LONDON SCHOOL OF COMMERCE

Management Information Systems (Class Notes 3)

Instructor: Mohammad Moniruzzaman Bhuiya E-mail: [email protected]

Management Information Systems (MIS)

CHAPTER 3 INFORMATION SYSTEMS, ORGANIZATIONS, MANAGEMENT AND STRATEGY

 Identify and describe important features of organizations that managers need to know about in order to build and
use information systems successfully.
 Evaluate the impact of information systems on organizations.
 Demonstrate how Porter’s competitive forces model and the value chain model help businesses use information
systems for competitive advantage.
 Demonstrate how information systems help businesses use synergies, core competencies, and network-based
strategies to achieve competitive advantage.
 Assess the challenges posed by strategic information systems and management solutions.

 Identify and describe important features of organizations that managers need to know about in order to
build and use information systems successfully.

Define an organization and compare the technical definition of organizations with the behavioral definition.

The technical definition defines an organization as a stable, formal social structure that takes resources from the
environment and processes them to produce outputs. This definition of an organization focuses on three elements:
Capital, labor, and production and products for consumption. The technical definition also implies that
organizations are more stable than an informal group, are formal legal entities, and are social structures.

The behavioral definition states that an organization is a collection of rights, privileges, obligations, and
responsibilities that are delicately balanced over a period of time through conflict and conflict resolution. This
definition highlights the people within the organization, their ways of working, and their relationships.

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 The technical definition shows us how a firm combines capital, labor, and information technology. The
behavioral definition examines how information technology impacts the inner workings of the organization.

Identify and describe the features of organizations that help explain differences in organizations’ use of
information systems.

Common features for organizations include:

 Routines and business processes: Standard operating procedures have been developed that allow the
organization to become productive and efficient thereby reducing costs over time.
 Organizational politics: Divergent viewpoints about how resources, rewards, and punishments should be
distributed bring about political resistance to organization change.
 Organizational culture: Assumptions that define the organizational goals and products create a powerful
restraint on change, especially technological change.
 Organizational environments: Reciprocal relationships exist between an organization and environments;
information systems provide organizations a way to identify external changes that might require an
organizational response.
 Organizational structure: Information systems reflect the type of organizational structure - entrepreneurial,
machine bureaucracy, divisionalized bureaucracy, professional bureaucracy, or adhocracy.

 Evaluate the impact of information systems on organizations.

Describe the major economic theories that help explain how information systems affect organizations.

 Economic impacts
The two economic theories are:
 Transaction cost theory:
Firms seek to economize on the cost of participating in markets (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.
 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.

Describe the major behavioral theories that help explain how information systems affect organizations.

 Organizational and Behavioral Impacts

 Facilitates flattening of hierarchies

 Broadens the distribution of timely information
 Increases the speed of decision making
 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

Explain why there is considerable organizational resistance to the introduction of information systems.

There is considerable organizational resistance to new information systems because they change many important
organizational dimensions, such as culture, structure, politics, and work. Leavitt puts forth a model that says that
changes in technology are absorbed, deflected, and defeated by organizational task arrangements, structures, and
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 people. In this model the only way to bring about change is to change the technology, tasks, structure, and people
simultaneously. In a second model, the authors speak of the need to unfreeze organizations before introducing an
innovation, quickly implementing the new system, and then refreezing or institutionalizing the change.

Describe the impact of the Internet and disruptive technologies on organizations.

The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations;
nearly any information can be available anywhere at any time. The Internet increases the scope, depth, and range
of information and knowledge storage. It lowers the cost and raises the quality of information and knowledge
distribution. That is, it lowers transaction costs and information acquisition costs. By using the Internet,
organizations may reduce several levels of management, enabling closer and quicker communication between
upper levels of management and the lower levels. The Internet also lowers agency costs. Disruptive technologies
caused by technological changes can have different effects on different companies depending on how they handle
the changes. Some companies create the disruptions and succeed very well. Other companies learn about the
disruption and successfully adopt it. Other companies are obliterated by the changes because they are very
efficient at doing what no longer needs to be done. Some disruptions mostly benefit the firm. Other disruptions
mostly benefit consumers.

 Demonstrate how Porter’s competitive forces model and the value chain model help businesses use
information systems for competitive advantage.

Porter’s Competitive Forces Model

This model provides a general view of the firm, its competitors, and the firm’s environment. Porter’s model is all
about the firm’s general business environment. In this model, five competitive forces shape the fate of the firm:

 Traditional competitors
 New market entrants
 Substitute products and services
 Customers
 Suppliers

The business value chain model

The most common generic business level strategies are:

 Become the low-cost producer
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  Differentiate your product from competitors’ products
 Change the scope of competition by enlarging the market or narrowing it to a specialized niche
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
Support Activities:
 Make the delivery of primary activities possible
 Consist of the organization’s infrastructure, human resources, technology, and procurement

Describe what the competitive forces model explains about competitive advantage.

Some firms do better than others because they either have access to special resources that others do not, or they
are able to use commonly available resources more efficiently. It could be because of superior knowledge and
information assets. Regardless, they excel in revenue growth, profitability, or productivity growth, ultimately
increasing their stock market valuations compared to their competitors.

List and describe four competitive strategies enabled by information systems that firms can pursue.

The four generic strategies, each of which is often enabled by using information technology and systems include:

 Low-cost leadership: Lowest operational costs and the lowest prices.

 Product differentiation: Enable new products and services, or greatly change the customer convenience in
using existing products and services.
 Focus on market niche: Enable a specific market focus and serve this narrow target market better than
competitors.
 Strengthen customer and suppliers: Tighten linkages with suppliers and develop intimacy with customers.

Describe how information systems can support each of these competitive strategies and give examples.

 Low-cost leadership: Use information systems to improve inventory management, supply management,
and create efficient customer response systems. Example: Wal-Mart.
 Product differentiation: Use information systems to create products and services that are customized and
personalized to fit the precise specifications of individual customers. Example: Google, eBay, Apple .
 Focus on market niche: Use information systems to produce and analyze data for finely tuned sales and
marketing techniques. Analyze customer buying patterns, tastes, and preferences closely in order to
efficiently pitch advertising and marketing campaigns to smaller target markets. Example: Hilton Hotels,
Harrah’s.
 Strengthen customer and supplier intimacies: Use information systems to facilitate direct access from
suppliers to information within the company. Increase switching costs and loyalty to the company.
Example: IBM, Amazon.com

Explain why aligning IT with business objectives is essential for strategic use of systems.

The basic principle of IT strategy for a business is to ensure the technology serves the business and not the other
way around. The more successfully a firm can align its IT with its business goals, the more profitable it will be.
Business people must take an active role in shaping IT to the enterprise. They cannot ignore IT issues. They
cannot tolerate failure in the IT area as just a nuisance to work around. They must understand what IT can do,
how it works, and measure its impact on revenues and profits.

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 Demonstrate how information systems help businesses use synergies, core competencies, and network-
based strategies to achieve competitive advantage.

Explain how information systems promote synergies and core competencies.

A large corporation is typically a collection of businesses that are organized as a collection of strategic business
units. Information systems can improve the overall performance of these business units by promoting synergies
and core competencies.

Describe how promoting synergies and core competencies enhances competitive advantages.

The concept of synergy is that when the output of some units can be used as inputs to other units, or two
organizations can pool markets and expertise, these relationships lower costs and generate profits. In applying
synergy to situations, information systems are used to tie together the operations of disparate business units so
that they can act as a whole. A core competency is an activity for which a firm is a world-class leader. In general,
a core competency relies on knowledge that is gained over many years of experience and a first-class research
organization or simply key people who stay abreast of new external knowledge. Any information system that
encourages the sharing of knowledge across business units enhances competency.

Explain how businesses benefit by using network economics.

In a network, the marginal costs of adding another participant are almost zero, whereas the marginal gain is much
larger. The larger the number of participants in a network, the greater the value to all participants because each
user can interact with more people. The availability of Internet and networking technology has inspired strategies
that take advantage of the abilities of the firm to create networks or network with each other. In a network
economy, information systems facilitate business models based on large networks of users or subscribers that
take advantage of network economies. Internet sites can be used by firms to build communities of users that can
result in building customer loyalty and enjoyment and build unique ties to customers, suppliers, and business
partners.

Define and describe a virtual company and the benefits of pursuing a virtual company strategy.

A virtual company uses networks to link people, assets, and ideas, enabling it to ally with other companies to
create and distribute products and services without being limited by traditional organizational boundaries or
physical locations. One company can use the capabilities of another company without being physically tied to
that company. The virtual company model is useful when a company finds it cheaper to acquire products,
services, or capabilities from an external vendor or when it needs to move quickly to exploit new market
opportunities and lacks the time and resources to respond on its own.

 Assess the challenges posed by strategic information systems and management solutions.

List and describe the management challenges posed by strategic information systems.

Information systems are closely intertwined with an organization’s structure, culture, and business processes.
New systems disrupt established patterns of work and power relationships, so there is often considerable
resistance to them when they are introduced.

Implementing strategic systems often requires extensive organizational change and a transition from one
sociotechnical level to another. Such changes are called strategic transitions and are often difficult and painful to
achieve. Moreover, not all strategic systems are profitable. They are expensive and difficult to build because they
entail massive sociotechnical changes within the organization. Many strategic information systems are easily

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copied by other firms so that strategic advantage is not always sustainable. The complex relationship between
information systems, organizational performance, and decision making must be carefully managed.

Explain how to perform a strategic systems analysis.

Managers should ask the following questions to help them identify the types of systems that may provide them
with a strategic advantage.

 The structure of the industry in which the firm is located

Analyze the competitive forces at work in the industry; determine the basis of competition; determine the
direction and nature of change within the industry; and analyze how the industry is currently using
information technology.

 The business, firm, and industry value chains for the particular firm
Decide how the company creates value for its customers; determine how the firm uses best practices to
manage its business processes; analyze how the firm leverages its core competencies; verify how the
industry supply chain and customer base are changing; establish the benefit of strategic partnerships and
value webs; clarify where information systems will provide the greatest value in the firm’s value chain.

 Aligned IT with business strategy and goals

Articulate the firm’s business strategy and goals; decide if IT is improving the right business processes
and activities in accordance with the firm’s strategy; agree on the right metrics to measure progress
toward the goals.

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