CHAPTER THREE

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

LEARNING OBJECTIVES

After reading this chapter, you will be able to

answer the following questions:
1. Which features of organizations do managers
need to know about to develop and use
information systems successfully? What is the
impact of information systems on organizations?
2. How does Porters competitive forces model help
companies develop competitive strategies using
information systems?
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LEARNING OBJECTIVES (continued)

3. How do the value chain and value web models

help businesses identify opportunities for
strategic information system applications?
4. How do information systems help businesses use
synergies, core competencies, and network-based
strategies to achieve competitive advantage?
5. What are the challenges posed by strategic
information systems, and how should they be
addressed?
 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Google and Its Strategy: Is It Moving to Social Strategy
Information Technology and Organizations Influence Each Other
 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

What is an organization?
Technical definition:
Stable, formal social structure that takes resources
from the environment and processes them to produce
outputs
A formal legal entity with internal rules and procedures
they must abide by, as well as a social structure (e.g
people, relationships, groups and teams)
More stable than an informal group in terms of
longevity and routineness
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

What is an organization?
Behavioral definition:
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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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

How do these definitions of organizations relate to

information systems technology?

Technical view: how inputs are combined to create

outputs when technology changes are introduced.
The software we bought
Behavioral view: information systems could change
the organizational balance of rights, obligations
responsibilities.
Because we install a new set of processes that we
are changing the set up
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Features of organizations
Routines and business processes
Organizational politics
Organizational culture
Organizational environments
Organizational structure
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Routines and Business Processes

Routines (standard operating procedures)
- Precise rules, procedures, and practices developed
to cope with virtually all expected situations
Business processes: Collections of routines
Business firm: Collection of business processes
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Organizational Politics
Divergent viewpoints lead to political struggle,
competition, and conflict
Political resistance greatly hampers organizational
change
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Organizational Culture
Encompasses set of assumptions that define goal and
product
Figure out what the costumer wants and then sell it
What products the organization should produce
How and where it should be produced
For whom the products should be produced
A powerful unifying force as well as restraint on
change, especially technological change
Technology is often stalled while the culture slowly
adjusts
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Organizational 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
Business firms form alliances with other businesses to
influence the political process; they advertise to influence
customer acceptance of their products
Environments generally change faster than organizations
Information systems can be instrument of environmental
scanning, act as a lens
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Organizations and Information Systems

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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Disruptive technologies
Technology that brings about sweeping change to
businesses, industries, markets
Substitute products that perform as well as or better than
anything currently produced
Could simply be an extension of the market
Examples: personal computers, the Internet, Apple iPod
First movers and fast followers
First movers inventors of disruptive technologies
Fast followers firms with the size and resources to
capitalize on that technology
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Organizational structure
Five basic kinds of organizational structure
The kinds of information systems often reflects the
type of organizational structure
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Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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

How Information Systems Impact Organizations and Business Firms

How Information Systems Impact Organizations and Business Firms?

Economic impacts
Expected to reduce costs
Organizational and behavioral impacts
- IT flattens organizations
- When you have 7 levels of operational leader, each layer is
responsible for some level of action to translate the information
to lower levels and vice versa. An implementation of an ERP
system, there is less need to have multiple levels in the
organization
- Postindustrial organizations
- Understanding organizational resistance to change
The Internet and organizations
Implications for the design and understanding of information systems
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How Information Systems Impact Organizations and Business Firms

Economic impacts
IT changes relative costs of capital and the costs of
information
Information systems technology is a factor of
production, like capital and labor
information technology substitutes for labour as
well as buildings
Information technology helps firms contract in
size because it can reduce transaction costs (the
cost of participating in markets)
Outsourcing
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Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

Transaction cost theory

Firms seek to economize on cost of participating in market
(transaction costs)
IT lowers market transaction costs for firms, making it worthwhile for
firms to transact with other firms rather than grow the number of
employees
Using markets is expensive because of costs such as locating and
communicating with distant suppliers, monitoring contract
compliance etc.
Firms have tried to reduce costs through vertical integration, by
getting bigger, hiring more employees, and buying their own
suppliers and distributors
As transaction cost decrease, firm size (the number of employees)
should shrink because it becomes easier and cheaper for the firm to
contract for the purchase of goods and services in the marketplace
rather than to make the product or offer the service itself
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How Information Systems Impact Organizations and Business Firms

Agency theory
Firm is nexus of contracts among self-
interested individuals rather than as a
unified, profit-maximizing entity
Firms experience agency costs (the cost
of managing and supervising) which rise
as firm grows
Increase the number of managers
IT can reduce agency costs, making it
possible for firms to grow without adding
to the costs of supervising, and without
adding employees
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Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

Organizational and behavioral impacts

IT flattens organizations
- Decision making pushed to lower levels
- Fewer managers needed (IT enables faster decision
making and increases span of control)
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Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

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

How Information Systems Impact Organizations and Business Firms

Organizational and behavioral impacts

Postindustrial organizations
- Organizations flatten because in postindustrial
societies, authority increasingly relies on knowledge
and competence rather than formal positions
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How Information Systems Impact Organizations and Business Firms

Understanding Organizational Resistance to Change

Information systems potentially change an
organizations structure, culture, politics, and work
Most common reason for failure of large projects is
due to organizational and political resistance to
change
https://www.youtube.com/watch?v=dhkLMKxncc8
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How Information Systems Impact Organizations and Business Firms

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Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

The Internet and Organizations

The Internet increases the accessibility, storage, and
distribution of information and knowledge for
organizations
The Internet can greatly lower transaction and agency
costs
Why? Because of our ability to connect different
companies and supplier into one management
system
- Example: A global sale force can receive nearly instant
product price information updates
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Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

Implications for the Design and Understanding

of Information Systems
Information systems must be developed with an
understanding of the organization in which they will
be used
These must be considered: The organizations
culture, structure, environment, the groups who will
use the IS, and the kinds of tasks, processes and
decisions the information system is meant to assist
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How Information Systems Impact Organizations and Business Firms

Using Information Systems to achieve

competitive advantages
Firms that can do better than others have a
competitive advantage
Why some firms do better than others, and how do
they achieve competitive advantage?
How can you analyze a business and identify its
strategic advantages?
How do you develop a strategic advantage for your
own business?
How do information systems contribute to strategic
advantages?
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Porters Competitive Forces Model

Traditional competitors
New market entrants
Substitute products and services
Customers
Suppliers
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Using Information Systems to Achieve Competitive Advantage

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Using Information Systems to Achieve Competitive Advantage

Traditional competitors
All firms share market space with competitors who are
continuously devising new products, services, efficiencies,
switching costs
Need to always be a head of the game
New market entrants
Some industries have high barriers to entry, e.g. computer chip
business with very high capital cost and significant expertise and
knowledge that is hard to obtain
Example: banks and automotive industry invested so much
on technology
New companies have new equipment, younger workers who are
less expensive and more innovation, with high motivation and
not locked into old plants and equipment
but little brand recognition and outside financing for new
plants and equipment, less experienced workers
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Using Information Systems to Achieve Competitive Advantage

Substitute products and services

Customers might use substitutes if your prices become
too high, e.g. iTunes substitutes for CDs and Uber
More substitutes the less control you have on price and
lowering yours profit margins
Customers
Can customers easily switch to competitors products?
Can they force businesses to compete on price alone in
transparent marketplace?
Suppliers
The more different suppliers a firm has, the greater control
over suppliers price, quality, and delivery schedule
Can only do this if my system connects with their
supply chain system
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Information systems strategies for dealing with

competitive forces
Low-cost leadership
Product differentiation
Focus on market niche
Strengthen customer and supplier intimacy
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Low-cost leadership
Produce products and services at a lower price than
competitors while enhancing quality and level of
service
Example: Walmarts continuous replenishment
system
Efficient customer response system: directly links
consumer behavior to distribution and production
and supply chain
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Using Information Systems to Achieve Competitive Advantage

Product differentiation
Enable new products or services, greatly change
customer convenience and experience
Examples: Google, Apple iPhone

Mass Customization: ability to offer individually

tailored products or services using the same
production resources as mass production
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Using Information Systems to Achieve Competitive Advantage

Focus on market niche

Use information systems to enable a focused
strategy on a single market niche; specialize
Example: Hilton Hotels know what their
costumers need and lays them out when they
arrive
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Using Information Systems to Achieve Competitive Advantage

Strengthen customer and supplier intimacy

Use information systems to develop strong ties
and loyalty with customers and suppliers; increase
switching costs
Example: Chrysler, Amazon
Strong linkages to customers and suppliers
increase switching costs and loyalty to your firm
Switching cost: cost of switching from one product
to a competing product
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Business value chain model

Views firm as series of activities that add value
to products or services
Highlights activities where competitive strategies
can best be applied
Primary activities vs. support activities
At each stage, determine how information
systems can improve operational efficiency and
improve customer and supplier intimacy
Utilize benchmarking, industry best practices
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Extending the Value Chain: The Value Web

A firms value chain is linked to the value
chains of its suppliers, distributers, and
customers
Amazon.com uses systems that
- Make it easy for suppliers to display goods and
open stores on the Amazon site
- Make it easy for customers to pay for goods
- Coordinate the shipment of goods to customers
- Track shipments for customers
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Synergies, Core Competencies, and Network-

Based Strategies
Synergies
When output of some units used as inputs to
others, or 2 organizations pool markets and
expertise, these relationships lower costs and
generate profits
Example: merger of AirCanada and Canadian
Airlines
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Enhancing Core Competencies

Activity for which firm is world-class leader
Relies on knowledge, experience, and sharing
this across business units
These systems might encourage or enhance
existing competencies and help a business
leverage existing competencies to related
markets
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Network-based Strategies
Take advantage of firms abilities to
network with each other
Include use of:
Network economics
Virtual company model
Business ecosystems
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Network economics
Business economics that benefit from the
network effect
When the value of a good or service increases
when others buy the same good or service.
Example: eBay
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Chapter 3 Information Systems, Organizations, and Strategy

Virtual company model

Virtual company uses networks to ally with other
companies to create and distribute products
without being limited by traditional
organizational boundaries or physical locations
E.g. Li & Fung
manages production,
shipment of
garments for major
fashion companies,
outsourcing all work
to over 7,500
suppliers
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Business ecosystems
Industry sets of firms providing related services and
products
Mobile digital platform ecosystem
Keystone firms: Dominate ecosystem and create platform
used by other firms
Niche firms: Rely on platform developed by keystone firm
Individual firms can
consider how IT will
enable them to become
profitable niche players in
larger ecosystems
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage