Chapter 3 (IS, Organization & Strategy) V2.0

Chapter 3
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Information Systems,
Organizations, and Strategy
VIDEO CASES
Case 1: National Basketball Association: Competing on Global Delivery With
Akamai OS Streaming
Case 2: Customer Relationship Management for San Francisco's City
Government
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
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 Porter’s 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.
• 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.
Organizations and Information Systems
• Information technology and organizations influence one another

Complex relationship influenced by organization’s
 Structure
 Business processes
 Politics
 Culture
 Environment, and
 Management decisions
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 made—or not
made—by managers.
Other factors mediating
the relationship include
the organizational
culture, structure,
politics, business
processes, and
environment. Figure 3-1
• 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
• 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 & activities
Business firm: Collection of business processes
• 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 an instrument of environmental
scanning, act as a lens
• Disruptive technologies

Technology that brings about sweeping change to businesses,
industries, markets
Examples: personal computers, word processing software, 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
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
• 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
The Transaction Cost Theory of the Impact of Information
Technology on the Organization

Figure 3-6
Firms traditionally grew in size to reduce market transaction costs. IT potentially reduces the firms
market transaction costs. This means firms can outsource work using the market, reduce their
employee head count and still grow revenues, relying more on outsourcing firms and external
contractors.
• 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
The Agency Theory of the Impact of Information
Technology on the Organization

Figure 3-7 As firms grow in size and complexity, traditionally they experience rising
agency costs.
• 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)
Post-industrial organizations
 Organizations flatten because in postindustrial societies,
authority increasingly relies on knowledge and competence
rather than formal positions

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
lower-level employees
more decision-making
authority.
Figure 3-8
• 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
Most common reason for failure of large projects is due to
organizational and political resistance to change
Organizational

Resistance and the
Mutually Adjusting
Relationship Between
Technology and the
Organization
Figure 3-9
Implementing information
systems has consequences for
task arrangements, structures,
and people. According to this
model, to implement change, all
four components must be
changed simultaneously.
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
 Traditional competitors
 New market entrants
 Substitute products and services
 Customers
 Suppliers
21 © Prentice Hall 2011
Porter’s Competitive Forces Model

Figure 3-10 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.
• Traditional competitors

All firms share market space with competitors who are
continuously devising new products, services, efficiencies,
switching costs
• New market entrants
Some industries have high barriers to entry, e.g. computer chip
business
New companies have new equipment, younger workers, but
little brand recognition
• Substitute products and services

Substitutes customers might use if your prices become too high,
e.g. iTunes substitutes for CDs
• 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
• 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
• Low-cost leadership

Produce products and services at a lower price than competitors
while enhancing quality and level of service
Examples: Wal-Mart, PRAN Bangladesh
• Product differentiation
Enable new products or services, greatly change customer
convenience and experience
Examples: Google, Nike, Apple
• Focus on market niche

Use information systems to enable a focused strategy on a
single market niche; specialize
Example: Hilton Hotels
• Strengthen customer and supplier intimacy
Use information systems to develop strong ties and loyalty with
customers and suppliers; increase switching costs
Example: Netflix, Amazon
HOW MUCH DO CREDIT CARD COMPANIES KNOW ABOUT YOU?

Read the Interactive Session and discuss the following questions

• What competitive strategy are the credit card companies
pursuing? How do information systems support that strategy?
• What are the business benefits of analyzing customer purchase
data and constructing behavioral profiles?
• Are these practices by credit card companies ethical? Are they an
invasion of privacy? Why or why not?
Thanks

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Chapter 3

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Identify and describe important features of organizations that

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Information technology and organizations influence one another

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Routines and business processes

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Transaction cost theory

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Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Organizational and behavioral impacts

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Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Organizational resistance to change

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Why do some firms become leaders in their industry?

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Substitute products and services

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Four generic strategies for dealing with competitive forces,

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Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

• Focus on market niche

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

HOW MUCH DO CREDIT CARD COMPANIES KNOW ABOUT YOU?

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

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