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Module 7

Organization and Information

Technology

By:

Monica M


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Syllabus

IT Capabilities and their organizational impact

Fundamentals of strategic advantage

Using IT for strategic advantages

Refer: Kenneth C Laudon & Jane P Laudon

Chapter No. 3

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Organization

Organization

A formal collection of people and other resources

established to accomplish a set of goals

An organization is a stable, formal social structure that

takes resources from the environment & processes

them to produce output


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Organization- Technical Definition

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Capital and labor (the primary production factors provided by theenvironment) are transformed by the firm through the production

process into products and services (outputs to the environment).

The products and services are consumed by the environment, which

supplies additional capital and labor as inputs in the feedback loop.


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Organization & IT


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Organization & IT

The Interaction between IT and Organizationis very complex & Influenced by the mediatingfactors

Environment Culture

Structure

Business process

Politics

Management Decision

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Organization & IT Features/Factors

Organizational Environment: Organization reside in environment from where they draw

resources and to which they supply goods and services

IT is the key instrument for environmental scanning, helpsmanagers to identify the changes in the environment

Organizational Culture: The set of assumption the organization and people will

follow in an organization

The major understandings and assumptions for a business,a corporation, or an organization

The organizational culture is a powerful restraint on changeespecially technological changes ( Resistant to change)

Organization avoids to do changes in the basic assumption

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Organization Structure: Organizational subunits and the way theyare related to the overall organization

Flat organizational structure

Information systems can reduce the number of levels in an

organization by providing managers with information tosupervise larger numbers of workers and by giving lower-levelemployees more decision-making authority

An organizational structure with a reduced number of layers ofmanagement

Business process: The business process will become very effective over time as

individuals develops routine for producing goods and services

Firm is able to reduce the cost and increases the effectiveness byuse of IT in an organization

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Organization politics:

The resources, rewards, and punishments will

create the differences in both managers and

employees, that result in the political struggle forresources, competition and conflict

Management Decision:

As Managers, need to decide which system will bebuilt, how it is beneficial to the organization, how

to implement

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Organization, IT & IS


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Strategy

Strategy is a long term plan formulated and

executed over a period of time by firms such

that their resources are best utilized and output

of the firm is optimized

(a) Where are we right now?

(b) Where do we want to go?

(c) How do we get there?

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Fundamentals of Strategic Advantage

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Fundamentals of Strategic Advantage

Information technology can change the way

businesses compete. For this reason, you

should view information systems strategically,that is, as vital competitive networks, as a

means of organizational renewal, and as a

necessary investment in technologies that help

an enterprise achieve its strategic objectives.


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Strategic Advantage and Strategic Necessity

Strategic advantage refers to obtaining a

sustainable competitive edge over

competitors. The ability to obtain a greaterthan normal return on investment.

A strategic necessity is a system that must

be installed to remain competitive and stay

in business.


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Strategic uses of Information system

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Eight ways to gain strategic advantage

Reduce Costs

Raise barriers to new entrants

Establish High Switching Costs

Create New Products/Services

Differentiate Products/Services

Enhance Products/Services

Establish Alliances

Lock in suppliers and buyers16


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1. Reduce Costs: If a firm can operate at a reduced cost

the impact will be there on the Margins.

2. Raise barriers to new entrants: The easier it is to

enter into a business venture, the more will be the

number of people who would try various things. That

gives a lot of variety for the consumer to choose from

and hence becomes difficult to differentiate oneoffering from the other

E.G - One click purchase by amazon.com, Banks- ATM

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3. Establish High Switching Costs: Switchingcosts are costs incurred when a customer wantsto switch over to a competitors

products/service4. Create New Products/Services: This gives

companies an advantage called the FirstMover Advantage.

5. Differentiate Products/Services: In a worldthat is full of competition, there is no end toproduct variety E.G Pepsi and Coke

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6. Enhance Products/Services: Enhancing productexperience is another strategy to gain competitiveadvantage. Adding new features to theproduct/service

7. Establish Alliances: Alliances with suppliers,vendors and customers are critical to the success ofany businesses. For example, Intel sells its processors to IBM as well as

HCL and DELL. But, lets say, if IBM has a strategicalliance in which, using its own supply chain, IBM candeliver back reusable components of microchips to Inteland help it to reduce its cost, then Intel would be willingto supply microprocessors to IBM at a cheap cost

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8. Lock in suppliers and buyers: Suppliers andbuyers can be locked in by asking them tocollaborate only and only with the businessentity and not with any competitors.

For example, if

Toyota puts in a condition that a person who

owns Toyota Showroom cannot own any othercar showroom in the city, then Toyota hasattempted to lock in a retailer into its network.

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Strategic Information System

Information systems that provide a firm

with competitive products and services

which give it a strategic advantage overits competitors in the marketplace.

Information systems that promote business

innovation, improve operational efficiency.


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Strategic Roles for Information Systems

Improving business Process

Promoting business/product innovation

Locking in customers and suppliers

Interorganizational IS, EDI electronic data interchange,

automatic inventory replenishment system

Creating switching costs

Make customers dependent on the continued use of

innovative IS.

Raising barriers to entry

discourage competitors from entering a market


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IT Capabilities

Capabilities: routine processes that reflect a

firms ability to perform repeatedly a productive

task which relates either directly or indirectly to afirms capacity for creating value (Grant 1996).

IT Capabilities: The ability of firms to develop,

use, and manage IT effectively to achieve firm

objectives

The focus in this study:business-orientedITcapabilities


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IT capabilities & their Organizational

Impacts

Capability Organizational Impact / Benefit

Transactional IT can transform unstructured processes into routine transactions

Geographical IT can transfer information with rapidity and ease across large

distancesAutomational IT can replace or reduce human labor in a process

Analytical IT can bring complex analytical methods and solve

Informational IT can bring vast amount of detailed information

Sequential IT can enable to execute the sequence of tasks effectively

Knowledge

ManagementIT allows the capture and dissemination of knowledge and

expertise to improve the process

Tracking IT allows the detailed tracking of task status, inputs, and outputs

Disintermediation IT can be used to connect two parties who would otherwise

communicate through an intermediary


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E.G: Mumbai Dabbawallas

Competition: Its difficult to replicatedabbawallass supply chain network

New entrants: Fast food joints as well as officecanteens. However, since neither of these serve

home food, the dabbawallas' core offeringremains unchallenged.

Bargaining power of buyers: Delivery ratesare so nominal (about Rs 300 per month) that onesimply wouldn't bargain any further.

Bargaining power of sellers: minimuminfrastructure and practically no technology is

used, hence they are not dependent on suppliers.

Threat of a new substitute product orservice: Nosubstitutes to home cooked food inIndian scenario, hence threat to the dabbawalla

service is not an issue at least in the foreseeablefuture.

Porters 5 Force Model


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Using Information Systems to Achieve

Competitive Advantage

Rivalry among current competitors

All firms share market space with competitors who

are continuously devising new products, services,

efficiencies, switching costs

New market entrants

Some industries have high barriers to entry, e.g.

computer chip business New companies have new equipment, younger

workers, but little brand recognition

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Substitute products and services

Substitutes customers might use if your prices becometoo high, e.g. iTunes substitutes for CDs

Customers / Buyers Can customers easily switch to competitors products?

Can they force businesses to compete on price alone intransparent marketplace?

Suppliers

Market power of suppliers when firm cannot raise pricesas fast as suppliers

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The value chain of a firm


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Value Chain Model

According to Porters Value chain model, theactivities conducted in any manufacturingorganizations can be divided into two parts:Primary activities and support activities.

Primary activities are most directly related to theproduction and distribution of the firms productsand services that create value for the customer.Inbound logistics, operations, outbound logistics,marketing and sales, and customer service.

Support activitiesinclude procurement ofresources, technology development, humanresources management, and administrativecoordination.


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Managerial Challenges Of Information Technology

*Speed and flexibilityrequirements of product

development,

manufacturing, and

delivery cycles,

*Integration of e business

and e commerce into the

organizations strategies,

process, structure, and

culture

Business/IT ChallengesBusiness/IT

Developments

* Use of theinternet, intranets,

extranets, and the

WEB

Business/IT Goals

*Give customers whatthey want, when and

how they want it, at

the lowest cost

*Coordination of

manufacturing andbusiness process with

suppliers and

customers


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Strategic capabilities using IT


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Capabilities of IT

Overcome/Breaking Time Barriers

Information technology is used to shorten the intervalsbetween the various critical steps in a business process.Telecommunications is a lot faster than most other

forms of communications, thus, it provides informationto remote locations immediately after it is requested.

Overcome/Breaking Geographic Barriers

Telecommunications networks enable you to

communicate with people almost anywhere in theworld. Telecommunications and computingtechnologies make it possible to distribute key businessactivities to where they are needed, where they are bestperformed, or where they best support the competitive

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Capabilities of IT

Overcome/Breaking Cost Barriers

Computers and telecommunications can often significantly reduce

the cost of business operations when compared with other means

of information processing and communications. For example,Information technologies have also helped companies cut labor

costs, minimize inventory levels, reduce the number of

distribution centers, and lower communications costs.

Overcome/Breaking Structural Barriers Computers and telecommunications networks can help a business

develop strategic relationships by establishing new electronic

linkages with customers, suppliers, and other business entities.

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Thank You..

By:

Monica M


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Important Questions

Explain organization and IT

Explain IT Capabilities and their impact on

organization

Explain how company can achieve strategic

advantages

What are the strategic capabilities of IT



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