buying patterns, tastes, preference– Advertising and marketing campaigns to smaller target

markets

• CRM• Hilton hotels

– 8 brands– OnQ system

» Predict customers’ future business with Hilton» Identify customers who are clearly not profitable

– Strengthen customer and supplier intimacy• Chrysler corporation

– Facilitate direct access from supplier to production schedule

– Allow suppliers more lead time

Strong linkages to customers and suppliers increase switching cost

• The Internet’s impact on competitive advantage

• Nearly destroyed some industries– Encyclopedia, newspapers

• Severely threatened more– Travel, brokerage

• Create new markets– Online used textbook (goods) sales

» Amazon charges

15% selling fees + $1.35 closing fee per item

– The business value chain model• Highlight specific activities in the business• Where competitive strategies can be applied

Extending the value chain:

the value web

Internet for cross industries’ value chains

• Synergies, core competencies, and network-based strategies– Synergy

• The output of some units can be used as inputs to other units

– 正正得 ( 正【平方】 ) positive * positive = positive2

– 負負得 ( 負【平方】 ) negative * negative = negative ()2

• Use information systems– Tie together the operations of disparate business units

– Enhance core competence• Activity for which a firm is the world-class leader

– Best package delivery service

– Best thin-film manufacturer

• Use information system– Encourage the sharing of knowledge

– Enhance competence

• Ex: Procter & Gamble– 300 different brands

– InnovationNet

» Share ideas & expertise among all brands

– Network-Based strategies• Traditional economics

Law of diminishing return 邊際效益遞減– The more any given resources is apply to production– The lower the marginal gain in output– Eventually reaches Zero

• Network economics– The marginal cost of adding another participant are

about zero– The marginal gain is much larger

Ex: Traffic of websites, eBay.com

• Virtual company strategy– Use network to link people, assets, and idea– Enabling it to ally with other companies

• To create and distribute products and services• Without being limited by organizational boundary

Ex: GUESS, Ann Taylor, Levis, Reebok

Hong Kong-based Li & Fung 香港利豐集團

– Business ecosystem: keystone and niche firms

• Loosely coupled but interdependent networks– Suppliers– Distributors– Outsourcing firms– Transportation service firms– Technology manufacturer

Ex: Microsoft & thousands of developers

eBay & over 400,000 small business sellers

3.4 using systems for competitive advantage: Management issues

• Sustaining competitive advantage– Do not necessarily last long enough to

ensure long-term profitability• American airline: SABRE• Citibank: ATM

– Tools for survival

• Performing a strategic systems analysis– What is the structure of the industry in which

the firm is located?– What are the business, firm, and industry

value chains for this particular firm?

• Managing strategic transitions– Adoption of strategic systems requires

changes• Movement between levels of sociotechnical

systems

Interactive session

(Minicase)

– Management• Can technology save solders’ life in Iraq• P.121

– Organization• Can Detroit make the cars customers

want?• P. 128