Chapter- 03

Information Systems, Organizations and Strategy

What is an organization?

• Stable, formal social structure.

• Takes resources from the environment and processes them to produce outputs.

• They are two ways. Such as:-

Technical definition:

• Stable, formal social structure that takes resources from environment and processes them to produce outputs.

• A formal legal entity with internal rules and procedures, as well as a social structure.

Behavioral definition:

A collection of rights, privileges, obligations, and responsibilities that is delicately balanced over a period of time through conflict and conflict resolution.

THE TECHNICAL MICROECONOMIC DEFINITION OF THE ORGANIZATION:-

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THE BEHAVIORAL VIEW OF ORGANIZATIONS:-

How does Relationship between organization and Information technology?

The two ways Relationship between organization and Information technology:-

This complex two-way relationship is mediated by many factors, not the least of which are the decisions made—or not made—by managers. Other factors mediating the relationship include the organizational culture, structure, politics, business processes, and environment.

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Describe the Features of organizations?

All modern organizations share some characteristics, such as:

Routines and business processes. Organizational politics. Organizational culture. Organizational environments. Organizational structures.

Routines and business processes:-

• Routines (standard operating procedures)

o Precise rules, procedures, and practices developed to cope with

virtually all expected situations.

• Business processes: Collections of routines.

• Business firm: Collection of business processes.

Organizational politics

• Divergent viewpoints lead to political struggle, competition, and conflict.

• Political resistance greatly hampers organizational change.

Organizational culture:

• Encompasses set of assumptions that define goal and product.

I. What products the organization should produce.

II. How and where it should be produced.

III. For whom the products should be produced.

• May be powerful unifying force as well as restraint on change.

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.

• Environments generally change faster than organizations.

• Information systems can be instrument of environmental scanning, act as a lens.

• Environments and Organizations Have a Reciprocal Relationship.

Organizational structure:-

Five basic kinds of structure -

• Entrepreneurial: Small start-up business.

• Machine bureaucracy: Midsize manufacturing firm.

• Divisionalized bureaucracy: Fortune 500 firms.

• Professional bureaucracy: Law firms, school systems, hospitals.

• Adhocracy: Consulting firms.

Other Organizational Features

I. Goals.

II. Constituencies.

III. Leadership styles.

IV. Tasks.

V. Surrounding environments.

Define Disruptive technologies with example?

Disruptive technologies:-

I. Technology that brings about sweeping change to businesses, industries, markets.

II. Examples: personal computers, word processing software, the Internet, the Page Rank algorithm.

III. First movers and fast followers -

• First movers – inventors of disruptive technologies.

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• Fast followers – firms with the size and resources to capitalize on that technology.

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

• IT affects the cost and quality of information and changes economics of information.

Transaction cost theory

• Firms seek to economize on cost of participating in market (transaction costs)

• 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-

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Agency theory:

• Firm is nexus of contracts among self-interested parties requiring supervision

• Firms experience agency costs (the cost of managing and supervising) which rise as firm grows

• IT can reduce agency costs, making it possible for firms to grow without adding to the costs of supervising, and without adding employees

• The Agency Cost Theory of the Impact of Information Technology on the Organization-

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)

• Postindustrial organizations

• Organizations flatten because in postindustrial societies, authority increasingly relies on knowledge and competence rather than formal positions.

• Flattening Organizations-

Organizational resistance to change

• Information systems become bound up in organizational politics because they influence access to a key resource – information

• 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

• Organizational Resistance and the Mutually Adjusting Relationship Between Technology and the Organization-

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

o Example: Large firm delivers internal manuals to employees via

corporate Web site, saving millions of dollars in distribution costs

Central organizational factors to consider when planning a new system:-

• Environment.

• Structure - Hierarchy, specialization, routines, business processes.

• Culture and politics.

• Type of organization and style of leadership.

• Main interest groups affected by system; attitudes of end users.

• Tasks, decisions, and business processes the system will assist.

How do Information system Implications for Design and Understanding?

The central organizational factors to consider when planning a new system are the following:-

The environment in which the organization must function. The structure of the organization & business process. The organization culture & politics. The type of organization & its style of leadership. The kind of tasks, decision & business process that the information system is

designed to assist. The principle interest groups affected by the system & the attitudes of workers

who will be using the system.

How does Porter’s competitive forces model help companies develop competitive strategies using information systems?

Porter’s Competitive Forces Model

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Five competitive forces shape fate of firm:-

1. Traditional competitors:-

• Competitors in market space continuously devise new products, new efficiencies, and switching costs.

2. New market entrants:-

• Some industries have low barriers to entry.

I. E.g. food industry vs. microchip industry.

• Newer companies may have advantages.

I. Newer equipment, younger workforce, etc.

3. Substitute products and services:-

Substitutes customers can purchase if your prices too high.

I. E.g. Internet music service vs. CDs.

4. Customers:-

• Can customers easily switch to competitor’s products?

• Can customers force firm and competitors to compete on price alone?

5. Suppliers:-

• The more suppliers a firm has, the greater control it can exercise over suppliers.

How do competing Information System Strategies for Dealing with Competitive Forces?

Basic strategy: Align IT with business objectives

75% of businesses fail to align their IT with their business objectives, leading to lower profitability.

To align IT -

• Identify business goals and strategies.

• Break strategic goals into concrete activities and processes.

• Identify metrics for measuring progress.

• Determine how IT can help achieve business goals.

• Measure actual performance.

Low-cost leadership:-

• Use information systems to achieve the lowest operational costs and the lowest prices.

• E.g. Wal-Mart

I. Inventory replenishment system sends orders to suppliers when purchase recorded at cash register.

II. Minimizes inventory at warehouses, operating costs.

III. Efficient customer response system.

Product differentiation:-

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• Use information systems to enable new products and services, or greatly change the customer convenience in using your existing products and services.

E.g. Google’s continuous innovations, Apple’s iPhone

• Use information systems to customize, personalize products to fit specifications of individual consumers.

I. Dell.

II. Land’s End’s mass customization.

Focus on market niche:-

Use information systems to enable specific market focus, and serve narrow target market better than competitors.

I. Analyzes customer buying habits, preferences.

II. Advertising pitches to smaller and smaller target markets.

I. E.g. Hilton Hotel’s On Q System.

III. Analyzes data collected on guests to determine preferences and guest’s profitability.

Strengthen customer and supplier intimacy:-

• Strong linkages to customers and suppliers increase switching costs and loyalty.

• Chrysler: Uses IS to facilitate direct access from suppliers to production schedules.

I. Permits suppliers to decide how and when to ship suppliers to Chrysler factories, allowing more lead time in producing goods.

• Amazon: Keeps track of user preferences for purchases, and recommends titles purchased by others.

Some companies pursue several strategies at same time:-

• Dell emphasizes low cost plus customization of products.

• Parker Hannifin offers products with unique features but competes on price.

Successfully using IS to achieve competitive advantage requires precise coordination of technology, organizations, and people.

How do the Internet’s Impact on Competitive Advantage?

• Enables new products and services.

• Transforms industries.

• Increases bargaining power of customers and suppliers.

• Intensifies competitive rivalry.

• Creates new opportunities for building brands and large customer bases.

• Existing competitors: Widens market, increasing competitors, reducing differences, pressure to compete on price.

• New entrants: Reduces barriers to entry (e.g. need for sales force declines), provides technology for driving business processes.

• Substitute products and services: Facilitates creation of new products and services.

• Customers’ bargaining power: Bargaining power shifts to customer.

• Suppliers’ bargaining power: Procurement over Internet raises power over suppliers, suppliers can benefit from reduced barriers to entry and elimination of intermediaries.

How do the value chain and value web models help businesses identify opportunities for strategic information system

applications?

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Highlights specific activities in a business where competitive strategies can best be applied and where information systems are likely to have a strategic impact:-

• Primary activities.

• Support activities.

• Benchmarking.

• Best practices.

Define Value Web?

The Value Web:-

• A firm’s value chain is linked to the value chains of its suppliers, distributors, and customers.

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• A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product collectively.

• Value webs are flexible and adapt to changes in supply and demand.

How do information systems help businesses use synergies, core competencies, and network-based strategies to achieve competitive advantage?

Under the discussion information systems help businesses use synergies, core competencies, and network-based strategies to achieve competitive advantage:-

Synergies:-

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• When output of some units can be used as inputs to other units.

• When two firms can pool markets and expertise.

• Lower costs and generate profits.

• Enabled by information systems that ties together disparate units so they act as whole.

Enhancing Core competencies:-

• Activities for which firm is world-class leader.

E.g. world’s best miniature parts designer, best package delivery service.

• Relies on knowledge that is gained over many years of experience as well as knowledge research.

• Any information system that encourages the sharing of knowledge across business units enhances competency.

Network-based strategies:-

• Network economics -

Marginal costs of adding another participant are near zero, while marginal gain is much larger.

E.g. larger number of participants in Internet, greater value to all participants.

• Virtual company -

Uses networks to link people, resources, and ally with other companies to create and distribute products without traditional organizational boundaries or physical locations.

• Business ecosystems -

Industry sets of firms providing related services and products-

I. Microsoft platform used by thousands of firms for their own products.

II. Wal-Mart’s order entry and inventory management system.

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.

An Ecosystem Strategic Model--

How Using Systems for Competitive Advantage?

Sustaining competitive advantage:-

• Because competitors can retaliate and copy strategic systems, competitive advantage is not always sustainable; systems may become tools for survival

Performing strategic systems analysis:-

• What is structure of industry?

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• What are value chains for this firm?

Managing strategic transitions:-

Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes.

The End