MANAGEMENT INFORMATION SYSTEMS

Chapter 3
Information Systems, Organizations,
and Strategy

Mohammad Najjar, PhD, MBA, BSc

Operations & Supply Chain Management
Learning Objectives

1. Identify and describe important features of organizations

2. Demonstrate how Porter’s competitive forces model helps
companies develop competitive strategies using information
systems
3. Explain how the value chain help businesses identify
opportunities for strategic information system applications.
4. Demonstrate how information systems help businesses use
synergies, core competencies, and network-based strategies to
achieve competitive advantage.

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Opening Case: AT&T or Verison

Verizon and AT&T illustrates some of the ways that

information systems help businesses compete

• The telecommunications industry in which both companies

operate is extremely crowded and competitive, with both vying
with cable firms, new upstarts, and each other to provide a
wide array of digital services as well as voice transmission.

• To meet the challenges of surviving and prospering in this

environment, each of these firms focused on a different
competitive strategy using technology.

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Opening Case: AT&T or Verison
• Both companies identified opportunities to use information
technology to offer new products and services.

 AT&T’s strategy emphasized keeping costs low while capitalizing

on innovations from other technology vendors (iPhone).

 Verizon’s strategy involved high up-front costs to build a high-

capacity network infrastructure, and it also focused on providing
a high level of network reliability and customer service.

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Organizations and Information
Systems
Why study the organization:

• You will need to understand how information

systems can change social and work life in your firm.

• You will not be able to design new systems

successfully or understand existing systems without
understanding your own business organization.

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Organizations and Information
Systems
• Information technology and organizations influence
each other
– Information systems are built by managers to
serve the interests of the business firm.
– At the same time, the organization must be aware
of and open to the influences of information
systems to benefit from new technologies.

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Organizations and Information
Systems
• Information technology and organizations influence
each other
– Relationship influenced by organization’s
• Structure
• Business processes
• Politics
• Culture
• Environment
• Management decisions
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Organizations and Information
Systems
This complex two-way
relationship is
mediated by many
factors, not the least of
which are the decisions
made—or not made—
by managers. Other
factors mediating the
relationship include the
organizational culture,
structure, politics,
business processes,
and environment.

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Organizations and Information
Systems
• 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
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Organizations and Information
Systems

In the technical 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. 10
Organizations and Information
Systems
The behavioral view
of organizations
emphasizes group
relationships,
values, and
structures.

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Organizations and Information
Systems
In the technical view,

A technical view of organizations encourages us to

focus on how inputs are combined to create outputs
when technology changes are introduced into the
company. The firm is seen as infinitely malleable, with
capital and labor substituting for each other quite
easily.

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Organizations and Information
Systems
But the more realistic behavioral definition suggests
that building new information systems involves much
more than a technical rearrangement of machines or
workers

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Organizations and Information
Systems
The behavioral view,
• information systems change the organizational
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.

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Organizations and Information
Systems

• Technological change requires changes in who owns

and controls information, who has the right to
access and update that information, and who makes
decisions about whom, when, and how.

• This more complex view forces us to look at the way

work is designed and the procedures used to
achieve outputs.

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Organizations and Information
Systems

The technical and behavioral definitions of organizations

are not contradictory, they complement each other:

• The technical definition tells us how thousands of firms in

competitive markets combine capital, labor, and information
technology,

• whereas the behavioral model takes us inside the individual

firm to see how that technology affects the organization’s
inner workings.
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Features of Organizations

• Features of organizations
• Use of hierarchical structure: clear-cut divisions of
labor and specialization
• Routines and business processes
• Organizational politics,
• Culture,
• Environments,
• Structures 17
Features of Organizations

• 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

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Features of Organizations

• Routines and business processes

• All organizations become very efficient over time
because individuals in the firm develop routines
for producing goods and services.
• As employees learn these routines, they become
highly productive and efficient, and the firm is
able to reduce its costs over time as efficiency
increases.

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Features of Organizations
All organizations are
composed of individual
routines and behaviors,
a collection of which
make up a business
process. A collection of
business processes
make up the business
firm. New information
system applications
require that individual
routines and business
processes change to
achieve high levels of
organizational
performance.

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Features of Organizations

• Organizational politics
• People in organizations occupy different positions
with different specialties, concerns, and perspectives.
As a result, they naturally have divergent viewpoints
about how resources, rewards, and punishments
should be distributed.
• Divergent viewpoints lead to political struggle for
resources, competition, and conflict.
• Political resistance is one of the great difficulties of
bringing about organizational change—especially the
development of new information systems.
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Features of Organizations

• 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
• These cultural assumptions are taken totally for
granted
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Features of Organizations

• Organizational culture:
• Organizational culture is a powerful unifying force
that restrains political conflict and promotes
common understanding, agreement on procedures,
and common practices.
• Organizational culture is a powerful restraint on
change, especially technological change. Any
technological change that threatens commonly held
cultural assumptions usually meets a great deal of
resistance.
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Features of Organizations
• Organizational environments:
– Organizations reside in environments from which they
draw resources and to which they supply goods and
services.
– Organizations and environments have a reciprocal
relationship (e.g. Without financial and human resources—
people willing to work reliably and consistently for a set
wage or revenue from customers—organizations could not
exist.)

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Features of Organizations
• Organizational environments:
– Organizations are open to, and dependent on, the
social and physical environment.
– Organizations can influence their environments (e.g.
business firms form alliances with other businesses to
influence the political process; they advertise to
influence customer acceptance of their products.)
– Environments generally change faster than
organizations. New technologies, new products, and
changing public tastes and values put strains on any
organization’s culture, politics, and people. 25
Features of Organizations
• Organizational environments:
– Information systems can be instrument of
environmental scanning, act as a lens, helping
managers identify external changes that might require
an organizational response.

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Features of Organizations

Environments shape what organizations can do, but organizations can influence
their environments and decide to change environments altogether. Information
technology plays a critical role in helping organizations perceive environmental
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change and in helping organizations act on their environment.
Features of Organizations

• Disruptive technologies
– A technology and resulting business innovation comes
along to radically change the business landscape and
environment. These innovations are loosely called
“disruptive.”

– In some cases, disruptive technologies are substitute

products that perform as well or better (often much
better) than anything currently produced.

– Examples: the Apple iPod for portable CD players;

digital photography for process film photography.
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Features of Organizations

• Disruptive technologies

– First movers and fast followers

• First movers—inventors of disruptive technologies.
First movers do not always benefit if they lack the
resources to exploit the technology

• Fast followers—firms with the size and resources to

capitalize on that technology

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 Features of Organizations
Organizational Structure: 5 types

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Features of Organizations

• Other organizational features

– Goals: coercive, utilitarian, normative, and so on
– Constituencies: serve different groups, some primarily
benefiting their members, others benefiting clients,
stockholders, or the public.
– Leadership styles: democratic or authoritarian
– Tasks: routine tasks that can be reduced to formal rules
that require little judgment (such as manufacturing auto
parts), whereas others (such as consulting firms) work
primarily with nonroutine tasks.
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How Information Systems Impact
Organizations or Business Firms
• Economic Impact
– IT changes relative costs of capital and the costs of
information
– Information systems technology is a factor of production,
like capital and labor, actually it reduces the need for labor
(substitute labor, specially middle managers)
– IT affects the cost and quality of information and changes
economics of information
• Information technology helps firms reduce transaction
costs (the cost of participating in markets)
– Outsourcing
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How Information Systems Impact
Organizations or Business Firms
• Economic Impact
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, making it
worthwhile for firms to transact with other firms rather
than grow the number of employees.

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How Information Systems Impact
Organizations or Business Firms
• Economic Impact
Transaction cost Impact on Organizations
• as transaction costs decrease, firm size (the number of
employees) should shrink because it becomes easier and
cheaper for the firm to contract for the purchase of
goods and services in the marketplace rather than to
make the product or offer the service itself.

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How Information Systems Impact
Organizations or Business Firms
• Economic Impact
– For Example: Information technology, especially the use of
networks, can help firms lower the cost of market
participation (transaction costs), making it worthwhile for
firms to contract with external suppliers instead of using
internal sources (outsource operations). As a result, firms
can shrink in size (numbers of employees) because it is far
less expensive to outsource work to a competitive
marketplace rather than hire employees.

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How Information Systems Impact
Organizations or Business Firms
• Economic Impact
Agency Problem (Reduce the cost of)
– Information technology also can reduce internal
management costs
– A principal (owner) employs “agents” (employees) to
perform work on his or her behalf. However, agents need
constant supervision and management; otherwise, they
will tend to pursue their own interests rather than those
of the owners.

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How Information Systems Impact
Organizations or Business Firms
• Economic Impact
Agency Problem (Reduce the cost of)
– As firms grow in size and scope, agency costs or
coordination costs rise because owners must expend
more and more effort supervising and managing
employees.
– IT can reduce agency costs, making it possible for firms to
grow without adding to the costs of supervising, and
without adding employees (easier to manager or
overseas many employees)

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How Information Systems Impact
Organizations or Business Firms
• Organizational and Behavioral Impact
IT Flattens Organizations
• Large organizations which primarily developed before the computer
age, are often inefficient, slow to change, and less competitive than
newly created organizations
• information technology broaden the distribution of information to
empower lower-level employees
• IT pushes decision-making rights lower in the organization because
lower-level employees receive the information they need to make
decisions without supervision (Decision making is pushed to lower
levels)
• Fewer managers are needed (IT enables faster decision making and
increases span of control).
• Management span of control has also been broadened, enabling 38
How Information Systems Impact
Organizations or Business Firms
• Organizational and Behavioral Impact
Postindustrial Organization
- Also focus on flattening the organization
- the shape of organizations flattens because professional workers
tend to be self-managing, and
- decision making should become more decentralized as knowledge
and information become more widespread throughout the firm
- Information technology may encourage task force-networked
organizations in which groups of professionals come together—face
to face or electronically— for short periods of time to accomplish a
specific task.

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How Information Systems Impact
Organizations or Business Firms
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.

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How Information Systems Impact
Organizations or Business Firms
• Organizational Resistance to Change

– Workers may resist changes that disrupt their routines,

why?
Because:
– 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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How Information Systems Impact
Organizations or Business Firms
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.

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How Information Systems Impact
Organizations or Business Firms
• The Internet Impact
– 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

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How Information Systems Impact
Organizations or Business Firms
• Organizational factors in planning a new system:

To deliver genuine benefits, information systems must be built

with a clear understanding of the organization in which they will
be used. Other factors to consider are:
– 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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Information Systems And
Competitive Advantage
• 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:
1. Traditional competitors
2. New market entrants
3. Substitute products and services
4. Customers
5. Suppliers

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Information Systems And
Competitive Advantage

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 other forces in the industry’s environment: new
market entrants, substitute products, customers, and suppliers.
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Information Systems And
Competitive Advantage
• 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.
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Information Systems And
Competitive Advantage
• Substitute products and services
– Substitutes customers might use if your prices
become too high, for example, 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
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Information Systems And
Competitive Advantage
• 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

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Information Systems And
Competitive Advantage
• Low-cost leadership
– Produce products and services at a lower price than
competitors
– Example: Walmart’s efficient customer response
system
• Product differentiation
– Enable new products or services, greatly change
customer convenience and experience
– Example: Google, Nike, Apple
– Mass customization
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Information Systems And
Competitive Advantage
• Focus on market niche
– Use information systems to enable a focused
strategy on a single market niche; specialize
– Example: Hilton Hotels’ OnQ system
• Strengthen customer and supplier intimacy
– Use information systems to develop strong ties
and loyalty with customers and suppliers
– Increase switching costs
– Example: Netflix, Amazon
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 Information Systems And
Competitive Advantage
• The Internet’s impact on competitive advantage
– The Internet created entirely new markets, formed the basis for
new products and business models
– The internet created threat to some industries
– Competitive forces still at work, but rivalry more intense
– Internet technology is based on universal standards that any
company can use, making it easy for rivals to compete on price
alone and for new competitors to enter the market.
– New opportunities for building brands and loyal customer bases
– Because information is available to everyone, the Internet raises
the bargaining power of customers, who can quickly find the
lowest-cost provider on the Web. 52
Information Systems And
Competitive Advantage
• The Internet’s impact on competitive advantage
– Example: When Apple announced the launch of its new iPad
tablet computer, leaders in all of these media saw not only a
threat but also a significant opportunity. In fact, the iPad and
similar mobile devices may be the savior—if traditional media
can strike the right deal with technology providers like Apple
and Google. And the iPad may be a threat for companies that
fail to adjust their business models to a new method of
providing content to users

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Information Systems And
Competitive Advantage

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Information Systems And
Competitive Advantage
• 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

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Information Systems And
Competitive Advantage
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.

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Information Systems And
Competitive Advantage
• Extending the value chain: Value web
– Collection of independent firms using highly
synchronized IT to coordinate value chains to
produce product or service collectively
– More customer driven

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Information Systems And
Competitive Advantage
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.

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Information Systems And
Competitive Advantage
• A large corporation is typically a collection of
businesses. Often, the firm is organized financially as
a collection of strategic business units and the
returns to the firm are directly tied to the
performance of all the strategic business units.

• Information systems can improve overall

performance of business units by promoting
synergies and core competencies

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Information Systems And
Competitive Advantage
– Synergies
• When output of some units used as inputs to
others
• Information technology in these synergy
situations ties together the operations of
disparate business units so that they can act as
a whole.
• Example: merger of Bank of NY and JPMorgan
Chase
• Purchase of YouTube by Google
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Information Systems And
Competitive Advantage
• Core competencies
– Activity for which firm is world-class leader
– The argument is that the performance of all
business units will increase insofar as these
business units develop, or create, a central core of
competencies.
– Relies on knowledge, experience, and sharing this
across business units
– Example: Procter & Gamble’s intranet and
directory of subject matter experts
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Information Systems And
Competitive Advantage
• Sustaining competitive advantage
– Competitors can retaliate and copy strategic
systems
– Systems may become tools for survival

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Information Systems And
Competitive Advantage
• Managing strategic transitions
– Adopting the kinds of strategic systems requires changes in business
goals, relationships with customers and suppliers, and business
processes.
– These sociotechnical changes, affecting both social and technical
elements of the organization, can be considered strategic transitions—
a movement between levels of sociotechnical systems.
– Changes often entail blurring of organizational boundaries, both
external and internal. Suppliers and customers must become
intimately linked and may share each other’s responsibilities.
– Managers will need to devise new business processes for coordinating
their firms’ activities with those of customers, suppliers, and other
organizations.
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Source:

>> Management Information Systems, Managing

the Digital Firm, 13 Edition (2014), Laudon and
Laudon.

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