Which features of organizations do managers need to know about to build and use information systems

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Information systems, organizations, and strategy

Information systems, organizations, and strategy

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1. 1. Information Systems, Organizations, and Strategy
2. 2. How organizations and information systems work together?
3. 3. Learning Objectives • 1. Which features of organizations do managers need to know about to build and use information systems successfully? • 2. What is the impact of information systems on organizations? • 3. How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? • 4. What are the challenges posed by strategic information systems, and how should they be addressed?
4. 4. Which features of organizations do managers need to know about to build and use information systems successfully? Chicken-and-egg theory to develop a relationship between organizations and information systems
5. 5. Features of Organizations • Clear division of labor • Hierarchy of authority • Abstract rules and procedures • Impartial judgments • Technical qualifications for positions • Maximum organizational efficiency
6. 6. • Organizations and information systems influence each other. • Each organization shares common characteristics that an information system can enhance. • On the other hand, each organization has unique characteristics that should be taken into account when incorporating technology. • The organization should determine how the technology is incorporated and not let the information system totally dictate the organizational structure.
7. 7. What is the impact of information systems on organizations? • As technology evolves and changes, its introduction into organizations requires changes in the firm’s infrastructure and the services it can provide to its employees, customers, and suppliers. • Earlier all data were kept on one machine, and in some respects the data were available to whoever could access them. • Now, the data are available to anyone who can use them or has authorized access through a network with links literally all over the world.
8. 8. Flattening Organizations
9. 9. Organizational and Behavioral Impacts • IT Flattens Organizations • Rather than five layers of management in an organization, information technology allows companies to flatten the layers to three, maybe even two. Here’s how: – IT pushes decision-making rights lower in the organization because lower-level employees receive the information they need to make decisions without supervision. – Managers now receive so much more accurate information on time that they become much faster at making decisions, and so fewer managers are required. – Management costs decline as a percentage of revenues and the hierarchy becomes much more efficient.
10. 10. Postindustrial Organizations • Professional workers tend to be self-managing, and decision making should become more decentralized as knowledge and information become more widespread throughout the firm. • IT may encourage task force-networked organizations in which groups of professionals come together—face-to- face or electronically—for short periods of time to accomplish a specific task; once the task is accomplished, the individuals join other task forces. • (Technology makes virtual organizations more feasible, cheaper, and easier to set up and tear down than before.)
11. 11. Management: Can Technology Replace Managers? • For some jobs, it’s better to employ technology than to employ a person. • Technology can reduce costs and increase the amount of information people have access to. The changes brought about by the introduction of new technology and new methods must be managed carefully. • No successful manager can lose sight of the effect change will have on the people of the organization. • Companies need to tailor their information systems to the needs of the organization instead of letting the wonders of technology drive the organization.
12. 12. How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? • Google, Amazon, eBay—the giants of the Internet. They are successful and make loads of money. They could easily rest on their laurels, kick back, and relax. • If they are so successful, why do they keep working so hard to continually introduce new products and services and improve the old ones? Because someone, somewhere, is trying to take their place and become the new giant. These companies must constantly work to keep their competitive advantage and they are using information systems to do so.
13. 13. Porter’s Competitive Forces Model
14. 14. • Traditional competitors: Always nipping at your heals with new products and services trying to steal your customers. • New market entrants: Not constrained by traditional ways of producing goods and services, they can easily jump into your markets and lure customers away with cheaper or better products and services. • Substitute products and services: Customers may be willing to try substitute products and services if they decide your price is too high or the quality of your products and services is too low. • Customers: Fickle to say the least, they are now armed with new information resources that make it easier for them to jump to your competitors, new market entrants, or substitute products. • Suppliers: The number of suppliers used may determine how easy or difficult your business will have in controlling your supply chain. Too few suppliers and you lose a lot of control.
15. 15. Impact of Internet on Competitive Forces and Industry Structure
16. 16. • Using information systems can help a company beat the competition through differentiation and through providing services that are valuable to both customers and suppliers. • Companies can also use information systems to reduce costs. • Information technology is also challenging the traditional concepts of competition and partnerships that have existed for years.
17. 17. What are the challenges posed by strategic information systems, and how should they be addressed? • • Strategic information systems often change the organization as well as its products, services, and operating procedures, driving the organization into new behavioral patterns. • Successfully using information systems to achieve a competitive advantage is challenging and requires precise coordination of technology, organizations, and management.
18. 18. • A well-developed strategic information system that is integrated throughout the company can be used to lower overall costs and provide greater value to the company, the supplier, and the customer.
19. 19. Case Study • Case 1: GE Becomes a Digital Firm: The Emerging Industrial Internet • Case 2: National Basketball Association: Competing on Global Delivery with Akamai OS Streaming
20. 20. Discussion Questions • Discuss the impact new information systems may have on organizational culture and organizational politics. • Describe the difference between the economic theory and the behavioral theory of how information systems affect organizations. • Discuss how business ecosystems can extend a company’s products and services and increase its competitive advantage. Give an example of a business ecosystem for a product or service that you are using. • How can managers’ roles be enhanced with a well-integrated information system? How can their roles be diminished with a poorly integrated information system? • Describe the following aspects of your own firm: • a. The structure of the industry in which your firm is located • b. The business, firm, and industry value chains for your firm • c. How your firm has aligned its IT with its business strategy and goals
21. 21. 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
22. 22. The Two-Way Relationship Between Organizations and Information Technology
23. 23. 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
24. 24. The Technical Microeconomic Definition of the Organization
25. 25. The Behavioral View of Organizations
26. 26. 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
27. 27. 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
28. 28. Routines, Business Processes, and Firms
29. 29. Organizational Politics • Divergent viewpoints lead to political struggle, competition, and conflict. • Political resistance greatly hampers organizational change.
30. 30. 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
31. 31. 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
32. 32. Environments and Organizations Have a Reciprocal Relationship
33. 33. 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, 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
34. 34. Organizational Structure • Five basic kinds of organizational structure (Mintzberg) – Entrepreneurial – Machine bureaucracy – Divisionalized bureaucracy – Professional bureaucracy – Adhocracy • Information system often reflects organizational structure
35. 35. Other Organizational Features • Goals – Coercive, utilitarian, normative, and so on • Constituencies • Leadership styles • Types of tasks
36. 36. 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
37. 37. 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
38. 38. 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
39. 39. 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
40. 40. Interactive Session: Management: Can Technology Replace Managers? • Class discussion – How do flat organizations differ from traditional bureaucratic hierarchies? – How has information technology made it possible to eliminate middle manager positions? – What management, organization, and technology issues would you consider if you wanted to move from a traditional bureaucracy to a flatter organization? – Can technology replace managers? Explain your answer.
41. 41. 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
42. 42. Organizational Resistance to Information System Innovations
43. 43. 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
44. 44. 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
45. 45. 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
46. 46. 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
47. 47. 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 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
48. 48. Porter’s Competitive Forces Model
49. 49. 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
50. 50. 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
51. 51. 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
52. 52. 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
53. 53. 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
54. 54. Interactive Session: Technology: Smart Products, Smart Companies • Class discussion – What competitive strategies are the companies discussed in this case pursuing? – How are information technology and smart products related to these strategies? Describe the role of information technology in these products. – Are there any ethical issues raised by these smart products such as their impact on consumer privacy? Explain your answer.
55. 55. 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
56. 56. The Value Chain Model
57. 57. 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 IT to coordinate value chains to produce product or service collectively – More customer driven, less linear operation than traditional value chain
58. 58. The Value Web
59. 59. 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 JPMorgan Chase • Purchase of YouTube by Google
60. 60. 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
61. 61. Network-Based Strategies (1 of 3) • Take advantage of firm’s abilities to network with one another • Include use of: – Network economics – Virtual company model – Business ecosystems
62. 62. 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
63. 63. 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
64. 64. 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
65. 65. An Ecosystem Strategic Model
66. 66. 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

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