Chapter 3 Information Systems Organizations Management and Strategy

Chapter 3 Information Systems, Organizations, Management, and Strategy 3. 1 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy OBJECTIVES • • Evaluate the impact of information systems on organizations • 3. 2 Identify and describe important features of organizations that managers need to know about in order to build and use information systems successfully Assess how information systems support the activities of managers in organizations © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy OBJECTIVES (Continued) • Analyze how information systems support various business strategies for competitive advantage • Assess the challenges posed by strategic information systems and management solutions 3. 3 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy Gallo Winery Case • Challenge: powerful competitors, price conscious consumers. Manage 95 brands of wine • Solutions. Warehouse management system: coordinates production, suppliers, inventory and shipment • Shortens order-to-door cycle by 10 days • Gallo Edge analyzes profitability by bottle for customers like Albertsons and Wal-Mart. • Gallo Wine Manager system analyzes price vs. taste relationship. • Demonstrates the interdependence of business environments, management, culture, and strategy 3. 4 © 2006 by Prentice Hall

Organizations and Information Systems • Information systems and organizations INFLUENCE one another. • On the one hand, information systems must be ALIGNED with the organization to PROVIDE INFORMATION that important groups within the organization need. • On the other hand, the organization must BE AWARE of and open itself to the INFLUENCES of information systems in order to benefit from NEW TECHNOLOGIES. 3. 5 © 2006 by Prentice Hall

Organizations and Information Systems • The INTERACTION between information technology and organizations is VERY COMPLEX and is influenced by a great many MEDIATING FACTORS, including the ORGANIZATION'S STRUCTURE, STANDARD OPERATING PROCEDURES, POLITICS, CULTURE, SURROUNDING ENVIRONMENT. 3. 6 © 2006 by Prentice Hall

Organizations and Information Systems • Managers must be aware that information systems can MARKEDLY ALTER life in the organization. • They cannot successfully design new systems or understand existing systems WITHOUT UNDERSTANDING organizations. 3. 7 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS The Two-Way Relationship between Organizations and Information Technology 3. 8 Figure 3 -1 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS What Is an Organization? • Organizations are STABLE FORMAL LEGAL entities, with INTERNAL RULES and PROCEDURES, that must abide by laws. • Organizations are also SOCIAL STRUCTURES, because they are a collection of SOCIAL ELEMENTS. • Takes RESOURCES from the ENVIRONMENT and PROCESSES them to produce OUTPUTS 3. 9 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy The Technical Microeconomic Definition 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. 3. 10 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS • The technical definition is powerful and simple but not very descriptive of the real world organisations. • Amore REALISTIC definition is the behavioural definition 3. 11 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Behavioral Definition of Organization: • Collection of rights, privileges, obligations, and responsibilities • Delicately balanced over a period of time through conflict • Conflict resolution 3. 12 © 2006 by Prentice Hall

Behavioral definition of Organization • In this behavioral view of the firm, people who work in organizations DEVELOP CUSTOMARY ways of working; they gain attachments to existing relationships; and they make arrangements with subordinates and superiors about how work will be done, how much work will be done, and under what conditions. Most of these ARRANGEMENTS AND FEELINGS are not discussed in ANY FORMAL RULE BOOK. 3. 13 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS The Behavioral View of Organizations 3. 14 Figure 3 -3 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Common Features of Organizations • Organizations are bureaucracies that have certain structural features 3. 15 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS structural Shared Features of all Organizations: • Clear division of labor • Hierarchy • Explicit rules and procedures • Impartial judgments Table 3 -1 3. 16 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Shared Features of all Organizations: (Continued) • Technical qualifications for positions • Maximum organizational efficiency Table 3 -1 (Continued) 3. 17 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Common Features of Organizations Standard Operating Procedures: • Organizations that survive over time become very efficient, producing a limited number of products and services by following STANDARD ROUTINES. • These standard routines become codified into reasonably precise rules, procedures, and practices called SOP 3. 18 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy Common Features of Organizations Standard Operating Procedures • Precise rules, procedures, and practices • Enable organizations to cope with all expected situations. • As employees learn those routines they become highly productive. 3. 19 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Routines ( SOP) and Business Processes • Routines (SOP) are patterns of individual behavior. • Business processes are a collection of routines. • Business firms are a collection of business processes. • Business processes enable organizations to cope with all recurring expected situations. 3. 20 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Routines, Business Processes, and Firms 3. 21 Figure 3 -4 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Politics • Divergent viewpoints lead to political struggle, competition, and conflict. • Hamper organizational change 3. 22 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Politics: • Divergent viewpoints lead to political struggle, competition, and conflict which hamper organizational change • People in organizations occupy DIFFERENT POSITIONS with different SPECIALTIES, concerns, and perspectives. • They naturally have DIFFERENT VIEWPOINTS about how RESOURCES, rewards, and PUNISHMENTs should be distributed. 3. 23 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Politics • Political struggle, competition, and conflict within every organization. Political resistance is one of the great difficulties of bringing about ORGANIZATIONAL CHANGE—especially the DEVELOPMENT OF NEW INFORMATION SYSTEMS. • Virtually all information systems that bring about significant changes in goals, procedures, productivity, and personnel are POLITICALLY CHARGED. 3. 24 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Culture: a set of fundamental assumptions about: • What products the organization should produce • How and where it should be produced • For whom the products should be produced 3. 25 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Culture • Organizational culture is a powerful unifying force that restrains political conflict and promotes common understanding, agreement on procedures, and common practices. • At the same time, organizational culture is a powerful restraint on change, especially technological change. 3. 26 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Unique Features of Organizations All organizations have different: • Structures • Goals • Constituencies • Leadership styles • Tasks • Surrounding environments 3. 27 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizational Structures and types • Entrepreneurial structure: Small start-up business • Machine bureaucracy: Midsize manufacturing firm • Divisionalized bureaucracy: Fortune 500 firms • Professional bureaucracy: Law firms, school systems, hospitals • Adhocracy: Consulting firms 3. 28 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizations and Environments: • Organizations RESIDE in environments from which they DRAW RESOURCES and to which they SUPPLY GOODS AND SERVICES. • Organizations and environments have A TWO WAY RELATIONSHIP. • On the one hand, organizations ARE OPEN TO, AND DEPENDENT ON, the social and physical environment that surrounds them. 3. 29 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizations and Environments: • Without FINANCIAL AND HUMAN RESOURCES organizations could not exist. • Organizations must respond to LEGISLATIVE and other requirements imposed by government, as well as the ACTIONS OF CUSTOMERS AND COMPETITORS. • On the other hand, organizations CAN INFLUENCE their environments. They ADVERTISE TO INFLUENCE customer acceptance of their products 3. 30 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizations and 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. 3. 31 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Environments and Organizations Have a Reciprocal Relationship Information technology plays a critical role in helping organizations perceive environmental change and in helping organizations act on their environment. 3. 32 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Other Differences Among Organizations: • Ultimate goals • Different groups and constituencies • Nature of leadership • Tasks and technology: Some organizations perform primarily routine tasks that require little judgment (such as manufacturing auto parts), whereas others (such as consulting firms) work primarily with non-routine tasks. 3. 33 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Organizing the IT Function The information systems department is responsible for maintaining: • Hardware • Software • Data storage • Networks 3. 34 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Information Technology Services 3. 35 Figure 3 -6 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Includes Specialists: • Programmers: Highly trained, writers of the software instructions for computers • Systems analysts: Translate business problems into solutions, act as liaisons between the information systems department and rest of the organization • Information system managers: Leaders of various specialists 3. 36 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy ORGANIZATIONS AND INFORMATION SYSTEMS Includes Specialists: (Continued) • Chief Information Officer (CIO): Senior manager in charge of information systems function in the firm • End users: Department representatives outside the information system department for whom applications are developed 3. 37 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Economic Impacts: • From an economic standpoint, information system technology can be viewed as a factor of production that can be freely substituted for capital such as buildings and machinery which remain relatively expensive • Information systems technology is a factor of production, like capital and labor. 3. 38 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Economic Impacts: (Continued) • Transaction cost theory: Firms seek to economize on the cost of participating in markets (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 3. 39 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Economic Impacts: (Continued) • Traditionally, firms have tried to REDUCE transaction costs by getting BIGGER, HIRING more employees, or BUYING their own suppliers and distributors, as General Motors used to do. • Information technology, especially the use of NETWORKS, can help firms lower the cost of transaction costs making it worthwhile for firms to CONTRACT with external suppliers instead of using internal sources. 3. 40 © 2006 by Prentice Hall

The Transaction Cost Theory of the Impact of Information Technology on the Organization 3. 41 IT potentially reduces the costs for a given size, shifting the transaction cost curve inward, opening up the possibility of revenue growth without increasing size, or even revenue growth accompanied by shrinking size. © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS • Agency theory: Firm is nexus of contracts among self-interested parties requiring supervision. • Firms experience agency costs (the cost of managing and supervising). • IT can reduce agency costs, making it possible for firms to grow without adding to the costs of supervising, and without adding employees 3. 42 © 2006 by Prentice Hall

The Agency Cost Theory of the Impact of Information Technology on the Organization 3. 43 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Organizational and Behavioral Impacts IT Flattens Organizations: • Facilitates flattening of hierarchies • Broadens the distribution of timely information • Increases the speed of decision making 3. 44 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS IT Flattens Organizations: (Continued) • Empowers lower-level employees to make decisions without supervision and increase management efficiency • Management span of control (the number of employees supervised by each manager) will also grow 3. 45 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Flattening Organizations 3. 46 Figure 3 -9 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Postindustrial Organizations and Virtual Firms Postindustrial Organizations: • In postindustrial societies, AUTHORITY increasingly RELIES ON knowledge and competence, and not on mere FORMAL POSITION. • Information technology encourages task force-networked organizations. 3. 47 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Virtual Firms: • Use networks to link people, assets, and ideas • Can ally with suppliers, customers to create and distribute new products and services • Not limited to traditional organizational boundaries or physical locations 3. 48 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Increasing Flexibility of Organizations: • Information systems give both large and small organizations additional flexibility to overcome the limitations posed by their size. • Small organizations use information systems to acquire some of the muscle and reach of larger organizations. 3. 49 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Increasing Flexibility of Organizations: (Continued) • Large organizations use information technology to achieve some of the agility and responsiveness of small organizations. • Customization and personalization: IT makes it possible to tailor products and services to individuals. 3. 50 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Understanding Organizational Resistance to Change: • Another behavioral approach views information systems as the OUTCOME of political competition between organizational subgroups for influence over the organization's policies, procedures, and resources • Information systems inevitably become bound up in organizational politics, because they influence access to a key resource (information). 3. 51 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Understanding Organizational Resistance to Change: • 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. 3. 52 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Organizational Resistance and the Mutually Adjusting Relationship between Technology and the Organization • Implementing information systems has consequences for task arrangements, structures, and people. According to following model, in order to implement change, all four components must be changed simultaneously 3. 53 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS Organizational Resistance and the Mutually Adjusting Relationship between Technology and the Organization Source: Reprinted by permission of James G. March. 3. 54 Figure 3 -10 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS The Internet and Organizations • The Internet increases the accessibility, storage, distribution of information and knowledge for business firms. • The Internet lowers the transaction and agency costs of firms. • Businesses are rapidly rebuilding their key business processes based on Internet technology. Example: online order entry, customer service, and fulfillment of orders. 3. 55 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING The Role of Managers in Organizations To determine how information systems can benefit managers, we must first examine what managers do and what information they need for their decision making. 3. 56 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING The Role of Managers in Organizations Classical Descriptions of Management: • Traditional description of management • Focuses on formal functions: Plan, organize, coordinate, decide, control • Unsatisfactory as a description of what managers actually do 3. 57 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Behavioral Models: • Describes management based on observations of what managers actually do on the job Managerial Roles: • Expectation of activities that managers should perform in an organization 3. 58 © 2006 by Prentice Hall

Observation of Managers Activities • 600 different activities each day, with no break in their pace. • Managerial activities are fragmented; most activities last for less than nine minutes; only 10 percent of the activities exceed one hour in duration. • Managers prefer speculation, hearsay, gossip— they want current, specific, and ad hoc information 3. 59 © 2006 by Prentice Hall

Observation of Managers Activities • They prefer oral forms of communication to written forms because oral media provide greater flexibility, require less effort, and bring a faster response. • Managers give high priority to maintaining a diverse and complex web of contacts that acts as an informal information system. 3. 60 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Management Roles: • Interpersonal: Managers act as figureheads and leaders. • Informational: Managers receive and disseminate critical information, nerve centers. • Decisional: Managers initiate activities, allocate resources, and negotiate conflicts. 3. 61 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Models of Decision Making • Rational model: The rational model of human behavior is built on the idea that people engage in consistent, rational, value-maximizing calculations. • An individual manager identifies goals, ranks all possible alternative actions and chooses the alternative that contributes most to those goals. • CRITICISMS (people cannot specify all of the alternatives), they tend to choose the first model and policies most like the previous policy, 3. 62 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Models of Decision Making (Continued) • Organizational model: Considers the structural C and political characteristics of an organization • Bureaucratic model: Whatever organizations do is the result of routines and existing business processes honed over years of active use • Political model: What an organization does is a result of political bargains struck among key leaders and interest groups 3. 63 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Implications for the Design and Understanding of Information Systems Factors to consider while planning a new system: • Organizational environment • Organizational structure, hierarchy, specialization, routines, and business processes • The organization’s culture and politics 3. 64 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Implications for the Design and Understanding of Information Systems (Continued) • The type of organization and its style of leadership • Groups affected by the system and the attitudes of workers who will be using the system • The kinds of tasks, decisions, and business processes that the information system is designed to assist 3. 65 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Characteristics to be kept in mind while Designing Systems: • Flexibility and multiple options for handling data and evaluating information • Capability to support a variety of management styles, skills, and knowledge 3. 66 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy THE IMPACT OF IT ON MANAGEMENT DECISION MAKING Characteristics to be kept in mind while Designing Systems: (Continued) • Capability to keep track of many alternatives and consequences • Sensitivity to the organization’s bureaucratic and political requirements 3. 67 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Business strategy of the firms will determine the following: • The products and services a firm produces • The industries in which the firm competes • Competitors, suppliers, and customers of the firm • Long-term goals of the firm 3. 68 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY IT and Business Strategy • Strategies are result from a conscious strategic planning process in which nearly all small to large firms engage at least once a year. • This process produce a document called the strategic plan • Strategy takes place at three levels 3. 69 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY IT and Business Strategy • Business. A single firm producing a set of related products and services • Firm. A collection of businesses that make up a single, multidivisional firm • Industry. A collection of firms that make up an industrial environment 3. 70 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Business-Level Strategy: The Value Chain Model The most common generic business level strategies are: • Become the low-cost producer • Differentiate your product from competitors’ products • Change the scope of competition by enlarging the market or narrowing it to a specialized niche 3. 71 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Value Chain Model: • Highlights the primary or support activities that add business value • A good tool for understanding strategy at the business firm level Primary Activities: • Directly related to the production and distribution of a firm’s products or services 3. 72 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Support Activities: • Make the delivery of primary activities possible • Consist of the organization’s infrastructure, human resources, technology, and procurement 3. 73 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY The Firm Value Chain and the Industry Value Chain 3. 74 Figure 3 -11 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Strategic question: • How can IT be used at each point in the value chain to lower costs, differentiate products, and change the scope of competition? 3. 75 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Value Web: Internet-enabled Web of cooperating firms • Customer-driven network of independent firms • Uses information technology to coordinate value chains of separate firms for collectively producing a product or service 3. 76 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY The Value Web 3. 77 Figure 3 -12 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Information Systems Products and Services Systems that Create Product Differentiation: • Firms can use IT to develop differentiated products. • Create brand loyalty by developing new and unique products and services • Product and services not easily duplicated by competitors Examples: Dell, Orbitz 3. 78 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Systems that Support Focused Differentiation: • Uses intensive analysis of customer data to support new ways of contacting and serving the customer • Enables development of new market niches for specialized products or services Example: Wyndam Hotels frequent guest program 3. 79 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Supply Chain Management and Efficient Customer Response Systems: Systems • Link your firm’s value chain to the value chains of your suppliers and customers • Directly links consumer behavior back to distribution, production, and supply chains • Example: Wal-Mart directly links customer purchases to suppliers in nearly real time. It is the suppliers’ job to ensure products are shipped to the store to replace purchased products 3. 80 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Switching Costs and Lock-in Effects • IT is used at the firm level to discourage customers from switching to other suppliers, and “locking” them into a firm’s channels. • Switching cost is the expense incurred by a customer or company for changing from one supplier or system to another. • Example: Baxter International 3. 81 © 2006 by Prentice Hall

Management Information Systems Chapter 3 Information Systems, Organizations, Management, and Strategy INFORMATION SYSTEMS AND BUSINESS STRATEGY Stockless Inventory compared to Traditional and Justin-time Supply Methods 3. 82 Figure 3 -13 © 2006 by Prentice Hall