Management Information Systems:
Managing the Digital Firm
Seventeenth Edition
Chapter 3
Information Systems, Organizations, and Strategy
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Learning Objectives
3.1 Which features of organizations do managers need to know about
to build and use information systems successfully?
3.2 What is the impact of information systems on organizations?
3.3 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?
3.4 What are the challenges posed by strategic information systems,
and how should they be addressed?
3.5 How will MIS help my career?
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Video Cases
Case 1: GE Becomes a Digital Firm: The Emerging Industrial
Internet
Case 2: National Basketball Association: Competing on
Global Delivery with Akamai O S Streaming
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Walmart’s New Supercenter Strategy
(1 of 2)
• Problem
– Opportunities from new technology
– Large geographic footprint
– Powerful competition
– High costs
• Solutions
– Determine business strategy
– Design new products and services
– Integrate multiple lines of business
– Optimize in-store experience
– Edge computing
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Walmart’s new Supercenter Strategy
(2 of 2)
• Supercenter systems expedite ordering and shipping;
provides new in-store services, warehousing for third-party
sellers, targeted brand online ads
• Increases revenue and service
• Illustrates how information systems help business compete
• Demonstrates IT’s role in helping organizations strengthen
their competitive strategies by using new technologies
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The Relationship Between Organizations
and Information Technology
• Information technology and organizations influence each other –
Relationship influenced by organization’s
▪Structure
▪Business processes
▪Politics
▪Culture
▪Environment
▪Management decisions
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Figure 3.1 The Two-Way Relationship Between
Organizations and Information Technology
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3-1. Which features of organizations do
managers need to know about to build
and use information systems
successfully?
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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
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Figure 3.2 The Technical Microeconomic Definition of
the Organization
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Figure 3.3 The Behavioral View of Organizations
Features of Organizations
• Use of hierarchical structure
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• Accountability, authority in system of impartial decision making
• Adherence to principle of efficiency
• Routines and business processes
• Organizational politics, culture, environments, and structures
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
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• Business firm: Collection of business processes
Figure 3.4 Routines, Business Processes, and Firms
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Organizational Politics
• Divergent viewpoints lead to political struggle, competition,
and conflict
• Political resistance greatly hampers organizational change
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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
Organizational Environments
• Organizations and environments have a reciprocal
relationship
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• 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
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Figure 3.5 Environments and Organizations Have a
Reciprocal Relationship
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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
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Organizational Structure
• Five basic kinds of organizational structure (Mintzberg)
– Entrepreneurial (start-ups)
– Machine bureaucracy (midsize manufacturing)
– Divisionalized bureaucracy (ex: Fortune 500 firms)
– Professional bureaucracy (law firms, hospitals)
– Adhocracy (ex: consulting firms)
• Information system often reflects organizational structure
Other Organizational Features
• Goals
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– Coercive, utilitarian, normative, and so on
• Constituencies
• Leadership styles
• Types of tasks
• Different environments
3-2. What is the impact of information
systems on organizations?
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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
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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, making it worthwhile for
firms to transact with other firms rather than grow the number
of employees
Agency Theory
• Firm is nexus of contracts among self-interested parties
requiring supervision
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• 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
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)
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• Postindustrial organizations
– Organizations flatten because in postindustrial societies,
authority increasingly relies on knowledge and
competence rather than formal positions
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Figure 3.6 Flattening Organizations
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Understanding 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
– (Good for managers but not for every employees)
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Figure 3.7 Organizational Resistance to Information System
Innovations (all 4 must change simultaneously)
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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 website, saving millions of
dollars in distribution costs
Implications for the Design and
Understanding of Information Systems
• Organizational factors in planning a new system:
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– 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
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Porter’s Competitive Forces Model
(1 of 3)
• 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 (is the barrier to entry high?)
– Substitute products and services
– Customers
– Suppliers
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Porter’s Competitive Forces Model
(2 of 3)
• 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
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Porter’s Competitive Forces Model
• Substitute products and services
– Substitutes customers might use if your prices become too high,
for example, iTunes substitutes for C D s
• 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
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Figure 3.8 Porter’s Competitive Forces Model
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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
• Low-cost leadership
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– Produce products and services at a lower price than competitors
– Example: Walmart’s efficient customer response system
• Product differentiation
– Enable new products or services, greatly change customer
convenience and experience
– Example: Google Nike
– Mass customization; customer experience management
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Interactive Session: Organizations:
Shipping Wars
• Class discussion
– Why is shipping so important for e-commerce? Explain your
answer.
– Compare the shipping strategies of Amazon, FedEx, and
UPS. How are they related to each company’s business
model?
– Will FedEx succeed in its push into ground shipping. Why or
why not?
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Interactive Session: Management:
Customer Experience Management: A
New Strategic Weapon
• Class Discussion
– What is customer experience management? How can it contribute
to competitive advantage?
– How does information technology support customer experience
management? Give examples.
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– How did information technology and customer experience
management change operations and decision making at the
organizations described in this case?
Information System Strategies for
Dealing with Competitive Forces
(3 of 3)
• Focus on market niche
– Use information systems to enable a focused strategy on a single
market niche; specialize
– Example: Hilton Hotels’ O n Q system
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• Strengthen customer and supplier intimacy
– Use information systems to develop strong ties and loyalty with
customers and suppliers – Increase switching costs
– Examples: Toyota, Amazon
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
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• Universal standards allow new rivals, entrants to market
• New opportunities for building brands and loyal customer
bases
Smart Products and the Internet of
Things
• Internet of Things (I o T)
– Growing use of Internet-connected sensors in products
• Smart products
– Fitness equipment, health trackers
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• Expand product differentiation opportunities
– Increasing rivalry between competitors
• Raise switching costs
• Inhibit new entrants
• May decrease power of suppliers
The Business Value Chain Model
• Firm as series of activities that add value to products or
services
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• 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
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Figure 3.9 The Value Chain Model
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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
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– More customer driven, less linear operation than
traditional value chain
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Figure 3.10 The Value Web
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Synergies
• When output of some units are used as inputs to others, or
organizations pool markets and expertise
• Example: Merger of Bank of N Y and J P Morgan Chase
• Purchase of YouTube by Google
Core Competencies
• Activity for which firm is world-class leader
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• Relies on knowledge, experience, and sharing this across
business units
• Example: Procter & Gamble’s intranet and directory of
subject matter experts
Network-Based Strategies
• Take advantage of firm’s abilities to network with one
another
• Include use of:
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– Network economics
– Virtual company model
– Business ecosystems
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
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• Compare to traditional economics and law of diminishing
returns
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
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– Manages production, shipment of garments for major
fashion companies
– Outsources all work to thousands of suppliers
Business Ecosystems and Platforms
• Industry sets of firms providing related services and
products
• Platforms
– Microsoft, Facebook
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• Keystone firms
• Niche firms
• Individual firms can consider how IT will help them become
profitable niche players in larger ecosystems
• Business ecosystem: loosely coupled but interdependent
networks of suppliers, distributors, outsourcing firms,
transportation service firms, technology manufacturers
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Figure 3.11 An Ecosystem Strategic Model
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Challenges Posed by Strategic
Information Systems
• 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
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How Will MIS Help My Career?
• The Company: Superior Data Quality
• Position Description: Entry-level business development
representative
• Job Requirements
• Interview Questions
• Author Tips
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