Chapter 3 MIS

 SUMMARY 

1.   Identify and describe important features of organizations that managers need to know about in order to build and use information systems successfully.

      Managers need to understand certain essential features of organizations to build and use information systems successfully. All modern organizations are hierarchical, specialized, and impartial, using explicit routines to maximize efficiency. All organizations have their own cultures and politics arising from differences in interest groups, and they are affected by their surrounding environment. Organizations differ in goals, groups served, social roles, leadership styles, incentives, types of tasks performed, and type of structure. These features help explain differences in organizations’ use of information systems.

2.   Evaluate the impact of information systems on organizations.

      Information systems and the organizations in which they are used interact with and influence each other. The introduction of a new information system will affect organizational structure goals, work design, values, competition between interest groups, decision making, and day-to-day behavior. At the same time, information systems must be designed to serve the needs of important organizational groups and will be shaped by the organization’s structure, task, goals, culture, politics, and management. Information technology can reduce transaction and agency costs, and such changes have been accentuated in organizations using the Internet.

Information systems are closely intertwined with an organization’s structure, culture, and business processes. New systems disrupt established patterns of work and power relationships, so there is often considerable resistance to them when they are introduced. The complex relationship between information systems, organizational performance, and decision making must be carefully managed.

3.   Demonstrate how Porter’s competitive forces model and the value chain model help businesses use information systems for competitive advantage.

      In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined by competition with its traditional direct competitors but also they are also greatly affected by new market entrants, substitute products and services, suppliers, and customers. Information systems help companies compete by maintaining low costs, differentiating products or services, focusing on market niche, strengthening ties with customer and suppliers, and increasing barriers to market entry with high levels of operational excellence.

      The value chain model highlights specific activities in the business where competitive strategies and information systems will have the greatest impact. The model views the firm as a series of primary and support activities that add value to the firm’s products or services. Primary activities are directly related to production and distribution, whereas support activities make the delivery of primary activities possible. A firm’s value chain can be linked to the value chains of its suppliers, distributors, and customers. A value web consists of information systems that enhance competitiveness at the industry level by promoting the use of standards and industry-wide consortia and by enabling businesses to work more efficiently with their value partners.

4.   Demonstrate how information systems help businesses use synergies, core competences, and network-based strategies to achieve competitive advantage.

     

      Because firms consist of multiple business units, information systems achieve additional efficiencies or enhanced services by tying together the operations of disparate business units. Information systems help businesses leverage their core competencies by promoting the sharing of knowledge across business units. Information systems facilitate business models based on large networks of users or subscribers that take advantage of network economics. A virtual company strategy uses networks to link to other firms so that a company can use the capabilities of other companies to build, market, and distribute products and services. In business ecosystems, multiple industries work together to deliver value to the customer. Information systems support a dense network of interactions among the participating firms.

5.  Assess the challenges posed by strategic information systems and management solutions.

      Implementing strategic systems often requires extensive organizational change and a transition from one sociotechnical level to another. Such changes are called strategic transitions and are often difficult and painful to achieve. Moreover, not all strategic systems are profitable, and they can be expensive to build. Many strategic information systems are easily copied by other firms so that strategic advantage is not always sustainable. A strategic systems analysis is helpful.

Key Terms

Agency theory — economic theory that views the firm as a nexus of contracts among self-interested individuals who must be supervised and managed.

Benchmarking — setting strict standards for products, services, or activities and measuring organizational performance against those standards.

Best practices — the most successful solutions or problem-solving methods that have been developed by a specific organization or industry.

Business ecosystem — loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

Competitive forces model — model used to describe the interaction of external influences, specifically threats and opportunities that affect an organization’s strategy and ability to compete.

Core competency — activity at which a firm excels as a world-class leader.

Efficient customer response systems — system that directly links consumers behavior to distribution, production, and supply chains.

Mass customization — the capacity to offer individually tailored products or services using mass production resources.

Network economics — model of strategic systems at the industry level based on the concept of a network where adding another participant entails zero marginal costs but can create much larger marginal gains.

Organization — stable, formal social structure that takes resources from the environment and processes them to product outputs.

Primary activities — activities most directly related to the production and distributing of a firm’s products or services.

Product differentiation — competitive strategy for creating brand loyalty by developing new and unique products and services that are not easily duplicated by competitors.

Routines — precise rules, procedures and practices that have been developed to cope with expected situations.

Strategic transitions — a movement from one level of sociotechnical system to another. Often required when adopting strategic systems that demand changes in the social and technical elements of an organization.

Support activities — activities that make the delivery of a firm’s primary activities possible. They consist of the organization’s infrastructure, human resources, technology, and procurement.

Switching costs — the expense a customer or company incurs in lost time and expenditure of resources when changing from one supplier or system to a competing supplier or system.

Transaction cost theory — economic theory stating that firms grow larger because they can conduct marketplace transactions internally more cheaply than they can with external firms in the marketplace.

Value chain model — model that highlights the primary or support activities that add a margin of value to a firm’s products or services where information systems can be best applied to achieve a competitive advantage.

Value web — customer-driven network of independent firms that use information technology to coordinate their value to collectively produce a product or service for a market.

Virtual company — an organization that uses networks to link people, assets, and ideas to create and distribute products and services without being limited to traditional organizational boundaries or physical locations.

Review Questions

1.    What is an organization? Compare the technical definition of organization with the behavioral definition.

The technical definition for an organization defines an organization as a stable, formal social structure that takes resources from the environment and processes them to produce outputs.

The behavioral definition states that an organization is a collection of rights, privileges, obligations, and responsibilities that are delicately balanced over a period of time through conflict and conflict resolution.

The technical definition shows us how a firm combines capital, labor, and information technology. The behavioral definition examines how information technology impacts the inner workings of the organization. The behavioral definition is the more realistic of the two.

2.    Identify and describe the features of organizations that help explain differences in organizations’ use of information systems.

Common features for organizations include formal structure, standard operating procedures, politics, and culture. Organizations can differ in their organizational type, environment, goals, power, constituencies, function, leadership, tasks, technology, and business processes.

3.    Describe the major economic theories that help explain how information systems affect organizations.

The two economic theories discussed in the book are transaction cost theory and agency theory. The transaction cost theory is based on the notion that a firm incurs transaction costs when it buys on the marketplace rather than making products for itself. The agency theory views the firm as a nexus of contracts among interested individuals. The owner employs agents (employees) to perform work on his or her behalf and delegates some decision-making authority to the agents..

4.    Describe the major behavioral theories that help explain how information systems affect organizations.

Behavioral theories, from sociology, psychology, and political science, are useful for describing the behavior of individual firms. Behavioral researchers theorize that information technology could change the decision-making hierarchy by lowering the costs of information acquisition and distribution.

5.    Why is there considerable organizational resistance to the introduction of information systems?

There is considerable organizational resistance to new information systems because they change many important organizational dimensions, such as culture, structure, politics, and work.

6.    What is the impact of the Internet on organizations and the process of management?

The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations; nearly any information can be available anywhere at any time. The Internet increases the scope, depth, and range of information and knowledge storage. It lowers the cost and raises the quality of information.The Internet also lowers agency costs.

7.    What is Porter’s competitive forces model? How does it work? What does it explain about competitive advantage?

This model provides a general view of the firm, its competitors, and the firm’s environment. Porter’s model is all about the firm’s general business environment. In this model, five competitive forces shape the fate of the firm:

·      traditional competitors

·      new market entrants

·      substitute products and services

·      customers

·      suppliers

Michael Porter’s competitive forces model helps determine whether your business can attain any of these competitive advantages:

·      barriers to entry

·      demand control

·      economies of scale

·      process efficiency

8.    What are four competitive strategies enabled by information systems that firms can pursue? How can information systems support each of these competitive strategies? Give examples.

·      Low-cost leadership: use information systems to produce products and services at a lower price than competitors while enhancing quality and level of service. Example: Wal-Mart.

·      Product differentiating: use information systems to differentiate products and enable new services and products. Example: Google, eBay, Apple, Lands’ End.

·      Focus on market niche: use information systems to enable a focused strategy on a single market niche; specialize. Example: Hilton Hotels Harrah’s.

·      Strengthen customer and suppliers: use information systems to develop strong ties and loyalty with customers and suppliers. Example: Chrysler Corporation, Amazon.com.

9.    What is the value chain model? How can it be used to identify opportunities for strategic information systems?

The value chain model highlights specific activities in the business where competitive strategies can best be applied and where information systems are most likely to have a strategic impact. The model identifies specific, critical leverage points where a firm can use information technology most effectively to enhance its competitive position. Information systems can be used at each stage of the value chain to improve operational efficiency, lower costs, improve profit margins, and forging a closer relationship with customers and suppliers.

10. What is the value web? How is it related to the value chain? How does it help identify opportunities for strategic information systems?

A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product or service for a market collectively. The value web is a networked system that can synchronize the business processes of customers, suppliers, and trading partners among different companies in an industry or in related industries. These value webs are flexible and adaptive to changes in supply and demand. Firms will accelerate time to market and to customers by optimizing their value web relationships.

11. How has the Internet changed competitive forces and competitive advantage?

The Internet has nearly destroyed some industries and has severely threatened more. The Internet has also created entirely new markets and formed the basis of thousands of new businesses. The Internet has enabled new products and services, new business models, and new industries to rapidly develop.

Because of the Internet, competitive rivalry has become much more intense. Internet technology is based on universal standards that any company can use, making it easy for rivals to compete on price alone and for new competitors to enter the market. Because information is available to everyone, the Internet raises the bargaining power of customers, who can quickly find the lowest-cost provider on the Web.

12. How do information systems promote synergies and core competencies? How does this enhance competitive advantage?

A large corporation is typically a collection of businesses that are organized as a collection of strategic business units. Information systems can improve the overall performance of these business units by promoting synergies and core competencies.

The concept of synergy is that when the output of some units can be used as inputs to other units, or two organizations can pool markets and expertise, these relationships lower costs and generate profits. In applying synergy to situations, information systems are used to tie together the operations of disparate business units so that they can act as a whole.

A core competency is an activity for which a firm is a world-class leader. In general, a core competency relies on knowledge that is gained over many years of experience and a first-class research organization or simply key people who follow the literature and stay abreast of new external knowledge. Any information system that encourages the sharing of knowledge across business units enhances competency.

13. How can businesses benefit by using network economics?

The availability of Internet and networking technology has inspired strategies that take advantage of the abilities of the firm to create networks or network with each other. In a network economy, information systems facilitate business models based on large networks of users or subscribers that take advantage of network economies. Internet sites can be used by firms to build communities of users that can result in building customer loyalty and enjoyment and build unique ties to customers.

14. What is a virtual company? What are the benefits of pursuing a virtual company strategy?

A virtual company 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 physically 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.

15. Describe the management challenges posed by strategic information systems in organizations and suggest some ways of dealing with them.

Information systems are closely intertwined with an organization’s structure, culture, and business processes. New systems disrupt established patterns of work and power relationships, so there is often considerable resistance to them when they are introduced. Implementing strategic systems often requires extensive organizational change and a transition from one sociotechnical level to another. Such changes are called strategic transitions and are often difficult and painful to achieve. Moreover, not all strategic systems are profitable, and they can be expensive and difficult to build because they can entail massive sociotechnical changes within the organization. Many strategic information systems are easily copied by other firms so that strategic advantage is not always sustainable. The complex relationship between information systems, organizational performance, and decision making must be carefully managed.

In suggesting solutions, students should make reference to page 114 – Performing a Strategic Systems Analysis. Listed on this page they will find questions that managers should be asking.