1. Information Systems, Organizations, Management, and Strategy
Chapter 3
Information Systems, Organizations, Management, and Strategy

2. EBay Fine-Tunes Its Strategy
• Problem: Losing market share to other online retailers,
ultra-competitive and constantly changing marketplace.
Solutions: Acquire other businesses and adjust its
business model to maintain online dominance.
• Purchase of PayPal, deal with Buy.com allowed eBay to
grow and diversify its business.
• Demonstrates IT’s role in the development of eBay’s
organization as it expands and makes acquisitions
• Illustrates the challenges of maintaining a competitive
advantage in a fast-moving, constantly-changing
marketplace.

3. The Two-Way Relationship between Organizations
ORGANIZATIONS AND INFORMATION SYSTEMS
The Two-Way Relationship between Organizations
and Information Technology
Figure 3-1

4. ORGANIZATIONS AND INFORMATION SYSTEMS
As a manager you would be the one deciding that which will be built, what they will do, and how they will be implemented.
WHAT IS AN ORGANIZATION?
“It is a stable, formal social structure that take resources from the environment and processes them to produce outputs.”

5. This definition focuses on three elements of organization.
Capital and labor are primary production factors provided by the environment.
The firm transforms these inputs into products and services in a production function
The products and services are consumed by the environment in return for supply inputs.

6. The Technical Microeconomic Definition of the Organization
ORGANIZATIONS AND INFORMATION SYSTEMS
The Technical Microeconomic Definition of the
Organization
Figure 3-2

7. ORGANIZATIONS AND INFORMATION SYSTEMS
Behavioral Definition of Organization:
Collection of rights, privileges, obligations, and responsibilities
Delicately balanced over a period of time through conflict and conflict resolution

8. ORGANIZATIONS AND INFORMATION SYSTEMS
The Behavioral View of Organizations
Figure 3-3

9. How these definitions relate to Information System?
The Technical and Behavioral definitions of organizations are not contradictory, on the other hand they complement each other.
Earlier tell us how thousand of firms in competitive markets combine capital, labor and IT , whereas the latter takes us inside the individual firm to see how the technology effect the firm

10. All organizations have some similar “structural” features.

11. ORGANIZATIONS AND INFORMATION SYSTEMS Features of Organizations
Routines and Business Processes
Routines for producing goods and services (Standard Operating Procedures) are developed by firm to become time efficient and productive.
Business processes are the collections of these routines

12. ORGANIZATIONS AND INFORMATION SYSTEMS Routines and Business Processes
Business firms are a collection of business processes.
Business processes enable organizations to cope with all recurring expected situations.

13. ORGANIZATIONS AND INFORMATION SYSTEMS
Routines, Business Processes, and Firms
Figure 3-4

14. ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Politics
Divergent viewpoints lead to political struggle, competition, and conflict.
Hamper organizational change- especially information systems

15. Virtually all large information systems investments by a firm that brings about the significant changes n strategy, business processes, business objectives, and business processes become politically charged events.
Internal politics defeats the best-laid plans for an IS.

16. ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Culture
The assumptions about:
What products the organization should produce
How and where it should be produced
For whom the products should be produced

17. If we all share the same basic cultural assumptions, agreements on the matters will be easy.

18. Unique Features of Organizations
Management Information Systems
Chapter 3
Information Systems, Organizations, Management, and Strategy
ORGANIZATIONS AND INFORMATION SYSTEMS
Unique Features of Organizations
Structures
Goals
Constituencies
Leadership styles
Tasks
Surrounding environments

19. ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Structures
Entrepreneurial structure: Small start-up business
Machine bureaucracy: Midsize manufacturing firm
Divisionalized bureaucracy: Fortune 500 firms
Professional bureaucracy: Law firms, school systems, hospitals
Adhocracy: Consulting firms

20. ORGANIZATIONS AND INFORMATION SYSTEMS
Organizations and Environments:
Organizations and environments have a reciprocal relationship.
Organizations are open to, and dependent on, the social and physical environment.
Organizations can influence their environments.

21. Environments and Organizations Have a Reciprocal Relationship
ORGANIZATIONS AND INFORMATION SYSTEMS
Environments and Organizations Have a
Reciprocal Relationship
Figure 3-5

23. ORGANIZATIONS AND INFORMATION SYSTEMS
Other Differences Among Organizations:
Ultimate goals
Different groups and constituencies
Nature of leadership
Tasks and technology

24. ORGANIZATIONS AND INFORMATION SYSTEMS
Organizing the IT Function
The information systems department is responsible for maintaining:
Hardware
Software
Data storage
Networks

25. ORGANIZATIONS AND INFORMATION SYSTEMS
Information Technology Services
Figure 3-6

26. ORGANIZATIONS AND INFORMATION SYSTEMS
Includes Specialists:
Programmers: Highly trained, writers of the software instructions for computers
Systems analysts: Translate business problems into solutions, act as liaisons between the information systems department and rest of the organization
Information system managers: Leaders of various specialists

27. ORGANIZATIONS AND INFORMATION SYSTEMS
Chief Information Officer (CIO): Senior manager in charge of information systems function in the firm
End users: Department representatives outside the information system department for whom applications are developed

28. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Economic Impacts:
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.

29. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Economic Impacts: (Continued)
Transaction cost theory: Firms seek to economize on the cost of participating in markets (transaction costs).
Using markets is expensive
Costs of locating, communicating, with distant suppliers, buying insurance, obtaining info on products is expensive

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

31. The Transaction Cost Theory of the Impact of Information Technology on the Organization

32. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Agency theory: Firm is nexus of contracts among self-interested parties requiring supervision.
Firms experience agency costs (the cost of managing and supervising).
IT can reduce agency costs, making it possible for firms to grow without adding to the costs of supervising, and without adding employees.

33. Management Information Systems
Chapter 3
Information Systems, Organizations, Management, and Strategy
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
The Agency Cost Theory of the Impact of Information Technology on the Organization
Figure 3-8

34. Organizational and Behavioral Impacts
There is no magic wand companies can wave that will solve all their problems just because they installed the latest information system.
People using technology efficiently and effectively, however, can transform organizations.
Technology can enhance communications up and down the organization and from one department to another on the same managerial level.

35. Technology makes virtual organizations more feasible, cheaper, and easier to set up and tear down than before.
If you had a small group of people from each functional area of the company collaborating on a new production method, you can bring them together, hammer out the new methodology, and then return them to their regularly assigned units.

36. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Organizational and Behavioral Impacts
IT Flattens Organizations:
Facilitates flattening of hierarchies
Broadens the distribution of timely information
Increases the speed of decision making

37. IT Flattens Organizations
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
IT Flattens Organizations
Empowers lower-level employees to make decisions without supervision and increase management efficiency
Management span of control (the number of employees supervised by each manager) will also grow

38. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Flattening Organizations
Figure 3-9

39. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Postindustrial Organizations and Virtual Firms
Postindustrial Organizations:
Authority increasingly relies on knowledge and
competence rather than formal positions,
therefore it supports the notion that IT flattens
hierarchies
Information technology encourages task
force-networked organizations.

40. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Virtual Firms:
Use networks to link people, assets, and ideas
Can ally with suppliers, customers to create
and distribute new products and services
Not limited to traditional organizational boundaries
or physical locations

41. Accenture is the example- no operational headquarter, many of its 186,000 employees move from location to location to work on project for different clients in 49 countries

42. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Understanding Organizational Resistance to Change:
Information systems become bound up in organizational politics because they influence access to a key resource.
Information systems potentially change an organization’s structure, culture, politics, and work.
Most common reason for failure of large projects is due to organizational and political resistance to change.

43. HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
Organizational Resistance and the Mutually Adjusting Relationship between Technology and the Organization
Figure 3-10
Source: Reprinted by permission of James G. March.

44. The Internet and Organizations
HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS
The Internet and Organizations
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.

45. PORTER’S COMPETITIVE FORCES MODEL

46. PORTER’S COMPETITIVE FORCES MODEL
contends that much of the success or failure of a business depends on its ability to respond to its external environment.
Traditional competitors: always nipping at your heals with new products and services trying to steal your customers.
New market entrants: not constrained by traditional ways of producing goods and services, they can easily jump into your markets and lure customers away with cheaper or better products and services.

47. Substitute products and services: customers may be willing to try substitute products and services if they decide your price is too high or the quality of your products and services is too low.
Customers: they are now armed with new information resources that make it easier for them to jump to your competitors, new market entrants, or substitute products.
Suppliers: the number of suppliers used may determine how easy or difficult your business will have in controlling your supply chain. Too few suppliers and you lose a lot of control.

48. Using Information Systems to Achieve Competitive Advantage
Four generic strategies for dealing with competitive forces, enabled by using IT
• Low-cost leadership (e.g., Wall-Mart)
• Product differentiation (non-commodity)
• Focus on market niche
• Strengthen customer and supplier intimacy-results in high switching costs and brand loyalty.

49. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Business-Level Strategy: The Value Chain Model
The most common generic business level strategies are:
Become the low-cost producer
Differentiate your product from competitors’ products
Change the scope of competition by enlarging the market or narrowing it to a specialized niche

50. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Value Chain Model:
Highlights the primary or support activities that add business value
A good tool for understanding strategy at the business firm level
Primary Activities:
Directly related to the production and distribution of a firm’s products or services

51. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Support Activities:
Make the delivery of primary activities possible
Consist of the organization’s infrastructure, human resources, technology, and procurement

52. The Firm Value Chain and the Industry Value Chain
INFORMATION SYSTEMS AND BUSINESS STRATEGY
The Firm Value Chain and the Industry Value Chain
Figure 3-11

53. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Strategic question:
How can IT be used at each point in the value chain to lower costs, differentiate products, and change the scope of competition?

54. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Value Web:
Internet-enabled Web of cooperating firms
Customer-driven network of independent firms
Uses information technology to coordinate value chains of separate firms for collectively producing a product or service

55. INFORMATION SYSTEMS AND BUSINESS STRATEGY
The Value Web
Figure 3-12

56. INFORMATION SYSTEMS AND BUSINESS STRATEGY Business-level Strategy
Figure 3-14

57. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Firm-Level Strategy and Information Technology
Synergies:
when one output is the input of another, or two things are joined together to make another product
Core Competency:
Activity at which a firm excels as a world-class leader
Information systems encourage the sharing of knowledge across business units and therefore enhance firm competency

58. Industry-Level Strategy and Information Systems:
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Industry-Level Strategy and Information Systems:
Competitive Forces and Network Economics
Firms operate in a larger environment composed of
other firms, governments, and nations
Information partnership:
Cooperative alliance formed between two or more corporations for sharing information to gain strategic advantage
Help firms gain access to new customers, creating new opportunities for cross-selling and targeting products

59. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Business Ecosystems:
IT plays a powerful role in creating new forms of business ecosystems.
Business ecosystems are interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

60. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Examples:
Microsoft: 1 billion PCs worldwide and hundreds of thousands of businesses rely on Microsoft’s platform.
EBay: Millions of people and thousands of business firms use this platform.
Wal-Mart: Enterprise systems used by suppliers to increase their efficiency

61. INFORMATION SYSTEMS AND BUSINESS STRATEGY An Ecosystem Strategic Model
Figure 3-16

62. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Network Economics:
IT products and services exhibit powerful network effects and create potential “winner take all” situations.
Network effects occur when adding more resources to a process incurs little or zero cost, but large gains in output.
Contrary to the law of diminishing returns typical of industrial and agricultural products

63. INFORMATION SYSTEMS AND BUSINESS STRATEGY
Network Economics: (Continued)
Example: Value of the Internet grows exponentially with the linear increase in users.
Example: Because certain software can become a standard (like Windows operating systems or Windows Office), people can get locked into that standard and the value of Windows grows as more and more people use it.
Good strategy: Use IT to build products and services that exhibit network effects.

64. MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
Firms face a continuing stream of IT-based opportunities to achieve strategic advantages

65. MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
Management Challenges:
Some firms face big hurdles in implementing contemporary systems.
Once an advantage is achieved, there are difficulties in sustaining the advantage.
Organizations often cannot change fast enough to accommodate new technologies.

66. MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
Solution Guidelines:
Perform a strategic systems analysis
Understand the structure and competitive dynamics of the industry where your firm operates
Understand the business, firm, and industry value chains
Consider how your firm can manage “strategic transitions” as it seeks to implement systems that provide competitive advantages