See the attached PPT for Assignment
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S2-DigitalCorpsStrategyvoice.ppt3.*
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3
Chapter
Information Systems, Organizations, and Strategy
TOPICS
- Organizations: key attributes, digital entrprises, impact of technologies
- Strategies: establishing strategies, different strategy models, how to compete and succeed
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Organizations and Information Systems
What is an organization?
Technical definition:
Stable, formal social structure that takes resources from environment and processes them 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
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Which of the two definitions do students find more appealing and why? It is important to consider both definitions rather than exclusively use one at the expense of the other. The two definitions are complementary.
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The Technical Microeconomic
Definition of the Organization
Figure 3-2
In the microeconomic definition of organizations, capital and labor (the primary production factors provided by the environment) are transformed by the firm through the production process into products and services (outputs to the environment). The products and services are consumed by the environment, which supplies additional capital and labor as inputs in the feedback loop.
Organizations and Information Systems
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Ask students what are the inputs from the environment? What do organizations output (goods and services). In this view, the organization or business firm is rather easily changed, and malleable. The organization is a collection of parts, like a machine, that can be re-arranged as needed. There are no humans in this model, or if there are, they are assumed to be relatively simple.
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Organizations and Information Systems
Routines and business processes
Routines (standard operating procedures)
Precise rules, procedures, and practices developed to cope with virtually all expected situations (not automated)
Business processes: Collections of routines
Business Applications: Automated business processes
Business firm: Collection of businesses processes
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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You could ask students to describe examples of situations where a business they have interacted with has had a well-understood set of routines. One such example is at the doctor’s office, where the receptionist, nurses, and doctors all have a defined set of routines. Ask students to think about and describe routines they performed on their jobs.
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Organizational Levels
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Organizations and Information Systems
Organizational politics: Divergent viewpoints lead to political struggle, competition, and conflict
Organizational culture: Encompasses set of assumptions that define goal and product
Organizational environments: Organizations and environments have a reciprocal relationship
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Organization = Business Process + Org Culture + Org Politics + ?
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You could ask students to describe examples where organizational politics might hamper a firm’s ability to succeed, or examples where effectively managed organizational politics helps a company to undergo a smoother transition or make more intelligent decisions. Ask students to describe their personal experiences with “organizational politics.”
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Digital Enterprises
- A digital enterprise is defined as “an organization where nearly all significant business processes and relationships with customers, suppliers, and employees are digitally enabled and key corporate assets are managed through digital means “
Source: Laudon, K. & Laudon, J. (2008). Management Information Systems, Managing the Digital Firm. New Jersey: Prentice Hall, p. G4.
Views:
- Stages of evolution
- Not one dimension (e.g., web technologies) -- many different directions
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Stages of Digital Firm Evolution
Web Sites
for advertising
(HTML)
Ecommerce Sites
(Advertising + Purchasing)
Virtual Shop Web Sites
+ Purchasing
+ Virtual operations
(multiple orgs)
HTML
Web Sites
+ Purchasing
+ Virtual operations
(multiple orgs)
+ Mobility + self serve customers +
no latency + …
Virtual Shops
(One Click and Multiple Orders)
Digital Enterprises
Purchase
(one supplier)
Advertising
Brick
and
Mortar
Web Advertising
(Click and Brick)
Simple Ecommerce
(Click and Order)
Purchase
(multiple supplier)
Service
Delivery
Business Services Over the Internet
Customer
Support
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Amazon.com, and several other organizations, have and are going through the following stages of evolution:
Stage 1: a simple HTML Web site to display/advertise company products. The users manually order the product.
Stage 2: an Ecommerce (EC) site where the users can select the products and then also buy them
Stage 3: a virtual enterprise (VE) site that goes beyond ecommerce site by tying services from different companies through a single user interface (a virtual enterprise is a network or loose coalition of a variety of value adding services in a supply chain, that unite for a specific period of time for a specific business objective, and disband when the goal is achieved).
Stage 4: a Next Generation Enterprise (NGE) site that goes beyond VE sites to add mobility, self-serve customers, QoS, and other features to become the primary source of company business.
In each stage, the percentage of company business conducted over the network increases
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Organizations and Information Systems
Disruptive technologies
Technology that brings about sweeping change to businesses, industries, markets
Examples: personal computers, word processing software, the Internet, the PageRank algorithm
First movers and fast followers
First movers – inventors of disruptive technologies
Fast followers – firms with the size and resources to capitalize on that technology
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Ensure that students understand that the PageRank algorithm is the underlying technology behind Google search. Ask students if they can give examples of any first movers that invented a disruptive technology, yet failed to last (examples might include the Altair personal computer, the Netscape Navigator Internet browser, etc.).
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Organizations and Information Systems
Organizational structure
Five basic kinds of structure
Entrepreneurial: Small start-up business
Machine bureaucracy: Midsize manufacturing firm
Divisionalized bureaucracy: Fortune 500 firms
Professional bureaucracy: Law firms, school systems, hospitals
Adhocracy: Consulting firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Do students agree with the classification of these types of organizational structure? Can they come up with examples for each type of organization?
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Economic impacts
IT changes relative costs of capital and the costs of information
Information systems technology is a factor of production, like 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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IT figures to replace the function of more middle managers as time passes, as well as reduce the need for other forms of capital (buildings, machinery). Ensure that students understand what is meant by ‘economics of information’ and why outsourcing is a possibility due to IT.
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Transaction cost theory
Firms seek to economize on cost of participating in market (transaction costs)
IT lowers market transaction costs for firm, making it worthwhile for firms to transact with other firms rather than grow the number of employees
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Explain that using the market can be expensive. If you depend on the market, rather than hiring employees, to will need to search for talent, vet the talent, write contracts for work to be performed, monitor the work, and so forth. When participation in markets is expensive, firms would rather hire employees to accomplish their work. But the Internet makes it less expensive to use the marketplace. With the Internet, firms mind it more cost effective to use the marketplace and contract for work in a market, rather than hire employees. Ask your students why the Internet can make participating in markets less expensive than before?
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The Transaction Cost Theory of the Impact of Information Technology on the Organization
Figure 3-6
Firms traditionally grew in size to reduce transaction costs. IT potentially reduces transaction costs for a given size.
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms
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As the costs of participating in markets rises (transaction costs), firms hire more employees to do the work in-house. IT lowers transaction costs. This can result in firms shrinking in size (reduced employment) , but still maintaining or even increasing revenues.
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Agency theory:
Firm is nexus of contracts among self-interested parties requiring supervision
Firms experience agency costs (the cost of managing and supervising) 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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By characterizing employees as independent agents requiring constant supervision, agency theory underscores a key reason that costs increase as firms grow in size and scope – the need to expend more effort managing their employees.
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The Agency Cost Theory of the Impact of Information Technology on the Organization
Figure 3-7
As firms grow in size and complexity, traditionally they experience rising agency costs.
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms
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Agency costs rise as firms take on more employees. IT enables firms to economize on managers through better coordination and communication. This allows firms to grow revenues while maintaining the same size. Figures 3-6 and 3-7 are driving home the point that information technology has a direct effect on the underlying cost structure of the firm. IT enables small companies to act like big companies, and enables large companies to shrink in headcount while expanding revenues.
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Organizational and behavioral impacts
IT flattens organizations
Decision making pushed to lower levels
Fewer managers needed (IT enables faster decision making and increases span of control)
Postindustrial organizations
Organizations flatten because in postindustrial societies, authority increasingly relies on knowledge and competence rather than formal positions
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Ask students to explain what is meant by authority relying on knowledge and competence rather than formal positions. Why might this ‘flatten’ and organization? The idea here is that with sufficient IT, competent workers will be able to accomplish more on their own than they would under a more concrete hierarchy.
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Flattening Organizations
Figure 3-8
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 decision-making authority.
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms
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Ask students to explain some of the benefits of the flattened organization as opposed to the more complicated hierarchy. Information travels through fewer levels to its intended recipients, fewer managers so agency costs are smaller, and firms can act faster (less decision delay).
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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
Most common reason for failure of large projects is due to organizational and political resistance to change
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Explain what is meant by changes in culture and politics of the firm. For example, workers may resist changes that disrupt their routines. Also explain to students that as important as technical understanding of information systems may be for potential managers, it is equally important to understand the people and organizational structures and customs affected by information systems.
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Organizational Resistance and the Mutually Adjusting Relationship Between Technology and the Organization
Figure 3-9
Implementing information systems has consequences for task arrangements, structures, and people. According to this model, to implement change, all four components must be changed simultaneously.
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms
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The diamond shape in the figure represents the mutual relationship between the concepts shown. You could emphasize that implementing a new system might be like changing the diamond into a square, thus requiring some degree of change on the part of all four participants in the relationship.
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
The Internet and 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 corporate Web site, saving millions of dollars in distribution costs
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The Internet should also have a flattening effect on many organizations. Can students describe any businesses that have become more efficient and flat thanks to successful incorporation of the Internet in their operations? Some older students may remember the “bad old days” when seven or more levels of management needed to decide even simple issues in a typical firm.
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How Information Systems Impact Organizations and Business Firms
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Central organizational factors to consider when planning a new system:
Environment
Structure
Hierarchy, specialization, routines, business processes
Culture and politics
Type of organization and style of leadership
Main interest groups affected by system; attitudes of end users
Tasks, decisions, and business processes the system will assist
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Ask students to consider the results of an information system implemented without properly considering each of the above factors. For example, an information system designed without an understanding of the company’s culture and politics is likely to be unpopular, perhaps forcing employees to drastically deviate from their previous routines.
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Organizational Strategy
- Main Issue; how to succeed
- A purpose is important
- Strategy: game plan to win
- How to develop a strategy
- Difference between a vision and realization of a vision
External Analysis
Internal Analysis
Strategy Formulation
- Mission and Direction
- Game plan to succeed
Strategy
Implentation
Monitoring
And Control
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Business Design
Core
competencies
Products
/services
Customers
Customer
Needs
Products
/services
Competencies
/outsource
Both models work at different times (what works when)
Second model heavily relies on outsourcing
Views on outsourcing have changed (Ford example)
Traditional Model
New Model
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Establishing Strategies
Existing
Customers
New
Customers
Existing New
Products Products
Strengthen
Current
Situation
Expand
Customer
Base
Explore
New
Horizons
Upselling
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Porter’s Competitive Forces Model
Figure 3-10
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.
Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Notice that in the graphic, competitors are represented differently than the other four competitive forces influencing a firm. Why do students think this is the case? One answer might be that competitors are firms themselves and are under similar pressures to the firms they influence.
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Aligning Business With IT
(Henderson-Venkataraman Model)
Strategy
Infrastructure
Business IT
Business
Strategy
IT
Strategy
Business
Infrastructure
IT
Infrastructure
Source: Henderson, J. and Venkataraman, N., “Strategic Alignment”,
IBM System Journal, Vo. 32, No. 1, 1993
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Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Read the Interactive Session: Management, and then discuss the following questions:
What features of organizations are relevant for explaining the performance of information systems during the Iraq War?
What difficulties did U.S. military forces in Iraq encounter with information systems? What management, organization, and technology factors contributed to these difficulties?
Describe TIGR and explain why it has been so beneficial to U.S. patrol groups in Iraq.
Why is TIGR an example of a horizontal technology?
How helpful will TIGR be in future military campaigns? Explain your answer.
Can Technology Save Soldiers’ Lives in Iraq?
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Emphasize that the original systems used by the forces on the ground in Iraq were unsuccessful because they were not made with a sufficient understanding of the day-to-day activities of the soldiers as well as the problems they faced.
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Traditional competitors
All firms share market space with competitors who are continuously devising new products, services, efficiencies, switching costs
New market entrants
Some industries have high barriers to entry, e.g. computer chip business
New companies have new equipment, younger workers, but little brand recognition
Substitute products and service
Substitutes customers might use if your prices become too high, e.g. 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 when firm cannot raise prices as fast as suppliers
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Ask students to name different types of businesses and describe the benefits and drawbacks of being a new market entrant in each.
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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
Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Here you can make a list of five well-known firms and then analyze with students the major thrust of their strategy. Wal-Mart is a good example to start with because of its emphasis on low-cost leadership.
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Business value chain model
Views firm as series of activities that add value to products or services
Highlights activities where competitive strategies can best be applied
Primary activities vs. support activities
At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy
Utilize benchmarking, industry best practices
Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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How does the value chain model different from the Porter model? (It offers more specific detail about what exactly to do to achieve competitive advantages.) How do primary activities differ from support activities?
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The Value Chain Model
Figure 3-11
This figure provides examples of systems for both primary and support activities of a firm and of its value partners that can add a margin of value to a firm’s products or services.
Using Information Systems to Achieve Competitive Advantage
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Chapter 3 Information Systems, Organizations, and Strategy
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Emphasize the relationship between the primary and support activities of this firm and explain how information systems are critical to the success of each activity.
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The Value Web
Figure 3-12
The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand.
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage
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Ask students why a model like the one displayed in the figure might be more likely to adapt quickly to changes in supply and demand. Also emphasize the networking between the different segments of the value web.
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Network-based strategies
Take advantage of firm’s abilities to network with each other
Include use of:
Network economics
Virtual company model
Business ecosystems
Using Information Systems to Achieve Competitive Advantage
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Chapter 3 Information Systems, Organizations, and Strategy
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Examples of firms that use this type of strategy to achieve an advantage are eBay and iVillage. Many other companies are following suit in using a network-based strategy – can students name any?
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Network economics
Traditional economics: Law of diminishing returns
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
Network economics:
Marginal cost of adding new participant almost zero, with much greater marginal gain
Value of community grows with size
Value of software grows as installed customer base grows
Using Information Systems to Achieve Competitive Advantage
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Chapter 3 Information Systems, Organizations, and Strategy
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Explain the difference between these two schools of economics. What aspect of network economics allows value to continue to increase with the size of the community?
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Virtual company strategy
Virtual company uses networks to ally with other companies to create and distribute products without being limited by traditional organizational boundaries or physical locations
E.g. Li & Fung manages production, shipment of garments for major fashion companies, outsourcing all work to over 7,500 suppliers
Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Explain to students that companies like this are ‘virtual’ because they do not actually own any factories, machines, or other similar infrastructure. Instead, they offer a series of services, aided by information systems and uninhibited by geographical boundaries.
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Business ecosystems
Industry sets of firms providing related services and products
Microsoft platform used by thousands of firms for their own products
Wal-Mart’s order entry and inventory management system
Keystone firms: Dominate ecosystem and create platform used by other firms
Niche firms: Rely on platform developed by keystone firm
Individual firms can consider how IT will enable them to become profitable niche players in larger ecosystems
Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Can students see the similarities between business ecosystems and value webs? Can they appreciate the key difference (that business ecosystems extend across industries as opposed to just firms within the same industry)?
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An Ecosystem Strategic Model
Figure 3-13
The digital firm era requires a more dynamic view of the boundaries among industries, firms, customers, and suppliers, with competition occurring among industry sets in a business ecosystem. In the ecosystem model, multiple industries work together to deliver value to the customer. IT plays an
important role in enabling a dense network of interactions among the participating firms.
Using Information Systems to Achieve Competitive Advantage
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
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Emphasize how important IT is in bringing disparate industries together to deliver value to the customer. What are the challenges of coordinating the flow of information across, for example, four different industries, as shown in the figure?
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Sustaining competitive advantage
Because competitors can retaliate and copy strategic systems, competitive advantage is not always sustainable; systems may become tools for survival
Performing strategic systems analysis
What is structure of industry?
What are value chains for this firm?
Managing strategic transitions
Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes
Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues
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Emphasize the importance and difficulty of aligning information technology with the business. What does this mean? Why do so many companies fail at this critical task? Can students think of any other important questions that management should ask about their company before designing their IT systems? What is a solution for the fact that many competitive advantages can be copied? This fact highlights the importance of continuous innovation in order to stay ahead.
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Voice Annotation
For a Voice Annotated Discussion of these slides, please review the following Video Clip.
Note: This is an edited version of a live discussion session and is jittery and of low quality. It is intended to give you a general overview of the topic
Title: Business-strategy, Duration: 21 minutes, URL for Viewing: http ://harrisburgu.adobeconnect.com/p7oj85jj8z9/
Sales and
Marketing
Management/
Knowledge
Level
Strategic
Level
Finance and
Accounting
Human
Resources
Product/Service
Development
Operational
Level
