Information Systems,

Organizations, and Strategy

Learning Objectives
3.1 Which features of organizations do managers need to know about to
build and use information systems successfully?
3.2 What is the impact of information systems on organizations?
3.3 How do Porter’s competitive forces model, the value chain model,
synergies, core competencies, and network economics help
companies develop competitive strategies using information
systems?
3.4 What are the challenges posed by strategic information systems, and
how should they be addressed?
3.5 How will MIS help my career?
Video Cases
Case 1: GE Becomes a Digital Firm: The Emerging Industrial
Internet
Case 2: National Basketball Association: Competing on Global
Delivery with Akamai O S Streaming
Walmart’s New Supercenter Strategy (1 of 2)
• Problem
• Opportunities from new technology
• Large geographic footprint
• Powerful competition
• High costs
• Solutions
• Determine business strategy
• Design new products and services
• Integrate multiple lines of business
• Optimize in-store experience
• Edge computing
Walmart’s new Supercenter Strategy (2 of 2)

• Supercenter systems expedite ordering and shipping; provides

new in-store services, warehousing for third-party sellers,
targeted brand online ads
• Increases revenue and service
• Illustrates how information systems help business compete
• Demonstrates I T’s role in helping organizations strengthen
their competitive strategies by using new technologies
The Relationship Between Organizations and
Information Technology
• Information technology and organizations influence each other
• Relationship influenced by organization’s
• Structure
• Business processes
• Politics
• Culture
• Environment
• Management decisions
Figure 3.1 The Two-Way Relationship Between
Organizations and Information Technology
What Is an Organization?
• Technical definition
• Formal social structure that processes resources from
environment 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
Figure 3.2 The Technical Microeconomic
Definition of the Organization
Figure 3.3 The Behavioral View of
Organizations
Features of Organizations
• Use of hierarchical structure
• Accountability, authority in system of impartial decision making
• Adherence to principle of efficiency
• Routines and business processes
• Organizational politics, culture, environments, and structures
Routines and Business Processes
• Routines (standard operating procedures)
• Precise rules, procedures, and practices developed to cope
with virtually all expected situations
• Business processes: Collections of routines
• Business firm: Collection of business processes
Figure 3.4 Routines, Business Processes, and
Firms
Organizational Politics
• Divergent viewpoints lead to political struggle, competition,
and conflict
• Political resistance greatly hampers organizational change
Organizational Culture
• Encompasses set of assumptions that define goal and product
• What products the organization should produce
• How and where it should be produced
• For whom the products should be produced
• May be powerful unifying force as well as restraint on change
Organizational Environments
• Organizations and environments have a reciprocal relationship
• Organizations are open to, and dependent on, the social and
physical environment
• Organizations can influence their environments
• Environments generally change faster than organizations
• Information systems can be instrument of environmental
scanning, act as a lens
Figure 3.5 Environments and Organizations Have a
Reciprocal Relationship
Disruptive Technologies
• Substitute products that perform as well as or better than
existing product
• Technology that brings sweeping change to businesses,
industries, markets
• Examples: personal computers, smartphones, Big Data,
artificial intelligence, the Internet
• First movers and fast followers
• First movers—inventors of disruptive technologies
• Fast followers—firms with the size and resources to
capitalize on that technology
Organizational Structure
• Five basic kinds of organizational structure (Mintzberg)
• Entrepreneurial
• Machine bureaucracy
• Divisionalized bureaucracy
• Professional bureaucracy
• Adhocracy
• Information system often reflects organizational structure
Other Organizational Features
• Goals
• Coercive, utilitarian, normative, and so on
• Constituencies
• Leadership styles
• Types of tasks
• Different environments
Economic Impacts
• I T changes relative costs of capital and the costs of information
• Information systems technology is a factor of production, like capital
and labor
• I T 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
Transaction Cost Theory
• Firms seek to economize on transaction costs (the costs of
participating in markets)
• Vertical integration, hiring more employees, buying
suppliers and distributors
• I T lowers market transaction costs, making it worthwhile for
firms to transact with other firms rather than grow the number
of employees
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
• I T can reduce agency costs, making it possible for firms to grow
without adding to the costs of supervising, and without adding
employees
Organizational and Behavioral Impacts

• I T flattens organizations
• Decision making is pushed to lower levels
• Fewer managers are needed (I T 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
Figure 3.6 Flattening Organizations
Understanding 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
• Four factors
• Nature of the innovation
• Structure of organization
• Culture of organization
• Tasks affected by innovation
Figure 3.7 Organizational Resistance to
Information System Innovations
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 a corporate website, saving millions of
dollars in distribution costs
Implications for the Design and
Understanding of Information Systems
• Organizational factors in 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
A competitive advantage
Firms that “do better” than others are said to have a competitive advantage
over others.

• But why do some firms do better than others, and how do they achieve competitive
advantage?

• How can you analyze a business and identify its strategic advantages? How can you
develop a strategic advantage for your own business?

• And how do information systems contribute to strategic advantages?

• One answer to that question is Michael Porter’s competitive forces model.

Porter’s Competitive Forces Model (1 of 3)
• Why do some firms become leaders in their industry?
• Michael Porter’s competitive forces model
• Provides general view of firm, its competitors, and environment
• Five competitive forces shape fate of firm:
• Traditional competitors
• New market entrants
• Substitute products and services
• Customers
• Suppliers
Porter’s Competitive Forces Model (2 of 3)

• Traditional competitors
• All firms share market space with competitors who are
continuously devising new products, services, efficiencies,
and switching costs
• New market entrants
• Some industries have high barriers to entry, for example,
computer chip business
• New companies have new equipment, younger workers,
but little brand recognition
Porter’s Competitive Forces Model (3 of 3)
• Substitute products and services
• Substitutes customers might use if your prices become too high, for
example, i Tunes substitutes for C D s
• 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
Information System Strategies for Dealing with
Competitive Forces (1 of 3)

• What is a firm to do when it is faced with all these competitive

forces?

• And how can the firm use information systems to counteract

some of these forces?

• How do you prevent substitutes and inhibit new market

entrants?
Information System Strategies for Dealing with
Competitive Forces (1 of 3)
• Four generic strategies for dealing with competitive forces,
enabled by using I T:

• Low-cost leadership

• Product differentiation

• Focus on market niche

• Strengthen customer and supplier intimacy

Low-cost leadership
Use information systems to achieve the lowest operational costs and the
lowest prices.

• Walmart
• By keeping prices low and shelves well stocked using a legendary inventory
replenishment system, Walmart became the leading retail business in the
United States.
• Walmart’s continuous replenishment system sends orders for new
merchandise directly to suppliers as soon as consumers pay for their
purchases at the cash register.
• Point-of-sale terminals record the bar code of each item passing the
checkout counter and send a purchase transaction directly to a central
computer at Walmart headquarters.
Low-cost leadership
• Walmart
• The computer collects the orders from all Walmart stores and transmits
them to suppliers.
• Suppliers can also access Walmart’s sales and inventory data using web
technology.
Product differentiation

• Product differentiation
• Enable new products or services, greatly change customer convenience
and experience
• Example: Google Nike
• Mass customization; customer experience management
Information System Strategies for Dealing with
Competitive Forces (2 of 3)

• Product differentiation
• Enable new products or services, greatly change customer convenience
and experience
• Example: Google Nike
• Mass customization; customer experience management
New Product and Services
Interactive Session: Organizations: Shipping
Wars
• Class discussion
• Why is shipping so important for e-commerce? Explain your
answer.
• Compare the shipping strategies of Amazon, FedEx, and UPS.
How are they related to each company’s business model?
• Will FedEx succeed in its push into ground shipping. Why or why
not?
Interactive Session: Management: Customer
Experience Management: A New Strategic
Weapon
• Class Discussion
• What is customer experience management? How can it contribute to
competitive advantage?
• How does information technology support customer experience
management? Give examples.
• How did information technology and customer experience
management change operations and decision making at the
organizations described in this case?
Focus on market niche

• Focus on market niche

• Use information systems to enable a focused strategy on a single
market niche; specialize
• Example: Hilton Hotels’ On Q system
• Strengthen customer and supplier intimacy
• Use information systems to develop strong ties and loyalty with
customers and suppliers
• Increase switching costs
• Examples: Toyota, Amazon
The Internet’s Impact on Competitive
Advantage
• Transformation or threat to some industries
• Examples: travel agency, printed encyclopedia, media
• Competitive forces still at work, but rivalry more intense
• Universal standards allow new rivals, entrants to market
• New opportunities for building brands and loyal customer
bases
Smart Products and the Internet of Things

• Internet of Things (Io T)

• Growing use of Internet-connected sensors in products
• Smart products
• Fitness equipment, health trackers
• Expand product differentiation opportunities
• Increasing rivalry between competitors
• Raise switching costs
• Inhibit new entrants
• May decrease power of suppliers
 The Business Value Chain Model

• Although the Porter model is very helpful for identifying competitive

forces and suggesting generic strategies, it is not very specific about
what exactly to do, and it does not provide a methodology to follow
for achieving competitive advantages.

• If your goal is to achieve operational excellence, where do you start?

Here’s where the business value chain model is helpful.
 The Business Value Chain Model

• The value chain model highlights specific activities in the business

where competitive strategies can best be applied (Porter, 1985) and
where information systems are most likely to have a strategic
impact.

• This model identifies specific, critical leverage points where a firm

can use information technology most effectively to enhance its
competitive position.
 The Business Value Chain Model

• The value chain model views the firm as a series or chain of basic
activities that add a margin of value to a firm’s products or services.

• These activities can be categorized as either primary activities or

support activities.
 The Business Value Chain Model

• Primary activities: are most directly related to the production and

distribution of the firm’s products and services, which create value
for the customer.

• Primary activities include inbound logistics, operations, outbound

logistics, sales and marketing, and service.
 The Business Value Chain Model

• Support activities: make the delivery of the primary activities

possible and consist of organization infrastructure (administration
and management), human resources (employee recruiting, hiring,
and training), technology (improving products and the production
process), and procurement (purchasing input).
Figure 3.9 The Value Chain Model
The Business Value Chain Model
• 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
Looking at the industry value chain encourages you to think about how to use
information systems to link up more efficiently with your suppliers, strategic
partners, and customers.

Strategic advantage derives from your ability to relate your value chain to the
value chains of other partners in the process.

For instance, if you are Amazon.com, you want to build systems that:
• Make it easy for suppliers to display goods and open stores on the Amazon
site
• Make it easy for customers to pay for goods
• Develop systems that coordinate the shipment of goods to customers
• Develop shipment tracking systems for customers
Extending the Value Chain: The Value Web
• Firm’s value chain is linked to value chains of suppliers,
distributors, customers
• Industry value chain
• Value web
• Collection of independent firms using highly synchronized I
T to coordinate value chains to produce product or service
collectively
• More customer driven, less linear operation than
traditional value chain
Figure 3.10 The Value Web
Synergies
• When output of some units are used as inputs to others, or
organizations pool markets and expertise
• Example: Merger of Bank of N Y and J P Morgan Chase
• Purchase of YouTube by Google
Core Competencies
• Activity for which firm is world-class leader
• Relies on knowledge, experience, and sharing this across
business units
• Example: Procter & Gamble’s intranet and directory of subject
matter experts
Network-Based Strategies
• Take advantage of firm’s abilities to network with one another
• Include use of:
• Network economics
• Virtual company model
• Business ecosystems
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
• Compare to traditional economics and law of diminishing
returns
Virtual Company Model
• Virtual company
• Uses networks to ally with other companies
• Creates and distributes products without being limited by
traditional organizational boundaries or physical locations
• Example: Li & Fung
• Manages production, shipment of garments for major
fashion companies
• Outsources all work to thousands of suppliers
Business Ecosystems and Platforms
• Industry sets of firms providing related services and products
• Platforms
• Microsoft, Facebook
• Keystone firms
• Niche firms
• Individual firms can consider how I T will help them become
profitable niche players in larger ecosystems
Figure 3.11 An Ecosystem Strategic Model
Challenges Posed by Strategic Information
Systems
• Sustaining competitive advantage
• Competitors can retaliate and copy strategic systems
• Systems may become tools for survival
• Aligning I T with business objectives
• Performing strategic systems analysis
• Structure of industry
• Firm value chains
How Will MIS Help My Career?
• The Company: Superior Data Quality
• Position Description: Entry-level business development
representative
• Job Requirements
• Interview Questions
• Author Tips