MANAGEMENT INFORMATION SYSTEMS

MODULE I: MANAGEMENT INFORMATION SYSTEMS

CHAPTER III: INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY

I. OBJECTIVES
At the end of this chapter, the students should be able to:
 Identify and describe important features of organizations that managers need to know
about in order to build and use information systems successfully.
 Demonstrate how Porter’s competitive forces model helps companies develop
competitive strategies using information systems.
 Explain how the value chain and value web models help businesses identify opportunities
for strategic information system applications.
 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.

II. SUBJECT MATTER

Topic: Information Systems, Organizations and Strategy
Sub topic: - Organizations and Information System
- Routines, Business Process and Firms
- How Information Systems impact organizations and business firms
- Using Information Systems to achieve competitive advantage

III. PROCEDURE
A. Preliminaries
Pre- Assessment
1. Define and discuss organizations and information systems and how they influence and
affect each other, including the behavioural view of organizations.
2. Compare and contrast routines, business process and firms.
3. Discuss how Information Systems impact organizations and business firms.
4. Enumerate the different uses of information systems to achieve competitive
advantage.

B. Lesson Proper
The interaction between information technology and organizations is complex and is
influenced by many mediating factors, including the organization’s structure, business
processes, politics, culture, surrounding environment, and management decisions.
Understanding how information systems work can change social and work life in a specific
 firm. New systems will not be successfully designed without understanding existing systems in
business organization.

1. Organizations and Information Systems

 Information technology and organizations influence each other

 Relationship influenced by organization’s
o Structure
o Business processes
o Politics
o Culture
o Environment
o Management decisions
o Examples of functional business processes

THE TWO-WAY RELATIONSHIP BETWEEN ORGANIZATIONS 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.

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.
  Behavioural 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

In the microeconomic definition of organizations, capital and labor (the primary production
factors provided by the environment) 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.

THE BEHAVIORAL VIEW OF ORGANIZATIONS

The behavioral view of organizations emphasizes group relationships, values, and structures. In
this view, the business firm is a little more difficult to change rapidly or on command because it is
a very complex machine populated with human beings. Firms operate with an existing hierarchy,
job definitions, business rules, legal contracts, procedures, and processes. Efficient organizations
become very good at these elements of business. Changing these elements takes more time.
Features of organizations

 Use of hierarchical structure

 Accountability, authority in system of impartial decision making
 Adherence to principle of efficiency
 Routines and business processes
 Organizational politics, culture, environments, and 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

ROUTINES, BUSINESS PROCESSES, AND FIRMS

All organizations are composed of individual routines and behaviors, a collection of which make
up a business process. A collection of business processes make up the business firm. New
information system applications require that individual routines and business processes change
to achieve high levels of organizational performance.
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

o What products the organization should produce
o How and where it should be produced
o 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.
Environmental scanning involves searching for and determining external changes that may
require an organizational response. The current economic climate represents an example of
external change that requires sweeping organizational responses to ensure survival.
ENVIRONMENTS AND ORGANIZATIONS HAVE A RECIPROCAL RELATIONSHIP

Environments shape what organizations can do, but organizations can influence their
environments and decide to change environments altogether. Information technology plays a
critical role in helping organizations perceive environmental change and in helping organizations
act on their environment.
Disruptive technologies

 Technology that brings about sweeping change to businesses, industries, markets

  Examples: personal computers, word processing software, the Internet, the PageRank
algorithm
 First movers and fast followers
o First movers—inventors of disruptive technologies
o Fast followers—firms with the size and resources to capitalize on that technology

5 basic kinds of organizational structure

2. How Information Systems Impact Organizations and Business Firms

Economic impacts

 IT figures to replace the function of more middle managers as time passes, as well as
reduce the need for other forms of capital (buildings, machinery).
 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
o Information technology helps firms contract in size because it can reduce
transaction costs (the cost of participating in markets)
o Outsourcing

Transaction cost theory

 Firms seek to economize on transaction costs (the costs of participating in markets).

 Vertical integration, hiring more employees, buying suppliers and distributors
 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) 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
o Decision making is pushed to lower levels.
o Fewer managers are needed (IT enables faster decision making and increases span
of control).
 Post-industrial organizations
o Organizations flatten because in post-industrial societies, authority increasingly
relies on knowledge and competence rather than formal positions.
The idea here is that with sufficient IT, competent workers will be able to accomplish more on
their own than they would under a more hierarchical arrangement.
FLATTENING ORGANIZATIONS

Information systems can reduce the number of levels in an organization by providing managers
with information to supervise larger numbers of workers and by giving lower-level employees
more decision-making authority.
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

Implementing information systems has consequences for task arrangements, structures, and
people. According to this model, to implement change, all four components must be changed
simultaneously.
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 Web site,
saving millions of dollars in distribution costs
Organizational factors in planning a new system

 Environment
 Structure
o 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
Why do some firms become leaders in their industry?

 Michael Porter’s competitive forces model

 Provides general view of firm, its competitors, and environment

 Five competitive forces shape fate of firm:

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

PORTER’S COMPETITIVE FORCES MODEL

In Porter’s competitive forces model, the strategic position of the firm and its strategies are
determined not only by competition with its traditional direct competitors but also by four other
forces in the industry’s environment: new market entrants, substitute products, customers, and
suppliers.

3. Using Information Systems to Achieve Competitive Advantage

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 CDs
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.
Four generic strategies for dealing with competitive forces, enabled by using IT:

 Low-cost leadership : Produce products and services at a lower price than competitors
Example: Walmart’s efficient customer response system
 Product differentiation : Produce products and services at a lower price than competitors
Example: Walmart’s efficient customer response system
 Focus on market niche : Produce products and services at a lower price than competitors
Example: Walmart’s efficient customer response system
 Strengthen customer and supplier intimacy: Produce products and services at a lower
price than competitors. Example: Walmart’s efficient customer response system
The Internet’s impact on competitive advantage

 Transformation or threat to some industries

o Examples: travel agency, printed encyclopedia, media
 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
Value chain model

 Firm as series of activities that add value to products or services

 Highlights activities where competitive strategies can best be applied
o 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
This figure provides examples of systems for both primary and support activities of a firm and of
its value partners that can add a margin of value to a firm’s products or services.
Value web:

 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
The information technology’s role in promoting synergy is often tying together operations of
disparate business units so that they can act as a whole.
Core competencies

 Activity for which firm is world-class leader

 Relies on knowledge, experience, and sharing this across business units
 Example: Procter & Gamble’s intranet and directory of subject matter experts
Network-based strategies

 Take advantage of firm’s abilities to network with each other

 Include use of:
o Network economics
o Virtual company model
o Business ecosystems

Traditional economics: Law of diminishing returns

 The more any given resource is applied to production, the lower the marginal gain in
output, until a point is reached where the additional inputs produce no additional outputs
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
Virtual company strategy
Virtual company uses networks to ally with other companies to create and distribute products
without being limited by traditional organizational boundaries or physical locations
Example: Li & Fung manages production, shipment of garments for major fashion companies,
outsourcing all work to more than 7,500 suppliers
Business ecosystems

 Industry sets of firms providing related services and products

o Microsoft platform used by thousands of firms
o Walmart’s order entry and inventory management
 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 help them become profitable niche players in
larger ecosystems
The digital firm era requires a more dynamic view of the boundaries among industries, firms,
customers, and suppliers, with competition occurring among industry sets in a business
ecosystem. In the ecosystem model, multiple industries work together to deliver value to the
customer. IT plays an important role in enabling a dense network of interactions among the
participating firms.
Sustaining competitive advantage

 Competitors can retaliate and copy strategic systems

 Systems may become tools for survival
Aligning IT 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.
ACTIVITY 1: TRUE OR FALSE
Write T if the statement is True and F if the statement is False. Write your answer on the spaces
provided before each number.
_____1. The behavioural definition of an organization suggests that developing new information
systems or redeveloping old ones involves a rearrangement of machines and workers.
_____2. Business processes are collections of routines or standard operating procedures (SOPs).
_____3. It is never worthwhile to outsource production when a firm can make its product itself.
_____4. Information technology enables firms to increase revenues and reduce overall
management costs, by lowering the number of its middle managers and clerical workers.
_____5. Many companies have added thousands of middle managers as a result of changes
brought about by information technology.
_____6. Vendors of some large retailers can access the retailers' extranets directly to find up-to-
the-minute sales information and to initiate replenishment orders instantly.
_____7. Amazon.ca holds a patent on one-click shopping that it licenses to other online retailers.
_____8. Best practices are the most successful solutions or problem-solving methods for
consistently and effectively achieving a business objective.
_____9. Conducting a strategic systems analysis is essential when managers are interested in
using information systems for competitive advantage.
_____10. Adopting strategic systems generally requires no change in business goals, business
processes, or relationships with customers or suppliers.
ACTIVITY 2: ESSAY WRITING
Answer each questions and / or statements briefly. Write on the spaces provided below.
1. Which features of organizations do managers need to know about to build and use
information systems successfully?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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What is system software? What kinds of
programs are included in system
software?
What is system software? What kinds of
programs are included in system
software?
2. What is the impact of information systems on organizations?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

3. How does Porter's competitive forces model help companies develop competitive
strategies using information systems?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

4. How do the value chain and value web models help businesses identify opportunities for
strategic information system applications?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

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