Chapter 3

Information
Systems,
Organizations,
and Strategy
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

LEARNING OBJECTIVES

Identify and describe important features of

organizations that managers need to know about
in order to build and use information systems
successfully.
Demonstrate how Porters 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.
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

LEARNING OBJECTIVES (Continued)

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.

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

EBay Fine-Tunes Its Strategy

Problem: Losing market share to other online retailers,

ultra-competitive and constantly changing marketplace.
Solutions: Acquire other businesses and adjust its
business model to maintain online dominance.
Purchase of PayPal, deal with Buy.com allowed eBay to
grow and diversify its business.
Demonstrates ITs role in the development of eBays
organization as it expands and makes acquisitions.
Illustrates the challenges of maintaining a competitive
advantage in a fast-moving, constantly-changing
marketplace.
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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 madeor
not madeby managers. Other factors
mediating the relationship include the
organizational culture, structure,
politics, business processes, and
environment.

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Figure 3-1
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

What is an organization?
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
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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.

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Figure 3-2
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

The Behavioral View of Organizations

The behavioral view of organizations emphasizes group

relationships, values, and structures.

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Figure 3-3
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Features of organizations
All modern organizations share some
characteristics, such as:
Use of hierarchical structure
Accountability, authority in system of impartial
decision making
Adherence to principle of efficiency
Other features include: Routines and business
processes and organizational politics, culture,
environments and structures
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Routines and business processes

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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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Organizational politics
Divergent viewpoints lead to political
struggle, competition, and conflict
Political resistance greatly hampers
organizational change

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Organizational 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

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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.

Figure 3-5
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Disruptive technologies
Technology that brings about sweeping change to
businesses, industries, markets
Examples: personal computers,, the Internet, the
PageRank algorithm
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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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

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

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Organizations and Information Systems

Other Organizational Features

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Goals
Leadership styles
Tasks
Surrounding environments

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

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
Information technology helps firms contract in size
because it can reduce transaction costs (the cost of
participating in markets)
Outsourcing
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

The Transaction Cost Theory of the Impact of

Information Technology on the Organization

Firms traditionally grew in size

to reduce transaction costs. IT
potentially reduces transaction
costs for a given size.

Figure 3-6
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

The Agency Cost Theory of the Impact of

Information Technology on the Organization

As firms grow in size and

complexity, traditionally they
experience rising agency costs.

Figure 3-7
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

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)

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

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 lowerlevel employees more decisionmaking authority.

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Figure 3-8
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

How Information Systems Impact Organizations and Business Firms

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
organizations structure, culture, politics, and work
Most common reason for failure of large projects is due
to organizational and political resistance to change

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

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 corporate Web site, saving millions of
dollars in distribution costs

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

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
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Why do some firms become leaders within

their industry?
Michael Porters competitive forces model
Provides general view of firm, its competitors, and
environment
Five competitive forces shape fate of firm

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Traditional competitors
New market entrants
Substitute products and services
Customers
Suppliers
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Porters Competitive Forces Model

In Porters 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 forces in the industrys environment: new market
entrants, substitute products, customers, and suppliers.

Figure 3-10
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Four generic strategies for dealing with

competitive forces, enabled by using IT
Low-cost leadership
Product differentiation
Focus on market niche
Strengthen customer and supplier intimacy

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Low-cost leadership
produce products and services at a lower price than
competitors while enhancing quality and level of
service
Examples: Wal-Mart, Dell

Product differentiation
Enable new products or services, greatly change
customer convenience and experience
Examples: Google, Lands End, Apple iPhone

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Focus on market niche

Use information systems to enable a focused
strategy on a single market niche; specialize
Example: Mercedes Benz

Strengthen customer and supplier intimacy

Use information systems to develop strong ties and
loyalty with customers and suppliers; increase
switching costs
Example: Amazon
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Can Detroit Make the Cars Customers Want?

Read the Interactive Session: Organizations, and then
discuss the following questions:
Why is AutoNation having a problem with its inventory? Why
is this also a problem for auto manufacturers such as GM,
Ford, and Chrysler? How is this problem impacting the
business performance of AutoNation and of the auto
manufacturers?
What pieces of data does AutoNation need to determine what
cars to stock in each of its dealerships?
What is AutoNations solution to its problem?
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

The Internets impact on competitive

advantage
Transformation, destruction, threat to some industries
E.g. travel agency, printed encyclopedia, newspaper
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

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Business value chain model

Views firm as series of activities that add value to
products or services
Highlights activities where competitive strategies can
best be applied
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
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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

The Value Chain Model

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 firms
products or services.

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Figure 3-11
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

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

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

The Value Web

The value web is a networked system

that can synchronize the value chains of
business partners within an industry to
respond rapidly to changes in supply
and demand.

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Figure 3-12
2010 by Pearson

Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Information systems can improve overall

performance of business units by promoting
synergies and core competencies
Synergies
When output of some units used as inputs to others,
or organizations pool markets and expertise
Example: merger of Bank of NY and JPMorgan Chase
Purchase of YouTube by Google

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Core competencies
Activity for which firm is world-class leader
Relies on knowledge, experience, and sharing this
across business units
Example: Procter & Gambles intranet and
directory of subject matter experts

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Network-based strategies
Take advantage of firms abilities to network
with each other
Include use of:
Network economics
Virtual company model
Business ecosystems

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

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
E.g. Li & Fung manages production, shipment of
garments for major fashion companies, outsourcing
all work to over 7,500 suppliers

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Management Information Systems

Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

An Ecosystem Strategic Model

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.

Figure 3-13
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