Lecture 4-Information Systems, Organizations, and Strategy PDF

Announcements The group project instruction are available on Moodle. Everyone should be in a group via “Group Formation” (which can be found under “Group Project” in moodle) by Friday 30/08/2024. – Please continue your group meetings and work on the project Mid-term quiz - Is pap...

Announcements The group project instruction are available on Moodle. Everyone should be in a group via “Group Formation” (which can be found under “Group Project” in moodle) by Friday 30/08/2024. – Please continue your group meetings and work on the project Mid-term quiz - Is paper-based supervised quiz (please bring pen/pencils) and in week 6. o Wollongong: during lecture (11:40am – 12:30pm on 29/08/2024) o Liverpool: during computer lab (14:40pm – 15: 30pm on 30/08/2024) - This quiz comprises 25 questions (Multiple choice questions,etc.). - The total time allowed is 50 minutes for the quiz. - This is a closed book individual quiz. - Based on the lecture and lab contents allocated for prior weeks. - So study and be prepared. … Lecture 4: Information Systems, Organizations, and Strategy ISIT224 Management Information Systems Lecture Outline Information Systems, Organizations, and Strategy Understanding organizations Impact of information systems on organizations Strategies for competitive advantage Challenges of strategic information systems  Learning Objectives What 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, 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? What features of organizations do managers need to know about to build and use information systems successfully? The Two-Way Relationship Between Organizations and Information Technology Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved As a manager You will be the one to decide ü which systems will be built, what they will do, and how they will be implemented. Who would have imagined fifteen years ago, ü For instance, that e-mail and instant messaging would become a dominant form of business communication and that many managers would be inundated with more than 200 e-mail messages each day? 7 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 8 Features of Organizations What is an organization? – Behavioral definition: A collection of rights, privileges, obligations, and responsibilities that is delicately balanced over a period of time through conflict and conflict resolution 9 Features of Organizations Shared features of organizations – Division of labor and specialization – Use of hierarchical structure – Accountability, authority in system of impartial decision making – Technical qualification and professionalism for positions – Adherence to principle of efficiency – Routines and business processes – Organizational politics, culture, environments, structures, goals, constituencies, and leadership styles, etc – Vision, mission, and core values 10 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 Note that one routine may serve different business processes – Business firm: Collection of business processes 11 Routines and Business Processes 12 Features of Organizations Organizational politics: Divergent viewpoints lead to political struggle, competition, and conflict. Political resistance greatly hampers organizational change 13 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 E.g,Wolf-Culture @Huawei – May be powerful unifying force as well as restraint on change 14  – Source: Adapted from information in O’Reilly, C. A., III, Chatman, J. A., & Caldwell, D. F. (1991) 15 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. 16 Environments and Organizations Have a Reciprocal Relationship Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved Features of Organizations Organization structure – The formal configuration between individuals and groups regarding the allocation of tasks, responsibilities, and authority within the organization Five basic kinds of organizational structure – Entrepreneurial: Simple structure fast-changing environment Major decision made by one or two key personnel Direct supervision e.g., small start-up business 18 Features of Organizations Five basic kinds of organizational structure – Machine bureaucracy: Centralized management/decision making slowly changing environment->stable environment Standardization of business processes Many levels exist in the chain of command from top management to the bottom of organization e.g., midsize manufacturing firm 19 Features of Organizations Five basic kinds of organizational structure – Divisionalized bureaucracy: Multiple machine bureaucracies , each producing a different product or service Decision making is decentralized at division level topped by central headquarter e.g., Fortune 500 firms 20 Features of Organizations Five basic kinds of organizational structure – Professional bureaucracy: Knowledge-based organization Goods and services depend on the expertise and knowledge of professionals Decentralized to give autonomy to professionals Department heads with weak centralized authority – top management is small, few middle managers e.g., Law firms, school systems, hospitals 22 Features of Organizations Five basic kinds of organizational structure – Adhocracy: Task force organization that must respond to rapidly changing environment Large groups of specialists organized in short- lived multidisciplinary teams weak central management e.g., consulting firms, research and development firms 23  What is the impact of information systems on organizations? 25 Impact of IS 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 26 Impact of IS on Organizations Economic Impacts – Transaction cost theory Firms seek to economize on transaction costs (the costs of participating in markets). – Vertical integration IT lowers market transaction costs for firm, making it worthwhile for firms to transact with other firms rather than growing the number of employees. 27 Impact of IS on Organizations Economic Impacts – 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. 28 Impact of IS 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). 29 Flattening Organizations Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved Impact of IS on Organizations Organizational and Behavioral Impacts – Postindustrial organizations Organizations flatten because in postindustrial societies, authority increasingly relies on knowledge and competence rather than formal positions Professional workers tend to be self-managing Decision making become more decentralized 26 Understanding Organizational Resistance to IS 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 Organizational Resistance to Information System Innovations Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved How do Porter’s competitive forces model, the value chain model, and network economics help companies develop competitive strategies using information systems? Why do some firms become leaders? Revenue growth, profitability, or productivity growth (efficiency) They have access to special resources that others do not. They are able to use commonly available resources more efficiently -- usually because of superior knowledge and information assets. Porter’s Competitive Forces Model 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 Porter’s Competitive Forces Model Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved Porter’s Competitive Forces Model …continues 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 Porter’s Competitive Forces Model …continues Substitute products and services – Substitutes customers might use if your prices become too high, for example, iTunes substitutes for CDs Customers – Can customers easily switch to competitor's products? – Can they force businesses to compete on price alone in transparent marketplace? Suppliers – Market power of suppliers when firm cannot raise prices as fast as suppliers A real-world example of Porter’s Competitive Forces Please watch the McDonald's Porter's Five Forces Model video below to enhance your knowledge https://www.youtube.com/watch?v=IfNUF91AThI 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 Information System Strategies for Dealing with Competitive Forces … continues Low-cost leadership – Produce products and services at a lower price than competitors Product differentiation – Enable new products or services, greatly change customer convenience and experience – Mass customization: The ability to offer individually tailored products or services using the same resources as mass production. Example is NikeiD Information System Strategies for Dealing with Competitive Forces … continues Focus on market niche – Use information systems to enable a focused strategy on a single market niche Strengthen customer and supplier intimacy – Use information systems to develop strong ties and loyalty with customers and suppliers – Increase switching costs The Internet’s Impact on Competitive Advantage 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 Internet of Things (IoT) – Growing use of Internet-connected sensors in products Smart products – Fitness equipment, health trackers, consumer electronics The Business Value Chain Model – How does the value chain model differ from the Porter model? – It offers more specific detail about what exactly to do to achieve competitive advantages. This is a limitation of the Porter model – The value chain model considers a firm as series of activities that add value to products or services – It highlights activities where competitive strategies can best be applied Primary activities: directly relates to production and distribution of products and services to meet customers’ needs Support activities: other organizational activities that makes the delivery of primary activities possible – At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy The Value Chain Model Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved A real-world example of value chain Please watch the McDonald's Value Chain video below to enhance your knowledge https://www.youtube.com/watch?v=QU3dRhXmC_8 Extending the Value Chain: The Value Web Firm’s value chain is linked to value chains of suppliers, distributors, customers 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 The Value Web Copyright © 2018, 2017, 2016 Pearson Education, Inc. All Rights Reserved Network-Based Strategies Take advantage of firm’s abilities to network with one another Include use of: – Network economics – Virtual company model – Business ecosystems Network Economics Refers to market situations where the economic value being produced depends on the number of people using a product It relies on the network effect- more connect people/entities, more value Example is email, telephone network, social media 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 Compare to traditional economics and law of diminishing returns Virtual Company Model Virtual company is a network-based strategy where a 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 Business Ecosystems and Platforms Based on firms participating in an industry set- collections of industries providing related services and products The firms are loosely coupled, but independent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers. Platforms – Microsoft, Facebook Keystone firms – For example, Microsoft, IBM, and Intel are keystones in the Microsoft Business Ecosystem. Niche firms Individual firms can consider how IT will help them become profitable niche players in larger ecosystems The main difference between value web and business ecosystem is that cooperation takes place across a set of industries rather than across firms. What are the challenges posed by strategic information systems and how should they be addressed? Challenges Posed by Strategic Information Systems Sustaining competitive advantage – Competitors can copy strategic systems – Amazon was once an e-commerce leader, but then came e-bay & Walmart – 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  Thanks for attending & thanks for your contribution! J