IT Capabilities and

their organizational impact

Intro…..

• Over last decade, IT has altered the economics of org and increased possibility of organizing work

• IT affects Cost And Quality of information and changes the economies of information

• IT use of networks, can help firms lower the cost of market participation

• IT reduces internal management costs

1. Stable, formal social structure

2. Takes resources from the environment and processes them to produce outputs

Organizational and Behavioral Impacts

IT Flattens Organizations:

1. Facilitates flattening of hierarchies

2. Broadens the distribution of timely information

3. Increases the speed of decision making

4. Empowers lower-level employees to make decisions without supervision and increase management efficiency

5. Management span of control (the number of employees supervised by each manager) will also grow

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:

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

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

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

Using IT For Strategic Advantages

Competitive Strategy Concepts

• Role of IS involves using it to develop products, service and capabilities that give a company major advantage over the competitive forces it faces in the global marketplace

• 2 concepts

a.Competitive Forces

b.Competitive Strategies

1.Competitive Forces

New Market Entrants

• Profitable markets that yield high returns will attract new firms.

• This results in many new entrants, which eventually will decrease profitability for all firms in the industry

Substitute products and services

• The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives.

• Note that this should not be confused with competitors' similar products but entirely different ones instead.

3.Bargaining Power Of Suppliers

3.Bargaining power of suppliers

• Described as the market of inputs.

• Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes.

• Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

4.Bargaining power of customers (buyers)

4.Bargaining power of customers (buyers)

• Described as the market of outputs

• Ability of customers to put the firm under pressure

• Also affects the customer's sensitivity to price changes

Other firms competing directly

• For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

2.Competitive Strategies Strategic

Approach

Cost Leadership

• Cost leadership, A firm sets out to become the low cost producer in its industry.

• The sources of cost advantage are varied and depend on the structure of the industry.

• A low cost producer must find and exploit all sources of cost advantage.

Differentiation

• Firm seeks to be unique in its industry along some dimensions that are widely valued by buyers.

• It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs.

• It is rewarded for its uniqueness with a premium price.

Focus

• The generic strategy of focus rests on the choice of a narrow competitive scope within an industry.

• The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.

Strategic Roles for Information Systems:

1. Differentiate

2. Innovate

3. Promote Growth

4. Develop Alliances

5. Improve quality and efficiency

6. Build an IT platform

7. Other strategies

Strategic Roles for Information Systems:

1.Lower Costs- - it reduces the cost of business process - IT can also be used to lower the costs of

customers or suppliers 2. Differentiate- - Develop new IT features - Use IT features to reduce the differentiate

advantage - Use IT features to focus products and services

• 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