Information Systems, Organizations, Management, and Strategy

1
Information Systems, Organizations,Management,
and Strategy
Chapter 3
2
The Changing Role of Information Systems in
Organizations
Information technology services
Figure 3-5
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• Programmers Highly trained technical specialists
  who write software instructions for computers.
• System analysts The principal liaisons between
  the information system groups and the rest of the
  organization.
• IS managers Leaders of IS specialists and
  external specialists to vendors, manufacturers,
  consultants, and other managers of the
  organization.

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• CIO Senior manager in charge of the IS functions
  in the firm.
• End users Representatives of departments outside
  the IS group for whom applications are developed.

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The Changing Role of Information Systems in
Organizations
Information Technology Infrastructure and
Information Technology Services

• Information Services Department
• Past Consisted primarily of programmers,
  building own software and managing own computing
  facilities
• Today A growing proportion of specialists, with
  department acting as powerful change agent in the
  organization

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The Changing Role of Information Systems in
Organizations
Information Technology Infrastructure and
Information Technology Services

• Information Services Department
• The IS department suggests new business
  strategies and new information-based products and
  services, and coordinates both the development of
  the technology and the planned changes in the
  organization.

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The Changing Role of Information Systems in
Organizations
How Information Systems Affect Organizations

• Economic Theories
• Information system technology is a factor of
  production, freely substituted for capital and
  labor
• Decreasing cost of IT substitutes the rising cost
  of labor.
• Result in a decline in the number of middle
  managers and clerical workers.

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The Changing Role of Information Systems in
Organizations
How Information Systems Affect Organizations

• Economic Theories
• Transaction cost theory Information technology
  can help lower the cost of market participation.
• Traditionally, firms have tried to reduce
  transaction costs by getting bigger, hiring more
  employees, or buying suppliers and distributors,
  as GM used to do.
• It is now worthwhile for firms to contract with
  external suppliers.
• Firm size can stay constant or contract even if
  revenue increases.

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The Changing Role of Information Systems in
Organizations
The transaction cost theory of the impact of
information technology on the organization
Figure 3-6
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The Changing Role of Information Systems in
Organizations
How Information Systems Affect Organizations

• Economic Theories The Agency Theory
• A principal (owner) employees 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 owners.
• As firm grows, agency and coordination costs rise
• Information technology reduces agency costs
  because it becomes easier for managers to oversee
  more employees

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The Changing Role of Information Systems in
Organizations
The agency cost theory of the impact of
information technology on the organization
Figure 3-7
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The Changing Role of Information Systems in
Organizations
How Information Systems Affect Organizations

• Behavioral Theories
• IT could change hierarchy of decision making by
  lowering costs of information acquisition and
  distribution.
• Organization shape could flatten as
  professional workers become self-managing and
  decision making becomes more decentralized
• Growth of virtual organizations, networking of
  people, group, and companies to complete a task.
• Information systems seen as outcome of political
  competition between subgroups due to their
  influence access to a key resource ---
  information.

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The Changing Role of Information Systems in
Organizations
The Internet and Organizations

• The Internet is capable of dramatically reducing
  transaction and agency costs
• Businesses are rapidly rebuilding some key
  business processes based on Internet technology
• Internet technology becoming a key component of
  IT infrastructure

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Managers, Decision Making, and Information Systems

• Examine what managers do and what information
  they need for decision making and other
  functions.
• Understand how decisions are made and what kinds
  of decisions can be supported by IS.
• Determine how IS can benefit managers.

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Managers, Decision Making, and Information Systems
The Role of Managers in Organizations

• Classical Model
• Five Functions of Managers
• Planning
• Organizing
• Coordinating
• Deciding
• Controlling

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Managers, Decision Making, and Information Systems
The Role of Managers in Organizations

• Behavioral Models
• Five Attributes of Managers
• Perform much work at non-stop pace
• Fragmented activities
• Prefer speculation, hearsay, current and ad-hoc
  information
• Prefer oral communication
• Maintain diverse web of contacts as informal
  information system.

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Managers, Decision Making, and Information Systems
The Role of Managers in Organizations

• Managerial Role Categories
• Interpersonal Figurehead, leader, liaison
• Informational Nerve center, disseminator,
  spokesperson
• Decisional Entrepreneur, disturbance handler,
  resource allocator, negotiator

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• Manager roles supported by IS Table 3-4, page 90.

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Managers, Decision Making, and Information Systems
Managers and Decision Making

• Decision Making
• Classified by Organizational Level
• Strategic determines long-term objectives,
  resources, policies
• Management control monitors effective usage of
  resources, performance
• Operational control determines how to perform
  tasks and ways to distribute information

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Managers, Decision Making, and Information Systems
Managers and Decision Making

• Decisions are classified as
• Unstructured Nonroutine, decision maker provides
  judgment, evaluation, and insights into problem
  definition, no agreed-upon procedure for decision
  making
• Structured Repetitive, routine, handled using a
  definite procedure

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Managers, Decision Making, and Information Systems
Information systems and levels of decision making
Figure 3-9
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Managers, Decision Making, and Information Systems
Managers and Decision Making

• Stages of Decision Making
• Intelligence Collect information, identify
  problem
• Design Conceive alternative solution to a
  problem
• Choice Select among the alternative solutions
• Implementation Put decision into effect and
  provide report on the progress of solution

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Managers, Decision Making, and Information Systems
The decision-making process
Figure 3-10
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Managers, Decision Making, and Information Systems
Window on Management

• Why War Games Cant Always
• Simulate the Battlefield
• How useful are war games in simulating combat
  scenarios and predicting outcomes?
• How would the models of decision making described
  here explain how they are designed and performed?
  

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Managers, Decision Making, and Information Systems
Implications for the Design and Understanding of
Information Systems

• Optimal Information Systems
• Flexible provide many options for handling and
  evaluating data
• Support a variety of styles, skills, knowledge
  keep track of many alternatives
• Sensitive to organizations bureaucratic and
  political requirements

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Information Systems and Business Strategy
What Is a Strategic Information System?

• Computer system at any level of an organization
• Changes goals, operations, products, services, or
  environmental relationships
• Helps organization gain a competitive advantage

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Business Competitive Strategies Questions
• How can we compete effectively in this particular
  market?

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Business Competitive Strategies
• Become the low-cost producer
• Differentiate product or service
• Change scope of competition by enlarging or
  narrowing market

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Value Chain Model
• Firm seen as series or chain of activities that
  add a margin of value to firms products or
  services
• Highlights activities in business where
  competitive strategies are best applied
• Primary or support activities
• Firms value chain linked to value chains of
  other partners

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Primary activities Activities directly related
  to the production and distribution of the firms
  products and services that create value for the
  customers.
• Supporting activities Make the delivery of the
  primary activities possible and consist of
  organizational infrastructure, human resources,
  technology, and procurement.

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Information Systems and Business Strategy
The firm value chain and the industry value chain
Figure 3-11
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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Value Web
• Value chain extended by Internet technology that
  connects all the firms suppliers, partners, and
  customers
• Collection of independent firms using IT to
  coordinate value chains to collectively produce a
  product or service
• More customer-driven, less linear than value
  chain
• Flexible, adaptive to changes in supply and
  demand

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Information Systems and Business Strategy
The value web
Figure 3-12
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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Product Differentiation
• Strategy for creating brand loyalty by developing
  new and unique products and services not easily
  duplicated by competitors
• Information systems used to create new
  information technology-based products and
  services

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Product Differentiation
• Citibank ATMs, Debit Cards
• CitiBank, Wells Fargo On-Line Banking, One
  Statement
• NetBank Virtual Banking
• SABRE On-Line Ticketing, Booking, Reservation,
  Tour Package
• Dell Assemble to Order
• Lands End Make to Order

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Focused Differentiation
• Strategy for developing new market niches for
  specialized products and services
• Information systems used to produce data for
  sales and marketing analyze customer behavior

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Focused Differentiation
• Sears Roebuck Target appliance buyers, gardening
  enthusiasts, and mothers-to-be.
• Stein Roe Investors Personalized ad. and
  services.
• Canadian Imperial Bank of Commerce (CIBC)
  Personalized services to most profitable
  customers.
• Transfer of non-profitable customers to on-line
  services.

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Efficient Customer Response Systems
• Links consumer behavior back to distribution,
  production, and supply chains
• Information systems used to link customers value
  chain to firms value chain
• Reduce inventory costs deliver product or
  service more quickly to customer

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Switching Costs
• Cost of switching to competitive product higher
  switching costs discourage customers going to
  competitors
• Information systems offer convenience, ease of
  use, raise switching costs

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Information Systems and Business Strategy
Business-Level Strategy and the Value Chain Model

• Efficient Customer Response Systems
• Wal-Mart Continuous replenishment system,
  efficient customer response.
• Dell Assemble to order.
• Baxter International stockless inventory.
• Sales overhead for operating cost Wal-Mart 16.6
  (Retail average is 20.7, Sears 24.9)

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Information Systems and Business Strategy
Stockless inventory compared to traditional and
just-in-time supply methods
Figure 3-13
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Information Systems and Business Strategy
Business-level strategy
Figure 3-14
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Information Systems and Business Strategy
Firm-Level Strategy and Information Technology

• At firm level, information technology can
• Promote synergies between business units, pool
  resources
• Tie together operations of disparate business
  units
• Improve core competencies

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Information Systems and Business Strategy
Firm-Level Strategy and Information Technology

• Bank merger Chemical and Chase Manhattan, Wells
  Fargo and Norwest, Deutsche and Bankers, Citicorp
  and Travelers Insurance.
• Provide cross-marketing, pool market and
  expertise, lower retail cost, increase customer
  access to products, tie operations together.
• American Airline World-One Alliance.

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Information Systems and Business Strategy
Industry-Level Strategy and Information Technology

• Industry-Level Strategies
• Information partnerships
• Competitive forces model e.g., developing
  industry standards, customer awareness, lower
  supplier cost
• Network economics cost of adding new participant
  negligible, but adds great marginal gain

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Information Systems and Business Strategy
Industry-Level Strategy and Information Technology

• Information Partnerships
• AA and Citibank, Northwest and MCI frequent
  flier program
• Increased customer loyalty
• New credit card subscribers
• Cross marketing
• Baxter International and Staple

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Information Systems and Business Strategy
Porters competitive forces model
Figure 3-15
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Information Systems and Business Strategy
Industry-Level Strategy and Information Technology

• Competitive Forces Model
• Making standards for exchanging information and
  business transactions (make product substitution
  difficult and raise entry cost)
• Coordinate policies and regulations.
• Example Covisint for auto industry.

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Information Systems and Business Strategy
Industry-Level Strategy and Information Technology

• Impact of Internet on Competitive Forces
• Reduces barriers to entry
• Enables new substitute products and services
• Shifts bargaining power to customer
• Raises firms bargaining power over suppliers
• Suppliers benefit from reduced barriers to entry
  and from elimination of intermediaries
• Widens geographic market, increases number of
  competitors, reduces differentiation among
  competitors

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Information Systems and Business Strategy
The new competitive forces model
Figure 3-16
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Information Systems and Business Strategy
Using Systems for Competitive Advantage
Management Issues

• Network Economics
• The marginal gain of adding another participant
  is much larger than its marginal cost.
• Build communities of users
• Customer loyalty and enjoyment
• Examples eBay, iVillage, Nepster