Chapter 2 Information Systems, Organisations, and Strategy

Organisations and Information Systems

• To serve the interest of the business firm

• Organisation must be aware of and open the influences of information systems to
benefit from new technologies
• Manager will decide which systems are built and what these systems will do
• New information technology (IT) investments cannot be foreseen and have results
they exceed our expectations
What is an Organisation
• Organisation
o A Stable, formal social structure that takes resources from the environment
and processes them to produce outputs
• Environmental provides by capital and labour which are primary production factors
• Organisations transforms the inputs into products and services in a production
function
• Organisations
o Formal legal entities with internal rules and procedures
o Must abide by laws
o Social structures
o Defined also as
A Collection of rights, privileges, obligations and responsibilities
dedicated balanced over a period of time through conflict and conflict
resolution
o Develop customary works of working

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 • The firm is seen as infinitely malleable, with capital and labour substituting for each
other quite easily
• Some information systems change the organisational balance of rights, privileges,
obligations, responsibilities and feelings that have been established over a long
period of time
• Changing these elements can take a long time, be very disruptive and requires more
resources to support training and learning
• Technological change requires changes in who owns and control information and
who makes decision about whom, when and how to help achieve these output
• Thousands of firms in competitive markets combine capital, labour and information
technology
Features of Organisations
• Everyone in an organisation is accountable to someone and authority is limited to
specific actions governed by abstract rules or procedures
• Organisations hire and promote employees based on technical qualifications and
professionalism
• Organisations follow the principle of efficiency
• Organisations have features which affect the kinds of information systems used by
organisations
Routines and Business Processors
• Firms become more efficient over time since they develop routines for producing
goods and services
• Routines are also known as Standard Operating Procedures
o Precise rules, procedures and practices that have been developed to cope
with virtually all expected situations
• When employees learn the routines, they become more highly productive and
efficient and reduces cost over time as efficiency increases
• Business processes
o Collection of routines
• A firm
o Collection of business processes
Organisational Politics
• People occupy different positions with different specialities, concerns and
perspectives

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 • Have divergent viewpoints about how resources, rewards and punishments should
be distributed
• Political resistance is one of the great difficulties of bringing about organisational
change
• Large information systems investment can bring significant changes in strategy,
business objectives, business processes and procedures become politically charge
events
Organisational Culture
• Organisational culture has this set of assumptions:
o What products the organisation should produce?
o How it should produce them?
o Where it should produce them?
o Whom the product is for?
• Business Processes
o The actual way business firms produce value
• Organisational culture is a powerful unifying force which promotes common
understanding, agreement on other matters is more likely
• Powerful constraint on change including technological change
• There are time to employ new technology where the culture slowly adjust and it can
commonly threaten organisational culture
Organisational Environments
• Draw resources and to which they supply goods and services
• Organisations and environment have a reciprocal relationship
• Organisations are open to and dependent on the social and physical environment
that surrounds them
• Organisations can influence their environments
• Information systems are key instruments for environmental scanning, helping
managers identify external changes that might require an organisational response
• Environments change much faster than organisations
• Most organisations are unable to adapt to a rapidly changing environment
• Disruptive Technologies: Riding the Wave
o Disruptive technologies are substitute products that perform as well as or
better than anything produced
o Can also extend the market usually these have less functionality and cost less
o They become low-cost competitors for whatever was sold before
o Some firms are able to create these technologies and make profits while
others learn to adapt quickly and others become obsolete
o Firms that invent disruptive technologies as “first movers” may not benefit
from it due to lack of resources and second movers “fast followers” reaps the
rewards
Organisational Structure
• Information systems found in a business firm and the nature of the problems often
reflects the type of organisational structure
• In small entrepreneurial firms there are poorly designed information systems since it
will be rushed and quickly completed but large multidivisional firms operate in
hundreds of locations and there will often be a set of information systems

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Other Organisational Features
• Have goals and use different means to achieve them
• Some have coercive goals, others have utilitarian goals and others have normative
goals
• Organisations may be more democratic or authoritarian than others
• Organisations differ is by the tasks they perform and the technology they use
How Information Systems Impact Organisations and Business Firms
• Information systems have become integral, online, interactive tools
• Fundamentally altered the economics of organisations
Economics Impacts
• Viewed as a factor of production which can be substituted for traditional capital and
labour
• Information technology will substitute for capital and labour due to decreased costs
and rising labour and capital costs. Also replacing capital such as building and
machinery.
• Information technology helps firms contract in size
• According to transaction cost theory
o Firms and individuals seek to economise on transaction costs much as they
do on production costs
• It can help firms lower the cost through the use of networks and makes it less
expensive to outsource work to a competitive marketplace rather than hire
employees
• As transaction cost decrease the firm size since it is cheaper and easier to purpose
goods and services in the marketplace rather than to make the product or offer the
service itself
• Agency Theory
o “nexus of contracts” among self-interested individuals rather than as a
unified, profit-maximising entity
• Information technology makes it easier for a manager to oversee a greater number
of employees
• Reducing managing costs it allows firms to increase revenues and should see
revenue per employee increase over time

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Organisational and Behavioural Impacts
It Flattens Organisations
• Information technology facilitates flattening of hierarchies by broadening the
distribution of information to empower lower-level employees and increase
management efficiency
• Managers now receive more accurate information on time which results to making
faster decisions
• Many companies have eliminated thousands of middle managers as a result of these
changes
Postindustrial Organisations
• Authority increasingly relies on knowledge and competence and not merely on
formal positions
• IT encourages task force-networked organisations which groups of professionals
come together to accomplish a specific task
Understanding Organisational Resistance to Change
• Information systems become bound in organisational politics cause they influence
the way to access information
• Information systems potentially change an organisation’s structure, culture, business
processes and strategy
• Four factors affecting the resistance on the organisation
o Nature of the IT innovation
o Organisation’s structure
o Culture of the people in the organisation
o Task impacted by the innovation
• Changes in technology are absorbed, interpreted, deflected and defeated by
organisational task arrangements, structure and people
• Organisational resistance is power many information technology investment
flounder and do not increase productivity
The Internet and Organisations
• Internet increases the accessibility, storage and distribution of information and
knowledge for organisations
• Businesses are rapidly rebuilding some of their key business processes based on
internet technology and making this technology a key component of their IT
infrastructure
Implications for the Design and Understanding of Information Systems
• Central organisational factors to consider when planning a new system are:
o Structure in which the organisation must function
o The structure of the organisation: hierarchy specialisation, routines and
business processes
o Organisation’s culture and politics
o Type of organisation and its style of leadership
o Principle interest groups affected by the system and the attitudes of workers
who will be using the system
o The kinds of tasks, decisions and business processes that the information
system is designed to assist

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Using Information Systems to Achieve Competitive Advantage
• Some firms do better than most others in every industry
• Firms which do better are those who are said to have a competitive advantage over
others
o They either have access to special resources that others do not, or they are
able to use commonly available resources more efficiently usually because of
superior knowledge and information assets
Porter’s Competitive Forces Model
• This model provides a general view of the firm, its competitors and the firm’s
environment and the dependence of firms on environment
• In this model there are five competitive forces which shape the fate of the firm
Traditional Competitors
• All firms share market space with other competitors 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
• New companies are always entering the marketplace
• There are very low barriers to enter some industries while others have high barriers
• New companies have several possible advantages
o Are not locked into old plants and equipment
o Hire younger workers who are less expensive and perhaps more innovative
and are more highly motivated
• The disadvantages of new companies
o Less-experienced workforce
o Little brand recognition

Substitute Products and Services

• There are substitutes that your customers might use if your prices become too high
• The more substitute products and services in your industry the less you can control
pricing and the lower your profit margins

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Customers
• Profits depend on the ability of the company to attract and retain customers and
charge high prices
• Product Differentiation can force a business and its competitors to compete on price
alone and where prices are known instantly
Suppliers
• Have a significant impact on firm profits as firms cannot raise prices as fast as can
suppliers
• The greater the amount of different suppliers a firm has a greater control it can
exercise over suppliers in terms of price, quality and delivery schedules
Information System Strategies for Dealing with Competitive Forces
• Four Generic Strategies each of which often is enabled by using information
technology and systems:
o Low-Cost Leadership
o Product Differentiation
o Focus on Market Niche
o Strengthening Customer and Supplier Intimacy
Low-Cost Leadership
• Uses information systems to achieve the lowest operational cost and the lowest
prices
• An efficient customer response systems links consumer behaviour to distribution
and production and supply chains
Product Differentiation
• Use information systems to enable new products and services or greater
• Manufacturers and retailers are using information systems to create products and
services that are customised and personalised to fit the precise specifications of
individual customers
• Mass Customisation
o This ability to offer individually tailored products or services using the same
production resources as mass production
Focus on Market Niche
• Enable a specific market focus and serve this narrow target market better than
competitors
• Information systems support this strategy by producing and analysing data for finely
tuned sales and marketing techniques
• Information systems allow companies to analyse customer buying patterns, tastes
and preferences closely so they can pitch advertising and marketing campaigns to
smaller and smaller target markets
Strengthen Customer and Supplier Intimacy
• Tighten linkages with suppliers and develop intimacy with customers
• Strong linkages to consumers and suppliers increase switching costs
• Switching Costs
o Cost of switching from one product to a competing product

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The Internet’s Impact on Competitive Advantage
• Internet technology is based on universal standards that any company can use which
makes it easy for rivals to compete on price alone and for new competitors to enter
the market
• Internet has nearly destroyed some industries and severely threatened more
• Internet has create new markets and formed basis for thousands of new products,
services and business models, and provided new opportunities for building brands of
very large and loyal consumer bases

The Business Value Chian Model

• The Value Chain Model
o 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
o Model identifies specific, critical leverage points where a firm can use
information technology most effectively to enhance its competitive position
o Adds a margin of value to a firms product’s or services
• Primary Activities
o Related to the production and distribution of the firm’s products and services
which creates value for the customer
o Operations transforms inputs into finished products
o Outbound logistics entail storing and distributing finished products
o Service includes maintenance and repair of the firm’s goods and services
• Support Activities
o Makes the delivery of the primary activities possible and consist of
organisation infrastructure, human resources, technology and procurement
o Supply chain management systems that coordinate the flow of resources into
your firm
o Benchmarking
Involves comparing the efficiency and effectiveness of your business
processes against strict standards and the measuring performance
against those standards
o Industry best practices are usually identified by consulting companies,
research organisations, government agencies and industry associations as the

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 most successful solutions or problem-solving methods for consistently and
effectively achieving a business objective
o To achieve competitive advantage it is done through attaining operational
excellence, lowering costs, improving profit margins and forging a closer
relationship with customers and suppliers
o If competitors are making similar improvements there will not be a
competitive disadvantage
Extending the Value Chain: The Value Web

• Performance of most firms depends not only on what goes on inside a firm but also
on how well the firm coordinates with direct and indirect suppliers, delivery firms
and of course customers
• By working with other firms industry participants is able to use information
technology to develop industry-wide standards for exchanging information or
business transactions electronically
• Efforts are to increase efficiency, making product substitution less likely and perhaps
raising entry costs thus discouraging new entrants
• Internet technology make it possible to highly synchronised industry value chains
called value webs
• Value Web
o Collection of independent firms that use information technology to
coordinate their value chains to operate a product or service foe a market
collectively
• Value webs are flexible and adaptive to changes in supply and demand
Synergies, Core Competencies and Network-Based Strategies
• Information systems can improve the overall performance of these business units by
promoting synergies and core competencies
Synergies
• When the output of some units can be used as inputs to other units these
relationships lower cost and generate profits
• Information systems aim to tie together the operations of disparate business unites
so they can act as a whole

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 • Information systems would help the merged companies consolidate operations,
lower retailed costs, and increase cross marketing of financial products

Enhancing Core Competencies

• Core Competencies
o An activity for which a firm is a world-class leader
• Involve being the world’s best miniature parts designer etc.
• Relies on knowledge gained over many years with experience with technology
• Any information systems encourages the sharing of knowledge across business units
enhancing competency
Network-Based Strategies
• Network-Based strategies include
o Use of Network Economics
o Virtual Company Model
o Business Ecosystems
Network Economics
• The more any given resource is applied to production the lower the marginal gain in
output, until a point is reached where the additional inputs produce no additional
outputs
• Information technology can be strategically useful
• Internet sides can be used to build communicates of users which builds customer
loyalty and enjoyment and builds unique ties to customer
• Network economics also provides strategic benefits to commercial software vendors
• Value of their software and complementary software products increases as more
people use them and thee is a larger installed base to justify continued use of the
product and vendor support
Virtual Company Model
• Virtual Company

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 o Known as a virtual organisation 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 organisational
boundaries or physical locations.
• Useful when a company finds it cheaper to acquire products, or capabilities from an
external vendor and lacks the time and resources to respond on its own
Business Ecosystems; Keystone and Niche Firms
• The Porter model assumes a relatively static industry environment which focuses on
industry players in a market environment
• Business Ecosystem
o Another term for these loosely coupled but interdependent networks of
suppliers, distributors, outsourcing firms, transportation service firms and
technology manufactures
• Builds on the idea of the value web described earlier, the main difference being that
cooperation takes place across many industries rather than many firms
• Characterised as having one or a few keystone firms that dominate the ecosystem
and create the platforms used by other niche firms
• Information Technology plays a powerful role
• Greater emphasis on the use of IT to build industry ecosystems
• A powerful example of a rapidly expanding ecosystems are:
o Device Makers
o Wireless Telecommunications Firms
o Independent Software Applications Providers
o Internet Service Providers
Using Systems for Competitive Advantage: Management Issues
• Strategic information system often change the organisation as well as its products,
services and operating procedures, driving the organisations into new behavioural
patterns
Sustaining Competitive Advantage
• The competitive advantages that strategic systems confer do not necessarily last
long enough to ensure long-term profitability
• Markets, customer expectations and technology change: globalisation has made
these changes even more rapid and unpredictable
• Internet can make competitive advantage disappear quickly since all companies can
use this technology
• Information systems cannot alone provide an enduring business advantage
• Systems originally intended to be strategic frequently because tools for survival,
required for every firm to stay in business or they may inhibit organisations from
making the strategic changes essential for future success
Aligning IT with Business Objectives
• Most businesses get it wrong- Information technology takes on a life of its own and
does not serve management and shareholder interest very well
• Successful firms and mangers understand what IT can do and how it works, take an
active roles in shaping its use and measure its impact on revenues and profits.
Management Checklist: Performing a strategic Systems Analysis
• Managers need to perform a strategic system analysis

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 • There are different types of systems which provide a strategic advantage to their
firms, managers should ask the following questions:
1. What is the structure of the industry in which the firm is located?
What are some of the competitive forces at work in the industry? Are
there new entrants to the industry? What is the relative power of
suppliers, customers and substitute products and services over prices
Is the basis of competition quality, price or brand?
What are the direction and nature of change within the industry?
From where are the momentum and change coming?
How is the industry currently using information technology? Is the
organisation behind or ahead of the industry in its application of
information systems?
2. What are the business, firm and industry value chains for this particular firm?
How is the company creating value for the customer-through lower
prices and transaction costs or higher quality? Are there any places in
the value chain where the business could create more value for the
customer and additional profit for the company?
Does the firm understand and manage its business processes using
the best practices available? It it taking maximum advantage of supply
chain management, customer relationship management and
enterprise systems?
Does the firm leverage its core competencies?
Is the industry supply chain and customer chain and customer base
changing in ways that benefit or harm the firm?
Can the firm benefit from strategic partnerships and value webs?
Where is the value chain will information systems provide the
greatest value to the firm?
3. Have we aligned IT with our business strategy and goals?
Have we correctly articulated our business strategy and goals?
Is IT improving the right business processes and activities to promote
this strategy?
Are we using the right metrics to measure progress toward those
goals?
Managing Strategic Transitions
• These sociotechnical changes affects both social and technical elements of the
organisation can be considered strategic transitions
o Movement between levels of sociotechnical systems
• Changes entail blurring of organisational boundaries both external and internal
• Suppliers and customers must become intimately linked and may share each other’s
responsibilities

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