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

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.

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

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.”

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.

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

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

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

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

All organizations have some similar “structural” features.

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

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.

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

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

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.

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

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

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

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

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.

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

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

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

ORGANIZATIONS AND INFORMATION SYSTEMS Information Technology Services Figure 3-6

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

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

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.

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

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

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

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.

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

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.

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.

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

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

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

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.

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

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

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.

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.

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.

PORTER’S COMPETITIVE FORCES MODEL

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.

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.

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.

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

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

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

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

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?

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

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

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

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

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

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.

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

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

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

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.

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

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.

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