Ch. 3 - Business Information Systems

Organization (technical)

Formal social structure that processes resources from environment to product outputs

A formal legal entity with internal rules and procedures, as well as a social structure

Organization (behavioral)

A collection of rights, privileges, obligations, and responsibilities that is delicately balanced over time through conflict and conflict resolution

Technical microeconomic definition of an organization

Capital and labor (primary production factors provided by the environment) are transformed by the firm through production processes into products and services (outputs to the environment)

The products and services are consumed by the environment, making a loop of the same cycle

Behavioral view of organizations

Emphasizes group relationships, values and structures

This view creates a complex functioning machine that may be difficult to change rapidly (or on command) because of the inclusion of the human behavioral dynamics

Two-way relationship between Organizations and IT

Mediated by many factors, not the least of which are the decisions — or not made — by managers

Consists of mediating the relationship including organizational culture, structure, politics, business processes, and environment

Features of organizations

Routines and business processes

Organizational politics

Organizational culture

Organizational environments

Organizational structure

Use behavioral and technical definitions to help shape information systems adoption

Information Systems Adoption

technical machines and workers

inputs and outputs, processing

changing the organizational balance of the firm

training and learning

managers must focus on the entire project from start to finish

Routines

Standard operating procedures (SOP)

• Precise rules, procedures and practices developed to cope with virtually all expected situations

• Allow workers to become highly efficient, reducing costs

• Goal is to produce goods and services

Business processes

collections of routines

Business firm

collection of business processes

Organizational politics

Divergent viewpoints lead to political struggle, competition and conflict

Political resistance greatly hampers on organizational change

Managers must be skilled in organizational politics to implement new information systems

Organizational culture

Encompasses set of assumptions that define goal and product

May be powerful unifying force as well as restraint on change

Think: when you got work, what are some assumptions you can make about the culture?

Organizational environment

Environments allow organizations to draw resources to supply goods and services

• Financial

• Human

• Legislative requirements

• Customer requirements

• Competition

Disruptive technologies

substitute products that perform as well as or better than existing product

technology that brings sweeping change to businesses, industries, markets

Causes firms to either create the technology and ride the wave, adapt and adopt, or become obsolete and fail (like every browser has an AI model)

first movers

inventors of disruptive technologies

fast followers

firms with the size and resources to capitalize on that technology

Five basic kinds of organizational 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 firm

Economic impact of IS

Changes the relative costs of capital and information

• Substitute capital and labor

• Substitute buildings and machinery

IT impacts cost and quality of information, and changes the economic impacts of information

Reduce transaction costs

Reduce internal management costs

As more is spent on IT, firms will likely shrink over time, and revenue per employee will increase

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

• IT lowers market transaction costs for firm

• Worthwhile for firms to transact with other firms rather than grow the number of employees

• Far less expensive to outsource work

• Easier and cheaper to contract purchase of goods and services (car part manufacturer)

agency theory

Firm is “nexus of contracts” Principal (owner) employs agents (employees) to perform work on behalf

• Agents need constant supervision

• Firms experience agency costs (the cost of managing and supervising) which rise as firm grows

• IT can reduce agency costs, easier to oversee greater number of employees–Shrinking middle management and clerical workers

How IS impact organizations and business firms

IT flattens organizations:

*Decision making is pushed to lower levels

*Improved access to information at all levels

*Agile and adaptive

*Fewer managers are needed (IT enables faster decision making and increases span of control

Postindustrial organizations:

• Professional workers become more self managed

• Decision making is less centralized

• Need to make the virtual workforce effective

Organizational resistance to change

Information systems influence access to a key resource —information

• Information enables decisions

• Decisions inspire change

Most common reason for failure of large projects is due to organizational and political resistance to change

• Nature of IT innovation

• Organization’s structure

• Culture of people in organization

• Tasks affected by change

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 web site, saving millions of dollars in distribution costs

Factors to consider when planning a new systems

Environment

• Structure

• Hierarchy

• Specialization Routines

• Business processes

Culture and politics

Type of organization and style of leadership

Principal interest groups and attitudes

Tasks, decisions, and business processes it’s designed to assist

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

Traditional competitors

All firms share market space with competitors who are continuously devising new products, services, efficiencies, and switching costs

These competitors inspire innovation within the firm

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

Rely on external financing and have less experience, but potential

substitute products and services

Substitutes customers might use if your prices become too high

Not just about cost, but it’s a huge factor

Use information to make decisions regarding profitability

The more substitutions, the less control over pricing

Customers

Can customers easily switch to competitor's products?

What is the price of loyalty?

Attraction and retainment

Suppliers

More diverse suppliers a firm has, the greater control it can exercise over price, quality, and delivery schedules

The firm may not be able to raise prices as quickly as suppliers

Four generic strategies for dealing with competitive forces, enabled by using IS

Low-cost leadership

Product differentiation

Focus on market niche

Strengthen customer and supplier intimacy

Low-cost leadership

Achieve the lowest operational costs and the lowest prices

Efficient customer response system- directly links consumer behavior to distribution and production and supply chains

Example: Walmart’s inventory replenishment syste

Product differentiation

Enable new products and services or greatly change the customer convenience in using products and services

Mass customization to fit specifications of specific customers, individually tailored products

Differentiate the customer experience buying and using the product

Example: Google, Nike, Apple

Focus on market niche

Enable a specific market focus and serve the narrow target market better than competitors

Producing and analyzing data for sales and marketing techniques

Analyze customer buying patterns, taste, and preferences to efficiently pitch advertising and marketing campaigns to smaller markets

Example: Hilton Hotels’ OnQ system

Strengthen customer and supplier intimacy

Develop strong ties and loyalty with customers and suppliers

Increase switching costs (iPhone vs Android)

Example: Amazon recommending books to a long time customer

The Internet and 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 entrants to market

New opportunities for building brands and loyal customer bases

Smart Products and the Internet of Things

Internet of Things (IoT)

• 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

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- production and distribution, create value

• Support activities-infrastructure, technology, procurement

At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy

Value chain allows for candidate applications of information systems

Can then decide which to develop first

benchmarking

comparing business processes against standards and measuring performance

best practices

most successful solutions or problem-solving methods for achieving a business objective

Value web

Firm’s value chain is linked to the value chains of suppliers, distributors, customers

Performance of firm depends on what goes inside the firm and how well the firm coordinates with outside forces

Collection of independent firms using highly synchronized IT to coordinate value chains to produce product or service collectively

More customer driven, less linear operation than traditional value chain Synchronizes business processes in an industry or related industry

Flexible, adaptive to changes in supply and demand

synergies

When output of some units used as inputs to others, or organizations pool markets and expertise

• Example: Purchase of YouTube by Google

Tie together operations of disparate business unite to become a whole •

• Example: purchase of Countrywide Financial by Bank of New York to extend mortgage lending business

Can help lower retail costs, consolidate operations, increase cross-marketing of products

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

Enhance competencies by knowledge sharing

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

The real value comes from people using the product

Internet sites can build communities of users (Facebook, eBay)

Strategic benefits to commercial software vendors

A larger installed base justifies use of product and money spent on support

Virtual company model

Uses networks to link people, assets and ideas without boundaries or physical locations

Useful when a company finds it cheaper to acquire products from a vendor and lacks time or resources for response

Example: Li & Fung handles production and shipment of goods for companies like GUESS, Ann Taylor, Reebok

Business Ecosystems and Platforms

Industry sets of firms providing related services and products

• Microsoft platform used by thousands of firms

• Walmart’s order entry and inventory management

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 help them become profitable niche players in larger ecosystems

Strategic Information Systems Challenges

Sustaining competitive advantage

• Competitors can retaliate and copy strategic systems

• Systems may become tools for survival

Aligning IT with business objectives

• Performing strategic systems analysis

  • Structure of industry

  • Firm value chains

Managing strategic transitions

• Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes