BUS 516

BUS 516
Computer Information Systems

Information Systems, Organizations, and
Strategy
What is an organization?
Technical Microeconomic view : An organization is a stable, formal social structure that takes
resources (capital and labor) from the environment and processes them to produce outputs
(products or services).
2
What is an organization?
Behavioral View: it is a collection of rights, privileges, obligations, and
responsibilities that is delicately balanced over a period of time through conflict and
conflict resolution
3
Organization and IS:
Technical View Vs. Behavioral View
What is the relevancy of these two views to Information Systems?
What are the implications of managers’ viewing the organization from either perspective
when they change / implement information systems?
4
Organizations and IS
Technical Microeconomic View Behavioral View
A technology can be Some information systems

introduced whenever change the organizational
needed balance of rights, privileges,
obligations, responsibilities,
and feelings that have been
The capital and labor ratio established over a long period
can be altered easily when of time.
new technology is
introduced
Introduction and acceptance of
a technology are two quite
Focuses on the final different phenomena and
output or the services – i.e. acceptance can take a long
on ends not means time
5
Organizations and IS
6
Organizational Features Influence the Choice of IT
Routines & Business Processes
Standard operating procedures
Develops over time
Business processes are collection of routines and firms are collection of business processes
7
Organizational politics
Diverse viewpoints about resources, rewards, punishment
Struggle and conflict
Introduction of new IS and politics
8
Organizational culture
Set of assumptions about functioning or the firm that are taken totally for granted; e.g.
what products to produce, how, where and for whom
Business processes are integrated into organizational culture
Resistance to change especially technological change
9
Organizational Structure
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Business Environment
Reciprocal relationship between organization and environment
IS: Tools for environmental scanning to detect external factors; resources, new laws, legal system
Organizations may also respond to the environment by engaging in political process

(lobbying), advertisements to the potential customers
It is difficult for organizations to adapt to changes quickly because of the legacy systems,
political conflict, strict culture etc.
13
Changes in Business Environment – Disruptive Technologies
Disruptive technologies are defined by the following two characteristics:
The technology offers a different set of attributes than the technology the firm
currently uses in its products.
The performance improvement rate of the technology is higher than the rate of
improvement demanded by the market
14
Market expectations for performance and new technology performance improvement over time
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Disruptive Technologies: Winners and Losers
18
Disruptive Technologies: Winners and Losers
19
Impacts of IS on Organizations
Economic Impacts
Substitution of capital (labor, buildings & machinery)
Reduce firm size and thus transaction costs through outsourcing

(Transaction Cost Theory)
Reduce internal management costs by reducing the need for monitoring a large
workforce (Agency Cost Theory)
20
Transaction Cost Theory
Transaction costs refer to the costs

incurred when a firm buys on the
marketplace what it cannot / will
not make itself.
Use of IS (especially networks)
Transaction cost
Firm size (in terms of no. of

employees)
21
Agency Cost Theory
Owners appoint ‘agents’ or employees to

perform work on their behalf.
Use of IS (especially networks)
No. of middle managers
Agency cost
Firm size (in terms of scope of

business)
22
Impacts of IS on organizations
Organizational & Behavioral Impacts
IT flattens hierarchy
by pushing decision makings to

lower levels,
Employee empowerment
Real time, accurate information

reduce management costs,
removing middle managers
23
Impacts of IS on organizations
Organizational Resistance to Change
Access to information
Change in routines requiring

retraining
24
What to consider when planning new IS?
Environment Organizational Structure
Culture and Politics Leadership
Principal Interest Employee Attitudes

Groups
Tasks and Business

Processes
25
Achieving Competitive Advantage using IS
26
Threat of new entrants
Height of entry barriers
Amount of start up cost – Existing IS

Brand loyalty
Ease of access to suppliers and distributors
Government regulations
Threat of retaliation by existing competitors etc.
Is the industry alluring? Profitable? Growing?
27
Bargaining Power of Suppliers
The degree of firm’s dependency on the one or a few suppliers
Differentiation among existing suppliers
Percentage of the supplier’s production bought by the firm
Percentage of the firm’s purchase made from one or few suppliers
Switching costs
Capacity of the firm to backward vertical integration
Capacity of the supplier to forward vertical integration

28
Bargaining Power of Buyers
The degree of firm’s reliance on few customers
Degree of differentiation between the products of the firm and those of the competitors
Buyers’ / Firm’s experience of switching costs
Buyer’s capacity to backward vertical integration
Firm’s capacity to forward vertical integration
29
Threat of Substitutes
Number of potential substitutes
The degree of similarity of functionalities offered by the substitutes
Relative price
The analysis of substitute depends on the unit of analysis

Airline industry - Transportation industry
30
The degree of existing rivalry
Number and relative size of the competitors
Degree of differentiation among competitors
Demand conditions of the market
High exit barriers in declining industries
31
IS Strategies for Dealing with Competitive Forces
Continuous Replenishment System
Industry Average in
Overhead Cost
24.9% 20.7% 16.6%

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Impact of the Internet On Competitive Forces and
Industry Structure
41
Smart Products and Internet of Things (IoT)
Switching cost May reduce the power of suppliers of industrial products
42
How can IS influence business value chain?
43
Business Value Chain Model
Primary Activities: Primary activities are most directly related to the production and distribution
of the firm’s products and services, which create value for the customer. Inbound logistics,
operations, outbound logistics, sales and marketing, and service.
Support Activities: Support activities make the delivery of the primary activities possible and
consist of organization infrastructure (administration and management), human resources
(employee recruiting, hiring, and training), technology (improving products and the production
process), and procurement (purchasing input).
44
Business Value Chain and IS
Critical examination of each area of businesses
Benchmarking – measuring performance against strict standards
Identifying best practices in the industry
Competitive advantage
Industry wide standard development, communication networks
Relating firm’s value chain with value chain of other partners in the industry
45
Industry Value Chain: The Value Web
Collection of independent firms
Using information technology to coordinate their value chains to produce a product or service for a
market collectively
Industry participants can use information technology to develop industrywide standards for exchanging
information or business transactions electronically, which force all market participants to subscribe to
similar standards
Industry members can build industrywide, IT-supported consortia, symposia, and communications
networks to coordinate activities concerning government agencies, foreign competition, and competing
industries.
46
The Value Web
47
Synergies, Core Competencies, and Network-Based Strategies
Synergy
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
When the output of some units can be used as inputs to other units, or two organizations pool
markets and expertise, these relationships lower costs and generate profits.
Information technology can tie together the operations of disparate business units so that they
can act as a whole.
48
Enhancing core competencies
Core competency is an activity for which a firm is a world-class leader
IS can enhance core competencies by internal knowledge sharing, making external

knowledge available, leverage existing competencies
InnovationNet (Intranet) of P&G
49
Network Economics
Why do you think diamond is valuable?
Oxygen and water – valuable compared to diamond?
Relationship between scarcity and value?
Skill and value?
Messi, Ronaldo, Zlatan
Economic Norm – Value in scarcity
50
Network Economics
Networks are different – value in plentitude
The very first fax machine, mobile phone, Skype technology – valueless!!!
However, value increases as the number of users increases
Value of a network is proportional to the number of connected nodes
51
Physical and Virtual Networks
In a virtual network the people in the network can share information (i.e., share files of the same
format) with other members of the same user network (e.g., BitTorrent file sharing users), or they
can share expertise (e.g., information on how to use a given software program is the reason why
you would join a certain community of practice).
52
Network Effects
Network effects occur when a new node (e.g., a new Skype user), while pursuing his or her
own economic motives, creates value for all the other members of the network by making the
network larger, and thus more valuable.
Network effects have the characteristic of economic externalities — hence the name network
externalities. That is, they create spillover effects that have an impact on other individuals,
positive for those members of the growing network and negative for the members of the other
ones.
53
A virtual network is generally sponsored by an organization or technology that enables it,

controls access to it, and manages its evolution.
Maintaining control of the network puts the sponsor in a

position of competitive advantage.
54
Virtual Company Model
A virtual company, also known as a virtual organization, uses networks to link people, assets, and
ideas, enabling it to ally with other companies to create and distribute products and services
without being limited by traditional organizational boundaries or physical locations.
One company can use the capabilities of another company without being organizationally tied to
that company.
The virtual company model is useful when a company finds it cheaper to acquire products, services,
or capabilities from an external vendor or when it needs to move quickly to exploit new market
opportunities and lacks the time and resources to respond on its own.
55
Virtual Company Model
15,000 Suppliers
40 Countries
56
Business Ecosystem and Platforms
The traditional Porter model assumes a relatively static industry environment; relatively clear-cut
industry boundaries; and a relatively stable set of suppliers, substitutes, and customers, with the
focus on industry players in a market environment.
Instead of participating in a single industry, some of today’s firms are much more aware that
they participate in industry sets—collections of industries that provide related services and
products
Business ecosystem is another term for these loosely coupled but interdependent networks
of suppliers, distributors, outsourcing firms, transportation service firms, and technology
manufacturers
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The concept of a business ecosystem builds on the idea of the value web described earlier, the
main difference being that cooperation takes place across many industries rather than many
firms
Keystone Firms – e.g. Microsoft, Intel, IBM
Niche Firms – software developers, networking firms etc.
Mobile digital platform ecosystem
59
IS & Competitive Advantage: Managerial Issues
Rapid change in IT can make the competitive advantage disappear very quickly
Alignment of IT with business
Most businesses get it wrong
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Computer Information Systems

What is the relevancy of these two views to Information Systems?

A technology can be Some information systems

Routines & Business Processes

Standard operating procedures

Develops over time

Diverse viewpoints about resources, rewards, punishment

Struggle and conflict

Introduction of new IS and politics

Business processes are integrated into organizational culture

Resistance to change especially technological change

Reciprocal relationship between organization and environment

Organizations may also respond to the environment by engaging in political process

Changes in Business Environment – Disruptive Technologies

Disruptive technologies are defined by the following two characteristics:

Changes in Business Environment – Disruptive Technologies

Substitution of capital (labor, buildings & machinery)

Reduce firm size and thus transaction costs through outsourcing

Transaction costs refer to the costs

Use of IS (especially networks)

Firm size (in terms of no. of

Owners appoint ‘agents’ or employees to

Use of IS (especially networks)

No. of middle managers

Firm size (in terms of scope of

by pushing decision makings to

Real time, accurate information

Change in routines requiring

Culture and Politics Leadership

Principal Interest Employee Attitudes

Tasks and Business

Threat of new entrants

Height of entry barriers

Amount of start up cost – Existing IS

Is the industry alluring? Profitable? Growing?

Differentiation among existing suppliers

Percentage of the supplier’s production bought by the firm

Percentage of the firm’s purchase made from one or few suppliers

Capacity of the firm to backward vertical integration

Capacity of the supplier to forward vertical integration

Bargaining Power of Buyers

The degree of firm’s reliance on few customers

Buyers’ / Firm’s experience of switching costs

Buyer’s capacity to backward vertical integration

Firm’s capacity to forward vertical integration

The degree of similarity of functionalities offered by the substitutes

The analysis of substitute depends on the unit of analysis

The degree of existing rivalry

Number and relative size of the competitors

Degree of differentiation among competitors

Demand conditions of the market

High exit barriers in declining industries

Continuous Replenishment System

24.9% 20.7% 16.6%

Switching cost May reduce the power of suppliers of industrial products

Benchmarking – measuring performance against strict standards

Identifying best practices in the industry

Industry wide standard development, communication networks

A large corporation is typically a collection of businesses. Often, the firm is organized

Enhancing core competencies

Core competency is an activity for which a firm is a world-class leader

IS can enhance core competencies by internal knowledge sharing, making external