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INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGYChapter 3
Doç.Dr. Aykut Hamit TURAN
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THE US AİRWAYS MERGER The US Airways merger illustrates the interdependence of
business environments, organizational culture, business processes, business strategy and the development of IS
The merging companies have different organizational structures, cultures, business processes and IS, which had to be integrated for the company to run effectively
US Airways was traditional hub and spoke carrier with an older workforce, lumbering bureucracy and rigid IS function that had been outsourced to EDS. American West was very different, formed in 1981, it had younger workforce, more freewheeling enterpreneour culture and a penchant for managing its own IS
By late 1990s, they both are considered airlines of last resort, people flew when they are no other alternatives
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THE US AİRWAYS MERGER Merger was designed to create synergy between
traditional full service airline and a newer low cost carrier with US Airline’s experience and strong network on the east coast and American West’s low cost structure, IS and routes in the western US
After the merger, airlines aimed to reduce costs by eliminating redundant IS and adopting simple, flexible IS and business functions of American West
The new US is now fifth largest carrier in US and world’s largest low cost carrier
Success depends on how well the two companies’ systems and business processes are integrated
Significant challanges in consolidating functions, integrating organizations, procedures and operations will make the integration of two airlines costly, complex and time consuming
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THE US AİRWAYS MERGER There is interdependence of business environments,
organizational culture, business processes, business strategy and the development of IS
Mergers are a response to competitive forces and pressures to surronding environment
The merging companies have different organizational cultures, business processes and IS, which had to be integrated for the new company run efficiently
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ORGANİZATİONS AND İNFORMATİON SYSTEMS
IS and organizations influence one another IS is built to serve the interests of organizations Organizations must be aware of and open to the
influences of IS to benefit from new technologies The interaction between IT and organization is complex
and is influenced by many mediating factors, including organization’s structure, business processes, politics, culture, surrounding environment and management decisions
We need to understand how IS can change social and work life in our firms
Some of the changes that occur in business firms because of new IT investments cannot be foreseen and have results that may or may not meet our expectations – email’s prodominance in business world
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ORGANİZATİONS AND İNFORMATİON SYSTEMS
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WHAT İS AN ORGANİZATİON An organization is a stable, formal social structure that
takes resources from the environment and process them to produce outputs
Organization transforms inputs into products and services in a production function
Organizations are formal legal entities with internal rules and procedures that must abide by laws
Organizations are also social structures because they are a collection of social elements
In the behavioral view of organization, organization is seen as a collection of rights, privileges, obligations and responsibilities that is delicately balanced over a period of time through conflict and conflict resolution
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WHAT İS AN ORGANİZATİON An organization is more stable than an informal group
in terms of longetivety and routiness In this behavioral view of the firm, people who work in
organization develop customary ways of working, they gain attachmenets to exisiting relationships and they make arrangements with subordinates and superiors about how the work to be done and under what conditions to be done
A technical view of organization encourages us to focus on how inputs are combined to create outputs when technology changes are introduced into the company. In behavioral view, building new IS or rebuilding exisiting ones require much more than technical arrangements of machines and workers. Some IS changes organizational balance of rights, privilages, obligations, responsibilities and feelings
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WHAT İS AN ORGANİZATİON Changing these elements can take a long time, very
distruptive and require more resources to support training and learning
Technological change require changes in who owns and controls information, who has the right to access and update the information, and who makes decisions about whom, when and how
Technical and behavioral view of organizations compliment each other
The technical view tells us how firms in competitive markets combine capital, labor and IS, whereas behavioral model takes us inside of individual firm to see how technology affects the organization’s inner workings
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TECHNICAL VIEW OF ORGANIZATION
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THE BEHAVİORAL VİEW OF ORGANİZATİON
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FEATURES OF ORGANİZATİON All modern organizations have certain characteristics They are bureaucracies with clear cut divisions of
labor and specialization Organizations arrange specialities in a hierarchy of
authority in which everyone is accountable to someone and authority is limited to specific actions governed by abstract rules and procedures
The organization is devoted to the principle of efficiency: maximizing output using limited inputs
Other features of organization include their business processes, organizational culture, organizational politics, surrounding environments, structure goals, constituencies and leadership styles
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ROUTİNES AND BUSİNESS PROCESSES All organizations become very efficient over time
because individuals in the firm develop routines for producing goods and services
Routines are also called standard operating procedures and practices that have been developed to cope with virtually all expected situations
As employees learn these routines, they become very efficient and highly productive and firm is able to reduce costs over time as efficiency increases
Combination of routines makes businss processes
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ORGANİZATİONAL POLİTİCS
People in organizations occupy different positions with different specialties, concerns and perspectives
They naturally have divergent viewpoints about how resources, rewards and punishments should be distributed
Political resistance is one of the great difficulties of bringing about organizational change, especially the development of new IS
Virtually all large IS investments bring about significant changes in strategy, business objectives and business procedures
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ORGANİZATİONAL CULTURE Organizational culture encompasses set of assumptions
about what products the organization should produce, how it should produce them, where and for whom
Generally these cultural assumptions are taken for granted and rarely publicly spoken or announced
Organizational culture is a very powerful restraint on change, especially technological change
Organizational culture is a powerful unifying force that restrains political conflict and promotes common understanding, agrement on procedures and common practices
Most organizations will do anything to avoid changes on common practices and assumptions
Any technological change that bring challenge commonly held cultural assumptions usually meets great deal of resistance
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ORGANİZATİONAL ENVİRONMENTS Organizations reside in environments from which they
draw resources and to which they supply goods and services
Organizations are open to and dependent on the social and political environment that surrounds them
Organizations must respond to legislative and other requirements imposed by government
Information systems are key instruments for environmental scanning, helping managers identify external changes that might require an organizational response
The main reasons for organizational failure are an inability to adapt faster to rapidly changing environments and lack of resources
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ORGANİZATİONAL ENVİRONMENTS IS are key instruments for environmental scanning,
helping managers idetify external changes that might require an organizational response
Environments generally change much faster than organizations
The main reason for organizational failure is inability to respond changing environments and lack of resources, particulaly among young firms to sustain even short periods of troubled times
New technologies, new products and changing public tastes and values put restrains on organizational culture, politics and people
Most organizations cannot deal with large environmental shifts
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ORGANİZATİONAL STRUCTURES
All organizations have a structure and shape Mintzberg defined organizational structures in
five types The kind of IS you find in a business firm and the
nature of problems with these systems reflects the types of organizational structures. For example in a professional bureucracy like an hospital, it is not unusual to find paralel patient record system, one operated by administration, another by doctors and another by professional staff like nurses and social workers
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MİNTZBERG’S ORGANİZATİONAL STRUCTURES
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OTHER ORGANİZATİONAL FEAUTURES Organizations have goals and use different means to
achieve them Some organizations must have coercive goals like
prisons, others have utilitarian goals like businesses. Some others have normative goals like universities, religeous groups
Organizations also serve different groups, some primarily benefitting their members, others benefitting clients, stockholders or public
Organizations may have different lieadership styles as well. Some may be more democratic, some may be more authoriterian than others
Some organizations operate on routine tasks, whereas other such as consulting firms work primarily on non routine tasks
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HOW IS IMPACT ORGANİZATİONS AND BUSİNESS FİRMS
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IS have become integral, online, interactive tools deeply involved in the minute to minute operations and decision making of large organizations
Over the last decade, IS have fundamentally altered the economics of organizations and greatly increased possibilities for organizing work
ECONOMİC İMPACTS
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IT changes both the relative costs of capital and the costs of information
IS can be viewed as a factor of production that can be substituted for traditional capital and labor
As the cost of IT decreases, it is substituted for labor As cost of IT decreases, it also substitutes for other forms of
capital, such as buildings and machinery IT should also result in a decline in the number of middle
managers and clerical workers as IT substitudes for labor IT helps firms contrast in size because it can reduce
transaction costs – the cost incurred when firms buy on the marketplace what it cannot make itself
IT, the use of networks can help firms lower the cost market participation
IT also reduce internal management costs, It also enable managers to oversee a greater number of employees
ECONOMİC İMPACTS
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According to transaction cost theory, firms and individuals seek to economize on transaction costs, much as they do on production costs
Cost of locating and communicating with distant suppliers, monitoring contract complience, buying insurence, obtaining information on products are expensive
Traditionally firms try to reduce transaction costs by getting bigger, hiring more employees and buying their own suppliers and distributors
IT, especially use of networks can help firms lower the cost of market participation (transaction costs), making it worthwhile for firms to contach external suppliers instead using internal resources
IT can also reduce internal management costs. According to agency theory, the firm is viewed as a nexus of contracts among self interested individuals rather than unified, profit maximizing entity
ECONOMİC İMPACTS
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A principal employs agents to perform the work. However, agents need constant supervision and management, otherwise they would tend to pursue their own interests rahther than those of owners
As companies grow in size and scope, cost of supervising and managing – agency costs will increase
IS can reduce of cost of acquiring and analyzing information by permitting to reduce agency costs since managers can oversee a greater number of employees
IT enables firms to increase revenues by shrinking the number of middle managers and clerical workers
ORGANİZATİONAL AND BEHAVİORAL İMPACTS
IT flattens organizations Large organizations often inefficient, slow to
change and less competitive than newly created organizations
IT facilitates and broadens distribution of information to empower lower level employees and increase management efficiencies
IT pushes decision making rights lower in organization
Management span of control has also been broaden, enabling high level managers to manage and control more workers spread over greater distances
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ORGANİZATİONAL AND BEHAVİORAL İMPACTS
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ORGANİZATİONAL AND BEHAVİORAL İMPACTS
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Postindustrial Organizations In postindustrial societies, authority increasingly
relies on knowledge and competence and not merely on formal positions
Organizations become more decentralized and information become more widespread throughout the organization
IT may encourage task force networked organizations in which group of professionals come together for short period of times to accomplish specific tasks
ORGANİZATİONAL AND BEHAVİORAL İMPACTS
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Postindustrial Organizations IT enables task groups to work face to face or
electronically to accomplish specific tasks IT also enables to form self managed teams But who makes sure that self managed teams do
not head off in the wrong direction? Who decides which person works on which team and how long? How can manager evaluate the performance of someone who is constantly rotating from team to team?
New approaches for evaluating, organizing and informing workers are required not all companies can make virtual work effective
ORGANİZATİONAL AND BEHAVİORAL İMPACTS
Understanding organizational resistance to change IT inevitably become bound up in organizational
politics because they influence access to a key resource – Information
IS can affect who does what to whom, when, where and how in the organization
New IS require changes in personal, individual routines that can be painful for those involved and require retraining and additional effort that may or may not be compensated
In Leavitt’s model, the only way to bring change is to change the technology, tasks, structure and people simultaneously
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ORGANİZATİONAL AND BEHAVİORAL İMPACTS
Understanding organizational resistance to change Because IS potentially change an organization’s
structure, culture, business processes and strategy, there is often considerable resistance to them when they are introduced
Because organizational resistence to change is so powerful, many IT investments flounder and do not increase productivity
Most reasons of failures of IS projects is not because of technology, but organizational and politic resistance to change
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LEAVİTT’S CHANGE MODEL
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INTERNET AND ORGANİZATİONS
Internet is beginning to have an important impact on the relationships between firms and external entities and even on organization of business processes inside firm
Internet increases the accessibility, storage and distribution of information and knowledge for organizations
Internet can dramatically reduce transaction and agency costs
Businesses are rapidly rebuilding some of their key business processes based on Internet technology and making this technology key component of their IT infrastructure
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IMPLİCATİONS FOR THE DESİGN AND UNDERSTANDİNG OF IS
The central organizational factors to consider when planning a new systems are The environment in which organization function The structure of organization The organizational culture and politics The type of organization and its style of
leadership The principal interests groups affected by the
system and attitudes of workers using the systems
The kind of tasks, decisions and business processes that IS is designed to assists
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USİNG IS TO ACHİEVE COMPETİTİVE ADVANTAGE
In all industries, some firms do better than others Apple ITunes Toyota
Firms that do better than others said to have competitive advantage
Either have access to special resources that other do not, or these firms are able to use commonly available resources more efficiently, usually because of their superior knowledge and information assests
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PORTER’S COMPETİTİVE FORCES MODEL
The most widely used competitive model – Competitive Advantage Model
The model provides a general view of the firm, its competitors and the firm’s environment
Traditional Competitors: All firms share market space with other competitors who are continuously devising new, more efficient ways to produce by introducing new services and products
New Market Entrants: In a free economy with mobile labor and financial resources, new companies are always entering the marketplace
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PORTER’S COMPETİTİVE FORCES MODEL In some industries, entry is very difficult, in some it is very
easy Substitute Products and Services: In just about every
industry, there are substitutes that your customers might use if prices become too high
Customers: A profitable company depends in large measure on its ability to attract and retain customers and charge high prices
The power of customers grow if they can easily switch to a competitor’s products and services
In a transparent markets, where prices known instantly and there is low product differentiation, customers’ power increases
Suppliers: The market power of suppliers can have a significant impact on firm profit, especially when the firm cannot raise prices as fast as can suppliers
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PORTER’S COMPETİTİVE FORCES MODEL
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IS STRATEGİES FOR DEALİNG WİTH COMPETİTİVE FORCES
There are four generic strategies, each of which enabled by using IS
Low cost leadership Use IS to achieve the lowest operational costs
and the lower prices Wal Mart’ s continuous replenishment systems An efficient customer response system directly
links customer behavior to distribution and production and supply chains
Product differentiation Use IS to enable new products and services Google continuously introducing new products
and services
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IS STRATEGİES FOR DEALİNG WİTH COMPETİTİVE FORCES Focus on market niche
Use IS to enable a specific market focus and serve this narrow market better than competitors
IS support this strategy by producing and analyzing data for finely tuned sales and marketing techniques, customers’ buying patterns, tastes and preferences closely to efficiently pitch market advertising and marketing campaigns to smaller and smaller target markets
Strengthen customer and supplier intemacy Use of IS to tighten linkages with suppliers and develop
intimacy with customers. Crysler Corp allows suppliers more lead time in producing goods. Amazon.com keeping user preferences for books and CDs, recommends products and services
Strong linkages to customers and suppliers increase switching costs and loyalty to our firm
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SUPPLY CHAİN MANAGEMENT SYSTEMS
Help businesses manage their relationships with their customers
Provide information to help suppliers, purchasing firms, distributors and logistic companies share information about orders, production levels and delivery of products and services efficiently
If company and its supply network do not have accurate information, they will most likely be dealing with excessive inventories and problems in deliveries of inventories and products
SCMS are inter-organizational systems because they automate the flow of information across organizational boundaries
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IS STRATEGİES FOR DEALİNG WİTH COMPETİTİVE FORCES Product differentiation
Mass customization is the ability to offer individually tailored products or services using the same production resources as mass production
Focus on Market Niche Use IS to enable a specific market focus, and serve this
narrow target market better than competitors IS support this strategy by producing and analyzing data for
finely tuned sales and marketing techniques Strengthen Customer and Supplier Intimacy
Use IS to tighten linkages with suppliers and develop intimacy with customers
Amazon.com keeps track of user preferences for book and CD purchases and can recommend titles purchased by others
Strong linkages to customers and suppliers increase switching costs and loyalty to your firm
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INTERNET’S İMPACT ON COMPETİTİVE ADVANTAGE
The Internet has nearly destroyed some industries and has severely threatened more
The Internet has also created entirely new markets and formed the basis for thousands of new businesses
Music, Air travel industries, telephone services Emerging new business models Because of the Internet, the traditional forces are
still at work, but competitive rivalry has become much more intense
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INTERNET’S İMPACT ON COMPETİTİVE FORCES
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THE BUSİNESS VALUE CHAİN MODEL
The value chain model highlights specific activities in the business where competitive strategies can best be applied and where IS are most likely to have strategic impact
The value chain model views the firm as a series or chain of basic activities that add margin of value to a firm’s products and services
Primary activities are most directly related to the production and distribution of the firm’s product and services, which create value for customers
Support activities make the delivery of the primary activities possible and consist of organizational structure
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THE BUSİNESS VALUE CHAİN MODEL
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SYNERGİES, CORE COMPETENCİES AND NETWORK BASED STRATEGİES
A large corporation is typically a collection of businesses
Often, the firm is organized financially as a collection of strategic business units and the returns to the firm are directly tied to the performance of all strategic business units
Synergies: IS can tie operations and business units so that they can act as a whole
A core competency is an activity for which a firm is a world class leader
The availability of Internet and networking technologies has inspired strategies that take advantage of firms’ abilities to create networks or network with each other
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USİNG SYSTEMS FOR COMPETİTİVE ADVANTAGE Strategic IS often change the organization as well as
its products, services and operating procedures, driving the organization into new behavioral patterns
The competitive advantages strategic systems confer do not necessarily last enough to ensure long term profitability
The Internet can make competitive advantage disappear very quickly because virtually all companies can use this technology
Adopting the kinds of strategic systems generally require changes in business goals, relationships with customers and suppliers and business processes
Such changes often entail blurring of organizational boundaries, both external and internal
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