BUSINESS WOLVES MIS

Chapter 3
The Relationship Between Organizations and Information Technology
Information technology and organizations influence each other
– Relationship influenced by organization’s
▪ Structure
▪ Business processes
▪ Politics
▪ Culture
▪ Environment
▪ Management decisions
What Is an Organization?
• Technical definition – Formal social structure that processes resources from
environment 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
5 features of Organizations
1. Routines and Business processes
2. Organizational politics
3. Organizational Culture
4. Organizational Environments
5. Organizational Structure
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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Organizational
Politics
Divergent viewpoints lead to political struggle, competition, and conflict
• Political resistance greatly hampers organizational change

Culture
• Encompasses set of assumptions that define goal and product
– What products the organization should produce
– How and where it should be produced
– For whom the products should be produced
• May be powerful unifying force as well as restraint on change

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

Structure
• Five basic kinds of organizational structure (Mintzberg)
– Entrepreneurial
– Machine bureaucracy
– Divisionalized bureaucracy
– Professional bureaucracy
– Adhocracy
• Information system often reflects organizational structure

Disruptive Technologies
• Substitute products that perform as well as or better than existing product
• Technology that brings sweeping change to businesses, industries, markets
•Examples: personal computers, smartphones, Big Data, artificial intelligence, the
Internet
• 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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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
– Information technology helps firms contract in size because it can reduce
transaction costs (the cost of participating in markets)
▪ Outsourcing
Transaction Cost Theory
• Firms seek to economize on transaction costs (the costs of participating in markets)
–hiring more employees, buying suppliers and distributors
• IT lowers market transaction costs, 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) 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
Organizational and Behavioral Impacts
• IT flattens organizations
– Decision making is pushed to lower levels
– Fewer managers are 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
Understanding 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
• Four factors
– Nature of the innovation
– Structure of organization
– Culture of organization
– Tasks affected by innovation

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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
– Example: Large firm delivers internal manuals to employees via a corporate website,
saving millions of dollars in distribution costs
Porter's Competitive Forces Model
provides general view of firm, its competitors, and environment
1. Traditional Competitors
2. New market entrants
3. substitute products and services
4. customers
5. Suppliers
• Traditional competitors – All firms share market space with competitors who are
continuously devising new products, services, efficiencies, and switching costs
• New market entrants
– Some industries have high barriers to entry, for example, computer chip business
– New companies have new equipment, younger workers, but little brand
recognition
• Substitute products and services
– Substitutes customers might use if your prices become too high, for example,
iTunes substitutes for CD
• Customers
– Can customers easily switch to competitor's products? Can they force businesses to
compete on price alone in transparent marketplace?
• Suppliers – Market power of suppliers when firm cannot raise prices as fast as suppliers

4 IS strategies for dealing with competitive forces

1. Low-cost leadership (lowest price)
2. Product differentiation (new products/services)
3. Focus on market niche (specialize)
4. Strengthen customer and supplier intimacy (develop strong ties and loyalty)
• Low-cost leadership – Produce products and services at a lower price than competitors
– Example: Walmart’s efficient customer response system
• Product differentiation – Enable new products or services, greatly change customer
convenience and experience
– Example: Google, Nike, Apple – Mass customization

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• Focus on market niche – Use information systems to enable a focused strategy on a
single market niche; specialize – Example: Hilton Hotels’ O n Q system
• Strengthen customer and supplier intimacy
– Use information systems to develop strong ties and loyalty with customers and
suppliers
– Increase switching costs
– Examples: Chrysler, Amazon, Starbucks
Internets impact on Competitive Advantage
-transform or threat to some industries
-competitive forces still at work but rivalry more intense
-universal standards allow new rivals, entrants to market
-new opportunities for building brands and loyal customer bases
Business Value Chain Model
-firm as series of activities that add value to products or services
-highlights activities where comp. strategies can best be applied
(primary vs secondary)
-at each stage, determine how IS can improve operational efficiency and improve
customer and supplier intimacy
-utilize benchmarking, industry best practices
Primary activities
most directly related to the production and distribution of a firm's products and
services, which create value for consumers
Support activities
make the delivery of primary activities possible and consist of organization
infrastructure, HR, Tech, and procurement
The Value Web
-firms value chain is liked to value chains of suppliers, distributors, customers
-INDUSTRY value chain
-DEF: collection of independent firms using highly synchronized IT to coordinate value
chains to produce product or service collectively
-more customer driven, less linear operation, than traditional value chain.
Synergies
-when output of some units are used as inputs to others, or organizations pool markets
and expertise
Core Competency
Activity for which firm is world class leader
-relies on knowledge, expertise, sharing this across business units

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Network-based strategies (3)
-take advantage of firms abilities to network with one another
-include use of
1. Network Economics,
2. Virtual company model, and
3. business ecosystems
Network Economics
• Marginal cost of adding new participant almost zero, with much greater marginal
gain
• Value of community grows with size
• Value of software grows as installed customer base grows
• Compare to traditional economics and law of diminishing returns
Virtual Company Model
• Virtual company
– Uses networks to ally with other companies
– Creates and distributes products without being limited by traditional organizational
boundaries or physical locations
• Example: Li & Fung
– Manages production, shipment of garments for major fashion companies
– Outsources all work to thousands of suppliers
Business Ecosystems and Platforms
-industry sets of firms providing related services and products
-Platforms (Microsoft, Facebook)
-Keystone firms
-Niche Firms
-Individual firms can consider how IT will help them become profitable niche players
in larger ecosystems
Challenges Posed by Strategic Information Systems
• Sustaining competitive advantage
– Competitors can retaliate and copy strategic systems
– Systems may become tools for survival
• Aligning I T with business objectives
– Performing strategic systems analysis ▪ Structure of industry ▪ Firm value chains
• Managing strategic transitions – Adopting strategic systems requires changes in business
goals, relationships with customers and suppliers, and business processes