Information Systems,

Organizations, and Strategy

Organizations and Information Systems

Information technology and organizations influence one another

Complex relationship influenced by organizations

Structure

Business processes

Politics

Culture

Environment, and

Management decisions

Organizations and Information Systems

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 madeor not
madeby managers.
Other factors mediating
the relationship include
the organizational
culture, structure,
politics, business
processes, and
environment.

Organizations and Information Systems

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

Organizations and Information Systems

The Technical Microeconomic Definition of the Organization

In the microeconomic definition of organizations, capital and labor (the primary

production factors provided by the environment) are 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.

Organizations and Information Systems

The Behavioral View of Organizations

The behavioral view of organizations emphasizes group relationships, values,

and structures.

Organizations and Information Systems

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

Organizations and Information Systems

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

Organizations and Information Systems

Routines,
Business
Processes, and
Firms
All organizations are
composed of individual
routines and behaviors, a
collection of which make
up a business process. A
collection of business
processes make up the
business firm. New
information system
applications require that
individual routines and
business processes
change to achieve high
levels of organizational
performance.

Organizations and Information Systems

Organizational politics
Divergent viewpoints lead to political struggle, competition, and
conflict
Political resistance greatly hampers organizational change

Organizations and Information Systems

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

Organizations and Information Systems

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

Organizations and Information Systems

Environments and Organizations have a Reciprocal Relationship

Environments shape what organizations can do, but organizations can influence their
environments and decide to change environments altogether. Information technology
plays a critical role in helping organizations perceive environmental change and in
helping organizations act on their environment.

Organizations and Information Systems

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

Organizations and Information Systems

Other organizational features

Goals
Constituencies
Leadership styles
Tasks
Surrounding environments

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

How Information Systems Impact

Organizations and Business Firms

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

How Information Systems Impact

Organizations and Business Firms
The Transaction Cost Theory of the Impact of Information
Technology on the Organization

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.

How Information Systems Impact

Organizations and Business Firms
The Agency Theory of the Impact of Information
Technology on the Organization

As firms grow in size and complexity, traditionally they experience rising

agency costs.

How Information Systems Impact

Organizations and Business Firms

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

How Information Systems Impact

Organizations and Business Firms

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.

How Information Systems Impact

Organizations and Business Firms

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
structure, culture, politics, and work

an

organizations

Most common reason for failure of large projects is due to

organizational and political resistance to change

How Information Systems Impact

Organizations and Business Firms

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 Web site, saving millions of dollars in
distribution costs

How Information Systems Impact

Organizations and Business Firms

Central organizational factors to consider when 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

Using Information Systems to Achieve

Competitive Advantage

The Internets 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

Using Information Systems to Achieve

Competitive Advantage

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

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

Using Information Systems to Achieve

Competitive Advantage

The Value Chain

Model

This
figure
provides
examples of systems for
both primary and support
activities of a firm and of
its value partners that
can add a margin of
value to a firms products
or services.

Using Information Systems to Achieve

Competitive Advantage

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

Using Information Systems to Achieve

Competitive Advantage
The Value Web

The value web is a

networked system that
can synchronize the
value chains of business
partners within an
industry to respond
rapidly to changes in
supply and demand.

Using Information Systems to Achieve

Competitive Advantage

Information

systems

can

improve

overall

performance

of

business units by promoting synergies and core competencies

Synergies

When output of some units 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

Using Information Systems to Achieve

Competitive Advantage

Core competencies
Activity for which firm is world-class leader
Relies on knowledge, experience, and sharing this across
business units
Example: Procter & Gambles intranet and directory of subject
matter experts

Using Information Systems to Achieve

Competitive Advantage
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.