Reading notes for chapter 3 in the textbook.

Read Section 3.1 leisurely. It is on the organizations and the information

systems. You are probably familiar with the organization theory .Pay
attention to the technical and behavioral definitions of organizations as
well as bureaucracy, structural characteristics of organizations, standard
operating procedures and organizational culture.
Section 3.2 is on the changing role of information systems in the
organization and is interesting to read how information systems leads to
automation, decreases transaction costs and lays foundations for virtual
organizations. Note the definitions of end users and CIO.
Section 3.3 is on decision-making, perhaps another familiar topic for
you. Pay attention to strategic decision making, structured and
unstructured decisions, rational model of decision making .It would be
interesting to read individual models of decision-making and
organizational models of decision-making.
 Reading notes for chapter 3 in the textbook - Continued
Section 3.4 is on the strategic use of information technology to gain
competitive advantage. Strategic use of information technology may be
at the business-level, firm level or industry level. Pay attention to how
information technology is used at each level, especially strategies
employed at each level. Strategic transition and its management is
crucial for successfully steering the organization into new technology.
Pay attention to the fact the information technology is widely
used in every type of organization to be competitive, to keep pace with
competition, to meet the legal requirements, and to improve the
production. Hence, strategic use of information technology results in
significant competitive advantages. This section deserves careful
attention.
Chapter 3: Information Systems,
Organizations, Management and
Strategy
 Organizations And Information Technology

Mediating Factors

Environment
Culture
Structure
organizations Standard procedures Information
Business process Technology
Politics
Management Decisions
Chance
 FORMAL ORGANIZATION

Structure
Hierarchy
division of labor
Rules,procedures
Business processes
Environmental Environmenta
Process
resources l
Rights/obligations outputs
Privileges/responsibilities
Values
Norms
People
•Organization (technical definition)
A Stable, formal, social structure that takes resources from
the environment and processes them to produce outputs.

•Organization (behavioral definition)

A collection of rights, privileges, obligations, and
responsibilities that are delicately balanced over a period of
time through conflict and conflict resolution.

•Bureaucracy
Formal Organization with a clear-cut division of labor, abstract
rules and procedures, and impartial decision making that uses
technical qualifications and professionalism as a basis for
Promoting employees.
STRUCTURAL CHARACTERISTICS OF ALL
ORGANIZATIONS

•Clear division of labor

•Hierarchy
•Explicit rules and procedures
•Impartial judgments
•Technical qualifications for
positions
•Maximum organizational
efficiency
 ORGANIZATIONAL STRUCTURES
Organization- Description Example
al Type
Entrepreneurial Young, small firm in a fast-changing Small start
structure environment. It has a simple structure and is business
managed by an entrepreneur serving as its single
chief executive officer.

Machine Large bureaucracy existing in a slowly changing Midsize

bureaucracy environment, producing standard products. It is manufactur
dominated by a centralized management team firm
and centralized decision making.

Divisionalized Combination of multiple machine bureaucracies, Fortune 50

bureaucracy each producing a different product or service, all firms such
toped by one central headquarters. general mo
 ORGANIZATIONAL STRUCTURES

Organization- Description Example

al Type
Professional Knowledge-based organization where Law firms,
bureaucracy goods and services depend on the school syste
expertise and knowledge of professionals. hospitals
Dominated by department heads with
weak centralized authority.
Adhocracy “Task force” organization that must re to Consulting
rapidly changing environments. Consists such as the
of large groups of specialists organized corporation
into short-lived multidisciplinary teams
and has weak central management.
 Summary of salient features of
organizations
Common Features Unique features
• Organizational type
• Formal Structure
• Environments
• Standard operating • Goals
procedures(SOPs) • Power
• Politics • Constituencies
• Culture • Function
• Leadership
• Tasks
• Technology
• Business processes
 Information Systems department
The Formal organizational unit that is responsible for the information
systems function in the organization.
Programmers
Highly trained technical specialists who write computer software
instructions.
Systems analysts
Specialists who translate business problems and requirements into
information requirements and systems,acting as liaison between the
information systems department and the rest of the organization.
Information systems managers
Leaders of the various specialists in the information systems department.
Chief information officer(CIO)
Senior manager in charge of the information systems function in the firm.
End users
Representatives of departments outside the information systems group for
whom applications are developed.
 THE ORGANIZATION
Senior management
Major end users(divisions)
Information Systems department

IT Infrastructure Information Systems Specialists

Hardware CIO
Software Managers
Data storage Systems analysts
Networks Systems designers
Programmers
Network specialists
Database administrator
Clerical
How Information Systems Affect the Organizations
Microeconomic model of thee firm
Model of the firm that views information technology as a factor of
production that can be freely substituted for capital and labor.
Transaction cost theory
Economic theory stating that firms grow larger because they can
conduct market place transactions internally more cheaply than
they can with external firms in the marketplace.
Agency theory
Economic theory that views the firm as a nexus of contracts among
self-interested individuals who must be supervised and managed.
Virtual organization
Organization using networks to link people,assets and ideas to create
and distribute products and services without being limited to traditional
organizational boundaries or physical location.
 Organizational Components and Change

TASK

TECHNOLOGY PEOPLE

STRUCTURE
 Managers and Decision-Making
Classical model of management

Traditional description of management that focused on its

formal functions of planning, organizing, coordinating,
deciding and controlling.

Behavioral models

Descriptions of management based on behavioral scientists

observations of what managers actually do in their jobs.
 Managerial Roles in Behavioral Model
Managerial roles
Expectations of the activities that managers should perform in an
organization.

Interpersonal roles
Mintzberg’s classification for managerial roles where managers act
as figureheads and leaders for the organization.

Informational roles
Mintzberg’s classification for managerial roles where managers act
as
the nerve centers of their organizations,receiving and disseminating
critical information.

Decision roles
Mintzberg’s classification for managerial roles where managers
initiate activities,handle disturbances,allocate resources and
The Process of Decision-Making
Strategic decision making
Determining the long-term objectives, resources and policies of an
organization.

Management control
Monitoring how efficiently or effectively resources are utilized and how
well operational units are performing.

Operational control
Deciding how to carry out specific tasks specified by upper and middle
management and establishing criteria for completion and resource
allocation.

Knowledge-level decision making

Evaluating new ideas for products, services, ways to communicate new
knowledge, and ways to distribute information throughout the
organization.
 Types of Decisions
Unstructured decisions
Non-routine decisions in which the decision maker must
provide judgement, evaluation, and insights into the problem
definition; there is no agreed-upon procedure for making such
decisions.

Structured decisions
Decisions that are repetitive, routine, and have a definite
procedure for handling them.
 Organizational level
Operational knowledge management Strategic
Type of
decision
Structured TPS

Office
systems MIS

Semi-
structured
DSS

KWS ESS
U n-
structured
Individual Models of Decision-Making
Cognitive style
Underlying personality dispositions toward the treatment of
information, selection of alternatives, and evaluation of consequences.

Systematic decision makers

cognitive style that describes people who approach a problem by
structuring it in terms of some formal method.

Intuitive decision makers

Cognitive style that describes people who approach a problem with
multiple methods in an unstructured manner, using trail and error to
find a solution.

Organizational models of decision making

Models of decision making that take into account the structural and
political characteristics of an organization.
 Organizational Models of Decision-Making
Bureaucratic models of decision making
Models of decision making where decisions are shaped by the
organization’s standard operating procedures(SOPs).

Political models of decision making

Models of decision making where decisions result from competition and
bargaining among the organization’s interest groups and key leaders.

“Garbage can” model

Model of decision making that states that organizations are not rational
and that decisions are solutions that become attached to problems for
accidental reasons.
 What is Business Strategy?
• Organization has a limited set of resources (e.g. time, people,
money, physical resources) and they must decide how to use
those resources.

• Example: You have the following resources:

– $500,000
– A building
– 10 employees
– A patent on new invention

Strategy is deciding what the organization is going to do and how it will

use use its resources
 Examples of Strategies

• Strategy 1: manufacture equipment with the money

and use the building and the people to manufacture
widgets.
• Strategy 2: Outsource the production of widgets
and use the people and building to be widget
distributor - or perhaps a widget store.
• Strategy 3: Sell the patent to a larger firm, sell the
building, fire the employees and retire!
 Strategy vs. Tactic
• Strategy focuses essentially on deciding on what the
organization is trying to do, what it is trying to become within
its business environment. Changing strategy is difficult and
often causes problems.
• Tactic is the implementation of the strategy. It is the set of
management decisions focussed on how to achieve the strategic
objectives.
• Example: once the organization decides that it wants to be a widget
manufacturer, there are many decisions that must be made about how to
profitably manufacture widgets.
 Strategic Decisions
• Strategic decisions address questions such as:
– What products or services will be provide?
– Will we focus on providing low cost goods/services?
– Will we focus on providing unique goods/services?
– Where will we sell our goods/services? To whom?

• IT can assist the strategic decision maker (e.g. ESS).

More importantly, IT is likely to be critical to the
implementation of the strategy.
 Elements of Strategic Management

V is io n
• Long range planning
• Responsive M is s io n

management
• Innovation S tr a te g ic

M a n a g e r ia l

O p e r a t io n a l

I n fo r m a tio n
T e c h n o lo g y
 The Role of IT
• Create systems that provide strategic advantage
• Supports strategic changes, such as
business reengineering
• Provides business intelligence
– Competitive intelligence
– Sustainable competitive advantage
 Competitive Advantage
• What makes strategy difficult is that most
business environments are competitive. Need to
try to "second guess" the competition.

• Competitive advantage: what sets the firm apart

from the rest of its competitors.

• Basis for competition: cost, speed, quality,

variety, level of service,...
 Strategic Information Systems

• Strategic information systems

– computer systems at any level of an organization that
change the goals, processes, products, services, or
environmental relationships to help the organization
gain a competitive advantage
• Information considered as a resource, much like
capital and labor
• IT-critical competitive strategies: Customer lock-
in, customer lock-out, new business entry
 STRATEGY LEVELS AND INFORMATION
TECHNOLOGY (IT) - ANOTHER FRAMEWORK
STRATEGIES MODELS IT TECHNIQUES

INDUSTRY
cooperation vs. competition Competitive forces electronic transactions
licensing Network economics communications networks
standards Inter-organizational systems
information partnership
FIRM
Synergy Core competency knowledge systems
Core competencies organizational systems

BUSINESS
Low Cost producer Value chain analysis data mining
Differentiation of IT-based products / services
products/services Inter-organizational systems
Scope of competition supply chain management
(global vs. niche) efficient customer response
 Value Chain Analysis
Highlights the primary and support activities that add a
margin of value to a firm’s product/service where IS can
best be applied to achieve a competitive advantage.
Primary activities:
• Activities most directly related to the production and
distribution of a firm’s products/services
• Consist of inbound logistics, operations, outbound
logistics, sales and marketing, service
Support activities:
• Activities that make the delivery of primary activities
possible
• Consist of organization’s infrastructure, human
resources, technology, procurement
The Value Chain for a Restaurant

• Each box represents a primary process

IS to Support Product/Service Differentiation

• Product/service differentiation
– strategy for creating brand loyalty by
developing new and unique products/services
that are not easily duplicated by competitors
e.g. Citibank’s ATM
IS to Support Niche Focus
• Focused differentiation
– strategy for developing new market niches for specialized
products/services
– Data mining
• analysis of large pool of data to find patterns and rules that
can be used to guide decision-making and predict future
behavior
e.g. direct marketing
Applications of Data mining
– Identifying individuals or organizations most likely to
respond to a direct mailing.
– Predicting which customers are likely to switch to
competitors.
– Identifying common characteristics of customers who
purchase the same product.
 IS to Support Low Cost Strategy
• Supply chain management
– integrates supplier, distributors, and customer logistics
requirements into one cohesive process
– to reduce inventory cost or underutilized staff
• e.g. Wall-Mart’s “continuous replenishment system”
– “lock in” customer and raise “switching costs”
• expense a customer incurs in lost time and expenditure
of resources when changing from one supplier to a
competing supplier
• e.g. Baxter Healthcare’s “stockless inventory”
 Business Level Strategy
B u s in e s s L e v e l S tr a te g y

T he B usiness F irm

Vendors C u sto m e rs

Supply C hain E ffic ie n t C u s to m e r

In tr a F ir m S tr a te g y
M anagem ent
R esp o n se
P r o d u c t d i ffe r e n t i a t i o n
S to c k le ss In v e n to r y
F o c u s e d d i ffe r e n t i a t i o n P o in t-o f-s a le s y s te m s
C o n tin o u s R e p le n ish m e n t
L o w -c o st p r o d u c e r D a ta m in in g
J u st-in -tim e d e live r y
 Firm-Level Strategies
• A firm is a collection of business units
• Synergy
– outputs of some business units used as inputs to
other units
– IS to tie operations of business units
• Core competencies
– activities at which a firm is a world-class leader
– IS to encourage sharing of knowledge
 Industry-Level Strategies

• Competition with other firms

• Cooperation through information partnership
– e.g. American Airlines and Citibank
• Models to help analysis
– Competitive forces
– Network economics
• based on concept of a network where adding another
participant entails no marginal costs but can create much larger
marginal gain
 COMPETITIVE FORCES MODEL

NEW SUBSTITUTE
MARKET PRODUCTS
ENTRANTS & SERVICES

TRADITIONAL
THE FIRM
COMPETITION

Bargaining Bargaining
power of power of
SUPPLIERS CUSTOMERS
 Managing Strategic Transitions

• A movement from one level of socio-

technical system to another. Often required
when adopting strategic systems that
demand changes in the social and technical
elements of an organization.
 Questions Managers Should Ask
• Forces at work in the industry and strategies
• Using information and communication technology
• The direction and nature of change within the industry
• Opportunities to be gained by introducing information systems technology
• Kinds of systems are applicable to the
• Being behind or ahead of the industry in its application of information
systems
• The current business strategic plan, and the cur­rent strategy for
information services
• Sufficient technology and capital to develop a strategic information
systems initiative
• The greatest value to the firm
Challenges

• Integrations
• Sustainability of competitive advantage