INFORMATION SYSTEMS, ORG’S & STRATEGY ✓ Adherence to principle of efficiency

3 ✓ Routines and business processes

✓ Organizational politics, culture, environments and
structures
ORGANIZATIONS AND INFORMATION SYSTEMS

THE TWO-WAY RELATIONSHIP BETWEEN ORGANIZATIONS AND INFORMATION Routines and business processes
TECHNOLOGY
✓ Routines (standard operating procedures)
This complex two-way
relationship is mediated by ➢ Precise rules, procedures, and practices
many factors, not the least of developed to cope with virtually all expected
which are the decisions made situations
- or not made - by managers. ✓ Business processes: Collections of routines
Other factors mediating the ✓ Business firm: Collection of business processes
relationship include the
organizational culture,
structure, politics, business ROUTINES, BUSINESS, PROCESSES AND FIRMS
processes, and environment.
All organizations are composed of individual routines and behaviors, a
collection of which make up a business process. A collection of
What is an organization? business processes make up the business firm. New information systems
applications require that individual routines and business processes
✓ Technical definition change to achieve high levels of organizational performance.
➢ 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

THE TECHNICAL MICROECONOMIC DEFINTION OF THE ORGANIZATION

In the microeconomic definition of organizations, capital and labor

(the primary production factors provided by the environment) are
ORGANIZATION
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.

Organizational politics

✓ Divergent viewpoints lead to political struggle,

competition, and conflicts
✓ Political resistance greatly hampers organizational
change
THE BEHAVIORAL VIEW OF ORGANIZATION

The behavioral view of organizations emphasizes group relationships,

values and structures.
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
Features of organizations ✓ Environments generally change faster than
organizations
✓ Use of hierarchical structure ✓ Information systems can be an instrument of
✓ Accountability, authority in system of impartial environmental scanning, act as a lens
decision making
 ENVIRONMENTS AND ORGANIZATIONS HAVE A RECIPROCAL THE TRANSACTION COST THEORY OF THE IMPACT OF INFORMATION
RELATIONSHIP TECHNOLOGY ON THE ORGANIZATION

Environments shape what organizations can do, but organizations can Firms traditionally grew in size to reduce market transaction costs. IT
influence their environments and decide to change environments potentially reduces the firms market transaction costs. This means firms
altogether. Information technology plays a critical role in helping can outsource work using the market, reduce their employee head
organizations perceive environments change an din helping count and still grow revenues, relying more on outsourcing firms and
organizations act on their environment. external contractors.

Disruptive technologies

✓ Technology that brings about sweeping change to

businesses, industries, markets
✓ Examples: personal computers, word processing
software, the Internet, the PageRank algorithm Agency theory
✓ First movers and fast followers
✓ Firm is nexus of contracts among self-interested
• First movers – inventors of disruptive technologies
parties requiring supervision
• Fast followers – firms with the size and resources
✓ Firms experience agency costs (the cost of
to capitalize on that technology
managing and supervising) which rise as firm grows
Five (5) Basic Kinds of Organizational Structure ✓ IT can reduce agency costs, making it possible for
firms to grow without adding to the costs of
1. Entrepreneurial supervising, and without adding employees
➢ small start-up business
2. Machine bureaucracy
➢ midsize manufacturing firm THE AGENCY THEORY OF THE IMPACT OF INFORMATION TECHNOLOGY
3. Divisionalized bureaucracy ON THE ORGANIZATION
➢ fortune 500 firms
As firms grow in size and complexity, traditionally they experience rising
4. Professional bureaucracy agency costs.
➢ law firms, school systems, hospitals
5. Adhocracy
➢ consulting firms

Other Organizational Features

✓ Goals
✓ Constituencies
✓ Leadership styles
✓ Tasks
✓ Surrounding environments

HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND

BUSINESS FIRMS

Economic Impacts
Organizational and behavioral impacts
✓ IT changes relative costs of capital and the costs of
information ✓ IT flattens organizations
✓ Information systems technology is a factor of ➢ Decision making pushed to lower levels
production, like capital and labor ➢ Fewer managers needed (IT enables faster
✓ IT affects the cost and quality of information and decision making and increases span of control)
change economics of information ✓ Postindustrial organizations
➢ Information technology helps firms contract in size ➢ Organizations flatten because in postindustrial
because it can reduce transaction costs (the cost societies, authority increasingly relies on
if participating in markets) knowledge and competence rather than formal
• Outsourcing positions

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 a firm, making it
worthwhile for firms to transact with other firms rather
than grow the number of employees
 FLATTENING ORGANIZATIONS Central Organizational Factors to consider when planning a
new system
Information systems can reduce the number of levels in an
organization by providing managers with information to supervise ✓ Environment
larger numbers of workers and by giving lower level employees more ✓ Structure
decision-making authority.
➢ 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

USING INFORMATION SYSTEMS TO ACHIEVE COMPETITIVE

ADVANTAGE

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
1. Traditional competitors
• All firms share market space with competitors
who are continuously devising new products,
services, efficiencies, switching costs
Organizational resistance to change 2. New market entrants
• Some industries have high barriers to entry,
✓ Information systems become bound up in e.g. computer chip business
organizational politics because they influence access • New companies have new equipment,
to a key resource – information younger workers, but little brand recognition
✓ Information systems potentially change an 3. Substitute products and services
organization’s structure, culture, politics, and work • Substitutes customers might use if your prices
✓ Most common reason for failure of large projects is become too high, e.g. iTunes substitutes for
due to organizational and political resistance to CDs
change 4. Customers
• Can customers easily switch to competitor’s
ORGANIZATIONAL RESISTANCE AND THE MUTUALLY ADJUSTING products? Can they force businesses to
RELATIONSHIP BETWEEN TECHNOLOGY AND THE ORGANIZATION compete on price alone in transparent
marketplace?
Implementing information systems has consequences for task 5. Suppliers
arrangements, structures, and people. According to this • Market power of suppliers when firm cannot
model, to implement change, all four components must be raise prices as fast as suppliers
changed simultaneously.
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.

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 4 Generic Strategies for dealing with competitive forces,
agency costs enabled by using IT
➢ Example: Large firm delivers internal manuals to
employees via a corporate Web site, saving 1. Low-cost leadership
millions of dollars in distribution costs ➢ Produce products and services at a lower price
than competitors while enhancing quality and
level of service
➢ Examples: Wal-Mart
 THE VALUE CHAIN MODEL
2. Product differentiation
➢ Enable new products or services, greatly change
The value web is a networked system that can synchronize the
customer convenience and experience
value chains of business partners within an industry to respond
➢ Examples: Google, Nike, Apple
rapidly to changes in supply and demand
3. Focus on market niche
➢ Use information systems to enable a focused
strategy on a single market niche; specialize
➢ Example: Hilton Hotels
4. Strengthen customer and supplier intimacy
➢ Use information systems to develop strong ties
and loyalty with customers and suppliers;
increase switching costs
➢ Example: Netflix, Amazon

The Internet’s 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

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 Information systems can improve overall performance of
➢ Primary activities vs. support activities business units by promoting synergies and core competencies
✓ At each stage, determine how information systems
can improve operational efficiency and improve ✓ Synergies
customer and supplier intimacy ➢ When output of some units used as inputs to
✓ Utilize benchmarking, industry best practices others, or organizations pool markets and
expertise
➢ Example: merger of Bank of NY and JPMorgan
Chase
THE VALUE CHAIN MODEL ➢ Purchase of YouTube by Google

This figure provides examples of systems for both primary and

support activities of a firm and of its value partners that can Core competencies
add a margin of value to a firm’s products or services.
✓ 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
➢ Network economics
➢ Virtual company model
➢ 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
Value web

✓ Collection of independent firms using highly Network economics

synchronized IT to coordinate value chains to produce
product or service collectively ✓ Marginal cost of adding new participant almost zero,
✓ More customers driven, less linear operation than with much greater marginal gain
traditional value chain ✓ 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
✓ E.g. Li & Fung manages production, shipment of
garments for major fashion companies, outsourcing all
work to over 7,500 suppliers

Business ecosystems

✓ Industry sets of firms providing related services and

products
➢ Microsoft platform used by thousands of firms
➢ Wal-Mart’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

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.

Sustaining competitive advantage

✓ Because competitors can retaliate and copy strategic

systems, competitive advantage is not always
sustainable; systems may become tools for survival

Performing strategic systems analysis

✓ What is structure of industry?

✓ What are value chains for this firm?

Managing strategic transitions

✓ Adopting strategic systems requires changes in

business goals, relationships with customers and
suppliers, and business processes