Managing the Digital FirmEssentials of Management Information
Systems, 6e Chapter 3 Information Systems, Organizations,
Management, and Strategy
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Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Information technology services
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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System analysts: The principal liaisons between the information
system groups and the rest of the organization.
IS managers: Leaders of IS specialists and external specialists to
vendors, manufacturers, consultants, and other managers of the
organization.
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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© 2005 by Prentice Hall
CIO: Senior manager in charge of the IS functions in the
firm.
End users: Representatives of departments outside the IS group for
whom applications are developed.
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Information Services Department
Past: Consisted primarily of programmers, building own software and
managing own computing facilities
Today: A growing proportion of specialists, with department acting
as powerful change agent in the organization
Information Technology Infrastructure and Information Technology
Services
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Information Services Department
The IS department suggests new business strategies and new
information-based products and services, and coordinates both the
development of the technology and the planned changes in the
organization.
Information Technology Infrastructure and Information Technology
Services
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Economic Theories
Information system technology is a factor of production, freely
substituted for capital and labor
Decreasing cost of IT substitutes the rising cost of labor.
Result in a decline in the number of middle managers and clerical
workers.
How Information Systems Affect Organizations
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Economic Theories
Transaction cost theory: Information technology can help lower the
cost of market participation.
Traditionally, firms have tried to reduce transaction costs by
getting bigger, hiring more employees, or buying suppliers and
distributors, as GM used to do.
It is now worthwhile for firms to contract with external
suppliers.
Firm size can stay constant or contract even if revenue
increases.
How Information Systems Affect Organizations
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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information technology on the organization
Figure 3-6
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Economic Theories – The Agency Theory
A principal (owner) employees “agents” (employees) to perform work
on his or her behalf. However, agents need constant supervision and
management; otherwise, they will tend to pursue their own interests
rather than those of owners.
As firm grows, agency and coordination costs rise
Information technology reduces agency costs because it becomes
easier for managers to oversee more employees
How Information Systems Affect Organizations
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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information technology on the organization
Figure 3-7
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Behavioral Theories
IT could change hierarchy of decision making by lowering costs of
information acquisition and distribution.
Organization shape could “flatten” as professional workers become
self-managing and decision making becomes more decentralized
Growth of “virtual organizations”, networking of people, group, and
companies to complete a task.
Information systems seen as outcome of political competition
between subgroups due to their influence access to a key resource
--- information.
How Information Systems Affect Organizations
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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The Changing Role of Information Systems in Organizations
The Internet is capable of dramatically reducing transaction and
agency costs
Businesses are rapidly rebuilding some key business processes based
on Internet technology
Internet technology becoming a key component of IT
infrastructure
The Internet and Organizations
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Managers, Decision Making, and Information Systems
Examine what managers do and what information they need for
decision making and other functions.
Understand how decisions are made and what kinds of decisions can
be supported by IS.
Determine how IS can benefit managers.
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Classical Model:
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Behavioral Models:
Fragmented activities
Prefer oral communication
The Role of Managers in Organizations
Essentials of Management Information Systems, 6e Chapter 3
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Managerial Role Categories
Decisional: Entrepreneur, disturbance handler, resource allocator,
negotiator
The Role of Managers in Organizations
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Decision Making
Management control: monitors effective usage of resources,
performance
Operational control: determines how to perform tasks and ways to
distribute information
Managers and Decision Making
Essentials of Management Information Systems, 6e Chapter 3
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Decisions are classified as:
Managers and Decision Making
Essentials of Management Information Systems, 6e Chapter 3
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Information systems and levels of decision making
Figure 3-9
Essentials of Management Information Systems, 6e Chapter 3
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Stages of Decision Making
Design: Conceive alternative solution to a problem
Choice: Select among the alternative solutions
Implementation: Put decision into effect and provide report on the
progress of solution
Managers and Decision Making
Essentials of Management Information Systems, 6e Chapter 3
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The decision-making process
Essentials of Management Information Systems, 6e Chapter 3
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Simulate the Battlefield
How useful are war games in simulating combat scenarios and
predicting outcomes?
How would the models of decision making described here explain how
they are designed and performed?
Window on Management
Essentials of Management Information Systems, 6e Chapter 3
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Optimal Information Systems:
Flexible; provide many options for handling and evaluating
data
Support a variety of styles, skills, knowledge; keep track of many
alternatives
Sensitive to organization’s bureaucratic and political
requirements
Implications for the Design and Understanding of Information
Systems
Essentials of Management Information Systems, 6e Chapter 3
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Computer system at any level of an organization
Changes goals, operations, products, services, or environmental
relationships
Helps organization gain a competitive advantage
What Is a Strategic Information System?
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Business Competitive Strategies Questions
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Business Competitive Strategies
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Value Chain Model
Firm seen as series or “chain” of activities that add a margin of
value to firm’s products or services
Highlights activities in business where competitive strategies are
best applied
Primary or support activities
Firm’s value chain linked to value chains of other partners
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Information Systems and Business Strategy
Primary activities: Activities directly related to the production
and distribution of the firm’s products and services that create
value for the customers.
Supporting activities: Make the delivery of the primary activities
possible and consist of organizational infrastructure, human
resources, technology, and procurement.
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
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The firm value chain and the industry value chain
Figure 3-11
Essentials of Management Information Systems, 6e Chapter 3
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Value Web
Value chain extended by Internet technology that connects all the
firm’s suppliers, partners, and customers
Collection of independent firms using IT to coordinate value chains
to collectively produce a product or service
More customer-driven, less linear than value chain
Flexible, adaptive to changes in supply and demand
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
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The value web
Essentials of Management Information Systems, 6e Chapter 3
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Product Differentiation
Strategy for creating brand loyalty by developing new and unique
products and services not easily duplicated by competitors
Information systems used to create new information technology-based
products and services
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Product Differentiation
NetBank: Virtual Banking
Dell: Assemble to Order
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Focused Differentiation
Strategy for developing new market niches for specialized products
and services
Information systems used to produce data for sales and marketing;
analyze customer behavior
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
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Focused Differentiation
Stein Roe Investors: Personalized ad. and services.
Canadian Imperial Bank of Commerce (CIBC): Personalized services to
most profitable customers.
Transfer of non-profitable customers to on-line services.
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Efficient Customer Response Systems
Links consumer behavior back to distribution, production, and
supply chains
Information systems used to link customer’s value chain to firm’s
value chain
Reduce inventory costs; deliver product or service more quickly to
customer
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Efficient Customer Response Systems
Dell: Assemble to order.
Baxter International: stockless inventory.
Sales overhead for operating cost: Wal-Mart 16.6% (Retail average
is 20.7%, Sears 24.9%)
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
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Stockless inventory compared to traditional and just-in-time supply
methods
Figure 3-13
Essentials of Management Information Systems, 6e Chapter 3
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Switching Costs
Cost of switching to competitive product; higher switching costs
discourage customers going to competitors
Information systems offer convenience, ease of use, raise switching
costs
Business-Level Strategy and the Value Chain Model
Essentials of Management Information Systems, 6e Chapter 3
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Business-level strategy
Figure 3-14
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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At firm level, information technology can:
Promote synergies between business units, pool resources
Tie together operations of disparate business units
Improve core competencies
Essentials of Management Information Systems, 6e Chapter 3
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Information Systems and Business Strategy
Bank merger: Chemical and Chase Manhattan, Wells Fargo and Norwest,
Deutsche and Bankers, Citicorp and Travelers Insurance.
Provide cross-marketing, pool market and expertise, lower retail
cost, increase customer access to products, tie operations
together.
American Airline: World-One Alliance.
Essentials of Management Information Systems, 6e Chapter 3
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Industry-Level Strategies:
Information partnerships
Competitive forces model; e.g., developing industry standards,
customer awareness, lower supplier cost
Network economics: cost of adding new participant negligible, but
adds great marginal gain
Industry-Level Strategy and Information Technology
Essentials of Management Information Systems, 6e Chapter 3
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Information Partnerships
Increased customer loyalty
Essentials of Management Information Systems, 6e Chapter 3
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Competitive Forces Model
Coordinate policies and regulations.
Essentials of Management Information Systems, 6e Chapter 3
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Impact of Internet on Competitive Forces
Reduces barriers to entry
Shifts bargaining power to customer
Raises firm’s bargaining power over suppliers
Suppliers benefit from reduced barriers to entry and from
elimination of intermediaries
Widens geographic market, increases number of competitors, reduces
differentiation among competitors
Industry-Level Strategy and Information Technology
Essentials of Management Information Systems, 6e Chapter 3
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Figure 3-15
Essentials of Management Information Systems, 6e Chapter 3
Information Systems, Organizations, Management, and Strategy
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Figure 3-16
Essentials of Management Information Systems, 6e Chapter 3
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Network Economics
The law of diminishing returns.
The marginal gain of adding another participant is much larger than
its marginal cost.
Build communities of users
Customer loyalty and enjoyment
Examples: eBay, iVillage, Nepster