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Chapter 3

Information Systems,
Organizations, and
Strategy

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
LEARNING OBJECTIVES

Identify and describe important features of


organizations that managers need to know about
in order to build and use information systems
successfully.
Evaluate the impact of information systems on
organizations.
Demonstrate how Porters competitive forces
model and the value chain model help
businesses use information systems for
competitive advantage.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
LEARNING OBJECTIVES (Continued)

Demonstrate how information systems help


businesses use synergies, core competencies,
and network-based strategies to achieve
competitive advantage.
Assess the challenges posed by strategic
information systems and management solutions.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Why it is important to understand organization with respect to


information systems?
Information systems and organizations influence one another.
Information systems can make changes in the organizations while at
the same time features of the organization may influence the way
information systems will be designed and implemented.
The interaction between information technology and organizations is
complex, and is influenced by many mediating factors which
include
The organization structure , Business processes, Culture, Politics, Surrounding
environment and Management decisions.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

The Two-Way Relationship Between Organizations


and Information Technology

Figure 3-1
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

What is an organization?

According to a technical definition, an organization is a stable,


formal social structure that collects resources from the environment
and processes them to produce outputs. This definition emphasizes
processing of capital and labor into products and services.
According to a behavioral definition, an organization is a collection
of rights, privileges, obligations, and responsibilities that is
delicately balanced over a period of time through conflict and
conflict resolution. This definition emphasizes group relationships,
values, and structures.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

How do these definitions of organizations relate to information


systems?
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?
But the behavioral definition of an organization suggests that
building new information systems, or rebuilding old ones, involves
much more than a technical rearrangement of machines or workers
that some information systems change the organizational balance
of rights, privileges, obligations, responsibilities, and feelings that
have been established over a long period of time?

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
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. Changing these elements can take a long time, be
very disruptive, and require more resources to support training
and learning.
The technical and behavioral definitions of organizations
complement each other rather than contradicting.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Features of Organizations
The features that mainly affect the kinds of information
systems used by organizations are as follows:

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Routines and Business Processes


Organizational Politics
Organizational Culture
Organizational Environments
Organizational Structure

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Routines and business processes


Routines are precise rules, procedures, and practices that have
been developed over a long time by individuals in an organization to
cope with virtually all situations.
Routines are also known as standard operating procedures. Or
SOP. All organizations, including business firms, try to become
efficient by developing routines.
Business processes are a collection of such routines and the firm
then becomes a collection of business processes.
People become accustomed to these routines and react to change
in existing or introduction of new routines by design and
implementation of information systems.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Organizational politics
People in organizations occupy different positions with different
specialties, concerns, and perspectives.
As a result, they have divergent viewpoints about how resources,
rewards, and punishments should be distributed.
These divergent viewpoints leads to political struggle,
competition, and conflict over resources, rewards and
punishments.
Organizational politics hamper organizational change and source
of one of the major resistances to bringing about organizational
change by the development of new information systems.
In such a situation, managers that know how to work with the
politics of an organization will be more successful.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Organizational culture
Organizational culture encompasses a set of unquestioned
assumptions about what products the organization should
produce, how it should produce them, where and for whom.

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. Most organization
will do almost anything to avoid making changes in basic
assumption.
In a situation, where technological change must take place,
culture should be allowed to adjust slowly.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Organizational environments
Organizations and environments have a reciprocal relationship. On
the one hand, organizations depend on their environment for
physical, information, financial and human resources. Organizations
also need to respond to actions of governments, competitors and
customers.
On the other hand, business organizations can form alliances to
influence the political process; to influence customers through
advertising, etc.
Information systems play a key role in environmental scanning that
helps organizations perceive changes in their environments and also
helps organizations act on their environments.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

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Environments change faster than organizations.


Changes like new technologies, new products, and changing public tastes
and values put strains on any organizations culture, politics and people.
The inertia built in within the large organization make it difficult to adopt
to changes. Young firms typically lack resources to sustain even short
periods of troubled time.

Sometimes a new technology comes along like a tsunami and destroys


everything in its path. Some firms create these tsunamis and ride the wave
to profits. Some learn quickly and can continue swimming while others are
washed away. These technologies are known as disruptive technologies.
Some disruptive technologies result in benefit to no firms, but to
consumers only.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Technology

Description

Winners and Losers

Microprocessor
Chips (1971)

Thousands and eventually


millions of transistors on a
silicon chip.

Microprocessor firms win (Intel, Texas


Instruments) while transistor firms (GE)
decline.

Personal
Computers (1975)

Small, inexpensive, but fully


functional desktop computers

PC manufacturers (HP, Apple, IBM) and


Chip manufacturers (Intel) prosper while
mainframe (IBM) and minicomputer
(DEC) declines.

PC word
processing
software (1979)

Inexpensive, limited but


functional text editing and
formatting for personal
computers.

PC and software manufacturers


(Microsoft, HP, Apple) prosper while the
typewriter industry dissappers.

World Wide Web

A global database of digital


files and pages instantly
available.

Owners of online content and news benefit


while traditional publishers (newspapers,
magazines) lose.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Organizational structure
Mintzberg identifies fie basic kinds of organizational structure.
Organizational Type Description

Examples

Entrepreneurial
structure

Small start up business

Young, small firm in a fast-changing


environment. It has a simple structure
and is managed by an entrepreneur
serving as its single CEO.

Machine Bureaucracy Large bureaucracy existing in slowly


changing environment, producing
standard products, and dominated by a
central management team and
centralized decision making.

Midsize manufacturing
firms

Divisionalized
Bureaucracy

Fortune 500 firms,


such as General Motors

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Combination of multiple machine


bureaucracies, each producing a
different product or service, all topped
by one central headquarters.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Organizational Type Description

Examples

Professional
Bureaucracy

Knowledge-based organizations where


goods and services depend on the
expertise and knowledge of the
professionals and dominated by
department heads with weak centralized
authority.

Law firms, school


systems, hospitals

Adhocracy

Task force organization that must


respond to rapidly changing
environments. Consists of large groups
of specialists organized into short-lived
multidisciplinary teams and has weak
central management.

Consulting firms

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

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The kind of information systems in a firm and the nature of problems with
these systems often reflects the type of organizational structure.

For instance, in a professional bureaucracy such as hospital, it is not


unusual to find parallel patient record keeping systems operated by
administration, another by doctors, and another by nurses.

In small entrepreneurial firm, systems are often poorly developed in a rush


that often outgrow their usefulness quickly.

In huge multi-divisional firms operating in hundreds of locations, there


may not exist a single integrating information system but instead each
locale or division has its set of information system.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Organizations and Information Systems

Other features by which organizations differ are goals, nature of leadership and
variability in tasks performed.
Some organizations have coercive goals (e.g. prisons); others have utilitarian
goals (e.g., businesses). Others have normative goals (universities, religious
groups).
Organizations also differ by the group they serve. Some serve their members only,
while others may serve clients, stockholders and the public.
The nature of leadership is democratic in some organization while authoritarian in
some organization.
They also differ by whether they perform routine tasks or non-routine tasks.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

Over the last decade, information systems have fundamentally


altered the economics of organizations and greatly increased
the possibility for organizing work.
Broadly, we will look into two types of impact of information
systems and these are:
Economic Impact and
Organizational and Behavioral Impact

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

ECONOMIC IMPACT

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From the point of view of economics, IT changes both the relative costs of capital
and the cost of information.

IT can be viewed as a factor of production that can be substituted for traditional


capital and labor. How?

As the cost of IT decreases, it substitutes for other forms of capital investments


such as buildings and machinery, which remain relatively expensive. Hence, over
time, we may expect managers to increase their investment in IT relative to
investment in other capital assets.

Further, IT also substitutes for labor as information technology can result in a


decline in the number of middle managers and clerical workers.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

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Transaction Cost
IT also affects the cost and quality of information and changes the economics of
information.

Transaction cost includes costs that are incurred when a firm buys on the
marketplace what it can not make itself. Transaction costs can be high due to rising
costs of locating and communicating with distant suppliers, monitoring contract
compliance, buying insurance, obtaining information on products, and so forth.
Traditionally, firms tend to reduce transaction costs through vertical integration.

Now, IT can help firms lower the transaction costs and as a result firms can shrink
in size (number of employees) as it is less expensive to outsource than to hire
employees. Firms can also reduce transaction cost by using IT to connect with
external suppliers at significantly low cost.

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Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

Agency cost

According to Agency theory, the firm is viewed as a nexus of contracts


among self-interested individuals rather than as a unified, profit-maximizing
entity.
A principal (owner) employs agents (employees) to perform work on his or
her behalf. These agents need constant supervision and management
otherwise they will tend to pursue their own interests rather than those of the
owners., The cost of coordination, supervision and management of these
employees make up the agency cost.
As firms grow in size and scope, agency costs rise. IT, by reducing the costs
of acquiring and analyzing information, permits organizations to reduce
agency costs because it becomes easier tfor managers to oversee a greater
number of employees.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

Organizational and behavioral impacts

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IT flattens organizations

Behavioral theory suggests that information technology facilitates


flattening of hierarchies by broadening the distribution of
information to empower lower-level employees and increase
management efficiency.

As lower level employees can make more and more decisions


without supervision and as managers now receive s much
accurate information on time, therefore, fewer managers and
levels of hierarchies are needed now.

2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

Flattening Organizations

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 lowerlevel employees more decisionmaking authority.

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Figure 3-8
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

3.26

Postindustrial theory

According to post-industrial theory, in present day organizations, authority


increasingly rely on knowledge and competence and less on formal
positions. Therefore, organizations hire professionally competent workers
who tend to be self-managing and therefore decision making is more
decentralized and organizational hierarchies more flattened.

Organizations now rely more on self-managed task based teams who meet
face-to-face or virtually to perform some task and once the task is
accomplished, the individual joins other task forces. This offers a new
challenge with respect to making virtual work effective.

2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

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Organizational Resistance and the Mutually Adjusting Relationship


Between Technology and the Organization

One model visualizes organizational resistance as an interplay between


tasks, technology, people and structure. In this model, the only way to
bring about change is to change the technology, tasks, structure, and people
simultaneously.

Other models have spoken about the need to unfreeze organizations


before introducing an innovation, quickly implementing it, and then
refreezing or institutionalizing the change.

2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

Internet and Organizations


The internet, especially the World Wide Web, has an important impact on the
relationships between many firms and external entities, and even on the
organization of business processes inside a firm.
For instance, brokerage firms and banks in New York can deliver their internal
operations procedure manuals to their employees at distant locations by
posting them on corporate web site, saving millions of dollars in distribution
costs.
A global sales force can receive nearly instant price product information
updates using the Web or instructions from the management sent by email.
Vendors of some large retailers can access retailers internal web sites directly
to find up-to-the-minute sales information and to initiate replenishment orders
instantly.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

Implications for the Design and Understanding of Information Systems

Information systems must be built with a clear understanding of the


organization in which they will be used. The central organizational factors
that should be considered are as follows:

The environment in which the organization must function


The structure of the organization: hierarchy, specialization, routines, and business processes
The organizations culture and politics
The type of organization and its style of leadership
The principal interest 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 systems is
designed to assist.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
How Information Systems Impact Organizations and Business Firms

INTERACTIVE SESSION: MANAGEMENT


CAN TECHNOLOGY SAVE SOLDIERS LIVES IN IRAQ?
What features of organizations are relevant for explaining the
performance of information systems during the Iraq War?
What difficulties did U.S. military forces in Iraq encounter with
information systems? What management, organization, and technology
factors contributed to these difficulties?
Describe TIGR and explain why it has been s beneficial to U.S. patrol
groups in Iraq?
Why is TIGR an example of horizontal technology?

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

In almost every industry, some firms do better than most others.


Firms that do better than others are said to have a competitive
advantage over others.
They either have access to special resources that others do not, or
they are able to use commonly available resources more
efficiently usually because of superior knowledge and
information assets.
In any event, they do better in terms of revenue growth,
profitability, or productivity.
How information systems can help firms do better than others
can be answered by Michael Porters Model.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Porters Competitive Forces Model


It is argued that the most widely used model for
understanding competitive advantage is Michael
Porters competitive forces model.
In this model, there are five competitive forces that
shape the path of a firm. These forces are:

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Traditional competitors

New market entrants

Substitute products and services

Customers

Suppliers
2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Porters Competitive Forces Model

In Porters 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 forces in the industrys environment: new market
entrants, substitute products, customers, and suppliers.

Figure 3-10
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Traditional Competitors
All firms share market space with other competitors. These competitors are
continuously devising new, more efficient ways to produce by introducing new
products and services, and attempting to attract customers by developing their
brands and imposing switching costs on their customers.
New Market Entrants
New companies are always entering the marketplace. In some industries, there
are very low barriers to entry, whereas in other industries, entry is very
difficult.
New firms have advantages like they have new plants, hire younger workers
who are less expensive and perhaps more innovative, new brand names and
more highly motivated. But they also have disadvantages like reliance on
outside financing, less experienced workforce and little brand recognition.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Substitute Products and Services


In almost every industry, there are substitutes that your customers might
use if your prices become too high.
The more substitute products and services in your industry, the less you can
control pricing and the lower your profit margins.

Customers
A profitable company depends in large measure on its ability to attract and
retain customers and charge high prices (or sell high volumes).
The power of customers grows if they can easily switch to a competitors
products and services. They can significantly force firm to compete on
price alone if there is little product differrentiation.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

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Suppliers
The market power of suppliers can have a significant impact on firm
profits, especially when the firm cannot raise prices as fast as can
suppliers. The suppliers of flours can raise prices more than the producer of
biscuits or cakes.

On the other hand, when a firm enjoys the freedom to choose from among
many suppliers, then it enjoys greater control over suppliers in terms of
price quality and delivery schedules.

2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Information systems strategies for dealing with


competitive forces
Low-cost leadership
Product differentiation
Focus on market niche
Strengthen customer and supplier intimacy
The Internets impact on competitive advantage

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Low-Cost Leadership
Wal-mart is the classic example of how information systems can be use
to achieve the lowest operational costs and the lowest prices.
Point-of-sale terminals record the bar code of each item passing the
checkout counter and sends the purchase transaction directly to a
central computer at Wal-Mart headquarters. The computer collects the
orders from all Wal-Mart stores and transmits them to suppliers.
Suppliers can also access Wal-Marts sales and inventory data using
web technology. This results in speedy inventory replenishment which
reduces to need to keep high inventory in warehouses resulting in
superior ROI.
This is an example of efficient customer response system which links
customer behavior to distribution and production and supply chains.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Product Differentiation
Manufacturers and retailers use information systems to create products
and services that are customized and personalized to fit the precise
specifications of individual customers. Dell Inc. sells directly to
customers using assemble-to-order manufacturing.
Customers can place their orders directly using a toll-free telephone
number or by accessing Dells web site. Once Dells production control
receives an order, it directs an assembly plant to assemble the computer
using components from an on-site warehouse based on the
configuration specified by the customer.
This ability to offer individually tailored products or services using the
same production resources as mass production is called mass
customization.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Focus on Market Niche


Information systems support serving a specific market focus by
producing and analyzing data for finely tuned sales and marketing
techniques.
Information systems enable companies to analyze customer buying
patterns, tastes, and preferences closely so that they efficiently pitch
advertising campaigns to smaller and smaller target markets.
Trident Hilton Hotels OnQ systems analyzes detailed data collected on
active guests in all of its properties to determine the preferences of each
guest and each guests profitability. Hilton uses this information to give
its most profitable customers additional privileges, such as late checkouts. Contemporary customer relationship management systems feature
analytical capabilities for this typpe of intensive data analysis.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Strengthen Customer and Supplier Intimacy


Information systems can be used to tighten linkages with suppliers
and develop intimacy with customers. Tata Motors uses information
systems to facilitate direct access by suppliers to production
schedules, and even permits suppliers to decide how and when to
ship supplies to Tata factories. This allows suppliers more lead time
in producing goods. On the customer side, Amazon.com keeps track
of user preferences for book and CD purchases, and can recommend
titles purchased by others to its customers.
Strong linkages to customers and suppliers increase switching costs,
and loyalty to your firm.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Impact of Internet on Competitive Advantage


Because of internet, competitive rivalry has become much more
intense. Some of the potentially negative impacts of the Internet on
business firms are discussed below:
Competitive Forces

Impact of Internet

Substitute products or services

Enables new substitutes to merge with new approaches

Customers bargaining power

Availability of global price and product information


increases customers bargaining power

Suppliers bargaining power

Procurement over the internet raise bargaining power over


suppliers. But, suppliers can also benefit from reduced
barriers to entry and elimination of intermediaries.

Threat of New Entrants

The internet reduces barrier to entry and raises threat of


new entrants.

Positioning and rivalry among


existing competitors

Widens the geographic market, increases number of


competitors, puts pressure to compete on price.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Porters Competitive Forces Model helps in identifying competitive


forces and suggesting generic strategies, but does not provide specific
guideline with regard to what exactly needs to be done, and what
methodology should be followed for achieving competitive advantage.
The business value chain model helps in understanding where to start
for achieving operational excellence.
The value chain model views the firm as a series or chain of basic
activities that add a margin of value to a firms products or services.
These activities can be categorized as either primary activities or
support activities.`` `
`

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Primary activities are most directly related to the production and


distribution of the firms products and services, which create value
for the customer. Primary activities include inbound logistics,
operations, outbound logistics, sales and marketing, and service.
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).

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Industry Value Chain


Administration and Management
Electronic Scheduling and Messaging System
Support
Activities

Human Resource
Workforce Planning System
Technology
Computer-aided Design Systems

Firm
Value
Chain

Procurement
Computerized Ordering System

Primary
Activities

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Inbound
Logistics
Automated
Warehousing
Systems

Operations

Service

Computercontrolled
machines

Sales and
Marketing
Computerize
d Ordering
Systems

Suppliers
Supplier

Outbound
Logistics
Equipment
Automated
and
Shipment
Maintenance Scheduling
System
Systems

Suppliers

Firm

Distributors

Customers
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Using the business value chain model also cause a firm to consider
benchmarking business processes against competitors or others in
related industries, and identifying industry best practices.
Benchmarking involves comparing the efficiency and effectiveness of
your business processes against strict standards and then measuring
performance against these standards.
Industry best practices are usually identified by consulting
companies, research organizations, government agencies, and industry
association as the most successful solutions or problem solving
methods for consistently and effectively achieving a business objective.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

The business value chain model


Extending the value chain: The value web

A value web is a collection of independent firms that use


information technology to coordinate their vlaue chains
to produce a product or service for a market collectively.

Highlights the primary or support activities adding a


margin of value to products or services

Helps achieve a competitive advantage

Customer-driven network of independent firms


Uses information technology to coordinate value chains
for collectively producing a product or service
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

The Value Web

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Synergies, core competencies, and network-based


strategies
A large corporation is typically a collection of business.
Information systems can improve the overall performance of
these business units by promoting synergies and core
competencies.
Synergies
The idea of synergies is that when the output of some units
can be used as inputs to other units, or two organizations
pool markets and expertise, the relationships lower costs
and generate profits.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Enhancing Core Competencies


A core competency is an activity for which a firm is a world-class
leader. Any information system that encourages the sharing of
knowledge across business units enhance competency. Such
systems might encourage or enhance existing competencies and help
employees become aware of new external knowledge.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

Network-based strategies
The availability of internet and networking technology have
inspired strategies that take advantage of firms abilities to
create networks or network with each other. Network
based strategies include the use of the followings:
Network economics
In traditional economics, the more any given resource is
applied to production, the lower the marginal gain in
output. This is the law of diminishing returns. But in a
network, the marginal costs of adding another
participants are about zero, whereas the marginal gain
is much larger. Telephone systems is an example of
beneficiaries of network economics.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Information Systems to Achieve Competitive Advantage

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.
Business Ecosystems
Business ecosystem is another term for the loosely coupled but
interdependent networks of suppliers, distributors, outsourcing firms,
transportation service firms, etc. A business ecosystem is similar to value
web but here it is a network of several industries and not firms.
A powerful, current example is the mobile internet platform participated by
device makers, wireless telecommunication firms, software application
providers, and internet service providers.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

What are the main management issues in


using systems for competitive Advantage
The three major management issues are:
Sustaining competitive advantage
Aligning Information Technology with
Business Objectives
Managing Strategic Transitions
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

Sustaining competitive advantage

The competitive advantages that strategic systems confer do


not necessarily last long enough. Some reasons for this
include:

Competitors can retaliate and copy strategic systems

Markets, customer expectations, and technology change

Competitive advantage on Internet may have the shortest


life as everyone can use it.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

Aligning IT with Business Objectives

Most business get it wrong. IT is not necessarily suited to


serve management and shareholder interest.

Therefore, choosing a set of IT that aligns with business


objectives well is crucial for success.

A strategic systems analysis can help understand what could


be the best possible alignment.

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

Management Checklist for Performing a


Strategic Systems Analysis
To align IT with the business and use information
systems effectively for competitive advantage,
managers need to perform a strategic systems analysis.
Such an analysis will seek answers to a set of
questions.
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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

1. What is the structure of the Industry in which the firm is


located?

What are some of the competitive forces at work in the industry? Are there new entrants
to the Industry? What is relative power of suppliers, customers, and substitute products
and services over prices?

What is the basis of competition quality, price, brand or something else?

What are the direction and nature of change within the industry? From where are the
momentum and change coming?

How is the industry currently using information technology? Is the organization behind
or ahead of the industry in its application of information systems?

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

2. What are the business, firm, and industry value chains for
this particular firm?

How is the company creating value for the customer through lower prices and
transaction costs or higher quality? Are there any places in the value chain where the
business could create more value for the customer and additional profit for the
company?

Does the firm understand and manage its business processes using the best practices
available? Is it taking maximum advantage of supply chain management, customer
relationship management, and enterprise systems?

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Does the firm leverage its core competencies?

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Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

2. What are the business, firm, and industry value chains for
this particular firm (continued)?

Is the industry supply chain and customer base changing in ways that benefit or harm
the firm?

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Can the firm benefit from strategic partnership and value webs?

Where in the value chain will information systems provide the greatest value to the firm?

2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

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3. Have we aligned IT with our business strategy and goals?

Have we correctly articulated our business strategy and goals?

Is IT improving the right business processes and activities to promote this strategy?

Are we using the right metrics to measure progress towards those goals?

2007 by Prentice Hall

Management Information Systems


Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

Managing strategic transitions

Adopting the kinds of strategic systems described generally


requires changes in business goals, relationships with
customer 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.

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Chapter 3 Information Systems, Organizations, and Strategy
Using Systems for Competitive Advantage: Management Issues

Managing strategic transitions (continued)

Such changes often entail blurring of organizational


boundaries, both external and internal.

Suppliers and customers must become intimately linked and


may share each others responsibilities.

Managers will need to devise new business processes for


coordinating their firms activities with those of custoemrs,
suppliers, and other organizations.

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