Information Systems, Organisations, and Strategy

Chapter 3

Usman Naeem

Introduction

• What is an Organisation?

• What is the relationship between an Organisation and Information System?

• How Information Systems cause an impact on an Organisation?

Case Study

• 532,000 Storefronts• $77 Billion in revenue (2005)• Paypal and Skype• Earlier strategy of geographical expansion• Primarily focusing upon continuous

improvement of business model.

Stub-hub, shopping.com, craiglist

Organisation

• Technical Definition:– An organisation is a stable, formal structure that

takes resources from the environment and processes to produce outputs

• An organisation is more stable as compared to an informal group

• Organisation is a formal legal entity with internal rules and regulations

• Organisations are social structures

Organisation

• Behavioral Definition: – A collection of:

• Rights, Privileges, Obligations and Responsibilities

• Delicately Balanced– Conflict Resolution

Two way communication between Organizations and Technology

Organisational Environment

• Organisations and environments have a reciprocal relationship.• Organisations can influence their environments.• Organisations are influenced by their

environments.

• Organisations are open to, and dependent on, the social and physical environment.

Organisational Culture

• Unquestioned assumptions like

– What products / services– How to produce– Where and for whom?

Structural Characteristics of an Organisation

• Clear division of Labor• Hierarchy• Explicit rules and regulations• Impartial Judgments• Technical Qualifications• Maximum efficiency

Organisational Structure• Entrepreneurial structure: Small start-up business

• Machine bureaucracy: Midsize manufacturing firm

• Divisionalised bureaucracy: very large firms

• Professional bureaucracy: Law firms, school systems, hospitals

• Adhocracy: Consulting firms

Organisational Politics

• Divergent viewpoints lead to political struggle, competition, and conflict.

• Obstruct organizational change

Other Organisational Features

• Goals

• Functions and constituencies

• Leadership styles

• Tasks

Impact of IS on Organisations

• Economic Impact

• Organisational and Behavioural Impact

Economic Impact• MICROECONOMIC MODEL:– IT changes both the relative costs of capital

and the costs of information. – Information technology is a factor of

production, like capital & labor– Information technology helps firms contract

in size because it can reduce transaction costs (the cost of participating in markets)• Outsourcing

• TRANSACTION COST THEORY:

• Firms seek to economize on cost of participating in market (transaction costs)

• IT lowers market transaction costs for firm, 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– Firms experience agency costs (the cost of

managing and supervising).– IT can reduce agency costs, making it possible for

firms to grow without adding to the costs of supervising, and without adding employees.

Organisational and Behavioural Impact

• Flattened Organisation:• Decision making pushed to lower levels• Fewer managers 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

• Organisational Resistance to Change:– Information systems become bound up in

organizational politics because they influence access to a key resource.

– Information systems potentially change an organization’s structure, culture, politics, and work.

– Most common reason for failure of large projects is due to organizational and political resistance to change.

Organizational Resistance and the Mutually Adjusting Relationship between Technology and the Organization

Internet and Organisations• The Internet increases the accessibility, storage,

distribution of information and knowledge for business firms.

• The Internet lowers the transaction and agency costs of firms.

• Businesses are rapidly rebuilding their key business processes based on Internet technology. Example: online order entry, customer service, and fulfillment of orders.

Implications for Design and Understanding of ‘IS’

• Information Systems must be built with a clear understanding of the organisation– Environment– Structure: Hierarchy, Specialization, Routines and

processes– Culture and Politics– Type of Organisation and its Leadership– Principle interest Groups– Tasks, decisions, and business processes the system

will assist