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3 Chapter Information Systems, Organizations, and Strategy.

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1 3 Chapter Information Systems, Organizations, and Strategy

2 Three Primary Uses of Information Systems Automation Providing support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency Automation Providing support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency Organizational Learning (Informating) Providing support to improve day-today operations by creating, acquiring, and transferring knowledge Organizational Learning (Informating) Providing support to improve day-today operations by creating, acquiring, and transferring knowledge Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals

3 What Value Is Provided in These Functions?

4 Automation Providing support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency Automation Providing support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency Styles of Processing Manual Processing No technology automation support Technology Supported Processing A combination of manual and system supported steps Fully Automated Processing All manual steps have been eliminated. Styles of Processing Manual Processing No technology automation support Technology Supported Processing A combination of manual and system supported steps Fully Automated Processing All manual steps have been eliminated. Effectiveness If the underlying process is bad, automating with technology alone may mask process problems Effectiveness If the underlying process is bad, automating with technology alone may mask process problems

5 Benefits of Automation – Loan Example

6 Organizational Learning Providing support to improve day-today operations by creating, acquiring, and transferring knowledge Organizational Learning Providing support to improve day-today operations by creating, acquiring, and transferring knowledge Informating (Zuboff 1988) A technology that provides information about its operation and the underlying work process it supports Informating (Zuboff 1988) A technology that provides information about its operation and the underlying work process it supports Effectiveness A combined automating and learning approach is more effective than an automating approach alone. If the underlying process is flawed, a learning use of technology might help you detect problems with the process Effectiveness A combined automating and learning approach is more effective than an automating approach alone. If the underlying process is flawed, a learning use of technology might help you detect problems with the process

7 US Airways and America West merged in response to competitive pressures from their surrounding environment. The merging companies had different organizational cultures, business processes and information systems, which had to be integrated for the new company to run effectively. The new information systems — many taken over from a more modernized America West — had to be fine-tuned to support the new US Airways’ business strategy. US Airways’ systems effort can’t succeed without a significant amount of organizational and management change. Will the new US Airways be able to Fly

8 The newly merged company provides value to customers by competing on both price and quality service. To make the merger profitable, US Airways had to revise its business processes so that two formerly separate companies could operate as a single entity, and it also had to eliminate redundant information systems. The case describes the role of information systems in lowering costs and coordinating operations for US Airways after its merger Will the new US Airways be able to Fly

9 Will the New US Airways Be Able to Fly? Problem: Intense competition and environmental changes. Solutions: Revising business processes and integrating them with information systems and culture could increase sales and reduce costs. Selecting appropriate systems and technology eliminates redundant systems. Demonstrates IT’s role in supporting improved business processes. Illustrates the benefits of integrating information systems in the face of interdependence of environment, culture, process, strategy, and systems. Management Information Systems

10 FEATURES OF ORGANIZATIONS Information systems use data as their main ingredient and organizations rely on people. However, the similarities are remarkable. Both are a structured method of turning raw products (data/people) into useful entities (information/producers). Clear division of labor Hierarchy Explicit rules and procedures Impartial judgments Technical qualifications for positions Maximum organizational efficiency These characteristics describe organizations that are called bureaucracies. Most of us think of them as slow, cumbersome, and unprogressive. That isn’t necessarily so. Many organizations have bureaucratic characteristics and operate very well.

11 Characteristics Routines and Business Processes All organizations, including business firms become very efficient over time because individuals in the firm develop routines for producing goods and services. Some of the standard operating procedures (SOPs), politics, and culture are so ingrained in organizations that they actually hinder the success of the group. Think about your experiences in groups. You had a leader (hierarchy), a set of rules by which you operated (explicit rules and procedures), and people appointed to perform certain tasks (clear division of labor). Organizational Politics People in organizations occupy different positions with different specialties, concerns, and perspectives. These differences result in political struggle for resources, competition, and conflict within every organization. Political resistance has proven to be one of the greatest difficulties to bringing about organizational change.

12 Characteristics Organizational Culture Every organization imaginable have bedrock, unassailable, unquestioned assumptions that define their goals and products. Generally, an organization’s cultural assumptions are taken for granted and are rarely publicly announced or spoken about. As a rule, the organizations culture has proven to be a powerful restraint on making changes within the organization and its basic procedures and common business practices. This is especially evident when considering technological changes that may threaten these commonly held cultural assumptions. Organizational Environments Organizations differ because their ultimate goals differ. Some organizations are small by nature or small by design. Using the same thought process as you did for recognizing the different structures in organizations around you, think about the unique differences in those organizations. Why are they different: size, goals, environmental factors that restrict their growth?

13 The Two-Way Relationship Between Organizations and Information Technology This complex two- way relationship is mediated by many factors, not the least of which are the decisions made—or not made—by managers. Other factors mediating the relationship include the organizational culture, structure, politics, business processes, and environment. Organizations and Information Systems Management Information Systems

14 ORGANIZATIONAL AND BEHAVIORAL IMPACTS IT Flattens Organizations Behavioral researchers have theorized that information technology facilitates flattening of hierarchies. Points made in support of this theory include: IT pushes decision-making rights lower in the organization because lower- level employees receive the information they need to make decisions without supervision. Managers now receive so much more accurate information on time, they become much faster at marking decisions, so fewer managers are required. Management costs decline as a percentage of revenues, and the hierarchy becomes much more efficient.

15 Flattening Organizations Information systems can reduce the number of levels in an organization by providing managers with information to supervise larger numbers of workers and by giving lower-level employees more decision- making authority. Management Information Systems How Information Systems Impact Organizations and Business Firms

16 Postindustrial Organizations Postindustrial theories also support the notion that IT should flatten hierarchies. Points made in support of this theory include: Professional workers tend to be self-managing, and decision making should become more decentralized as knowledge and information become more widespread throughout the firm. IT may encourage task force-networked organizations in which groups of professionals come together – face to face or electronically – for short periods of time to accomplish a specific task; once the task is accomplished, the individuals join other task forces Organizations and information systems influence each other. Each organization shares common characteristics that the information system can enhance. On the other hand, each organization has unique characteristics that should be taken into account when incorporating technology. The organization should determine how the technology is incorporated and not let the information system totally dictate the organizational structure.

17 For some jobs, it’s better to employ technology than to employ a person. Technology can reduce costs and increase the amount of information people have access to. The changes brought about by the introduction of new technology and new methods must be managed carefully. No successful manager can lose sight of the effect change will have on the people of the organization. Companies need to tailor their information systems to the needs of the organization instead of letting the wonders of technology drive the organization. To deliver genuine benefits, information systems must be built with a clear understanding of the organization in which they will be used. Central organizational factors to consider when planning a new information system include: The environment in which the organization must function The structure of the organization: hierarchy, specialization, routines, and business processes The organization’s culture and politics The type of organization and its style of leadership The principal interest groups affected by the system and the attitudes of workers who will be using the system The kinds of tasks, decisions, and business processes that the information system is designed to assist

18 Recap List three organizational factors that can prevent a firm in fully realizing the benefits of a new information system, and provide examples for each. Describe the three primary uses of Information systems in an organisation

19 Strategy and Competitive Advantage Sources of Competitive Advantage Having the best-made product on the market Delivering superior customer service Achieving lower cost than rivals Having proprietary manufacturing technology Having shorter lead-times in developing and testing new products Having a well-known brand name and reputation Giving customers more value for their money Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals

20 Porter’s Competitive Forces Model In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers. Using Information Systems to Achieve Competitive Advantage Management Information Systems

21 PORTER’S COMPETITIVE FORCES MODEL Traditional Competitors Efficient business processes can give companies the edge they need to place themselves in the lead. The rivalry among existing competitors in the Competitive Forces Model is high when competition is fierce in a market, and low when competition is more complacent. New Markets Entrants Upstarts can give you fits when you least expect it –Amazon.com is a good example. The threat of new entrants in the Competitive Forces Model is high when it is easy for new competitors to enter a market, and low when there are significant entry barriers to entering a market. Substitute Products and Services Even if they aren’t better than your product, substitutes may be cheaper and the customer will be enticed by the lower price. The threat of substitute products or services in the Competitive Forces Model is high when there are many alternatives to a product or service, and low when there are few alternatives from which to choose.

22 Customers The Internet offers customers the opportunity to quickly and easily compare prices. The Internet also makes it easy for customers to switch to a competitor’s product or service where there is little product differentiation and all prices are known instantly. Customer power in the Competitive Forces Model is high when customers have many choices from whom to buy, and low when their choices are few. Suppliers New technology offers suppliers the chance to integrate information systems that tie them closer to their customers. Supplier power in the Competitive Forces Model is high when buyers have few choices from whom to buy; and low when their choices are many.

23 How the Nature of Competition Affects IS Investment

24 INFORMATION SYSTEM STRATEGIES FOR DEALING WITH COMPETITVE FORCES Low-Cost Leadership Use information systems to achieve the lowest operational costs and the lowest prices. Firms such as Wal-Mart have utilized IT to develop an efficient customer response system that directly links customer behavior back to distribution, production, and supply chains. Product Differentiation Use information systems to enable new products and services, or greatly change the customer convenience in using your existing products and services. Through mass customization, organizations are able to offer individually tailored products or services by using mass production resources. Focus on Market Niche Use information systems to enable a specific market focus, and serve this narrow target market better than competitors. Information systems support this strategy by producing and analyzing data for finely tuned sales and marketing techniques. Information systems enable companies to analyze customer buying patterns, tastes, and preferences closely so that they efficiently pitch advertising and marketing campaigns to smaller and smaller target markets.

25 Traditional vs System Support Process Example Using handheld technology combined with a reengineered business process to create a competitive advantage

26 7-ELEVEN STORES ASK THE CUSTOMER BY ASKING THE DATA 7-Eleven Stores improved its competitive position by wringing more value out of its customers data. This company’s early growth and strategy had been based on face-to-face relationships with its customers and intimate knowledge of exactly what they wanted to purchase. As the company grew over time, it was no longer able to discern customer preference through personal face-to- face relationships. A new information system helped it obtain intimate knowledge of its customers once again by gathering and analyzing customer purchase transactions.

27 Using Information Systems to Achieve Competitive Advantage Management Information Systems discuss the following questions: Why is knowing about the customer so important to a company such as 7-Eleven? What are the benefits of 7-Eleven’s Retail Information System? In terms of Porter’s model, what strategic forces does the Retail Information System seek to address? Which of the strategies does the Retail Information System support? 7-Eleven Stores Ask the Customer by Asking the Data

28 INTERNET’S IMPACT ON COMPETITIVE ADVANTAGE

29 Recap 1.The costs incurred when a firm buys on the marketplace what it cannot make itself are referred to as: a.switching costs. b.transaction costs. c.procurement. d.agency costs 2. Amazon’s use of the Internet as a platform to sell books illustrates a tactical use of information services for: a.low-cost leadership. b.product differentiation. c.focusing on market niche. d.strengthening customer intimacy

30 Recap Discuss the impact of the Internet on the competitive forces model. Apply Porter’s competitive forces model to the 7- Eleven problems You are advising the owner of Smalltown Computer, a new, local computer repair store that also builds custom computers to order. What competitive strategies could Smalltown Computer exert? Which ones will it have difficulty exercising?

31 Value Chain Analysis Value Chain Analysis (Porter 1985, 2001 ) Is a process of analyzing an organization’s activities to determine where value is added to products and/or services and what costs are incurred in doing so.

32 Information Systems Roles in the Value Chain Systems play a significant role throughout the Value Chain to achieve competitive advantage and: Must be appropriate for the business strategy (e.g. cost) Are usually coupled with Business Process Reengineering that address process to enhance company operations Systems play a significant role throughout the Value Chain to achieve competitive advantage and: Must be appropriate for the business strategy (e.g. cost) Are usually coupled with Business Process Reengineering that address process to enhance company operations

33 THE BUSINESS VALUE CHAIN MODEL Primary Activities: –Inbound Logistics(automated Warehousing system), Operations(Computer controlled machining systems),Sales & Marketing(Computerised Ordering Systems), Service(Equipment Maintenance systems, Outbound Logistics(Aotomated shipment scheduling systems  Support Activities:  Administration & Management (Electronic scheduling & messaging systems),Human Resources(Workforce planning systems),Technology(Computer Aided Design systems, Procurement(Computerised ordering systems)  SCM to be included for value web of suppliers  CRM to be included for the value web of customers  Benchmarking to adopt Industry Best Practices

34 The Value Chain By effectively using an information system in a strategic role at any, or preferably all, levels of the organization, a digital firm can provide more value in their products than the competition. If they can’t provide more value, then the strategic information system should help them provide the same value but at a lower price. Using the business value chain model will cause you to consider benchmarking your business processes against your competitors or others in related industries, and identifying industry best practices. Benchmarking involves comparing the efficiency and effectiveness of your business processes against strict standards and then measuring performance against those standards. Industry best practices are usually identified by consulting companies, research organizations, government agencies, and industry associations as the most successful solutions or problem-solving methods for consistently and effectively achieving a business objective.

35 Extending the Value Chain: The Value Web In simple terms, a value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product or service for a market collectively. A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product or service for a market collectively.

36 INTERACTIVE SESSION: ORGANIZATIONS AMAZON.COM: AN INTERNET GIANT FINE-TUNES ITS STRATEGY Amazon.com has become one of the Web’s most satisfying online retail shopping site. Their success is attributed to their ability to use Internet technology as a way to develop and execute a value web strategy to link up more efficiently with their suppliers, strategic partners, and customers. The continuous efforts by Amazon to be innovative in their business strategy and use of information systems have been the main ingredient for Amazon’s success. The case demonstrates the vital importance of information technology to the success of Amazon.com.

37 Competitive forces model: Existing competitors: Brick-and-mortar stores, as well as existing online retailers will continue to put pressure on Amazon. Competitor rivalry will be even more intense. New market entrants: eBay, Yahoo!, and Google are all attempting to take market space from Amazon. The Internet makes it easier for competitors to enter the market and it offers them very low barriers to entry. Competitive rivalry has become much more intense. Substitute products and services: Products and services being offered by Amazon can be easily duplicated and offered by competitors. This makes it easy for rivals to compete. Customers: Amazon customers have a lot of power in that they can easily switch to competitors. Amazon and its competitors all operate in a transparent marketplace where there is little product differentiation. Customers can easily find the lowest-cost provider on the Web. Suppliers: Amazon’s suppliers can have a significant impact on profits. This becomes even more crucial as more companies enter the online retail marketing. Amazon’s suppliers may exercise greater force over Amazon as they are now in a position to enter lucrative deals with other online retail competitors such as eBay and Yahoo!.

38 Using Information Systems to Achieve Competitive Advantage Management Information Systems Chapter 3 Information Systems, Organizations, and Strategy Read the Interactive Session: Organizations, and then discuss the following questions: Analyze Amazon.com using the competitive forces and value chain models. How has it responded to pressures from its competitive environment? How does it provide value to its customers? Describe Amazon’s evolving business strategy. Why did the company change its strategy? Do you think Amazon can continue to be successful? Explain your answer. Amazon.com: An Internet Giant Fine-Tunes Its Strategy


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