Chapter 3
Information Systems,
Organizations, and
Strategy
Three Primary Uses of
Information Systems
Automation
Providing support to complete a task faster, more cheaply,
and perhaps with greater accuracy and/or consistency
Organizational Learning (Informating)
Providing support to improve day-today operations by
creating, acquiring, and transferring knowledge
Achieving Strategy
Providing support in a way that enables the firm to
gain or sustain competitive advantage over rivals
What Value Is Provided in
These Functions?
Automation
Automation
Providing support to complete a task faster, more cheaply,
and perhaps with greater accuracy and/or consistency
Styles of Processing
Manual Processing
• No technology automation support
Technology Supported Processing
• A combination of manual and system supported steps
Fully Automated Processing
• All manual steps have been eliminated.
Effectiveness
If the underlying process is bad, automating with
technology alone may mask process problems
Benefits of Automation –
Loan Example
Organizational Learning
Organizational Learning
Providing support to improve day-today operations by
creating, acquiring, and transferring knowledge
Informating (Zuboff 1988)
A technology that provides information about its operation
and the underlying work process it supports
Effectiveness
A combined automating and learning approach is more
effective than an automating approach alone. If the
underlying process is flawed, a learning use of technology
might help you detect problems with the process
Will the new US Airways be
able to Fly
US Airways and America West merged in response to
competitive pressures from their surrounding environment.
The merging companies had different organizational
cultures, business processes and information systems,
which had to be integrated for the new company to run
effectively. The new information systems — many taken
over from a more modernized America West — had to be
fine-tuned to support the new US Airways’ business
strategy. US Airways’ systems effort can’t succeed without
a significant amount of organizational and management
change.
Will the new US Airways be
able to Fly
• The newly merged company provides value to
customers by competing on both price and quality
service. To make the merger profitable, US Airways had
to revise its business processes so that two formerly
separate companies could operate as a single entity,
and it also had to eliminate redundant information
systems. The case describes the role of information
systems in lowering costs and coordinating operations
for US Airways after its merger
Management Information Systems
Will the New US Airways Be Able to Fly?
• Problem: Intense competition and environmental
changes.
• Solutions: Revising business processes and integrating
them with information systems and culture could
increase sales and reduce costs.
• Selecting appropriate systems and technology eliminates
redundant systems.
• Demonstrates IT’s role in supporting improved business
processes.
• Illustrates the benefits of integrating information systems
in the face of interdependence of environment, culture,
process, strategy, and systems.
FEATURES OF ORGANIZATIONS
• Information systems use data as their main ingredient and organizations
rely on people. However, the similarities are remarkable. Both are a structured
method of turning raw products (data/people) into useful entities
(information/producers).
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Clear division of labor
• Hierarchy
• Explicit rules and procedures
• Impartial judgments
• Technical qualifications for positions
• Maximum organizational efficiency
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• These characteristics describe organizations that are called bureaucracies.
Most of us think of them as slow, cumbersome, and unprogressive. That
isn’t necessarily so. Many organizations have bureaucratic characteristics
and operate very well.
Characteristics
• 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. Some of the standard operating
procedures (SOPs), politics, and culture are so ingrained in
organizations that they actually hinder the success of the group.
Think about your experiences in groups. You had a leader
(hierarchy), a set of rules by which you operated (explicit rules and
procedures), and people appointed to perform certain tasks (clear
division of labor).
• Organizational Politics
• People in organizations occupy different positions with different
specialties, concerns, and perspectives. These differences result in
political struggle for resources, competition, and conflict within every
organization. Political resistance has proven to be one of the
greatest difficulties to bringing about organizational change.
Characteristics
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Organizational Culture
Every organization imaginable have bedrock, unassailable, unquestioned
assumptions that define their goals and products. Generally, an
organization’s cultural assumptions are taken for granted and are rarely
publicly announced or spoken about. As a rule, the organizations culture
has proven to be a powerful restraint on making changes within the
organization and its basic procedures and common business practices.
This is especially evident when considering technological changes that may
threaten these commonly held cultural assumptions.
Organizational Environments
Organizations differ because their ultimate goals differ. Some organizations
are small by nature or small by design. Using the same thought process as
you did for recognizing the different structures in organizations around you,
think about the unique differences in those organizations. Why are they
different: size, goals, environmental factors that restrict their growth?
Management Information Systems
Organizations and Information Systems
The Two-Way Relationship Between Organizations and Information
Technology
This complex twoway relationship is
mediated by many
factors, not the
least of which are
the decisions
made—or not
made—by
managers. Other
factors mediating
the relationship
include the
organizational
culture, structure,
politics, business
processes, and
environment.
ORGANIZATIONAL AND BEHAVIORAL IMPACTS
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IT Flattens Organizations
Behavioral researchers have theorized that information technology
facilitates flattening of hierarchies. Points made in support of this theory
include:
IT pushes decision-making rights lower in the organization because lowerlevel employees receive the information they need to make decisions
without supervision.
Managers now receive so much more accurate information on time, they
become much faster at marking decisions, so fewer managers are required.
Management costs decline as a percentage of revenues, and the hierarchy
becomes much more efficient.
Management Information Systems
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 decisionmaking
authority.
How Information Systems Impact Organizations and Business Firms
Flattening Organizations
Postindustrial Organizations
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Postindustrial theories also support the notion that IT should flatten
hierarchies. Points made in support of this theory include:
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
Organizations and information systems influence each other. Each
organization shares common characteristics that the 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.
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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.
To deliver genuine benefits, information systems must be built with a clear
understanding of the organization in which they will be used. Central organizational
factors to consider when planning a new information system include:
The environment in which the organization must function
The structure of the organization: hierarchy, specialization, routines, and business
processes
The organization’s culture and politics
The type of organization and its style of leadership
The principal interest groups affected by the system and the attitudes of workers who
will be using the system
The kinds of tasks, decisions, and business processes that the information system is
designed to assist
Recap
• List three organizational factors that can prevent a
firm in fully realizing the benefits of a new
information system, and provide examples for each.
• Describe the three primary uses of Information
systems in an organisation
Strategy and Competitive Advantage
Achieving Strategy
Providing support in a way that enables the firm to gain or
sustain competitive advantage over rivals
Sources of Competitive Advantage
• Having the best-made product on the market
• Delivering superior customer service
• Achieving lower cost than rivals
• Having proprietary manufacturing technology
• Having shorter lead-times in developing and testing new
products
• Having a well-known brand name and reputation
• Giving customers more value for their money
Management Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
In Porter’s competitive forces model, the strategic position
of the firm and its strategies are determined not only by
competition with its traditional direct competitors but also
by four forces in the industry’s environment: new market
entrants, substitute products, customers, and suppliers.
PORTER’S COMPETITIVE FORCES MODEL
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Traditional Competitors
Efficient business processes can give companies the edge they need to
place themselves in the lead. The rivalry among existing competitors in the
Competitive Forces Model is high when competition is fierce in a market,
and low when competition is more complacent.
New Markets Entrants
Upstarts can give you fits when you least expect it –Amazon.com is a good
example. The threat of new entrants in the Competitive Forces Model is
high when it is easy for new competitors to enter a market, and low when
there are significant entry barriers to entering a market.
Substitute Products and Services
Even if they aren’t better than your product, substitutes may be cheaper and
the customer will be enticed by the lower price. The threat of substitute
products or services in the Competitive Forces Model is high when there are
many alternatives to a product or service, and low when there are few
alternatives from which to choose.
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Customers
The Internet offers customers the opportunity to quickly and easily compare
prices. The Internet also makes it easy for customers to switch to a
competitor’s product or service where there is little product differentiation
and all prices are known instantly. Customer power in the Competitive
Forces Model is high when customers have many choices from whom to
buy, and low when their choices are few.
Suppliers
New technology offers suppliers the chance to integrate information
systems that tie them closer to their customers. Supplier power in the
Competitive Forces Model is high when buyers have few choices from
whom to buy; and low when their choices are many.
How the Nature of Competition Affects IS
Investment
INFORMATION SYSTEM STRATEGIES FOR DEALING
WITH COMPETITVE FORCES
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Low-Cost Leadership
Use information systems to achieve the lowest operational costs and the lowest
prices. Firms such as Wal-Mart have utilized IT to develop an efficient customer
response system that directly links customer behavior back to distribution,
production, and supply chains.
Product Differentiation
Use information systems to enable new products and services, or greatly change the
customer convenience in using your existing products and services. Through mass
customization, organizations are able to offer individually tailored products or
services by using mass production resources.
Focus on Market Niche
Use information systems to enable a specific market focus, 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.
Information systems 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.
Traditional vs System Support Process
Example
Using handheld technology combined with a reengineered
business process to create a competitive advantage
7-ELEVEN STORES ASK THE CUSTOMER BY
ASKING THE DATA
• 7-Eleven Stores improved its competitive position by
wringing more value out of its customers data. This
company’s early growth and strategy had been based on
face-to-face relationships with its customers and intimate
knowledge of exactly what they wanted to purchase. As
the company grew over time, it was no longer able to
discern customer preference through personal face-toface relationships. A new information system helped it
obtain intimate knowledge of its customers once again
by gathering and analyzing customer purchase
transactions.
Management Information Systems
Using Information Systems to Achieve Competitive Advantage
7-Eleven Stores Ask the Customer by Asking the Data
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discuss the following questions:
• Why is knowing about the customer so important to a
company such as 7-Eleven?
• What are the benefits of 7-Eleven’s Retail Information
System?
• In terms of Porter’s model, what strategic forces does the
Retail Information System seek to address?
• Which of the strategies does the Retail Information System
support?
INTERNET’S IMPACT ON COMPETITIVE
ADVANTAGE
Recap
• 1.The costs incurred when a firm buys on the
marketplace what it cannot make itself are referred to as:
• a. switching costs.
• b. transaction costs.
• c. procurement.
• d. agency costs
• 2. Amazon’s use of the Internet as a platform to sell
books illustrates a tactical use of information services
for:
• a. low-cost leadership.
• b. product differentiation.
• c. focusing on market niche.
• d. strengthening customer intimacy
Recap
• Discuss the impact of the Internet on the competitive
forces model.
• Apply Porter’s competitive forces model to the 7Eleven problems
• You are advising the owner of Smalltown Computer,
a new, local computer repair store that also builds
custom computers to order. What competitive
strategies could Smalltown Computer exert? Which
ones will it have difficulty exercising?
Value Chain Analysis
Value Chain Analysis (Porter 1985, 2001 )
Is a process of analyzing an organization’s activities to
determine where value is added to products and/or
services and what costs are incurred in doing so.
Information Systems Roles in
Systems play a significant role throughout the Value Chain to
theadvantage
Value
achieve competitive
and:Chain
• Must be appropriate for the business strategy (e.g. cost)
• Are usually coupled with Business Process Reengineering that
address process to enhance company operations
THE BUSINESS VALUE CHAIN MODEL
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Primary Activities:
– Inbound Logistics(automated Warehousing system),
Operations(Computer controlled machining systems),Sales &
Marketing(Computerised Ordering Systems), Service(Equipment
Maintenance systems, Outbound Logistics(Aotomated shipment
scheduling systems
 Support Activities:
 Administration & Management (Electronic scheduling &
messaging systems),Human Resources(Workforce planning
systems),Technology(Computer Aided Design systems,
Procurement(Computerised ordering systems)
 SCM to be included for value web of suppliers
 CRM to be included for the value web of customers
 Benchmarking to adopt Industry Best Practices
The Value Chain
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By effectively using an information system in a strategic role at any, or
preferably all, levels of the organization, a digital firm can provide more
value in their products than the competition. If they can’t provide more
value, then the strategic information system should help them provide the
same value but at a lower price.
Using the business value chain model will cause you to consider
benchmarking your business processes against your competitors or others
in related industries, and identifying industry best practices. Benchmarking
involves comparing the efficiency and effectiveness of your business
processes against strict standards and then measuring performance against
those standards. Industry best practices are usually identified by
consulting companies, research organizations, government agencies, and
industry associations as the most successful solutions or problem-solving
methods for consistently and effectively achieving a business objective.
INTERACTIVE SESSION: ORGANIZATIONS
AMAZON.COM: AN INTERNET GIANT FINE-TUNES ITS
STRATEGY
• Amazon.com has become one of the Web’s most
satisfying online retail shopping site. Their success is
attributed to their ability to use Internet technology as a
way to develop and execute a value web strategy to link
up more efficiently with their suppliers, strategic partners,
and customers. The continuous efforts by Amazon to be
innovative in their business strategy and use of
information systems have been the main ingredient for
Amazon’s success. The case demonstrates the vital
importance of information technology to the success of
Amazon.com.
Competitive forces model:
Existing competitors: Brick-and-mortar stores, as well as
existing online retailers will continue to put pressure on Amazon.
Competitor rivalry will be even more intense.
New market entrants: eBay, Yahoo!, and Google are all attempting
to take market space from Amazon. The Internet makes it easier
for competitors to enter the market and it offers them very low
barriers to entry. Competitive rivalry has become much more
intense.
Substitute products and services: Products and services being
offered by Amazon can be easily duplicated and offered by
competitors. This makes it easy for rivals to compete.
Customers: Amazon customers have a lot of power in that they
can easily switch to competitors. Amazon and its competitors all
operate in a transparent marketplace where there is little product
differentiation. Customers can easily find the lowest-cost
provider on the Web.
Suppliers: Amazon’s suppliers can have a significant impact on
profits. This becomes even more crucial as more companies
enter the online retail marketing. Amazon’s suppliers may
exercise greater force over Amazon as they are now in a position
to enter lucrative deals with other online retail competitors such
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage
Amazon.com: An Internet Giant Fine-Tunes Its Strategy
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Read the Interactive Session: Organizations, and then discuss the
following questions:
• Analyze Amazon.com using the competitive forces and value
chain models. How has it responded to pressures from its
competitive environment? How does it provide value to its
customers?
• Describe Amazon’s evolving business strategy.
• Why did the company change its strategy?
• Do you think Amazon can continue to be successful? Explain
your answer.