Management Information Systems - Organizations, Information Systems, and Strategy
Organizations and Information Systems
Features of Organizations for Managers
To build and use information systems successfully, managers need to understand the following:
Centralized Decision-Making:c
Hierarchical structure and clear authority lines.
Information systems should support top-down reporting.
Decision support tools tailored for senior management.
Decentralized Decision-Making:
Distributed decision authority.
Empowering employees at all levels.
Definition of an Organization
Technical Definition:
Stable, formal social structure.
Takes resources from the environment and processes them into outputs.
Formal legal entity with internal rules and procedures, as well as a social structure.
Microeconomic Perspective: Capital and labor are transformed into products and services.
Behavioral Definition:
Collection of rights, privileges, obligations, and responsibilities.
Delicately balanced over time through conflict and conflict resolution.
Emphasizes group relationships, values, and structures.
Organization and Environment
Environments shape what organizations can do.
Organizations can influence their environments and decide to change them.
Disruptive Technologies
Technology that brings about sweeping change to businesses, industries, and markets.
Examples: Electric Vehicles, Blockchain Technologies, AI, 3D printing, IOT
First Movers: Inventors of disruptive technologies.
Fast Followers: Firms with the size and resources to capitalize on the technology.
Impact of Information Systems on Organizations
Transaction Cost Theory:
IT reduces the firm’s market transaction costs.
Firms can outsource work, reduce employee headcount, and still grow revenues.
Transaction costs are the costs of participating in markets.
Agency Cost Theory:
IT reduces agency costs, making management more efficient.
Fewer managers are needed to manage employees.
IT makes it possible to build very large global firms and run them efficiently.
Agency costs are the costs of managing a firm’s employees.
Internet and Organizational Impact
The internet increases accessibility, storage, and distribution of information and knowledge.
The internet can greatly lower transaction and agency costs.
Example: A large firm delivers internal manuals via a corporate website, saving millions in distribution costs.
Organizational and Behavioral Impacts
IT flattens organizations.
Decision-making is pushed to lower levels.
Fewer managers are needed (IT enables faster decision making and increases span of control).
Postindustrial Organizations:
Organizations flatten because authority increasingly relies on knowledge and competence rather than formal positions.
Information systems can reduce the number of levels in an organization.
Managers can supervise larger numbers of workers.
Lower-level employees have more decision-making authority.
Using Information Systems for Competitive Advantage
Four generic strategies enabled by IT:
Low-Cost Leadership:
Produce products and services at a lower price than competitors while enhancing quality and service.
Examples: Wal-Mart
Product Differentiation:
Enable new products or services, greatly change customer convenience and experience.
Examples: Google, Nike, Apple
Focus on Market Niche:
Use information systems to enable a focused strategy on a single market niche; specialize.
Example: Hilton Hotels
Strengthen Customer and Supplier Intimacy:
Use information systems to develop strong ties and loyalty with customers and suppliers; increase switching costs.
Example: Netflix, Amazon
Porter’s Competitive Forces Model
The strategic position of the firm and its strategies are determined by:
Competition with direct competitors.
New market entrants.
Substitute products.
Customers.
Suppliers.
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 (e.g., computer chip business).
New companies have new equipment, younger workers, but little brand recognition.
Substitute Products and Services:
Substitutes customers might use if 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 a transparent marketplace?
Suppliers:
Market power of suppliers when a firm cannot raise prices as fast as suppliers.
The Five Forces Model: Example with FedEx
Potential Entrants: Low/Medium
Truck companies are many (L).
Many options for gas companies (L).
Little for air carriers (H).
Suppliers: Medium
Little product differentiation (H).
Huge capital investments for start-ups (L).
Buyers: Medium/High
Little product differentiation (H).
Low switching costs (H).
Many customers (L).
Rivalry: High
Several competitors (H).
Relatively equal in size (H).
Little product differentiation (H).
Substitutes: Low/Medium
Fax/email for documents (doesn’t always work) (L).
Post for packages (only good when time is not an issue) (M).
Analyzing Strategic IT Opportunities
Online tracking as an example of using IT to alter Porter’s five forces.
Business Value Chain Model
Views firm as a 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 customer/supplier intimacy.
Utilize benchmarking and industry best practices.
FedEx Value Chain
Primary Activities:
Inbound Logistics: Getting packages to distribution center (truck pick-up, scanning, sorting, etc.).
Operations: Sorting and directing packages to the right destination.
Outbound Logistics: Delivering the packages.
Marketing and Sales: Advertisement, commercials, coupons, corporate/frequent user relations.
Customer Service: Dealing with complaints.
Support Activities:
Firm Infrastructure (Admin and Mgt): Accounting, finance, decisions, etc.
Human Resource: Dealing with employees, hiring/outsourcing internationally.
Technology Dev.: Developing new routes, delivery systems, destinations, etc.
Procurement of Resources: Dealing with suppliers of trucks, airlines, representatives, etc.
To gain a competitive advantage, a firm should do a better job in the above activities than its competitors.
Impact of IT on Value Chain
Online tracking as an example of using IT to alter a company’s value chain.
Largest impact is probably in Customer Service (after-sale activity).
Online tracking also affects Inbound/Outbound Logistics (people completing activities need to enter updates).
Synergies and Core Competencies
Information systems can improve overall performance of business units by promoting synergies and core competencies
Synergies
When output of some units are used as inputs to others, or organizations pool markets and expertise
Examples: mergers of banks, the purchase of YouTube by Google
Core competencies
Activity for which firm is a world-class leader
Relies on knowledge, experience, and sharing this across business units
Example: Procter & Gamble’s intranet and directory of subject matter experts
Sustaining Competitive Advantage: Management Issues
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 the structure of the industry?
What are the value chains for this firm?
Managing strategic transitions:
Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes.