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Information Systems,Information Systems,

Organizations, andOrganizations, andStrategyStrategy

Chapter 3

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3.2 Copyright 2014 Pearson Education

Management Information Systems, Global Edition

Chapter 3: Information Systems, Organizations, and Strategy

Identify and describe important features oforganizations that managers need to no!about in order to build and use information

systems successfully" #emonstrate ho! $orter%s competiti&e

forces model helps companies de&elopcompetiti&e strategies using informationsystems"

E'plain ho! the &alue chain and &alue !ebmodels help businesses identifyopportunities for strategic informationsystem applications"

(earning Ob)ecti&es

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#emonstrate ho! informationsystems help businesses use

synergies, core competencies,and net!or*based strategies toachie&e competiti&e ad&antage"

+ssess the challenges posed bystrategic information systemsand management solutions"

(earning Ob)ecti&es cont"-

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$roblem: .ading brand, po!erfulcompetitors, technology costs

Solutions: Customer data mining to impro&e

customer intimacy, design sales/oors, implement customerprograms and promotions

#emonstrates I0%s central role inde1ning competiti&e strategy

2ill Sears%s 0echnology Strategy 2or 0his 0ime

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Information technology andorganizations in/uence each other

4elationship in/uenced byorganization%s

Structure

5usiness processes

$oliticsCulture

En&ironment

Management decisions

Organizations and Information Systems

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This complex two-way

relationship is mediated by

many factors, not the least of

which are the decisions made

or not madeby managers.

Other factors mediating the

relationship include the

organizational culture,structure, politics, business

processes, and environment.

FIGURE 3-1

THE TWO-WAY RELATIONSHIP BETWEEN ORGANIZATIONS AND INFORMATION TECHNOLOGY

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2hat is an organization

0echnical de1nition:

Formal social structure that processesresources from environment to produce outputs

A formal legal entity with internal rules andprocedures, as well as a social structure

5eha&ioral de1nition:A collection of rights, privileges, obligations,

and responsibilities that is delicately balancedover a period of time through conict andconict resolution


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In the microeconomic definition of organizations, capital and labor the primary production factors provided by

the environment! are transformed by the firm through the production process into products and services

outputs to the environment!. The products and services are consumed by the environment, which supplies

additional capital and labor as inputs in the feedbac" loop.

FIGURE 3-2

THE TECHNICAL MICROECONOMIC DEFINITION OF THE ORGANIZATION

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THE BEHAVIORAL VIEW OF ORGANIZATIONS

The behavioral view oforganizationsemphasizes grouprelationships, values,and structures.

FIGURE 3-3

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.eatures of organizations

Use of hierarchical structure

Accountability, authority in system of

impartial decision making

Adherence to principle of eciency

outines and business processes

!rgani"ational politics, culture,

environments, and structures


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4outines and business processes

4outines standard operatingprocedures-

#recise rules, procedures, and practicesdeveloped to cope with virtually alle$pected situations

5usiness processes: Collections ofroutines

5usiness 1rm: Collection of businessprocesses


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#ll organizations are composed

of individual routines and

behaviors, a collection of which

ma"e up a business process. #

collection of business processes

ma"e up the business firm.

$ew information system

applications re%uire thatindividual routines and

business processes change to

achieve high levels of

organizational performance.

FIGURE 3-4

ROUTINES, BUSINESS PROCESSES, AND FIRMS

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Organizational politics

#i&ergent &ie!points leadto political struggle,competition, and con/ict"

$olitical resistance greatlyhampers organizationalchange"


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Organizational culture:

Encompasses set of assumptions

that de1ne goal and product%hat products the organi"ation should

produce

&ow and where it should be produced

For whom the products should be produced

May be po!erful unifying force as!ell as restraint on change


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Organizational en&ironments: Organizations and en&ironments ha&e a

reciprocal relationship"

Organizations are open to, and dependenton, the social and physical en&ironment"

Organizations can in/uence theiren&ironments"

En&ironments generally change fasterthan organizations"

Information systems can be instrument ofenvironen!"# $%"nnin&, act as a lens"


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&nvironments shape what organizations can do, but organizations can influence their environments and decide

to change environments altogether. Information technology plays a critical role in helping organizations

perceive environmental change and in helping organizations act on their environment.

FIGURE 3-5

ENVIRONMENTS AND ORGANIZATIONS HAVE A RECIPROCAL RELATIONSHIP

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#isrupti&e technologies 0echnology that brings about s!eeping

change to businesses, industries,

marets E'amples: personal computers, !ord

processing soft!are, the Internet, the$age4an algorithm

.irst mo&ers and fast follo!ersFirst movers'inventors of disruptivetechnologies

Fast followers'(rms with the si"e andresources to capitali"e on that technology


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6 basic inds of organizationalstructure Entrepreneurial:

)mall start*up business

Machine bureaucracy: +idsi"e manufacturing (rm

#i&isionalized bureaucracy: Fortune -- (rms

$rofessional bureaucracy: .aw (rms, school systems, hospitals

+dhocracy: /onsulting (rms


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Other organizational features

Goals

/oercive, utilitarian, normative, andso on

Constituencies

(eadership styles0ass

Surrounding en&ironments


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Economic impacts I0 changes relati&e costs of capital and

the costs of information

Information systems technology is afactor of production, lie capital and labor

I0 a7ects the cost and 8uality ofinformation and changes economics ofinformation

0nformation technology helps (rms contract insi"e because it can reduce transaction costs 1thecost of participating in markets2

!utsourcing

9o! Information Systems Impact Organizations and 5usiness .irms

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0ransaction cost theory .irms see to economize on

transaction costs the costs ofparticipating in marets-"

3ertical integration, hiring moreemployees, buying suppliers anddistributors

I0 lo!ers maret transaction costs for1rm, maing it !orth!hile for 1rms totransact !ith other 1rms rather thangro! the number of employees"

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+gency theory:

.irm is ne'us of contracts among self*interested parties re8uiringsuper&ision"

.irms e'perience agency costs thecost of managing and super&ising-!hich rise as 1rm gro!s"

I0 can reduce agency costs, maing itpossible for 1rms to gro! !ithoutadding to the costs of super&ising, and!ithout adding employees"

9o! Information Systems Impact Organizations and

5usiness .irms

f i S Gl b l di i

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Organizational and beha&ioralimpacts I0 /attens organizations

4ecision making is pushed to lower levels5Fewer managers are needed 106 enables

faster decision making and increases spanof control25

$ostindustrial organizations!rgani"ations atten because inpostindustrial societies, authorityincreasingly relies on knowledge andcompetence rather than formal positions5


5usiness .irms

M I f i S Gl b l Edi i

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Information systems can reducethe number of levels in anorganization by providingmanagers with information tosupervise larger numbers ofwor"ers and by giving lower-level employees more decision-ma"ing authority.

FIGURE 3-6

FLATTENING ORGANIZATIONS

M t I f ti S t Gl b l Editi

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Organizational resistance to change

Information systems become bound upin organizational politics because they

in/uence access to a ey resourceinformation"

Information systems potentially changean organization%s structure, culture,

politics, and !or" Most common reason for failure of

large pro)ects is due to organizationaland political resistance to change"


5usiness .irms


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Implementing information

systems has conse%uences for

tas" arrangements, structures,

and people. #ccording to this

model, to implement change,

all four components must be

changed simultaneously.

FIGURE 3-7

ORGANIZATIONAL RESISTANCE AND THE MUTUALLY AD'USTINGRELATIONSHIP BETWEEN TECHNOLOGY AND THE ORGANIZATION


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0he Internet and organizations

0he Internet increases theaccessibility, storage, and distributionof information and no!ledge fororganizations"

0he Internet can greatly lo!ertransaction and agency costs"

7$ample8 .arge (rm delivers internalmanuals to employees via a corporate%eb site, saving millions of dollars indistribution costs

9o! Information Systems Impact Organizations and5usiness .irms


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Organizational factors in planning ane! system: En&ironment

Structure &ierarchy, speciali"ation, routines, businessprocesses

Culture and politics

0ype of organization and style of leadership

Main interest groups a7ected by system;attitudes of end users

0ass, decisions, and business processesthe system !ill assist

9o! Information Systems Impact Organizations and5usiness .irms

Management Information Systems Global Edition

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2hy do some 1rms become leaders intheir industry

Michael $orter%s competiti&e forces

model $ro&ides general &ie! of 1rm, its

competitors, and en&ironment

.i&e competiti&e forces shape fate of 1rm:

95 6raditional competitors

:5 ;ew market entrants

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In 'orter(s competitive forces model, the strategic position of the firm and its strategies are determined not onlyby competition with its traditional direct competitors but also by four other forces in the industry(senvironment) new mar"et entrants, substitute products, customers, and suppliers.

FIGURE 3-8

PORTER(S COMPETITIVE FORCES MODEL


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0raditional competitors

+ll 1rms share maret space !ithcompetitors !ho are continuously de&ising

ne! products, ser&ices, e=ciencies, ands!itching costs"

>e! maret entrants

Some industries ha&e high barriers to

entry, for e'ample, computer chip business" >e! companies ha&e ne! e8uipment,

younger !orers, but little brandrecognition"

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Substitute products and ser&ices Substitutes customers might use if your

prices become too high, for e'ample, i0unes

substitutes for C#s Customers

Can customers easily s!itch to competitor%sproducts Can they force businesses tocompete on price alone in transparent

maretplace Suppliers

Maret po!er of suppliers !hen 1rm cannotraise prices as fast as suppliers

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.our generic strategies fordealing !ith competiti&e

forces, enabled by using I0: (o!*cost leadership

$roduct di7erentiation

.ocus on maret niche Strengthen customer and

supplier intimacy

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(o!*cost leadership

$roduce products and ser&ices at a lo!erprice than competitors

E'ample: 2almart%s e=cient customerresponse system

$roduct di7erentiation

Enable ne! products or ser&ices, greatly

change customer con&enience ande'perience

E'ample: Google, >ie, +pple

Mass customization

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.ocus on maret niche

et/i', +mazon

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Read the Interactive Session and discuss the following questions

In!er"%!ive Se$$ion+Or&"ni"!ion$

+nalyze Starbucs using thecompetiti&e forces and &alue chainmodels"

2hat is Starbucs% business strategy+ssess the role played by technologyin this business strategy"

9o! much has technology helpedStarbucs compete E'plain yourans!er"

0echnology 9elps Starbucs .ind >e! 2ays to Compete


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0he Internet%s impact on competiti&ead&antage

0ransformation or threat to some industries

7$amples8 travel agency, printed encyclopedia,media

Competiti&e forces still at !or, but ri&alrymore intense

e! opportunities for building brands andloyal customer bases

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@alue chain model

.irm as series of acti&ities that add &alue toproducts or ser&ices

9ighlights acti&ities !here competiti&estrategies can best be applied

#rimary activities vs5 support activities

+t each stage, determine ho! informationsystems can impro&e operational e=ciencyand impro&e customer and supplier intimacy

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This figure provides examplesof systems for both primary andsupport activities of a firm andof its value partners that canadd a margin of value to afirm(s products or services.

FIGURE 3-9

THE VALUE CHAIN MODEL


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Read the Interactive Session and discuss the following questions

In!er"%!ive Se$$ion+ Te%*no#o&

&ow is software adding value to automakers>products?

&ow are the automakers bene(ting fromsoftware*enhanced cars? &ow are customersbene(ting?

%hat value chain activities are involved inenhancing cars with software?

&ow much of a competitive advantage is softwareproviding for automakers? 7$plain your answer5

+utomaers 5ecome Soft!are Companies


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@alue !eb:

Collection of independent 1rms

using highly synchronized I0 tocoordinate &alue chains toproduce product or ser&icecollecti&ely

More customer dri&en, lesslinear operation thantraditional &alue chain

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The value web is a networ"edsystem that can synchronize thevalue chains of business

partners within an industry torespond rapidly to changes insupply and demand.

FIGURE 3-10

THE VALUE WEB


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Information systems can impro&eo&erall performance of businessunits by promoting synergies and

core competencies Synergies

%hen output of some units used asinputs to others, or organi"ations pool

markets and e$pertise7$ample8 merger of @ank of ; andB#+organ /hase

#urchase of ou6ube by Coogle

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Core competencies

+cti&ity for !hich 1rm is !orld*

class leader 4elies on no!ledge,

e'perience, and sharing thisacross business units

E'ample: $rocter A Gamble%sintranet and directory ofsub)ect matter e'perts

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a age e o a o Sys e s, G oba d o


>et!or*based strategies

0ae ad&antage of 1rm%s

abilities to net!or !ith eachother

Include use of:

;etwork economics3irtual company model

@usiness ecosystems

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0raditional economics: (a! ofdiminishing returns 6he more any given resource is applied to production,

the lower the marginal gain in output, until a point isreached where the additional inputs produce noadditional outputs

>et!or economics: +arginal cost of adding new participant almost "ero,

with much greater marginal gain

3alue of community grows with si"e

3alue of software grows as installed customer basegrows

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@irtual company strategy

@irtual company uses net!ors to ally!ith other companies to create and

distribute products !ithout beinglimited by traditional organizationalboundaries or physical locations

E'ample: (i A .ung manages

production, shipment of garments forma)or fashion companies, outsourcingall !or to more than B,6 suppliers

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5usiness ecosystems Industry sets of 1rms pro&iding related

ser&ices and products

+icrosoft platform used by thousands of (rms %almart>s order entry and inventory management

Deystone 1rms: 4ominate ecosystem andcreate platform used by other (rms

>iche 1rms: ely on platform developed by

keystone (rm Indi&idual 1rms can consider ho! I0 !ill

help them become pro1table niche playersin larger ecosystems

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The digital firm era re%uires a more dynamic view of the boundaries among industries, firms, customers, andsuppliers, with competition occurring among industry sets in a business ecosystem. In the ecosystem model,multiple industries wor" together to deliver value to the customer. IT plays an important role in enabling adense networ" of interactions among the participating firms.

FIGURE 3-11

AN ECOSYSTEM STRATEGIC MODEL


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Sustaining competiti&e ad&antage Competitors can retaliate and copy strategic systems

Systems may become tools for sur&i&al

+ligning I0 !ith business ob)ecti&es $erforming strategic systems analysis

)tructure of industry

Firm value chains

Managing strategic transitions +dopting strategic systems re8uires changes in

business goals, relationships !ith customers andsuppliers, and business processes

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