1. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.1 © 2005 by Prentice Hall Information Systems, Organizations, Management, and Strategy Chapter 3

2. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.2 © 2005 by Prentice Hall The Changing Role of Information Systems in Organizations Information technology services Figure 3-5

3. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.3 © 2005 by Prentice Hall Programmers: Highly trained technical specialists who write software instructions for computers. 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.

4. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.4 © 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.

5. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.5 © 2005 by Prentice Hall 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 The Changing Role of Information Systems in Organizations Information Technology Infrastructure and Information Technology Services

6. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.6 © 2005 by Prentice Hall 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. The Changing Role of Information Systems in Organizations Information Technology Infrastructure and Information Technology Services

7. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.7 © 2005 by Prentice Hall 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. The Changing Role of Information Systems in Organizations How Information Systems Affect Organizations

8. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.8 © 2005 by Prentice Hall 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. The Changing Role of Information Systems in Organizations How Information Systems Affect Organizations

9. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.9 © 2005 by Prentice Hall The Changing Role of Information Systems in Organizations The transaction cost theory of the impact of information technology on the organization Figure 3-6

10. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.10 © 2005 by Prentice Hall 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 The Changing Role of Information Systems in Organizations How Information Systems Affect Organizations

11. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.11 © 2005 by Prentice Hall The Changing Role of Information Systems in Organizations The agency cost theory of the impact of information technology on the organization Figure 3-7

12. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.12 © 2005 by Prentice Hall 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. The Changing Role of Information Systems in Organizations How Information Systems Affect Organizations

13. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.13 © 2005 by Prentice Hall 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 Changing Role of Information Systems in Organizations The Internet and Organizations

14. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.14 © 2005 by Prentice Hall 1.Examine what managers do and what information they need for decision making and other functions. 2.Understand how decisions are made and what kinds of decisions can be supported by IS. 3.Determine how IS can benefit managers. Managers, Decision Making, and Information Systems

15. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.15 © 2005 by Prentice Hall Classical Model: Five Functions of Managers Planning Organizing Coordinating Deciding Controlling Managers, Decision Making, and Information Systems The Role of Managers in Organizations

16. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.16 © 2005 by Prentice Hall Behavioral Models: Five Attributes of Managers Perform much work at non-stop pace Fragmented activities Prefer speculation, hearsay, current and ad-hoc information Prefer oral communication Maintain diverse web of contacts as informal information system. Managers, Decision Making, and Information Systems The Role of Managers in Organizations

17. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.17 © 2005 by Prentice Hall Managerial Role Categories Interpersonal: Figurehead, leader, liaison Informational: Nerve center, disseminator, spokesperson Decisional: Entrepreneur, disturbance handler, resource allocator, negotiator Managers, Decision Making, and Information Systems The Role of Managers in Organizations

18. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.18 © 2005 by Prentice Hall Decision Making Classified by Organizational Level Strategic: determines long-term objectives, resources, policies Management control: monitors effective usage of resources, performance Operational control: determines how to perform tasks and ways to distribute information Managers, Decision Making, and Information Systems Managers and Decision Making

19. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.19 © 2005 by Prentice Hall Decisions are classified as: Unstructured: Nonroutine, decision maker provides judgment, evaluation, and insights into problem definition, no agreed-upon procedure for decision making Structured: Repetitive, routine, handled using a definite procedure Managers, Decision Making, and Information Systems Managers and Decision Making

20. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.20 © 2005 by Prentice Hall Managers, Decision Making, and Information Systems Information systems and levels of decision making Figure 3-9

21. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.21 © 2005 by Prentice Hall Stages of Decision Making Intelligence: Collect information, identify problem 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, Decision Making, and Information Systems Managers and Decision Making

22. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.22 © 2005 by Prentice Hall Managers, Decision Making, and Information Systems The decision-making process Figure 3-10

23. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.23 © 2005 by Prentice Hall Why War Games Can’t Always 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? Managers, Decision Making, and Information Systems Window on Management

24. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.24 © 2005 by Prentice Hall 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 Managers, Decision Making, and Information Systems Implications for the Design and Understanding of Information Systems

25. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.25 © 2005 by Prentice Hall Computer system at any level of an organization Changes goals, operations, products, services, or environmental relationships Helps organization gain a competitive advantage Information Systems and Business Strategy What Is a Strategic Information System?

26. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.26 © 2005 by Prentice Hall Business Competitive Strategies Questions How can we compete effectively in this particular market? Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

27. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.27 © 2005 by Prentice Hall Business Competitive Strategies Become the low-cost producer Differentiate product or service Change scope of competition by enlarging or narrowing market Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

28. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.28 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

29. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.29 © 2005 by Prentice Hall 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. Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

30. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.30 © 2005 by Prentice Hall Information Systems and Business Strategy The firm value chain and the industry value chain Figure 3-11

31. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.31 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

32. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.32 © 2005 by Prentice Hall Information Systems and Business Strategy The value web Figure 3-12

33. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.33 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

34. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.34 © 2005 by Prentice Hall Product Differentiation Citibank: ATMs, Debit Cards CitiBank, Wells Fargo: On-Line Banking, One Statement NetBank: Virtual Banking SABRE: On-Line Ticketing, Booking, Reservation, Tour Package Dell: Assemble to Order Land’s End: Make to Order Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

35. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.35 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

36. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.36 © 2005 by Prentice Hall Focused Differentiation Sears Roebuck: Target appliance buyers, gardening enthusiasts, and mothers-to-be. 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. Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

37. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.37 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

38. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.38 © 2005 by Prentice Hall Efficient Customer Response Systems Wal-Mart: Continuous replenishment system, efficient customer response. 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%) Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

39. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.39 © 2005 by Prentice Hall Information Systems and Business Strategy Stockless inventory compared to traditional and just-in-time supply methods Figure 3-13

40. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.40 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Business-Level Strategy and the Value Chain Model

41. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.41 © 2005 by Prentice Hall Information Systems and Business Strategy Business-level strategy Figure 3-14

42. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.42 © 2005 by Prentice Hall At firm level, information technology can: Promote synergies between business units, pool resources Tie together operations of disparate business units Improve core competencies Information Systems and Business Strategy Firm-Level Strategy and Information Technology

43. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.43 © 2005 by Prentice Hall 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. Information Systems and Business Strategy Firm-Level Strategy and Information Technology

44. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.44 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Industry-Level Strategy and Information Technology

45. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.45 © 2005 by Prentice Hall Information Partnerships AA and Citibank, Northwest and MCI: frequent flier program –Increased customer loyalty –New credit card subscribers –Cross marketing Baxter International and Staple Information Systems and Business Strategy Industry-Level Strategy and Information Technology

46. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.46 © 2005 by Prentice Hall Competitive Forces Model Making standards for exchanging information and business transactions (make product substitution difficult and raise entry cost) Coordinate policies and regulations. Example: Covisint for auto industry. Information Systems and Business Strategy Industry-Level Strategy and Information Technology

47. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.47 © 2005 by Prentice Hall Impact of Internet on Competitive Forces Reduces barriers to entry Enables new substitute products and services 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 Information Systems and Business Strategy Industry-Level Strategy and Information Technology

48. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.48 © 2005 by Prentice Hall Information Systems and Business Strategy Porter’s competitive forces model Figure 3-15

49. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.49 © 2005 by Prentice Hall Information Systems and Business Strategy The new competitive forces model Figure 3-16

50. Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy 3.50 © 2005 by Prentice Hall 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 Information Systems and Business Strategy Using Systems for Competitive Advantage: Management Issues