3/24/2016
1
Chapter 3
Doç.Dr. Aykut Hamit TURAN
Management Information Systems Laudon&Laudon (2010)
INFORMATION SYSTEMS,
ORGANIZATIONS AND
STRATEGY
THE US AIRWAYS MERGER


Management Information Systems Laudon&Laudon (2010)

The US Airways merger illustrates the interdependence of
business environments, organizational culture, business
processes, business strategy and the development of IS
The merging companies have different organizational
structures, cultures, business processes and IS, which had
to be integrated for the company to run effectively
US Airways was traditional hub and spoke carrier with an
older workforce, lumbering bureucracy and rigid IS
function that had been outsourced to EDS. American West
was very different, formed in 1981, it had younger
workforce, more freewheeling enterpreneour culture and a
penchant for managing its own IS
By late 1990s, they both are considered airlines of last
resort, people flew when they are no other alternatives
3/24/2016

2
THE US AIRWAYS MERGER



After the merger, airlines aimed to reduce costs by eliminating
redundant IS and adopting simple, flexible IS and business
functions of American West
The new US is now fifth largest carrier in US and world’s
largest low cost carrier
Success depends on how well the two companies’ systems and
business processes are integrated
Significant challanges in consolidating functions, integrating
organizations, procedures and operations will make the
integration of two airlines costly, complex and time consuming
Management Information Systems Laudon&Laudon (2010)

Merger was designed to create synergy between traditional
full service airline and a newer low cost carrier with US
Airline’s experience and strong network on the east coast and
American West’s low cost structure, IS and routes in the
western US
3/24/2016

3
THE US AIRWAYS MERGER

There is interdependence of business environments,
organizational culture, business processes, business strategy
and the development of IS
Mergers are a response to competitive forces and pressures to
surronding environment
The merging companies have different organizational
cultures, business processes and IS, which had to be
integrated for the new company run efficiently
Management Information Systems Laudon&Laudon (2010)

3/24/2016

4
ORGANIZATIONS AND INFORMATION
SYSTEMS
IS and organizations influence one another

IS is built to serve the interests of organizations



Organizations must be aware of and open to the influences of
IS to benefit from new technologies
The interaction between IT and organization is complex and is
influenced by many mediating factors, including
organization’s structure, business processes, politics, culture,
surrounding environment and management decisions
We need to understand how IS can change social and work life
in our firms
Some of the changes that occur in business firms because of
new IT investments cannot be foreseen and have results that
may or may not meet our expectations – email’s prodominance
in business world
Management Information Systems Laudon&Laudon (2010)

3/24/2016

5
ORGANIZATIONS AND INFORMATION
SYSTEMS
3/24/2016
Management Information Systems Laudon&Laudon (2010)
6
WHAT IS AN ORGANIZATION



Management Information Systems Laudon&Laudon (2010)

An organization is a stable, formal social structure that
takes resources from the environment and process them to
produce outputs
Organization transforms inputs into products and services
in a production function
Organizations are formal legal entities with internal rules
and procedures that must abide by laws
Organizations are also social structures because they are a
collection of social elements
In the behavioral view of organization, organization is seen
as a collection of rights, privileges, obligations and
responsibilities that is delicately balanced over a period of
time through conflict and conflict resolution
3/24/2016

7
WHAT IS AN ORGANIZATION

Management Information Systems Laudon&Laudon (2010)

An organization is more stable than an informal group in
terms of longetivety and routiness
In this behavioral view of the firm, people who work in
organization develop customary ways of working, they gain
attachmenets to exisiting relationships and they make
arrangements with subordinates and superiors about how
the work to be done and under what conditions to be done
A technical view of organization encourages us to focus on
how inputs are combined to create outputs when
technology changes are introduced into the company. In
behavioral view, building new IS or rebuilding exisiting
ones require much more than technical arrangements of
machines and workers. Some IS changes organizational
balance of rights, privilages, obligations, responsibilities
and feelings
3/24/2016

8
WHAT IS AN ORGANIZATION


Management Information Systems Laudon&Laudon (2010)

Changing these elements can take a long time, very
distruptive and require more resources to support training
and learning
Technological change require changes in who owns and
controls information, who has the right to access and
update the information, and who makes decisions about
whom, when and how
Technical and behavioral view of organizations compliment
each other
The technical view tells us how firms in competitive
markets combine capital, labor and IS, whereas behavioral
model takes us inside of individual firm to see how
technology affects the organization’s inner workings
3/24/2016

9
TECHNICAL VIEW OF ORGANIZATION
3/24/2016
Management Information Systems Laudon&Laudon (2010)
10
THE BEHAVIORAL VIEW OF ORGANIZATION
3/24/2016
Management Information Systems Laudon&Laudon (2010)
11
FEATURES OF ORGANIZATION



Management Information Systems Laudon&Laudon (2010)

All modern organizations have certain characteristics
They are bureaucracies with clear cut divisions of labor and
specialization
Organizations arrange specialities in a hierarchy of
authority in which everyone is accountable to someone and
authority is limited to specific actions governed by abstract
rules and procedures
The organization is devoted to the principle of efficiency:
maximizing output using limited inputs
Other features of organization include their business
processes, organizational culture, organizational politics,
surrounding environments, structure goals, constituencies
and leadership styles
3/24/2016

12
ROUTINES AND BUSINESS PROCESSES


Management Information Systems Laudon&Laudon (2010)

All organizations become very efficient over time because
individuals in the firm develop routines for producing goods
and services
Routines are also called standard operating procedures and
practices that have been developed to cope with virtually
all expected situations
As employees learn these routines, they become very
efficient and highly productive and firm is able to reduce
costs over time as efficiency increases
Combination of routines makes businss processes
3/24/2016

13
ORGANIZATIONAL POLITICS
3/24/2016
Management Information Systems Laudon&Laudon (2010)
People in organizations occupy different positions
with different specialties, concerns and
perspectives
 They naturally have divergent viewpoints about
how resources, rewards and punishments should
be distributed
 Political resistance is one of the great difficulties
of bringing about organizational change,
especially the development of new IS
 Virtually all large IS investments bring about
significant changes in strategy, business
objectives and business procedures

14
ORGANIZATIONAL CULTURE




Generally these cultural assumptions are taken for granted
and rarely publicly spoken or announced
Organizational culture is a very powerful restraint on change,
especially technological change
Organizational culture is a powerful unifying force that
restrains political conflict and promotes common
understanding, agrement on procedures and common practices
Most organizations will do anything to avoid changes on
common practices and assumptions
Any technological change that bring challenge commonly held
cultural assumptions usually meets great deal of resistance
Management Information Systems Laudon&Laudon (2010)

Organizational culture encompasses set of assumptions about
what products the organization should produce, how it should
produce them, where and for whom
3/24/2016

15
ORGANIZATIONAL ENVIRONMENTS



Management Information Systems Laudon&Laudon (2010)

Organizations reside in environments from which they
draw resources and to which they supply goods and
services
Organizations are open to and dependent on the social and
political environment that surrounds them
Organizations must respond to legislative and other
requirements imposed by government
Information systems are key instruments for
environmental scanning, helping managers identify
external changes that might require an organizational
response
The main reasons for organizational failure are an inability
to adapt faster to rapidly changing environments and lack
of resources
3/24/2016

16
ORGANIZATIONAL ENVIRONMENTS



Management Information Systems Laudon&Laudon (2010)

IS are key instruments for environmental scanning,
helping managers idetify external changes that might
require an organizational response
Environments generally change much faster than
organizations
The main reason for organizational failure is inability to
respond changing environments and lack of resources,
particulaly among young firms to sustain even short
periods of troubled times
New technologies, new products and changing public tastes
and values put restrains on organizational culture, politics
and people
Most organizations cannot deal with large environmental
shifts
3/24/2016

17
ORGANIZATIONAL STRUCTURES

Management Information Systems Laudon&Laudon (2010)

All organizations have a structure and shape
Mintzberg defined organizational structures in five
types
The kind of IS you find in a business firm and the
nature of problems with these systems reflects the
types of organizational structures. For example in a
professional bureucracy like an hospital, it is not
unusual to find paralel patient record system, one
operated by administration, another by doctors and
another by professional staff like nurses and social
workers
3/24/2016

18
MINTZBERG’S ORGANIZATIONAL
STRUCTURES
3/24/2016
Management Information Systems Laudon&Laudon (2010)
19
OTHER ORGANIZATIONAL FEAUTURES



Management Information Systems Laudon&Laudon (2010)

Organizations have goals and use different means to
achieve them
Some organizations must have coercive goals like prisons,
others have utilitarian goals like businesses. Some others
have normative goals like universities, religeous groups
Organizations also serve different groups, some primarily
benefitting their members, others benefitting clients,
stockholders or public
Organizations may have different lieadership styles as
well. Some may be more democratic, some may be more
authoriterian than others
Some organizations operate on routine tasks, whereas
other such as consulting firms work primarily on non
routine tasks
3/24/2016

20
HOW IS IMPACT ORGANIZATIONS AND
BUSINESS FIRMS
Management Information Systems Laudon&Laudon (2010)

IS have become integral, online, interactive tools deeply
involved in the minute to minute operations and decision
making of large organizations
Over the last decade, IS have fundamentally altered the
economics of organizations and greatly increased
possibilities for organizing work
3/24/2016

21
ECONOMIC IMPACTS






IS can be viewed as a factor of production that can be substituted
for traditional capital and labor
As the cost of IT decreases, it is substituted for labor
As cost of IT decreases, it also substitutes for other forms of
capital, such as buildings and machinery
IT should also result in a decline in the number of middle
managers and clerical workers as IT substitudes for labor
IT helps firms contrast in size because it can reduce transaction
costs – the cost incurred when firms buy on the marketplace what
it cannot make itself
IT, the use of networks can help firms lower the cost market
participation
IT also reduce internal management costs, It also enable
managers to oversee a greater number of employees
Management Information Systems Laudon&Laudon (2010)

IT changes both the relative costs of capital and the costs of
information
3/24/2016

22
ECONOMIC IMPACTS



Cost of locating and communicating with distant suppliers,
monitoring contract complience, buying insurence, obtaining
information on products are expensive
Traditionally firms try to reduce transaction costs by getting
bigger, hiring more employees and buying their own suppliers and
distributors
IT, especially use of networks can help firms lower the cost of
market participation (transaction costs), making it worthwhile for
firms to contach external suppliers instead using internal
resources
IT can also reduce internal management costs. According to
agency theory, the firm is viewed as a nexus of contracts among
self interested individuals rather than unified, profit maximizing
entity
Management Information Systems Laudon&Laudon (2010)

According to transaction cost theory, firms and individuals seek to
economize on transaction costs, much as they do on production
costs
3/24/2016

23
ECONOMIC IMPACTS


As companies grow in size and scope, cost of supervising and
managing – agency costs will increase
IS can reduce of cost of acquiring and analyzing information by
permitting to reduce agency costs since managers can oversee a
greater number of employees
IT enables firms to increase revenues by shrinking the number of
middle managers and clerical workers
Management Information Systems Laudon&Laudon (2010)

A principal employs agents to perform the work. However, agents
need constant supervision and management, otherwise they
would tend to pursue their own interests rahther than those of
owners
3/24/2016

24
ORGANIZATIONAL AND BEHAVIORAL
IMPACTS
IT flattens organizations
Management Information Systems Laudon&Laudon (2010)
Large organizations often inefficient, slow to change
and less competitive than newly created
organizations
 IT facilitates and broadens distribution of
information to empower lower level employees and
increase management efficiencies
 IT pushes decision making rights lower in
organization
 Management span of control has also been broaden,
enabling high level managers to manage and control
more workers spread over greater distances

3/24/2016

25
ORGANIZATIONAL AND BEHAVIORAL
IMPACTS
3/24/2016
Management Information Systems Laudon&Laudon (2010)
26
ORGANIZATIONAL AND BEHAVIORAL
IMPACTS
Postindustrial Organizations
Management Information Systems Laudon&Laudon (2010)
In postindustrial societies, authority increasingly
relies on knowledge and competence and not merely
on formal positions
 Organizations become more decentralized and
information become more widespread throughout the
organization
 IT may encourage task force networked organizations
in which group of professionals come together for
short period of times to accomplish specific tasks

3/24/2016

27
ORGANIZATIONAL AND BEHAVIORAL
IMPACTS
Postindustrial Organizations
Management Information Systems Laudon&Laudon (2010)
IT enables task groups to work face to face or
electronically to accomplish specific tasks
 IT also enables to form self managed teams
 But who makes sure that self managed teams do not
head off in the wrong direction? Who decides which
person works on which team and how long? How can
manager evaluate the performance of someone who is
constantly rotating from team to team?
 New approaches for evaluating, organizing and
informing workers are required not all companies can
make virtual work effective

3/24/2016

28
ORGANIZATIONAL AND BEHAVIORAL
IMPACTS
Understanding organizational resistance to
change
Management Information Systems Laudon&Laudon (2010)
IT inevitably become bound up in organizational
politics because they influence access to a key
resource – Information
 IS can affect who does what to whom, when, where
and how in the organization
 New IS require changes in personal, individual
routines that can be painful for those involved and
require retraining and additional effort that may or
may not be compensated
 In Leavitt’s model, the only way to bring change is to
change the technology, tasks, structure and people
simultaneously

3/24/2016

29
ORGANIZATIONAL AND BEHAVIORAL
IMPACTS
Understanding organizational resistance to
change
Management Information Systems Laudon&Laudon (2010)
Because IS potentially change an organization’s
structure, culture, business processes and strategy,
there is often considerable resistance to them when
they are introduced
 Because organizational resistence to change is so
powerful, many IT investments flounder and do not
increase productivity
 Most reasons of failures of IS projects is not because
of technology, but organizational and politic
resistance to change

3/24/2016

30
LEAVITT’S CHANGE MODEL
3/24/2016
Management Information Systems Laudon&Laudon (2010)
31
INTERNET AND ORGANIZATIONS


Management Information Systems Laudon&Laudon (2010)

Internet is beginning to have an important impact on
the relationships between firms and external entities
and even on organization of business processes inside
firm
Internet increases the accessibility, storage and
distribution of information and knowledge for
organizations
Internet can dramatically reduce transaction and
agency costs
Businesses are rapidly rebuilding some of their key
business processes based on Internet technology and
making this technology key component of their IT
infrastructure
3/24/2016

32
IMPLICATIONS FOR THE DESIGN AND
UNDERSTANDING OF IS
The central organizational factors to consider
when planning a new systems are





The environment in which organization function
The structure of organization
The organizational culture and politics
The type of organization and its style of leadership
The principal interests groups affected by the system
and attitudes of workers using the systems
The kind of tasks, decisions and business processes
that IS is designed to assists
Management Information Systems Laudon&Laudon (2010)

3/24/2016

33
USING IS TO ACHIEVE COMPETITIVE
ADVANTAGE
In all industries, some firms do better than
others
Firms that do better than others said to have
competitive advantage
 Either have access to special resources that other
do not, or these firms are able to use commonly
available resources more efficiently, usually
because of their superior knowledge and
information assests

Management Information Systems Laudon&Laudon (2010)
Apple
 ITunes
 Toyota

3/24/2016

34
PORTER’S COMPETITIVE FORCES MODEL
3/24/2016
Management Information Systems Laudon&Laudon (2010)
The most widely used competitive model –
Competitive Advantage Model
 The model provides a general view of the firm, its
competitors and the firm’s environment
 Traditional Competitors: All firms share market
space with other competitors who are
continuously devising new, more efficient ways to
produce by introducing new services and
products
 New Market Entrants: In a free economy with
mobile labor and financial resources, new
companies are always entering the marketplace

35
PORTER’S COMPETITIVE FORCES MODEL




Substitute Products and Services: In just about every
industry, there are substitutes that your customers might use
if prices become too high
Customers: A profitable company depends in large measure on
its ability to attract and retain customers and charge high
prices
The power of customers grow if they can easily switch to a
competitor’s products and services
In a transparent markets, where prices known instantly and
there is low product differentiation, customers’ power
increases
Suppliers: The market power of suppliers can have a
significant impact on firm profit, especially when the firm
cannot raise prices as fast as can suppliers
Management Information Systems Laudon&Laudon (2010)

In some industries, entry is very difficult, in some it is very
easy
3/24/2016

36
PORTER’S COMPETITIVE FORCES MODEL
3/24/2016
Management Information Systems Laudon&Laudon (2010)
37
IS STRATEGIES FOR DEALING WITH
COMPETITIVE FORCES

Management Information Systems Laudon&Laudon (2010)
Use IS to achieve the lowest operational costs and the
lower prices
 Wal Mart’ s continuous replenishment systems
 An efficient customer response system directly links
customer behavior to distribution and production and
supply chains

3/24/2016
There are four generic strategies, each of which
enabled by using IS
 Low cost leadership

Product differentiation
Use IS to enable new products and services
 Google continuously introducing new products and
services

38
IS STRATEGIES FOR DEALING WITH
COMPETITIVE FORCES
Strengthen customer and supplier intemacy
 Use of IS to tighten linkages with suppliers and develop
intimacy with customers. Crysler Corp allows suppliers
more lead time in producing goods. Amazon.com keeping
user preferences for books and CDs, recommends products
and services
 Strong linkages to customers and suppliers increase
switching costs and loyalty to our firm
Management Information Systems Laudon&Laudon (2010)

Focus on market niche
 Use IS to enable a specific market focus and serve this
narrow market better than competitors
 IS support this strategy by producing and analyzing data
for finely tuned sales and marketing techniques,
customers’ buying patterns, tastes and preferences closely
to efficiently pitch market advertising and marketing
campaigns to smaller and smaller target markets
3/24/2016

39
SUPPLY CHAIN MANAGEMENT SYSTEMS


Management Information Systems Laudon&Laudon (2010)

Help businesses manage their relationships with
their customers
Provide information to help suppliers, purchasing
firms, distributors and logistic companies share
information about orders, production levels and
delivery of products and services efficiently
If company and its supply network do not have
accurate information, they will most likely be dealing
with excessive inventories and problems in deliveries
of inventories and products
SCMS are inter-organizational systems because they
automate the flow of information across
organizational boundaries
3/24/2016

40
IS STRATEGIES FOR DEALING WITH
COMPETITIVE FORCES

Focus on Market Niche
 Use IS to enable a specific market focus, and serve this narrow
target market better than competitors
 IS support this strategy by producing and analyzing data for
finely tuned sales and marketing techniques
Strengthen Customer and Supplier Intimacy
 Use IS to tighten linkages with suppliers and develop
intimacy with customers
 Amazon.com keeps track of user preferences for book and CD
purchases and can recommend titles purchased by others
 Strong linkages to customers and suppliers increase switching
costs and loyalty to your firm
Management Information Systems Laudon&Laudon (2010)

Product differentiation
 Mass customization is the ability to offer individually tailored
products or services using the same production resources as
mass production
3/24/2016

41
INTERNET’S IMPACT ON COMPETITIVE
ADVANTAGE



Management Information Systems Laudon&Laudon (2010)

The Internet has nearly destroyed some industries
and has severely threatened more
The Internet has also created entirely new markets
and formed the basis for thousands of new businesses
Music, Air travel industries, telephone services
Emerging new business models
Because of the Internet, the traditional forces are still
at work, but competitive rivalry has become much
more intense
3/24/2016

42
INTERNET’S IMPACT ON COMPETITIVE
FORCES
3/24/2016
Management Information Systems Laudon&Laudon (2010)
43
THE BUSINESS VALUE CHAIN MODEL


Management Information Systems Laudon&Laudon (2010)

The value chain model highlights specific activities in
the business where competitive strategies can best be
applied and where IS are most likely to have strategic
impact
The value chain model views the firm as a series or
chain of basic activities that add margin of value to a
firm’s products and services
Primary activities are most directly related to the
production and distribution of the firm’s product and
services, which create value for customers
Support activities make the delivery of the primary
activities possible and consist of organizational
structure
3/24/2016

44
THE BUSINESS VALUE CHAIN MODEL
3/24/2016
Management Information Systems Laudon&Laudon (2010)
45
SYNERGIES, CORE COMPETENCIES AND
NETWORK BASED STRATEGIES



Management Information Systems Laudon&Laudon (2010)

A large corporation is typically a collection of businesses
Often, the firm is organized financially as a collection of
strategic business units and the returns to the firm are
directly tied to the performance of all strategic business
units
Synergies: IS can tie operations and business units so
that they can act as a whole
A core competency is an activity for which a firm is a
world class leader
The availability of Internet and networking technologies
has inspired strategies that take advantage of firms’
abilities to create networks or network with each other
3/24/2016

46
USING SYSTEMS FOR COMPETITIVE
ADVANTAGE



Management Information Systems Laudon&Laudon (2010)

Strategic IS often change the organization as well as its
products, services and operating procedures, driving the
organization into new behavioral patterns
The competitive advantages strategic systems confer do
not necessarily last enough to ensure long term
profitability
The Internet can make competitive advantage disappear
very quickly because virtually all companies can use this
technology
Adopting the kinds of strategic systems generally
require changes in business goals, relationships with
customers and suppliers and business processes
Such changes often entail blurring of organizational
boundaries, both external and internal
3/24/2016

47