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
Figure 3.1 The Two-Way Relationship
Between Organizations and Information
Technology
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
Figure 3.2 The Technical
Microeconomic Definition of the
Organization
Figure 3.3 The Behavioral View of
Organizations
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)
• Precise rules, procedures, and practices developed to cope
with virtually all expected situations
• Business processes: Collections of routines
• Business firm: Collection of business processes
Figure 3.4 Routines, Business
Processes, and Firms
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
• 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
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
Figure 3.5 Environments and
Organizations Have a Reciprocal
Relationship
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
Organizational Structure
• Five basic kinds of organizational structure (Mintzberg)
• Entrepreneurial
• Machine bureaucracy
• Divisionalized bureaucracy
• Professional bureaucracy
• Adhocracy
• Information system often reflects organizational structure
Other Organizational Features
• Goals
• Coercive, utilitarian, normative, and so on
• Constituencies
• Leadership styles
• Types of tasks
• Different environments
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)
• Vertical integration, 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
Figure 3.6 Flattening Organizations
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
Figure 3.7 Organizational
Resistance to Information System
Innovations
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
Implications for the Design and
Understanding of Information
Systems
• Organizational factors in 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
Porter’s Competitive Forces Model
(1 of 3)

• 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:
• Traditional competitors
• New market entrants
• Substitute products and services
• Customers
• Suppliers
Porter’s Competitive Forces Model
(2 of 3)

• 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
Porter’s Competitive Forces Model
(3 of 3)

• Substitute products and services

• Substitutes customers might use if your prices become too
high, for example, iTunes substitutes for CD s
• 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
Figure 3.8 Porter’s Competitive
Forces Model
Information System Strategies for
Dealing with Competitive Forces
(1 of 3)

• 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
Information System Strategies for
Dealing with Competitive Forces
(2 of 3)
• 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
Information System Strategies for
Dealing with Competitive Forces
(3 of 3)

• Focus on market niche

• Use information systems to enable a focused strategy on a
single market niche; specialize
• Example: Hilton Hotels’ OnQ 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
Interactive Session: Organizations:
Digital Technology Helps Crayola
Brighten Its Brand
• Class Discussion
• Analyze Crayola’s problem. What management,
organization, and technology factors contributed to the
problem?
• What competitive strategies is Crayola pursuing? How does
digital technology support those strategies?
• What people issues did Crayola have to address in
designing its new technology-based products?
• How has digital technology changed Crayola’s business
model and the way it runs its business?
The Internet’s Impact on
Competitive Advantage
• Transformation or threat to some industries
• 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
Smart Products and the Internet of
Things
• Internet of Things (IoT)
• Growing use of Internet-connected sensors in products
• Smart products
• Fitness equipment, health trackers
• Expand product differentiation opportunities
• Increasing rivalry between competitors
• Raise switching costs
• Inhibit new entrants
• May decrease power of suppliers
Interactive Session: Technology:
Smart Products—Coming Your Way
• Class discussion
• Describe the role of information technology in the
products described in this case. How is it adding value to
these products? How is it transforming these products?
• How are these smart products changing operations and
decision making for these organizations? How are they
changing the behavior of their users?
• Are there any ethical issues raised by these smart
products, such as their impact on consumer privacy?
Explain your answer.
The Business Value Chain Model
• 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
Figure 3.9 The Value Chain Model
Extending the Value Chain: The
Value Web
• Firm’s value chain is linked to value chains of suppliers,
distributors, customers
• Industry value chain
• Value web
• Collection of independent firms using highly synchronized I
T to coordinate value chains to produce product or service
collectively
• More customer driven, less linear operation than
traditional value chain
Figure 3.10 The Value Web
Synergies
• When output of some units are used as inputs to others, or
organizations pool markets and expertise
• Example: merger of Bank of NY and JP Morgan Chase
• Purchase of YouTube by Google
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 one another
• Include use of:
• Network economics
• Virtual company model
• 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
Figure 3.11 An Ecosystem Strategic
Model
Challenges Posed by Strategic
Information Systems
• 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
How Will MIS Help My Career?
• The Company: Superior Data Quality
• Position Description: Entry-level business development
representative
• Job Requirements
• Interview Questions
• Author Tips