Information Systems: Theory & Practice - PDF

INFORMATION SYSTEMS: THEORY & PRACTICE TU3: Information Systems, Organizations, and Strategy Prof. Dr. Paul Drews N26 Case Study 2 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Learning Objectives § Which features of organizations do managers need to k...

INFORMATION SYSTEMS: THEORY & PRACTICE TU3: Information Systems, Organizations, and Strategy Prof. Dr. Paul Drews N26 Case Study 2 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Learning Objectives § Which features of organizations do managers need to know about to build and use information systems successfully? § What is the impact of information systems on organizations? § How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? § What are the challenges posed by strategic information systems, and how should they be addressed? 3 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Agenda 1. Features of Organizations & The Impact of Information Systems on Organizations 2. Using Information Systems to Develop Competitive Strategies 4 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations § Information technology and organizations influence each other § Relationship influenced by organization’s § Structure § Business processes § Politics § Culture § Environment § Management decisions Source: scphub.ac.th/newweb/image/img/vector_65_16-512.png 5 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Two-Way Relationship between Organizations and Information Technology FIGURE 3-1 This complex two-way relationship is mediated by many factors, not the least of which are the decisions made—or not made—by managers. Other factors mediating the relationship include the organizational culture, structure, politics, business processes, and environment. 6 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations What is an organization? § Technical definition: § Formal social structure that processes resources from environment to produce outputs § A formal legal entity with internal rules and procedures, as well as a social structure § Behavioral definition: § A collection of rights, privileges, obligations, and responsibilities that is delicately balanced over a period of time through conflict and conflict resolution 7 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Technical Microeconomic Definition of the Organization In the microeconomic definition of organizations, capital and labor (the primary production factors provided by the environment) are transformed by the firm through the production process into products and services (outputs to the FIGURE 3-2 environment). The products and services are consumed by the environment, which supplies additional capital and labor as inputs in the feedback loop. 8 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Behavioral View of Organizations 9 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations § Use of hierarchical structure § Accountability, authority in system of impartial decision making § Adherence to principle of efficiency § Routines and business processes § Organizational politics, culture, environments, and structures 10 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations Routines and business processes § Routines (standard operating procedures) § Precise rules, procedures, and practices developed to cope with virtually all expected situations § Business processes: Collections of routines § Business firm: Collection of business processes Source: unicorn-solutions.com/img/UnicornWorkflow.png 11 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Routines, Business Processes and Firms All organizations are composed of individual routines and behaviors, a collection of which make up a FIGURE 3-4 business process. A collection of business processes make up the business firm. New information system applications require that individual routines and business processes change to achieve high levels of organizational performance. 12 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations Organizational politics: § Divergent viewpoints lead to political struggle, competition, and conflict. § Political resistance greatly hampers organizational change. Source: timetoplay.com/wp-content/uploads/2015/11/not-me-blaming-sign.jpg 13 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations Organizational culture: § Encompasses set of assumptions that define goal and product § What products the organization should produce § How and where it should be produced § For whom the products should be produced § May be powerful unifying force as well as restraint on change 14 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations Organizational environments: § Organizations and environments have a reciprocal relationship. § Organizations are open to, and dependent on, the social and physical environment. § Organizations can influence their environments. § Environments generally change faster than organizations. § Information systems can be instrument of environmental scanning, act as a lens. 15 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Environments and Organizations have a reciprocal Relationship Environments shape what organizations can do, but organizations can influence their environments and decide to change FIGURE 3-5 environments altogether. Information technology plays a critical role in helping organizations perceive environmental change and in helping organizations act on their environment. 16 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations Disruptive technologies § Substitute products that perform as well as or better than existing product § Technology that brings sweeping change to businesses, industries, markets § Examples: personal computers, smartphones, Big Data, artificial intelligence, the Internet § First movers and fast followers § First movers—inventors of disruptive technologies § Fast followers—firms with the size and resources to capitalize on that technology 17 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Five basic kinds of organizational structure Entrepreneurial: § Small start-up business Source: assets.entrepreneur.com/content/16x9/822/12-surprising-signs-entrepreneur.jpg 18 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Five basic kinds of organizational structure Machine bureaucracy: § Midsize manufacturing firm Source: clipartkid.com/images/391/govt-announces-initiatives-to-boost-manufacturing-growth-supportbiz-9ZsCOF-clipart.jpg 19 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Five basic kinds of organizational structure Divisionalized bureaucracy: § Fortune 500 firms Source: creinfocus.com/uploads/57-Original-Members-since-1955.jpg 20 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Five basic kinds of organizational structure Professional bureaucracy: § Law firms, school systems, hospitals Source: tripathihospital.com/images/hospital.jpg 21 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Five basic kinds of organizational structure Adhocracy: § Consulting firms Source: techpluto.com/wp-content/uploads/2014/05/Screenshot_5.png 22 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Features of Organizations Other organizational features § Goals § Coercive, utilitarian, normative, and so on § Constituencies § Leadership styles § Types of tasks § Different environments 23 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Impact of Information Systems on Organizations Economic impacts § IT changes relative costs of capital and the costs of information. § Information systems technology is a factor of production, like capital and labor. § IT affects the cost and quality of information and changes economics of information. § Information technology helps firms contract in size because it can reduce transaction costs (the cost of participating in markets) § Outsourcing 24 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Impact of Information Systems on Organizations Transaction cost theory § Firms seek to economize on transaction costs (the costs of participating in markets). § Vertical integration, hiring more employees, buying suppliers and distributors § IT lowers market transaction costs for firm, making it worthwhile for firms to transact with other firms rather than grow the number of employees. 25 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Impact of Information Systems on Organizations Agency theory § Firm is nexus of contracts among self-interested parties requiring supervision. § Firms experience agency costs (the cost of managing and supervising) which rise as firm grows. § IT can reduce agency costs, making it possible for firms to grow without adding to the costs of supervising, and without adding employees. 26 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Impact of Information Systems on Organizations Organizational and behavioral impacts § IT flattens organizations § Decision making is pushed to lower levels. § Fewer managers are needed (IT enables faster decision making and increases span of control). § Postindustrial organizations § Organizations flatten because in postindustrial societies, authority increasingly relies on knowledge and competence rather than formal positions. 27 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS 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 lower-level employees more decision- making authority. FIGURE 3-6 28 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Impact of Information Systems on Organizations Organizational resistance to change § Information systems become bound up in organizational politics because they influence access to a key resource— information. § Information systems potentially change an organization’s structure, culture, politics, and work. § Four factors § Nature of the innovation § Structure of organization § Culture of organization § Tasks affected by innovation 29 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Organizational Resistance to Information System Innovations Implementing information systems has consequences for task arrangements, structures, and people. According to this model, to implement change, all four components must be changed simultaneously. FIGURE 3-7 30 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Impact of Information Systems on Organizations The Internet and Organizations § The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations. § The Internet can greatly lower transaction and agency costs. § Example: Large firm delivers internal manuals to employees via a corporate Web site, saving millions of dollars in distribution costs 31 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Source: wolfinger-informatik.de/cms/images/internet.jpeg Implications for the Design and Understanding of Information Systems Organizational factors in planning a new system: § Environment § Structure § Hierarchy, specialization, routines, business processes § Culture and politics § Type of organization and style of leadership § Main interest groups affected by system; attitudes of end users § Tasks, decisions, and business processes the system will assist 32 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Bimodal IT „Bimodal IT, [..] seeks to narrow the gap between IT delivery and business needs“ by “establishing separate modes for business- oriented and traditional IT delivery“ (Horlach et al. 2017, p. 5420) Traditional Setting Bimodal IT Setting Enterprise Enterprise IT BU 1..n IT DU BU 1..n Emergence of a new “Digital Unit” (Fast IT) § Focus: Build and improve customer-facing digital services at high speed § Often structurally separated with different governance, processes, methods § New leadership role (CDO) § Alignment necessary with IT and BU Sources: Haffke, Kalgovas & Benlian (2017a, 2017b), Horlach, Drews & Schirmer (2016), Horlach, Drews, Schirmer & Böhmann (2017) 33 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Bimodal IT / Agile Transformation Traditional IT Digital IT (mode 1, industrial, core IT) (mode 2, agile IT) Stability Goal Agility & speed IT-centric Culture Business-centric Remote from customer Customer proximity Close to customer Performance and security improvement Trigger Short term market trends Performance of services Value Business moments, customer branding Security & reliability Focus of services Innovation Waterfall development Approach Iterative, agile development Systems of records Applications Systems of engagement Slow Speed of service delivery Fast 34 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Sources: Quelle: Horlach, Drews & Schirmer (2016, 2017) Bimodal IT / Agile Transformation at ING Leading Case: ING § International Universal Bank with ~54.000 Employees § Adoption and Modification of the „Spotify Model“ (Squads, Tribes, Chapter) § „One Way of Working“, transformation of the whole enterprise (“live” in the Netherlands since 2015) § Integration of Business and IT Sources: Birkinshaw (2018), Böhmann, Drews & Zolnowski (2016), ing.com Comprehensive Digital Transformation Integration of business & Business IT + agile transformation New digital Bimodal Units IT unit IT Agile Traditional IT Enterprise Unimodal fast Transformation of the whole IT IT function 35 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Bimodal IT / Large Scale Agile Transformation Cultural & Organizational Change Structural Transformation Process Transformation Governance Transformation Business & IT Cross-functional teams Agile portfolio process with quarterly cycles Semi-autonomous teams and domains Domains for clustering teams instead of Build-Measure-Learn and A/B-Testing instead of Decisions about products, teams, domains and their departments intensive upfront planning purpose shape the enterprise Initiatives (former projects) can be launched bottom- Focus on customer needs (instead of enterprise Product-/service- oriented structure up needs) IT Transformation Increase of software development, decrease use of Break down monolithic software Microservice architecture COTS software Cloud-based infrastructure Continuous integration & deployment Vertical slices & loose coupling COTS = Commercial-off-the-shelf 36 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Bimodal IT / Agile Transformation at ING Offering to the customer, e. g. banking services Product-orientation § Mapping parts of the offering to customers to organizational units § Persisting cross-functional BizDevOps Domain (~Tribe, teams own parts of the product portfolio Product/ Service ~ 150 people), § Teams are intended to stay together for at reponsible („owner“) least 1 ½ year for one or more § The teams are semi-autonomous: they composed products prioritize work items and select with „teams of ten“ technologies on their own § Cross-domain activities are coordinated on the portfolio level § No projects! § Conways‘s Law: matching of communication structures and software structures Teams own a set of microservices 37 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Bimodal IT / Agile Transformation at ING „Team search“ § components of the product / service are owned by dedicated teams § teams can independently improve and release new features 38 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Image source: microsoft.com Agenda 1. Features of Organizations & The Impact of Information Systems on Organizations 2. Using Information Systems to Develop Competitive Strategies 39 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies § Why do some firms become leaders in their industry? § Michael Porter’s competitive forces model § Provides general view of firm, its competitors, and environment § Five competitive forces shape fate of firm: § Traditional competitors § New market entrants § Substitute products and services § Customers § Suppliers 40 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies § Traditional competitors § All firms share market space with competitors who are continuously devising new products, services, efficiencies, and switching costs. § New market entrants § Some industries have high barriers to entry, for example, computer chip business. § New companies have new equipment, younger workers, but little brand recognition. 41 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies Substitute products and services § Substitutes customers might use if your prices become too high, for example, iTunes substitutes for CDs Source: gabi-journal.net/wp-content/uploads/Substitution-V13F14.jpg 42 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies Customers § Can customers easily switch to competitor's products? Can they force businesses to compete on price alone in transparent marketplace? Source: eurocomms.com/images/ECNEW/Customers.jpg 43 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies Suppliers § Market power of suppliers when firm cannot raise prices as fast as suppliers Source: stran.com/wp-content/uploads/2014/06/supplier.png 44 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Porter’s Competitive Forces Model In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not FIGURE 3-8 only by competition with its traditional direct competitors but also by four other forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers. 45 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Four generic strategies for dealing with competitive forces, enabled by using IT: § Low-cost leadership § Product differentiation § Focus on market niche § Strengthen customer and supplier intimacy 46 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Low-cost leadership § Produce products and services at a lower price than competitors § Example: Walmart’s efficient customer response system Source: blogs.ubc.ca/annabellechen/files/2013/11/walmart-logo1.jpg 47 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Product differentiation § Enable new products or services, greatly change customer convenience and experience § Mass customization Source: store.storeimages.cdn-apple.com 48 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Mass Customization: Nike 49 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Source: photos1.blogger.com/blogger/7802/13/1600/createshoes.jpg Information System Strategies for Dealing with Competitive Forces Focus on market niche § Use information systems to enable a focused strategy on a single market niche; specialize § Example: Hilton Hotels’ OnQ system Source: upload.wikimedia.org/wikipedia/en/thumb/3/39/HiltonHotelsLogo.svg/1280px-HiltonHotelsLogo.svg.png 50 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Strengthen customer and supplier intimacy § Use information systems to develop strong ties and loyalty with customers and suppliers § Increase switching costs § Example: Chrysler, Amazon, Starbucks Source: static1.squarespace.com/static/55b7dd26e4b039219cf962d5/t/56380f4ee4b0465c50fc331f/1326155276687/1000w/Amazon+Prime-cult.png 51 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Internet’s Impact on Competitive Advantage § Transformation or threat to some industries § Examples: travel agency, printed encyclopedia, media § Competitive forces still at work, but rivalry more intense § Universal standards allow new rivals, entrants to market § New opportunities for building brands and loyal customer bases 52 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Source: http://newslatefilms.com/wp-content/uploads/2015/04/market-competition.jpg Smart Products and the Internet of Things § Internet of Things (IoT) § Growing use of Internet-connected sensors in products § Smart products § Fitness equipment, health trackers § Expand product differentiation opportunities § Increasing rivalry between competitors § Raise switching costs § Inhibit new entrants § May decrease power of suppliers 53 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Business Value Chain Model Value chain model § Firm as series of activities that add value to products or services § Highlights activities where competitive strategies can best be applied § Primary activities vs. support activities § At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy § Utilize benchmarking, industry best practices 54 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Value Chain Model This figure provides examples of systems for both primary and support activities of a firm and of its value partners that can add a margin of value to a firm's products or services. FIGURE 3-9 55 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Extending the Value Chain: The Value Web § Firm’s value chain is linked to value chains of suppliers, distributors, customers § Industry value chain Value web: § Collection of independent firms using highly synchronized IT to coordinate value chains to produce product or service collectively § More customer driven, less linear operation than traditional value chain 56 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Value Web The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand. FIGURE 3-10 57 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Synergies & Core Competencies § Information systems can improve overall performance of business units by promoting synergies and core competencies § Synergies § When output of some units are used as inputs to others, or organizations pool markets and expertise § Examples: merger of Bank of NY and JPMorgan Chase, Purchase of YouTube by Google 58 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Synergies & Core Competencies § Information systems can improve overall performance of business units by promoting synergies and core competencies § Core competencies § Activity for which firm is world-class leader § Relies on knowledge, experience, and sharing this across business units § Example: Procter & Gamble’s intranet and directory of subject matter experts 59 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Network-based Strategies Network-based strategies § Take advantage of firm’s abilities to network with one another § Include use of: § Network economics § Virtual company model § Business ecosystems Source: councilofnonprofits.org/sites/default/files/resources-tools/images/feature-network-approach.jpg 60 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Network Economics Traditional economics: Law of diminishing returns § The more any given resource is applied to production, the lower the marginal gain in output, until a point is reached where the additional inputs produce no additional outputs Network economics: § Marginal cost of adding new participant almost zero, with much greater marginal gain § Value of community grows with size § Value of software grows as installed customer base grows 61 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Virtual Company Model Virtual company § Uses networks to ally with other companies § Creates and distributes products without being limited by traditional organizational boundaries or physical locations Example: Li & Fung § Manages production, shipment of garments for major fashion companies § Outsources all work to thousands of suppliers 62 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Business Ecosystems and Platforms Business ecosystems § Industry sets of firms providing related services and products § Platforms § Microsoft, Facebook § Keystone firms: Dominate ecosystem and create platform used by other firms § Niche firms: Rely on platform developed by keystone firm § Individual firms can consider how IT will help them become profitable niche players in larger ecosystems Source: c.s-microsoft.com/en-us/CMSImages/icon-windows-updated-logo-blue.svg?version=cd5eedf2-8572-dd02-095f-dd596d1e150a 63 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS An Ecosystem Strategic Model The digital firm era requires a more dynamic view of the boundaries among industries, firms, FIGURE 3-11 customers, and suppliers, with competition occurring among industry sets in a business ecosystem. In the ecosystem model, multiple industries work together to deliver value to the customer. IT plays an important role in enabling a dense network of interactions among the participating firms. 64 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies § Sustaining competitive advantage § Competitors can retaliate and copy strategic systems § Systems may become tools for survival § Aligning IT with business objectives § Performing strategic systems analysis § Structure of industry § Firm value chains § Managing strategic transitions § Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes 65 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Homework § T3-1. Please actively read chapter 3 - including the case studies. For this week, I uploaded a PDF of chapter 3 (see folder "Downloads" below). Please make sure for the upcoming weeks that you have access to a printed copy or the eBook of the textbook. (3 hours) § T3-2. Read learning track 1 for chapter 3 (The Changing Business Environment of Information Technology) § T3-3. Five forces & Value chain model Take one example company, analyze this company by applying the five forces model and the value chain model. Where can you find influences of information systems & the Internet in your analysis? § Optional: Review Questions 3-2, 3-3, 3-4, Discussion Question 3-6, 3-7 66 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS CONTACT PROF. DR. PAUL DREWS Institute of Information Systems Universitätsallee 1 | 21335 Lüneburg Fon 04131.677-1993 | [email protected] www.leuphana.de/institute/iis/personen/paul-drews