Unit-3: Information Systems Organization and Strategy

Organizations and Information Systems

Managers cannot ignore information systems because they play a very critical role in
contemporary organizations. The first information systems of the 1950s were operational systems
that automated clerical processes such as check processing. Because early systems addressed
largely technical operational issues, managers could afford to delegate authority and concern to
lower-level technical workers. However today's systems directly affect how managers decide, how
senior managers plan, and in many cases what products and service are produced (and how),
responsibility for information systems cannot be delegated to technical decision makers. So,
information systems today play a strategic role in the life of the firm.

The main objective of the MIS is to integrate the organization and information systems and work
together or sometimes against each other. Management through decision-making is a common
feature to all the organization. The management consists of a group of people who are placed on
the organization at the various levels with an assigned task, job and responsibilities to achieve the
goals. Depending upon the levels and nature of organization, job is determined. These features
exist on all organizations like business, education, health, and banks. Information has a great role
for decision-making. The group of people working on various levels need information for
decision-making, so it is necessary to understand its nature, use and value of information on the
organization.
The relationship between the information systems and organization depends on the various factors,
given on the figure below. The two-way relationship is become strengthen with the cultural,
structural, political, environmental and business procedures where both organization and
information technology become a part of success.

Information systems use data as their main ingredients. Organizations rely on information systems
and people for data. These both are structured methods that turn raw products (data/people) into
useful entities (information).
To explain more about the relationship between organizations and information systems, we discuss
in the following section how the information systems impact the organization.

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 Unit-3: Information Systems Organization and Strategy

Impacts of Information Systems on Organizations and Business Firms

Information systems are giving the life to the organization. A technology pervasive as information
systems has a wide range of effects on an organization, many of which represent significant
benefits. We shall examine some of these effects and how they impact planning for the
implementation of systems. Computers can impact the structure of the organization on its strategy,
its revenues and expenses, and the individuals working within it. Main impacts of information
systems on the organization are:
Strategy for gaining a competitive edge: A number of organizations have used computers to gain
a competitive advantage. They have designed creative application that allows them to complete
the work more effectively. This will reduce the cost of operation for the organization output,
which will help to compete with the competitors.
Increasing revenues: Some firms have used technology to generate revenue, for example, by
making information products available through computer systems. It is possible to obtain
hundred types of data about companies and their financial conditions.
Reducing costs: One traditional use of computer in organization has been for cost savings.
Companies have automated clerical tasks to reduce costs. This will help to reduce the additional
employees needed in the future and reduce the existing staffs. Manufacturing firms have saved
money by using computers to control their inventory and production. Computer programs
calculate the best balance between the cost of carrying inventory and the cost of ordering or
making items.
Improving profits: If the use of IT either increases revenues or decrease costs, it should
contribute to increase profitability, all other factors remaining constant. In many applications, it
is very hard to show that IT has an impact on the bottomline because so many other factors
influence profits. Increasing revenues and/or decreasing costs should certainly contribute to
profitability.
Improving quality: One reason to use a computer is to improve the quality of output. For
example, computer aided design (CAD), where engineer or draft man uses a computer to creative
engineering drawings.
Creating new opportunities: There may be no other way to do some tasks than to use a computer,
by using the Internet or other network, a company can deal with different people by sharing
information. They can use email service to deal with different people to create new clients.

Using Information Systems to achieve Competitive Advantage

The information revolution is sweeping through our economy. No company can escape its effects.
Dramatic reductions in the cost of obtaining, processing, and transmitting information are
changing the way we do business. Firms with a competitive advantage over others typically have
access to special resources that others do not or are able to use resources more efficiently, resulting
in higher revenue growth, profitability, or productivity growth (efficiency), all of which ultimately
in the long run translate into higher stock market valuations than their competitors.
Michael Porter's competitive forces model describes five competitive forces that shape the fate of
the firm.

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 Unit-3: Information Systems Organization and Strategy

1. Traditional competitors: Existing firms that share a firm's market space

2. New market entrants: New companies have certain advantages, such as not being locked into
old equipment and high motivation, as well as disadvantages, such as less expertise and little
brand recognition. Some industries have lower barriers to entry, ie: cost less for a new
company to enter the field.
3. Substitute products and services: These are substitutes that your customers might use if your
prices become too high. For example, Internet telephone service can substitute for traditional
telephone service. The more substitute products and services in your industry, the less you can
control pricing and raise your profit margins.
4. Customers: The power of customers grows if they can easily switch to a competitor's products
and services, or if they can force a business and its competitors to compete on price alone in a
transparent marketplace where there is little product differentiation and all prices are known
instantly (such as on the Internet).
5. Suppliers: The more different suppliers a firm has, the greater control it can exercise over
suppliers in terms of price, quality, and delivery schedules.
There are four generic strategies used to manage competitive forces, each of which often is
enabled by using information technology and systems:
1. Low-cost leadership: Use information systems to achieve the lowest operational costs and the
lowest prices. For example, a supply chain management system can incorporate an efficient
customer response system to directly link consumer behavior to distribution and production
and supply chains, helping lower inventory and distribution costs.
2. Product differentiation: Use information systems to enable new products and services, or
greatly change the customer convenience in using your existing products and services. For
instance, Land's End uses mass customization, offering individually tailored products or
services using the same production resources as mass production, to custom-tailor clothing to
individual customer specifications.
3. Focus on market niche: Use information systems to enable a specific market focus and serve
this narrow target market better than competitors. Information systems support this strategy by
producing and analyzing data for finely tuned sales and marketing techniques. Hilton Hotels
uses a customer information system with detailed data about active guests to provide tailored
services and reward profitable customers with extra privileges and attention.
4. Strengthen customer and supplier intimacy: Use information systems to tighten linkages
with suppliers and develop intimacy with customers. Chrysler Corporation uses information
systems to facilitate direct access from suppliers to production schedules, and even permits
suppliers to decide how and when to ship supplies to Chrysler factories. This allows suppliers
more lead time in producing goods. Strong linkages to customers and suppliers increase
switching costs (the cost of switching from one product to a competing product) and loyalty to
your firm.

Business Value Chain Model

The Internet has created entirely new markets and formed the basis for thousands of new
businesses.
Because of the Internet, the traditional competitive forces are still at work, but competitive rivalry
has become much more intense. Internet technology is based on universal standards, making it
easy for rivals to compete on price alone and for new competitors to enter the market. Because
information is available to everyone, the Internet raises the bargaining power of customers, who
can quickly find the lowest-cost provider on the Web. Some industries, such as the travel industry
and the financial services industry, have been more impacted than others. However, the Internet
also creates new opportunities for building brands and building very large and loyal customer
bases, such as Yahoo!, eBay, and Google.

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 Unit-3: Information Systems Organization and Strategy

The value chain model highlights specific activities in the business where competitive strategies
can be best applied and where information systems are most likely to have a strategic impact. The
value chain model views the firm as a series or chain of basic activities that add a margin of value
to a firm's products or services. These activities can be categorized as either primary activities or
support activities.
Primary activities are most directly related to the production and distribution of the firm's
products and services, which create value for the customer. Primary activities include inbound
logistics, operations, outbound logistics, sales and marketing, and customer service.
• Inbound Logistics: include arranging the inbound movement of materials, parts, and/or finished
inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores.
• Operations: is concerned with managing the process that converts inputs (in the forms of raw
materials, labor, and energy) into outputs (in the form of goods and/or services).
• Outbound Logistics: is the process related to the storage and movement of the final product and the
related information flows from the end of the production line to the end user
• Marketing and Sales: include selling a product or service and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, and society at
large.
• Customer Service: includes all the activities required to keep the product/service working effectively
for the buyer after it is sold and delivered.
Support activities make the delivery of the primary activities possible and consist of organization
infrastructure, human resources, technology, and procurement.
• Infrastructure: includes activities such as accounting, legal, finance, control, public-relations, quality
assurance and general (strategic) management.
• Human Resources Management: consists of all activities involved in recruiting, hiring, training,
developing, compensating and (if necessary) dismissing or laying off personnel.
• Technological Development: pertains to the equipment, hardware, software, procedures and technical
knowledge brought to bear in the firm's transformation of inputs into outputs.
• Procurement: includes the acquisition of goods, services or works from an outside external source.
Porter's Value Chain is a set of activities that an organization carries out to create value for its
customers and return a margin of profit. Michael Porter created the concept in the 1980s. Also
Porter defined the Margin as the difference between the value created and costs:
Value Created - Cost of Creating that Value = Margin (Competitive Advantage)
The Business Model (BM) identifies the way the company returns profit from the activities,
resources, channels, partnerships, etc. that deliver the product, while the Business Value Chain
identifies the sequence of activities, from sourcing to marketing and sales, that deliver the product
while returning a "Margin" to the company.

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