Chapter 3 – Information Systems,
Organizations, and Strategy
3.1

Organizations and Information Systems
Interaction between information technology and organization is complex and influenced by many
mediating factors including organizational structure, business processes, politics, culture,
surrounding environment & management decisions
What is an Organization?

Organization: stable, formal social structure that takes capital and labour and transforms them
through the production process into products and services (technical definition)

o
Capital and labour  primary production factors (inputs) provided by the environment
o
Products and services  outputs to the environment
o
Feedback loop (outputs create more inputs)
In the behavioural view of the firm, an organization is a collection of rights, privileges, obligations
and responsibilities that is delicately balanced over a period of time through conflict and conflict
resolution
Features of Organizations
Routines and Business Processes

Routine: precise rules, procedures, and practises that have been developed to cope with virtually
all expected situations
o

Also called standard operating procedures
Business processes are a collection of such routines and a business firm is a collection of business
processes
Organizational Politics

Political struggle for resources, competition and conflict within every organization

Political resistance is one of the great difficulties of bringing about organizational change
Organizational Culture

Assumptions that define the organization’s goals and products

Organizational culture is a powerful unifying force that restrains political conflict but at the same
time it is a powerful restraint on change, especially technological change
Organizational Environment

Environments shape what organizations can do but organizations can influence their
environments and decide to change environments altogether

Information systems are key instruments for environmental scanning by helping managers identify
external changes that might require a response

Disruptive technologies: technologies with a disruptive impact on industries and businesses,
rendering existing products, services and business models obsolete

o
Microprocessor chips (1971)
o
Personal computers (1975)
o
PC word processing software (1979)
o
World Wide Web (1989)
o
Internet music services (1998)
o
PageRank algorithm (Google)
o
Software as a Service
Firms that invent disruptive technologies as “first moviers” don’t always benefit if they lack the
resources to really exploit the technology or fail to see the opportunities; sometimes “fast
followers” reap the rewards
Organizational Structure

Information system reflects the type of organizational structure (centralization/decentralization)

Types of organizational structures
o
Entrepreneurial structure
o
Machine bureaucracy (e.g. mid-sized manufacturing firm)
o
Divisionalized bureaucracy
o
Professional bureaucracy (e.g. law firms, schools, etc.)
o
Adhocracy (e.g. consulting firms)
3.2 How Information Systems Impact Organizations and Business
Firms
Economic Impacts

IT changes the relative cost of capital and the costs of information

IS technology can be viewed as a factor of production that can be substituted for traditional
capital and labour

Transaction cost theory: firms seek to economize on transaction costs like they do on
production costs

IT—especially networks—can reduce transaction costs, e.g. contracting with external suppliers

Transaction costs  the costs incurred when a firm buys on the marketplace what it cannot make
itself (cost of market participation)

The number of employees & capital investments should decrease, so as transaction costs
decreases, firm size should shrink

Agency theory: the firm is viewed as a “nexus of contracts” among self-interest individuals where
a principal employs “agents” to perform work on his behalf

As firms grow in size, agency costs rise because managers must spend more effort managing and
supervising employees

IT can reduce agency costs by lowering the cost of acquiring information, making it easier for
managers to oversee a greater number of employees
Organizational and Behavioural Impacts
IT Flattens Organizations

Reduce the number of levels in the organization

Managers have information to supervise a large number of workers

Lower-level employees have more information to make decisions without supervision
Post-Industrial Organizations

IT may encourage task-force-networked organizations in which groups of professionals come
together—face to face or electronically—for short periods to accomplish a specific task
Organizational Resistance to Change

Leavitt’s model
o

Diamond of technology, tasks, structure, and people
Lewinn/Schein theory of change
o
“unfreeze” organizations before introduction an innovation, quickly implementing it, and
“refreeze” aka institutionalize the change
Implications for the Design and Understanding of Information Systems

3.3

Factors to consider when planning a new system:
o
Organizational environment
o
Organizational structure
o
Organizational culture and politics
o
Organizational type and leadership style
o
Principal interest groups and attitudes of workers
o
Tasks, decisions and business processes
Using Information Systems to Achieve Competitive Advantage
Porter’s Five Forces Model
Information System Strategies for Dealing with Competitive Forces
Low-Cost Leadership

Can be used to achieve the lowest operational costs and lowest prices
o
E.g. Walmart’s continuous inventory replenishment system
Product Differentiation

Enable new products and services or greatly change customer convenience in using existing
products and services
o

E.g. Amazon’s one-click shoping
Mass customization: ability to offer individually tailored products using the same production
resources as mass-production
o
E.g. Dell’s assemble-to-order system
Focus on Market Niche

Information systems can be used to produce and analyze data for smaller target markets
Strengthen Customer and Supplier Intimacy

Facilitate direct access by suppliers to production schedules

Keeping track of customer preferences

Increases switching costs of customers and suppliers
The Internet’s Impact on Competitive Advantage

Enables new substitutes to emerge with new approaches to meeting needs and performing
functions

Availability of global price and product information shifts bargaining power to customers

Procurement over the Internet raises bargaining power over suppliers
o
Suppliers can also benefit from reduced barriers to entry and from the elimination of
distributors and other intermediaries standing between them and their users

Reduces barriers to entry by providing technology to drive business processes that makes other
things easier to do

Widens the geographic market, increasing the number of competitors, reducing differences
among competitors; more pressure on price
The Business Value Chain Model

Value chain model: views the firm as a chain of basic activities that add value to a firm’s products
or services
o
Primary activities
o
Support activities


o

Inbound logistics, operations, outbound logistics, sales and marketing, service
Organizational infrastructure (administration), HR, technology, procurement
Supply chain management systems & customer relationship management systems
Benchmarking: comparing the efficiency and effectiveness of your business processes against
strict standards and then measuring performance against those standards

Best practices: usually identified by the industry as the most successful solutions or problemsolving methods for consistently achieving a business objective
Extending the Value Chain: The Value Web

Value web: collection of independent firms that use IT to coordinate their value chains to
produce a product or service for a market collectively
o
Customer-driven and operates in a less linear fashion than the traditional value chain
Synergies, Core Competencies, and Network-Based Strategies
Synergies

Achieved when the output of some units can be used as inputs to other units, or two
organizations pool markets and expertise

Lower costs and generate profits

IS can tie together operations of disparate business units so that they can act as a whole
Enhancing Core Competencies

Core competency: an activity for which a firm is a world-class leader

IS encourages the sharing of knowledge across business units which enhances competency
Network-Based Strategies

Network economics: in a network, adding another participant entails zero marginal costs but can
create much larger marginal gains

Law of diminishing returns (traditional economics) does not apply
Virtual Company Model

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 of physical location
Business Ecosystems: Keystones and Niche Firms

Business ecosystem: loosely coupled but interdependent networks of suppliers, distributors,
outsourcing firms and technology manufacturers
o
E.g. mobile Internet platform
o
Business ecosystem vs. value web

In a business ecosystem, cooperation takes place across many INDUSTRIES rather
than across many FIRMS in a value web

Keystone firms dominate the business ecosystem and create platforms used by other niche firms
o
3.4
E.g. Microsoft ecosystem

Keystone firms: Microsoft, Intel, IBM

Niche firms: software developers, consulting firms, networking firms
Using Systems for Competitive Advantage: Management Issues
Aligning IT with Business Objectives

The more successfully a firm can align IT with its business goals, the more profitable it will be

Only one quarter of firms achieve alignment of IT with the business
Performing a Strategic Systems Analysis
1.
Porter’s five forces and strategies
2.
Value chain analysis
3.
Is IT improving the right business processes and activities to promote our strategy?
Managing Strategic Transitions

Strategic transitions: sociotechnical changes affecting both social and technical elements of an
organization; a movement between levels of sociotechnical systems

Sociotechnical changes  business goals, relationships with customers and suppliers, business
processes