Organizations and Information Systems

 Information systems and organizations influence one

another. Information systems are built by managers to
serve the interest of the business firms. At the same time
the organization must be aware of and open to the
influences of information systems to benefit from new
technologies
 The interaction is complex and is mediated by many
factors including the organizations structure, business
processes ,politics, culture, surrounding environment and
management decisions
 Organization
 An organization is more stable than a formal group in
terms of longevity and routineness.
 Organizations are formal legal entities with internal
rules and procedures that abide by laws.
 Organizations are also social structures because they
are a collection of social elements .
 More behavioral definition is that it is collection of
rights , privileges ,obligations and responsibilities that
is dedicatedly balanced over period of time through
conflict and conflict resolution
 Features of Organizations
 Routines and Business Processes: All organizations
including business firms become very efficient over
time because individuals in the firm develop routines
for producing goods and services
 Organizational Politics :People in organization occupy
different positions with different specialties, concerns
and perspectives. It is obvious that they have different
view points on various subjects related to organization
thus political resistance is one of the great difficulties
of bringing about organizational change and specially
the development of new information system
 Organizational Culture: All organizations have bedrock
,unassailable ,unquestioned assumptions that define their
goal and products. Organizational culture is a powerful
unifying force that restraints political conflict and
promotes common understanding ,agreement on
procedures and common practices. Sharing of basic
cultural assumptions leads to agreement on other matters
also.
 Organizational Environments: Organizations are open and
dependent on social and physical environment that
surrounds them. On the other hand organizations can
influence their environments.
 Organizational Structure: Organizations all have structures
or shape .According to Mintzberg’s classification the five
basic kinds of organizational structures are:
 Entrepreneurial structure: It has a simple structure and is
managed by an entrepreneur serving as its single chief
executive officer.
  Machine Bureaucracy: It is dominated by a central
management and centralized decision making.
 Divisionalized Bureaucracy : Combination of multiple
machine bureaucracies ,each producing a different product or
services all topped by one central headquarters.
 Professional Bureaucracy : Knowledge based organization
where goods and services depend on the expertise and
knowledge of professionals. Dominated by departmental
heads with weak centralized authority.
 Adhocracy: Consists of large groups of specialists organized
into short lived multidisciplinary teams and has weak central
management.
 Other Organizational features:
 Organizations may have different goals and use different
means to achieve them.
 Organization serve different groups ,some primarily
benefiting their members other benefitting clients or public
etc.
 Nature of leadership differs greatly from one
organization to other.
 Organization differ by what type of task to perform and
the technology they use.
 Impact of Information systems on
Organizations and Business firms
 Economic Impacts:
 IT changes both the relative costs of capital and the cost
of information: As the cost of Information Technology
decreases it substitute for other forms of capital such as
buildings and machinery which are relatively expensive
 IT as a substitute for labor: As the cost of information
technology decreases ,it is substituted for labor hence
resulting in decrease in number of middle managers and
clerical workers as information technology substitute for
their labor
 IT reduces the transactional cost.
 According to transaction cost theory Firms and
individuals seek to economize on transactional cost
much as they do on production cost.
 Using markets is expensive and traditionally firms
have tried to reduce through vertical integration by
getting bigger, hiring more employees etc.
 IT especially the use of networks can help firms lower
the cost of markets participation making it cheaper to
contract with external suppliers rather than hiring
employees
 IT also can reduce internal management cost: IT by
reducing the cost of acquiring and analyzing
information ,permits organizations to reduce agency
costs because it becomes easier for managers to oversee
a greater number of employees. Thus by reducing
management cost IT helps in increasing revenue while
shrinking the number of middle managers and clerical
workers Behavioral Impacts:
 IT Flattens Organizations :
 Behavioral researchers have theorized that IT facilitates
flattering of hierarchies by broadening the distribution of
information to empower lower level employees and increase
management efficiency. Since decision making is faster as
they are able to receive information on time so fewer managers
are required and also increasing the span of control.
 Postindustrial theories also support the notion that IT should
flatten hierarchies. According to history and sociology,
authority increasingly relies on knowledge and competence
and not on merely formal positions and since the lower level
workers , now equipped with knowledge and information ,can
take decision without much hierarchies involved.

 Organizational resistance to change: Since

organizational resistance to change is so powerful that
various IT projects have failed not because of the
failure of technology but organizational and political
resistance to change
 Using Information Systems to Achieve
Competitive Advantage
 Firms that do better than others are said to have a
competitive advantage over others and there is always
a stand out firm.
 Reasons can be that either they have access to special
resources than others or they are able to use commonly
available resources more efficiently because of
superior knowledge and information assets. In any
event they do better in terms of revenue growth
,profitability or productivity growth all of which
ultimately in the long run translate into higher stock
market valuations than their competitors
 Porter’s Competitive Model
 Most widely used model for understanding competitive
advantage.
 Given by Michael Porter and is all about the firm’s general
business environment
 In this model , five competitive forces shape the fate of the
firm
 Traditional Competitors: All firms share market space with
other competitors who are continuously devising new ,more
efficient ways to produce by introducing new products and
services and attempting to attract customers by developing
their brands and imposing switching costs on their
customers.
 New Market Entrants: In a free economy new companies
are always entering the market place. In some industries
it is easy while in others it is difficult. New companies
have several advantages and disadvantages.
 Substitute Products and services: In any industry the
customers might go for substitutes if your prices go too
high and new technologies create new substitutes all the
time. The more substitute products and services in the
market .the less you can control pricing and the lower
the profit margin.
 Customers: A profitable company depends in large
measure on its ability to attract and retain customers
and charge high prices. The power of customers grows if
they can switch to a competitor’s products and services
and this is made possible instantly using technology.
 Suppliers: The market power of suppliers can have a
significant impact on firm’s profit , especially when the
firm cannot raise prices as fast as can suppliers. The
more suppliers a firm has , the greater control it can
exercise over suppliers in terms of price, quality and
delivery schedules
 Information System Strategies for Dealing
with Competitive Forces
There are four generic strategies each of which is
enabled by using Information Technology and
Systems to counteract some of these competitive forces
 Low Cost Leadership: Use of IT to achieve the lowest
operational cost and the lowest prices. E.g.
 Use of Information systems by retailers Wal Mart.
 Use of IT/IS by HyperCITY a retail chain in India owned
by The Raheja Group. This group is using JDA Software’s
Advanced Store Replenishment solution that helps to
replenish stock back to the shelf at a rapid pace.
 Product Differentiation: Manufacturers and retailers are
using information systems to create products and services
that are customized and personalized to fit the precise
specification of individual customers.
 Eg Individuals , business and government agencies can
directly place the order and buy from Dell customized with
the exact features and components they need by using toll
free number or their website.
 Focus on Market Niche: Focus on a specific market and
serve this narrow target market better than competitors
Information Systems support this strategy by producing
and analyzing data for finely tuned sales and marketing
techniques. They enable companies to analyze customer
buying patterns ,tastes and preferences closely so that they
efficiently pitch advertising and marketing campaigns to
smaller and smaller target markets
 Strengthen Customer and Supplier Intimacy:
Information Systems are used to strengthen the
relationships with suppliers and develop intimacy with
the customers. Strong linkages to customers and
suppliers increase switching cost and loyalty to your
firm
 Role of Internet
 Internet has destroyed and severely threatened more.
 Internet has also created entirely new markets and
formed the basis of thousands of new businesses
 Entire revolution has been brought by advent of E
Commerce.
 New industries are also facing the same tune of
transformation may it be movies ,hotels ,bill payments
,software etc.
 The Business Value Chain and IT
 The value chain model views the firm as a series or chain of
basic activities that add a margin of value to a firm's
products or services. These activities can be categorized as
either primary or support activities
 Primary Activities: These are most directly related to the
production and distribution of the firm’s products and
services which create value to customers.
 Support Activities: They make the delivery of the primary
activities possible and consist of organization infrastructure ,
human resources and procurement.
 This model highlights specific activities in the business
where competitive strategies can best be applied and where
information systems are most likely to have a strategic
impact thus a firm can use information technology most
effectively to enhance its competitive position
 Using the business value chain model also cause
 Benchmarking: It involves comparing the efficiency and
effectiveness of your business process against strict
standards and then measuring performance against
those standards. Once analyzed one can come up with
candidate applications of information systems to have
competitive advantage.
 Creation of value web: It is a collection of independent
firms that use information technology to coordinate
their value chains to produce a product or service for a
market collectively. It is more customer driven and
operates in a less linear fashion than the traditional
value chain
 Synergies: The idea is that when the output of some
units can be used as inputs to other units , or two
organizations pool markets and expertise , these
relationship lower costs and generate profits.
 Enhancing core competencies: A core competency is an
activity for which a firm is a world class leader. Any
information system that encourages the sharing of
knowledge across business units enhances competency .
 Network Based Strategies: The availability of Internet
and networking technology have inspired strategies that
take advantage of firms’ abilities to create networks or
network with each other. Network based strategies
include
 Network Economics : The law of diminishing returns is the
foundation for most modern economics but in a network the
marginal costs of adding another participant are about zero
,whereas the marginal gain is much larger. From this
perspective , information technology can be strategically
useful. Internet sites can be used by firms to build
communities of users .This builds customer loyalty and
enjoyment and build unique ties to customers.
 Virtual Company Model: A virtual company uses networks to
link people ,assets and ideas enabling it to ally with other
companies to create and distribute products and services
without being limited by traditional organizational
boundaries or physical locations.
 Business Ecosystems : Instead of participating in a single
industry some of today's firms participate in industry sets
which is collections of industries that provide related services
and products.
Using Systems for Competitive Advantage :
Management Issues
Information Systems often change the organization as
well as the products ,services and operating
procedures driving the organization into new
behavioral patterns. Successfully using information
systems to achieve competitive advantage is
challenging
 Sustaining Competitive Advantage: Because
competitors copy or make their own strategic
information systems ,competitive advantage is not
always sustainable. Internet on the other hand make
disappear the competitive advantage
 Aligning IT with Business Objectives: About half of a
business firm’s profits can be explained by alignment
of IT with business but most of business get it wrong.
Instead of business people taking an active role in
shaping IT to the enterprise , they ignore it and claim
not to understand it. They consider it a nuisance to
work with and pay a hefty price in poor performance.
 Managing Strategic Transition: Changes in the way
that information is defined ,accessed and used to
manage the organization’s resources often lead to new
distributions of authority and power. This change
breeds resistance .Thus successful system building
requires careful change management