mis9_ch03_ppt.ppt

3.1 © 2006 by Prentice Hall
3
Chapter
Information Systems,
Organizations,
Management, and
Strategy

OBJECTIVES
• Identify and describe important features of
organizations that managers need to know about
in order to build and use information systems
successfully
• Evaluate the impact of information systems on
organizations
• Assess how information systems support the
activities of managers in organizations
Management Information Systems
Chapter 3
Information Systems, Organizations, Management, and Strategy

• Analyze how information systems support
various business strategies for competitive
advantage
• Assess the challenges posed by strategic
information systems and management solutions
OBJECTIVES (Continued)
Chapter 3

• Challenge: powerful competitors, price conscious consumers.
Manage 95 brands of wine
• Solutions. Warehouse management system: coordinates
production, suppliers, inventory and shipment
• Shortens order-to-door cycle by 10 days
• Gallo Edge analyzes profitability by bottle for customers like
Albertsons and Wal-Mart.
• Gallo Wine Manager system analyzes price vs. taste
relationship.
• Demonstrates the interdependence of business environments,
management, culture, and strategy
Chapter 3
Gallo Winery Case

ORGANIZATIONS AND INFORMATION SYSTEMS
The Two-Way Relationship between Organizations
and Information Technology
Figure 3-1
Chapter 3

What Is an Organization?
Organization:
• Stable, formal social structure
• Takes resources from the environment and
processes them to produce outputs
Chapter 3

The Technical Microeconomic Definition of the
Organization
Figure 3-2
Chapter 3

• Collection of rights, privileges, obligations, and
responsibilities
• Delicately balanced over a period of time through
conflict
• Conflict resolution
Chapter 3
Behavioral Definition of Organization:

The Behavioral View of Organizations
Figure 3-3
Chapter 3

• All organizations have some similar “structural”
features.
Chapter 3
Common Features of Organizations

• Clear division of labor
• Hierarchy
• Explicit rules and procedures
• Impartial judgments
Chapter 3
Shared Features of all Organizations:
Table 3-1

• Technical qualifications for positions
• Maximum organizational efficiency
Chapter 3
Shared Features of all Organizations: (Continued)
Table 3-1 (Continued)

• Routines are patterns of individual behavior.
• Business processes are a collection of routines.
• Business firms are a collection of business
processes.
• Business processes enable organizations to cope
with all recurring expected situations.
Chapter 3
Routines and Business Processes

Routines, Business Processes, and Firms
Figure 3-4
Chapter 3

• Divergent viewpoints lead to political struggle,
competition, and conflict.
• Hamper organizational change
Chapter 3
Organizational Politics

• What products the organization should produce
• How and where it should be produced
• For whom the products should be produced
Chapter 3
Organizational Culture

• Structures
• Goals
• Constituencies
• Leadership styles
• Tasks
• Surrounding environments
Chapter 3
Unique Features of Organizations

• Entrepreneurial structure: Small start-up business
• Machine bureaucracy: Midsize manufacturing firm
• Divisionalized bureaucracy: Fortune 500 firms
• Professional bureaucracy: Law firms, school
systems, hospitals
• Adhocracy: Consulting firms
Chapter 3
Organizational Structures

• Organizations and environments have a
reciprocal relationship.
• Organizations are open to, and dependent on, the
social and physical environment.
• Organizations can influence their environments.
Chapter 3
Organizations and Environments:

Environments and Organizations Have a
Reciprocal Relationship
Figure 3-5
Chapter 3

• Ultimate goals
• Different groups and constituencies
• Nature of leadership
• Tasks and technology
Chapter 3
Other Differences Among Organizations:

Organizing the IT Function
• Hardware
• Software
• Data storage
• Networks
The information systems department is
responsible for maintaining:
Chapter 3

Information Technology Services
Figure 3-6
Chapter 3

Includes Specialists:
• Programmers: Highly trained, writers of the
software instructions for computers
• Systems analysts: Translate business problems
into solutions, act as liaisons between the
information systems department and rest of the
organization
• Information system managers: Leaders of various
specialists
Chapter 3

• Chief Information Officer (CIO): Senior manager in
charge of information systems function in the firm
• End users: Department representatives outside
the information system department for whom
applications are developed
Chapter 3
Includes Specialists: (Continued)

HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS
FIRMS
• IT changes both the relative costs of capital and
the costs of information.
• Information systems technology is a factor of
production, like capital and labor.
Chapter 3
Economic Impacts:

• Transaction cost theory: Firms seek to
economize on the cost of participating in markets
(transaction costs).
• IT lowers market transaction costs for firm,
making it worthwhile for firms to transact with
other firms rather than grow the number of
employees.
Chapter 3
Economic Impacts: (Continued)
FIRMS

The Transaction Cost Theory of the Impact of
Information Technology on the Organization
Figure 3-7
Chapter 3
FIRMS

Chapter 3
• Agency theory: Firm is nexus of contracts among
self-interested parties requiring supervision.
• Firms experience agency costs (the cost of
managing and supervising).
• IT can reduce agency costs, making it possible
for firms to grow without adding to the costs of
supervising, and without adding employees.
FIRMS

The Agency Cost Theory of the Impact of
Information Technology on the Organization
Figure 3-8
Chapter 3
FIRMS

Organizational and Behavioral Impacts
IT Flattens Organizations:
Chapter 3
• Facilitates flattening of hierarchies
• Broadens the distribution of timely information
• Increases the speed of decision making
FIRMS

Chapter 3
• Empowers lower-level employees to make
decisions without supervision and increase
management efficiency
• Management span of control (the number of
employees supervised by each manager) will
also grow
FIRMS
IT Flattens Organizations: (Continued)

Flattening Organizations
Figure 3-9
Chapter 3
FIRMS

Postindustrial Organizations and Virtual Firms
Chapter 3
Postindustrial Organizations:
• Authority increasingly relies on knowledge and
competence.
• Information technology encourages task
force-networked organizations.
FIRMS

Chapter 3
Virtual Firms:
• Use networks to link people, assets, and ideas
• Can ally with suppliers, customers to create
and distribute new products and services
• Not limited to traditional organizational boundaries
or physical locations
FIRMS

Chapter 3
• Information systems give both large and small
organizations additional flexibility to overcome the
limitations posed by their size.
• Small organizations use information systems to
acquire some of the muscle and reach of larger
organizations.
Increasing Flexibility of Organizations:
FIRMS

Chapter 3
• Large organizations use information technology to
achieve some of the agility and responsiveness of
small organizations.
• Customization and personalization: IT makes it
possible to tailor products and services to
individuals.
FIRMS
Increasing Flexibility of Organizations: (Continued)

• Information systems become bound up in
organizational politics because they influence access
to a key resource.
• Information systems potentially change an
organization’s structure, culture, politics, and work.
• Most common reason for failure of large projects is due
to organizational and political resistance to change.
Chapter 3
Understanding Organizational Resistance to Change:
FIRMS

Organizational Resistance and the Mutually Adjusting
Relationship between Technology and the Organization
Figure 3-10
Chapter 3
FIRMS
Source: Reprinted by permission of
James G. March.

• The Internet increases the accessibility, storage,
distribution of information and knowledge for business
firms.
• The Internet lowers the transaction and agency costs
of firms.
• Businesses are rapidly rebuilding their key business
processes based on Internet technology. Example:
online order entry, customer service, and fulfillment of
orders.
Chapter 3
The Internet and Organizations
FIRMS

The Role of Managers in Organizations
THE IMPACT OF IT ON MANAGEMENT DECISION MAKING
Classical Descriptions of Management:
• Traditional description of management
• Focuses on formal functions: Plan, organize,
coordinate, decide, control
Chapter 3

Behavioral Models:
• Describes management based on observations of what
managers actually do on the job
Managerial Roles:
• Expectation of activities that managers should
perform in an organization
Chapter 3

• Interpersonal: Managers act as figureheads and
leaders.
• Informational: Managers receive and disseminate
critical information, nerve centers.
• Decisional: Managers initiate activities, allocate
resources, and negotiate conflicts.
Management Roles:
Chapter 3

• Rational model: An individual manager identifies
goals, ranks all possible alternative actions and
chooses the alternative that contributes most to
those goals
• Organizational model: Considers the structural
and political characteristics of an organization
• Bureaucratic model: Whatever organizations do is
the result of routines and existing business
processes honed over years of active use
Models of Decision Making
Chapter 3

• Political model: What an organization does is a
result of political bargains struck among key
leaders and interest groups
Chapter 3
Models of Decision Making (Continued)

• Organizational environment
• Organizational structure, hierarchy, specialization,
routines, and business processes
• The organization’s culture and politics
Factors to consider while planning a new system:
Chapter 3
Implications for the Design and Understanding of
Information Systems

• The type of organization and its style of leadership
• Groups affected by the system and the attitudes of
workers who will be using the system
• The kinds of tasks, decisions, and business processes
that the information system is designed to assist
Chapter 3
Implications for the Design and Understanding of
Information Systems (Continued)

• Flexibility and multiple options for handling data and
evaluating information
• Capability to support a variety of management styles,
skills, and knowledge
Characteristics to be kept in mind while Designing
Systems:
Chapter 3

• Capability to keep track of many alternatives and
consequences
• Sensitivity to the organization’s bureaucratic and
political requirements
Chapter 3
Characteristics to be kept in mind while Designing
Systems: (Continued)

INFORMATION SYSTEMS AND BUSINESS STRATEGY
Business strategy decisions of the firms will
determine the following:
• The products and services a firm produces
• The industries in which the firm competes
• Competitors, suppliers, and customers of the firm
• Long-term goals of the firm
Chapter 3

Business-Level Strategy: The Value Chain Model
The most common generic business level strategies are:
• Become the low-cost producer
• Differentiate your product from competitors’ products
• Change the scope of competition by enlarging the
market or narrowing it to a specialized niche
Chapter 3

Value Chain Model:
• Highlights the primary or support activities that add
business value
• A good tool for understanding strategy at the business
firm level
Primary Activities:
• Directly related to the production and distribution of a
firm’s products or services
Chapter 3

Support Activities:
• Make the delivery of primary activities possible
• Consist of the organization’s infrastructure, human
resources, technology, and procurement
Chapter 3

The Firm Value Chain and the Industry Value Chain
Figure 3-11
Chapter 3

• How can IT be used at each point in the value chain to
lower costs, differentiate products, and change the
scope of competition?
Chapter 3
Strategic question:

Internet-enabled Web of cooperating firms
• Customer-driven network of independent firms
• Uses information technology to coordinate value
chains of separate firms for collectively producing a
product or service
Chapter 3
Value Web:

The Value Web
Figure 3-12
Chapter 3

Systems that Create Product Differentiation:
• Firms can use IT to develop differentiated products.
• Create brand loyalty by developing new and unique
products and services
• Product and services not easily duplicated by
competitors
Examples: Dell, Orbitz
Chapter 3
Information Systems Products and Services

• Uses intensive analysis of customer data to support
new ways of contacting and serving the customer
• Enables development of new market niches for
specialized products or services
Example: Wyndam Hotels frequent guest program
Chapter 3
Systems that Support Focused Differentiation:

• Link your firm’s value chain to the value chains of your
suppliers and customers
• Directly links consumer behavior back to distribution,
production, and supply chains
• Example: Wal-Mart directly links customer purchases
to suppliers in nearly real time. It is the suppliers’ job
to ensure products are shipped to the store to replace
purchased products
Chapter 3
Supply Chain Management and Efficient Customer
Response Systems:

• IT is used at the firm level to discourage customers
from switching to other suppliers, and “locking” them
into a firm’s channels.
• Switching cost is the expense incurred by a customer
or company for changing from one supplier or system
to another.
• Example: Baxter International
Chapter 3
Switching Costs and Lock-in Effects

Stockless Inventory compared to Traditional and Just-
in-time Supply Methods
Figure 3-13
Chapter 3

Business-level Strategy
Figure 3-14
Chapter 3

Firm-Level Strategy and Information Technology
Core Competency:
• Activity at which a firm excels as a world-class leader
• Information systems encourage the sharing of
knowledge across business units and therefore
enhance firm competency
Chapter 3

Firms operate in a larger environment composed of
other firms, governments, and nations
Information partnership:
• Cooperative alliance formed between two or more
corporations for sharing information to gain strategic
advantage
• Help firms gain access to new customers, creating new
opportunities for cross-selling and targeting products
Chapter 3
Industry-Level Strategy and Information Systems:
Competitive Forces and Network Economics

In the larger environment, there are five main forces or
threats:
• New market entrants
• Substitute products and services
• Suppliers
• Customers
• Other firms competing directly
Chapter 3
Porter’s Five Forces Model

Porter’s Competitive Forces Model
Figure 3-15
Chapter 3

• Encourage new entrants. Example: NetFlix vs.
Blockbuster
• Increase customer bargaining power. Example:
Expedia.com and others
Chapter 3
IT and the Internet can greatly change the strength of
these competitive forces:

• Decrease in supplier power. Example: eCampus.com
increases the efficiency of used textbook market,
reducing publisher profits
• Substitute products. Example: online music lowers
value of record stores
Chapter 3
IT and the Internet can greatly change the strength of
these competitive forces: (Continued)

• Business ecosystems are interdependent networks of
suppliers, distributors, outsourcing firms,
transportation service firms, and technology
manufacturers.
Chapter 3
IT plays a powerful role in creating new forms of
business ecosystems.
Business Ecosystems:

Examples:
• Microsoft: 1 billion PCs worldwide and hundreds of
thousands of businesses rely on Microsoft’s platform.
• EBay: Millions of people and thousands of business
firms use this platform.
• Wal-Mart: Enterprise systems used by suppliers to
increase their efficiency
Chapter 3

An Ecosystem Strategic Model
Figure 3-16
Chapter 3

• IT products and services exhibit powerful network
effects and create potential “winner take all” situations.
• Network effects occur when adding more resources to
a process incurs little or zero cost, but large gains in
output.
• Contrary to the law of diminishing returns typical of
industrial and agricultural products
Chapter 3
Network Economics:

• Example: Value of the Internet grows exponentially
with the linear increase in users.
• Example: Because certain software can become a
standard (like Windows operating systems or Windows
Office), people can get locked into that standard and
the value of Windows grows as more and more people
use it.
• Good strategy: Use IT to build products and services
that exhibit network effects.
Chapter 3
Network Economics: (Continued)

MANAGEMENT OPPORTUNITIES, CHALLENGES AND SOLUTIONS
• Firms face a continuing stream of IT-based
opportunities to achieve strategic advantages
Chapter 3
Management Opportunities:

• Some firms face big hurdles in implementing
contemporary systems.
• Once an advantage is achieved, there are difficulties in
sustaining the advantage.
• Organizations often cannot change fast enough to
accommodate new technologies.
Chapter 3
Management Challenges:

Perform a strategic systems analysis
• Understand the structure and competitive dynamics of
the industry where your firm operates
• Understand the business, firm, and industry value
chains
• Consider how your firm can manage “strategic
transitions” as it seeks to implement systems that
provide competitive advantages
Chapter 3
Solution Guidelines:

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