Management Information Systems:
Managing the Digital Firm
Eighteenth Edition
Chapter 3
Information Systems,
Organizations, and
Strategy
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Learning Objectives (1 of 2)
3.1 Discuss technical and behavioral views of
organizations.
3.2 Discuss features of organizations that affect
information systems.
3.3 Describe the impact of information systems on
organizations.
3.4 Discuss Porter’s competitive forces model.
3.5 Discuss the value chain model.
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Learning Objectives (2 of 2)
3.6 Discuss synergies, core competencies, and network
economics.
3.7 Understand how AI can be used in competitive
strategy.
3.8 Describe the challenges posed by strategic
information systems.
3.9 Understand how the information in this chapter can
help your career.
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Discuss Technical and Behavioral
Views of Organizations (1 of 2)
• What is an organization?
– A stable, 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
delicately balanced over a period of time through conflict and
conflict resolution
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Figure 3.1 The Two-Way Relationship
Between Organizations and Information
Technology
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Figure 3.2 The Technical Microeconomic
Definition of the Organization
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Discuss Technical and Behavioral
Views of Organizations (2 of 2)
• Organizations are formal legal entities with internal rules
and procedures
– Must abide by laws
– Social structures
▪ A collection of social elements
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Figure 3.3 The Behavioral View of
Organizations
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Discuss Features of Organizations that
Affect Information Systems (1 of 5)
• 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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Figure 3.4 Routines, Business
Processes, and Firms
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Discuss Features of Organizations that
Affect Information Systems (2 of 5)
• Organizational politics
– People in organizations, from different positions with different
specialties, concerns, and perspectives, naturally have divergent
viewpoints
– The result can be political struggles for resources, competition,
and conflict
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Discuss Features of Organizations that
Affect Information Systems (3 of 5)
• Organizational culture
– A set of assumptions about what products the organization
should produce
▪ How, where, and for whom it should produce them
▪ Business processes—the actual way business firms produce
value—are usually ensconced in the organization’s culture
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Figure 3.4 Routines, Business
Processes, and Firms
• Organizational environments
– Environments and organizations have a reciprocal
relationship
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Discuss Features of Organizations that
Affect Information Systems (4 of 5)
• Disruptive technologies are those that substitute for and
significantly reduce the market share of existing products,
services, and business models
• A technology and resulting business innovation may
come along and radically change the business landscape
and environment
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Discuss Features of Organizations that
Affect Information Systems (5 of 5)
• Organizational structure
– The structure or shape of an organization impacts the
information systems in a business
▪ Nature of problems with these systems often reflects the type of
organizational structure
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Describe the Impact of Information
Systems on Organizations (1 of 6)
• Over the past decade, information systems have
fundamentally altered the economics of organizations
– Has greatly increased the possibilities for organizing work
– Theories and concepts from economics and sociology help us
understand the changes brought about by IT
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Describe the Impact of Information
Systems on Organizations (2 of 6)
• 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
▪ Affects the cost and quality of information; changes economics of
information
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Describe the Impact of Information
Systems on Organizations (3 of 6)
• Economic impacts
– Information technology helps firms contract in size because it
can reduce transaction costs (cost of participating in markets)
▪ Transaction costs
–The costs incurred when a firm buys on the marketplace what it cannot
make itself
▪ Transaction cost theory
–Companies seek to economize on transaction costs, much as they do
on production costs
▪ Agency theory
–The firm is viewed as a “nexus of contracts” among self-interested
individuals rather than as a unified, profit-maximizing entity
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Figure 3.6 Flattening Organizations
• Organizational and behavioral impacts
–IT flattens organizations
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Describe the Impact of Information
Systems on Organizations (4 of 6)
• Organizational and behavioral impacts
– Information systems affect who does what to whom, when,
where, and how in an organization
– information systems potentially change an organization’s
structure, culture, business processes, and strategy, there is
often considerable resistance to them when they are introduced
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Figure 3.7 Organizational Resistance
to Information System Innovations
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Describe the Impact of Information
Systems on Organizations (5 of 6)
Central organizational factors to consider when planning a
new system include:
• The environment in which the organization must function
• The structure of the organization: hierarchy, specialization, routines,
and business processes
• The organization’s culture and politics
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Describe the Impact of Information
Systems on Organizations (6 of 6)
Central organizational factors to consider when planning a
new system include:
• 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 system is designed to assist
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Discuss 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
– Substitute products and services
– Customers
– Suppliers
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Figure 3.8 Porter’s Competitive
Forces Model
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Discuss Porter’s Competitive
Forces Model (2 of 3)
• What is a firm to do when it is faced with these
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
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Discuss Porter’s Competitive
Forces Model (3 of 3)
• 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
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Discuss the Value Chain Model
(1 of 4)
• The value chain model highlights specific activities in the
business
– Where competitive strategies can best be applied
– Where information systems are most likely to have a strategic
impact
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Figure 3.9 The Value Chain Model
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Discuss the Value Chain Model
(2 of 4)
• Primary activities
– Most directly related to the production and distribution of the
firm’s products and services, which create value for the customer
• Support activities
– Make the delivery of the primary activities possible
– Consist of activities related to the organizational infrastructure
▪ Administration and management
▪ Human resources
▪ Technology
▪ Procurement
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Discuss the Value Chain Model
(3 of 4)
• Benchmarking
– Involves comparing the efficiency and effectiveness of a
business’ processes to strict standards
– Then measuring performance against those standards
• Best practices
– Usually identified by consulting companies, research
organizations, government agencies, and industry associations
– The most successful solutions or problem-solving methods for
consistently and effectively achieving a business objective
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Discuss the Value Chain Model
(4 of 4)
• 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
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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
• Examples
– Merger of Bank of New York and JP Morgan Chase
– Bank of America and Countrywide Financial Corporation
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Core Competencies
• Activity for which firm is an industry leader
• Relies on knowledge, experience, and sharing this across
business units
• Example: Procter & Gamble’s intranet and directory of
subject matter experts
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Network-Based Strategies (1 of 2)
• Take advantage of firm’s abilities to network with one
another
• Include use of:
– Network economics
– Virtual company model
– Business ecosystems
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Network-Based Strategies (2 of 2)
• 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
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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
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Business Ecosystems and Platforms
• Industry sets of firms providing related services and
products
• Platforms
– Microsoft, Facebook
• Keystone firms
• Niche firms
• Individual firms can consider how IT will help them
become profitable niche players in larger ecosystems
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Figure 3.11 An Ecosystem Strategic
Model
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Understand How AI Can Be Used in
Competitive Strategy (1 of 2)
• AI is transforming the way information systems operate
and deliver value to organizations
• AI is making it easier for companies to improve
performance based on their existing business models
– But it is also spawning new business models
– Reshaping the competitive landscape
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Understand How AI Can Be Used in
Competitive Strategy (2 of 2)
• AI technology has impacted the various competitive
forces identified in Porter’s model, but not entirely in the
same way as the Internet
– Substituting products or services
– Customers’ bargaining power
– Suppliers’ bargaining power
– Threat of new entrants
– Positioning and rivalry among existing competitors
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Describe the 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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Management Checklist: Performing
a Strategic Systems Analysis
• To identify the types of systems that provide a strategic
advantage to their firms, managers should ask the
following questions
– What is the structure of the industry in which the firm is located?
– What are the business and industry value chains for this
particular firm?
– Have we aligned IT with our business strategy and goals? Have
we correctly articulated our business strategy and goals?
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