Reading notes for chapter 3 in the textbook.

Read Section 3.1 leisurely. It is on the organizations and the information systems. You are probably familiar with the organization theory .Pay attention to the technical and behavioral definitions of organizations as well as bureaucracy, structural characteristics of organizations, standard operating procedures and organizational culture.

Section 3.2 is on the changing role of information systems in the organization and is interesting to read how information systems leads to automation, decreases transaction costs and lays foundations for virtual organizations. Note the definitions of end users and CIO.

Section 3.3 is on decision-making, perhaps another familiar topic for you. Pay attention to strategic decision making, structured and unstructured decisions, rational model of decision making .It would be interesting to read individual models of decision-making and organizational models of decision-making.

 Reading notes for chapter 3 in the textbook - Continued

Section 3.4 is on the strategic use of information technology to gain competitive advantage. Strategic use of information technology may be at the business-level, firm level or industry level. Pay attention to how information technology is used at each level, especially strategies employed at each level. Strategic transition and its management is crucial for successfully steering the organization into new technology.

Pay attention to the fact the information technology is widely used in every type of organization to be competitive, to keep pace with competition, to meet the legal requirements, and to improve the production. Hence, strategic use of information technology results in significant competitive advantages. This section deserves careful attention.

Chapter 3: Information Systems, Organizations, Management and Strategy

organizations InformationTechnology

Mediating Factors

EnvironmentCultureStructureStandard proceduresBusiness processPoliticsManagement DecisionsChance

Organizations And Information Technology

StructureHierarchydivision of laborRules,proceduresBusiness processesProcessRights/obligationsPrivileges/responsibilitiesValuesNormsPeople

Environmentalresources

Environmentaloutputs

FORMAL ORGANIZATION

•Organization (technical definition)A Stable, formal, social structure that takes resources from the environment and processes them to produce outputs.

•Organization (behavioral definition)

A collection of rights, privileges, obligations, and responsibilities that are delicately balanced over a period of time through conflict and conflict resolution.

•BureaucracyFormal Organization with a clear-cut division of labor, abstract rules and procedures, and impartial decision making that uses technical qualifications and professionalism as a basis for Promoting employees.

STRUCTURAL CHARACTERISTICS OF ALL ORGANIZATIONS

•Clear division of labor•Hierarchy•Explicit rules and procedures•Impartial judgments•Technical qualifications for positions•Maximum organizational efficiency

ORGANIZATIONAL STRUCTURESOrganization-al Type

Description Example

Entrepreneurial structure

Young, small firm in a fast-changing environment. It has a simple structure and is managed by an entrepreneur serving as its single chief executive officer.

Small start-up business

Machine bureaucracy

Large bureaucracy existing in a slowly changing environment, producing standard products. It is dominated by a centralized management team and centralized decision making.

Midsize manufacturing firm

Divisionalized bureaucracy

Combination of multiple machine bureaucracies, each producing a different product or service, all toped by one central headquarters.

Fortune 500 firms such as general motors

ORGANIZATIONAL STRUCTURES

Organization-al Type

Description Example

Professional bureaucracy

Knowledge-based organization where goods and services depend on the expertise and knowledge of professionals. Dominated by department heads with weak centralized authority.

Law firms, school systems, hospitals

Adhocracy “Task force” organization that must re to rapidly changing environments. Consists of large groups of specialists organized into short-lived multidisciplinary teams and has weak central management.

Consulting firms such as the Rand corporation.

Summary of salient features of organizations

Common Features• Formal Structure

• Standard operating procedures(SOPs)

• Politics

• Culture

Unique features• Organizational type• Environments• Goals• Power• Constituencies• Function• Leadership• Tasks• Technology• Business processes

Information Systems departmentThe Formal organizational unit that is responsible for the information systems function in the organization.

ProgrammersHighly trained technical specialists who write computer software instructions.Systems analystsSpecialists who translate business problems and requirements into information requirements and systems,acting as liaison between the information systems department and the rest of the organization.

Information systems managersLeaders of the various specialists in the information systems department.

Chief information officer(CIO) Senior manager in charge of the information systems function in the firm.

End users Representatives of departments outside the information systems group for whom applications are developed.

THE ORGANIZATIONSenior managementMajor end users(divisions)

Information Systems department

IT InfrastructureHardwareSoftwareData storageNetworks

Information Systems SpecialistsCIOManagersSystems analystsSystems designersProgrammersNetwork specialistsDatabase administratorClerical

Microeconomic model of thee firmModel of the firm that views information technology as a factor of production that can be freely substituted for capital and labor.Transaction cost theoryEconomic theory stating that firms grow larger because they can conduct market place transactions internally more cheaply than they can with external firms in the marketplace.Agency theoryEconomic theory that views the firm as a nexus of contracts among self-interested individuals who must be supervised and managed.Virtual organizationOrganization using networks to link people,assets and ideas to createand distribute products and services without being limited to traditional organizational boundaries or physical location.

How Information Systems Affect the Organizations

TASK

TECHNOLOGY

STRUCTURE

PEOPLE

Organizational Components and Change

Classical model of management

Traditional description of management that focused on its formal functions of planning, organizing, coordinating, deciding and controlling.

Behavioral models

Descriptions of management based on behavioral scientists observations of what managers actually do in their jobs.

Managers and Decision-Making

Managerial rolesExpectations of the activities that managers should perform in an organization.

Interpersonal rolesMintzberg’s classification for managerial roles where managers act as figureheads and leaders for the organization.

Informational roles Mintzberg’s classification for managerial roles where managers act asthe nerve centers of their organizations,receiving and disseminating critical information.

Decision rolesMintzberg’s classification for managerial roles where managers initiate activities,handle disturbances,allocate resources and negotiate conflicts.

Managerial Roles in Behavioral Model

The Process of Decision-Making Strategic decision making Determining the long-term objectives, resources and policies of an organization.

Management control Monitoring how efficiently or effectively resources are utilized and how well operational units are performing.

Operational control Deciding how to carry out specific tasks specified by upper and middle management and establishing criteria for completion and resource allocation.

Knowledge-level decision making Evaluating new ideas for products, services, ways to communicate new knowledge, and ways to distribute information throughout the organization.

Unstructured decisionsNon-routine decisions in which the decision maker must provide judgement, evaluation, and insights into the problem definition; there is no agreed-upon procedure for making such decisions.

Structured decisionsDecisions that are repetitive, routine, and have a definite procedure for handling them.

Types of Decisions

Type of decisionStructured

Semi-structured

U n-structured

Organizational level

Operational knowledge management Strategic

TPS

Office systems

KWS

MIS

DSS

ESS

Cognitive styleUnderlying personality dispositions toward the treatment of information, selection of alternatives, and evaluation of consequences.

Systematic decision makerscognitive style that describes people who approach a problem by structuring it in terms of some formal method.

Intuitive decision makersCognitive style that describes people who approach a problem with multiple methods in an unstructured manner, using trail and error to find a solution.

Organizational models of decision makingModels of decision making that take into account the structural and political characteristics of an organization.

Individual Models of Decision-Making

Bureaucratic models of decision makingModels of decision making where decisions are shaped by the organization’s standard operating procedures(SOPs).

Political models of decision makingModels of decision making where decisions result from competition and bargaining among the organization’s interest groups and key leaders.

“Garbage can” modelModel of decision making that states that organizations are not rational and that decisions are solutions that become attached to problems for accidental reasons.

Organizational Models of Decision-Making

What is Business Strategy?

• Organization has a limited set of resources (e.g. time, people, money, physical resources) and they must decide how to use those resources.

• Example: You have the following resources:– $500,000 – A building – 10 employees – A patent on new invention

Strategy is deciding what the organization is going to do and how it will use use its resources

Examples of Strategies

• Strategy 1: manufacture equipment with the money and use the building and the people to manufacture widgets.

• Strategy 2: Outsource the production of widgets and use the people and building to be widget distributor - or perhaps a widget store.

• Strategy 3: Sell the patent to a larger firm, sell the building, fire the employees and retire!

Strategy vs. Tactic

• Strategy focuses essentially on deciding on what the organization is trying to do, what it is trying to become within its business environment. Changing strategy is difficult and often causes problems.

• Tactic is the implementation of the strategy. It is the set of management decisions focussed on how to achieve the strategic objectives.

• Example: once the organization decides that it wants to be a widget manufacturer, there are many decisions that must be made about how to profitably manufacture widgets.

Strategic Decisions

• Strategic decisions address questions such as:– What products or services will be provide? – Will we focus on providing low cost goods/services? – Will we focus on providing unique goods/services? – Where will we sell our goods/services? To whom?

• IT can assist the strategic decision maker (e.g. ESS). More importantly, IT is likely to be critical to the implementation of the strategy.

Elements of Strategic Management

• Long range planning

• Responsive

management

• Innovation

V is io n

M is s io n

S tra te g ic

M a n a g e ria l

O pe ra t io n a l

I n fo rm a t io nTe ch n o lo g y

The Role of IT• Create systems that provide strategic advantage

• Supports strategic changes, such as business reengineering

• Provides business intelligence– Competitive intelligence– Sustainable competitive advantage

Competitive Advantage

• What makes strategy difficult is that most business environments are competitive. Need to try to "second guess" the competition.

• Competitive advantage: what sets the firm apart from the rest of its competitors.

• Basis for competition: cost, speed, quality, variety, level of service,...

Strategic Information Systems

• Strategic information systems– computer systems at any level of an organization that

change the goals, processes, products, services, or environmental relationships to help the organization gain a competitive advantage

• Information considered as a resource, much like capital and labor

• IT-critical competitive strategies: Customer lock-in, customer lock-out, new business entry

STRATEGY LEVELS AND INFORMATION

TECHNOLOGY (IT) - ANOTHER FRAMEWORK

STRATEGIES MODELS IT TECHNIQUES

INDUSTRYcooperation vs. competition Competitive forces electronic transactionslicensing Network economics communications networks

standards Inter-organizational systemsinformation partnership

FIRMSynergy Core competency knowledge systemsCore competencies organizational systems

BUSINESSLow Cost producer Value chain analysis data mining

Differentiation of products/services

IT-based products / services

Scope of competition(global vs. niche)

Inter-organizational systemssupply chain management

efficient customer response

Value Chain AnalysisValue Chain Analysis

Highlights the primary and support Highlights the primary and support activities that that add a add a margin of valuemargin of value to a firm’s product/service to a firm’s product/service where IS can best be applied to achieve a where IS can best be applied to achieve a competitive advantage.competitive advantage.

Primary activities:Primary activities:• Activities most directly related to the Activities most directly related to the production and distribution of a firm’s production and distribution of a firm’s products/servicesproducts/services• Consist of inbound logistics, operations, Consist of inbound logistics, operations, outbound logistics, sales and marketing, serviceoutbound logistics, sales and marketing, service

Support activities:Support activities:• Activities that make the delivery of primary Activities that make the delivery of primary activities possibleactivities possible• Consist of organization’s infrastructure, human Consist of organization’s infrastructure, human resources, technology, procurementresources, technology, procurement

The Value Chain for a Restaurant

• Each box represents a primary process

IS to Support Product/Service Differentiation

• Product/service differentiation– strategy for creating brand loyalty by

developing new and unique products/services that are not easily duplicated by competitors

e.g. Citibank’s ATM

IS to Support Niche Focus• Focused differentiation

– strategy for developing new market niches for specialized products/services

– Data mining

• analysis of large pool of data to find patterns and rules that can be used to guide decision-making and predict future behavior

e.g. direct marketing

Applications of Data mining

– Identifying individuals or organizations most likely to respond to a direct mailing.

– Predicting which customers are likely to switch to competitors.

– Identifying common characteristics of customers who purchase the same product.

IS to Support Low Cost Strategy• Supply chain management

– integrates supplier, distributors, and customer logistics requirements into one cohesive process

– to reduce inventory cost or underutilized staff• e.g. Wall-Mart’s “continuous replenishment system”

– “lock in” customer and raise “switching costs”• expense a customer incurs in lost time and expenditure

of resources when changing from one supplier to a competing supplier

• e.g. Baxter Healthcare’s “stockless inventory”

Business Level Strategy

Th e B u s i n e s s F i r m

V e n d o r s C u s to m e rs

S u p p l y C h a i nM an ag e m e n t

S t o c k l e s s In ve n t o r yC o n t i n o u s R e p l e n i s h m e n tJ u s t - i n - t i m e d e l i ve r y

In t r a F i r m S t r a t e g y

P r o d u c t d i ffe r e n t i a t i o nF o c u s e d d i ffe r e n t i a t i o nL o w - c o s t p r o d u c e r

Efficient C usto m erR espo nse

P o int-o f-sale system sD atam ining

B u s in e s s L e v e l S tra te g y

Firm-Level Strategies

• A firm is a collection of business units

• Synergy– outputs of some business units used as inputs to

other units– IS to tie operations of business units

• Core competencies– activities at which a firm is a world-class leader– IS to encourage sharing of knowledge

Industry-Level Strategies

• Competition with other firms

• Cooperation through information partnership– e.g. American Airlines and Citibank

• Models to help analysis– Competitive forces

– Network economics• based on concept of a network where adding another

participant entails no marginal costs but can create much larger marginal gain

COMPETITIVE FORCES MODEL

THE FIRMTRADITIONALCOMPETITION

NEWMARKETENTRANTS

Bargaining power ofSUPPLIERS

Bargainingpower ofCUSTOMERS

SUBSTITUTEPRODUCTS& SERVICES

Managing Strategic Transitions

• A movement from one level of socio-technical system to another. Often required when adopting strategic systems that demand changes in the social and technical elements of an organization.

Questions Managers Should Ask• Forces at work in the industry and strategies• Using information and communication technology• The direction and nature of change within the industry • Opportunities to be gained by introducing information systems

technology• Kinds of systems are applicable to the • Being behind or ahead of the industry in its application of information

systems• The current business strategic plan, and the cur rent strategy for

information services• Sufficient technology and capital to develop a strategic information

systems initiative • The greatest value to the firm

Challenges

• Integrations

• Sustainability of competitive advantage