MANAGEMENT INFORMATION SYSTEMS: MANAGING THE DIGITAL FIRM

Chapter 3
Information
Systems,
Organizations,
and Strategy

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 LEARNING OBJECTIVES

3-1 Which features of organizations do managers need to know about to
build and use information systems successfully?

3-2 What is the impact of information systems on organizations?

3-3 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?

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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

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THE TWO-WAY RELATIONSHIP BETWEEN
ORGANIZATIONS AND INFORMATION TECHNOLOGY

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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

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FIGURE 3.2: THE TECHNICAL MICROECONOMIC
DEFINITION OF THE ORGANIZATION

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THE TECHNICAL MICROECONOMIC
DEFINITION OF THE ORGANIZATION

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THE BEHAVIORAL VIEW OF
ORGANIZATIONS

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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

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ROUTINES AND BUSINESS PROCESSES

 Routines (standard operating procedures)

 Routines for producing goods and services
 Precise rules, procedures, and practices developed to cope with
virtually all expected situations
i.e. visiting a doctor (receptionists, nurses, doctor)
 Business processes: Collections of routines
 Business firm: Collection of business processes

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ROUTINES, BUSINESS PROCESSES,
AND FIRMS

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ORGANIZATIONAL POLITICS

 Different viewpoints/opinions lead to

political struggle, competition, and
conflict.
 Political resistance greatly hampers
(prevents) organizational change.

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ORGANIZATIONAL CULTURE

 Culture is the environment that surrounds you at work all

of the time.

 It is a 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

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ORGANIZATIONAL ENVIRONMENTS

• Organizations and environments have a reciprocal

relationship (two-way influence).
• Organizations are open to, and dependent on, the social
and physical environment that surrounds them
• Organizations can influence their environments i.e.
business firms can work together to influence political process.
• Environments generally change faster than organizations
• Information systems can be instrument of environmental
scanning, act as a lens
• i.e. searching for and determining external changes that may require an
organizational response; the current economic climate represents an
example of external change that requires sweeping organizational
responses to ensure survival.
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ENVIRONMENTS AND ORGANIZATIONS
HAVE A RECIPROCAL RELATIONSHIP

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DISRUPTIVE TECHNOLOGIES

 Technology that brings sweeping change to businesses,

industries, markets
 Substitute products that perform as well as or better
than existing product (i.e. cars substitute horses, iTunes,
Netflix)
 Examples: personal computers, smartphones , Big Data
and AI.
 First movers and fast followers
 First movers—inventors of disruptive technologies (i.e. Citi Bak ATM, Netscape Sony
Walkman )
 Fast followers—firms with the size and resources to capitalize on that technology
(Business that recognizes others good ideas quickly and moves to implement them within the
organization) Example: AWS, Samsung

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 ORGANIZATIONAL STRUCTURE
 Five basic kinds of organizational structure (Mintzberg)
 Entrepreneurial: young, small, poorly designed system in a
rush i.e. small startup firm

 Machine bureaucracy: large bureaucracy, produce standard

products, centralized i.e. manufacture firm
 Divisionalized bureaucracy: multiple machine bureaucracy
with each producing different product or service; in different
locations, no single integrating IS ( i.e. General Motors)
 Professional bureaucracy: i.e. hospital, school, law firms
 Adhocracy: Task force organization that must respond to
rapidly changing environments , group of specialists, weak
central management (consultancy firms)
 Information system often reflects organizational structure
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OTHER ORGANIZATIONAL FEATURES
 Goals
 Means to achieve them (Coercive: i.e. prison, utilitarian:
i.e. business, normative: i.e. universities, and so on)
 Constituencies (serve different groups): some
benefiting their members, others benefiting
their clients, stakeholders or the public
 Leadership styles (i.e. democratic or
authoritarian)
 Types of tasks (task they perform or technology
they use)
 Different environments Copyright © 2018 Pearson Education Ltd.
1. ECONOMIC IMPACTS

 IT changes relative costs of capital (buildings,

machinery), labor and the costs of information
 Information systems technology is a factor of
production that can be substitute for traditional
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
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A. 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, e.g.: outsource

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B. AGENCY THEORY (=PRINCIPLE-AGENCY
THEORY)

 Principle = owner; Agency= employee

 A company is a collection of deals between people looking out
for their own interests who need overseeing.
 Firms experience agency costs (the cost of managing and
supervising = cost of internal management) 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

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2. ORGANIZATIONAL AND BEHAVIORAL
IMPACTS

 IT flattens organizations
 Decision making is pushed to lower levels (i.e. banks)
 Fewer managers are needed (IT enables faster decision making and
increases span of control)
 i.e. mangers can manage and control more workers in different
locations
 Postindustrial organizations
 Organizations flatten because in postindustrial societies, authority
increasingly relies on knowledge and competence rather than
formal positions
 i.e. consultancy firm: consultants tend to be self-managing, decision
making is decentralized

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FLATTENING ORGANIZATIONS

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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 influence the resistance to change:
 Nature of the IT innovation
 Structure of organization
 Culture of people in the organization
 Tasks affected by innovation

The only way to bring change is to change all (4) at the same
time Copyright © 2018 Pearson Education Ltd.
 ORGANIZATIONAL RESISTANCE TO
INFORMATION SYSTEM INNOVATIONS

The only way to

bring change is to
change all (4) at the
same time

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THE INTERNET AND ORGANIZATIONS

 The Internet should also have a flattening effect on

many 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

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PORTER’S COMPETITIVE FORCES MODEL (1
OF 3)

 Why do some firms become leaders in their industry?

i.e. Amazon, iTunes, Netflix, Google
 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

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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, its easier to get into business i.e. pizza
restaurant
 Some industries have high barriers to entry, for example,
computer chip business
 New companies have new equipment, younger workers,
inexpensive and innovative - but little brand recognition

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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 have a significant impact on firm profit
(when firm cannot raise prices as fast as suppliers)…
the more suppliers, the greater control over price, quality and
delivery.

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PORTER’S COMPETITIVE FORCES
MODEL

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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

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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/ no

large store or inventory is needed (
https://www.youtube.com/watch?v=SUe-tSabKag&t=115s )

 Product differentiation
 Enable new products or services, greatly change customer
convenience and experience (difficult or hard for others to copy)
 Example: Google (google maps), Nike (sneakers), Apple (iPod, iPhone,
iPad), PayPal, eBay
 Mass customization: Nike customize sneakers (customers orders customized
sneakers using NIKEiD program on its website……process the order in its
headquarter…..customer receive it in 3 weeks). Copyright © 2018 Pearson Education Ltd.
https://www.youtube.com/watch?v=yVd-qTiExpg
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
 Data come from: i.e. credit card, purchase data, websites
 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: Toyota, Amazon

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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
 Internet is based on Universal standards that
allows new rivals, new entry to the market,
compete on price alone
 New opportunities for building brands and loyal
customer bases (i.e. Amazon, eBay, iTunes,
Facebook, Google)
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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

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THE BUSINESS VALUE CHAIN MODEL
– Views the Firm as a series of activities that add value
to products or services
– Highlights specific activities in the business where
competitive strategies can best be applied
• Primary activities (directly related to the production and
distribution of the firms products and services which create
value for the customer) vs.
• support activities (make the delivery of the primary activities
possible)
– At each stage, determine how information systems can
improve operational efficiency and improve customer
and supplier intimacy
– It will cause in utilizing benchmarking and identifyingCopyright © 2018 Pearson Education Ltd.
THE VALUE CHAIN MODEL

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