Essentials of Management Information Systems, 6e

Chapter 3

3.1

Information Systems, Organizations, Management, and Strategy

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

Information technology services

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Figure 3-5 ©

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

• Programmers: Highly trained technical specialists who write software instructions for computers.

• System analysts: The principal liaisons between the information system groups and the rest of the organization.

• IS managers: Leaders of IS specialists and external specialists to vendors, manufacturers, consultants, and other managers of the organization.

3.3

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

• CIO: Senior manager in charge of the IS functions in the firm.

• End users: Representatives of departments outside the IS group for whom applications are developed.

3.4

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

Information Technology Infrastructure and Information Technology Services

Information Services Department

Past: Consisted primarily of programmers, building own software and managing own computing facilities Today: A growing proportion of specialists, with department acting as powerful change agent in the organization 3.5

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

Information Technology Infrastructure and Information Technology Services

Information Services Department

The IS department suggests new business strategies and new information-based products and services, and coordinates both the development of the technology and the planned changes in the organization.

3.6

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

How Information Systems Affect Organizations

Economic Theories

• Information system technology is a factor of production, freely substituted for capital and labor – Decreasing cost of IT substitutes the rising cost of labor.

– Result in a decline in the number of middle managers and clerical workers.

3.7

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

How Information Systems Affect Organizations

Economic Theories

• Transaction cost theory: Information technology can help lower the cost of market participation.

– Traditionally, firms have tried to reduce transaction costs by getting bigger, hiring more employees, or buying suppliers and distributors, as GM used to do.

– It is now worthwhile for firms to contract with external suppliers.

– Firm size can stay constant or contract even if revenue increases.

3.8

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

The transaction cost theory of the impact of information technology on the organization

3.9

Figure 3-6 ©

2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

How Information Systems Affect Organizations

Economic Theories – The Agency Theory

• A principal (owner) employees “agents” (employees) to perform work on his or her behalf. However, agents need constant supervision and management; otherwise, they will tend to pursue 3.10

their own interests rather than those of owners.

– As firm grows, agency and coordination costs rise – Information technology reduces agency costs because it becomes easier for managers to oversee more employees

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

The agency cost theory of the impact of information technology on the organization

3.11

Figure 3-7 ©

2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

How Information Systems Affect Organizations

Behavioral Theories

• IT could change hierarchy of decision making by lowering costs of information acquisition and distribution.

• Organization shape could “flatten” as professional workers become self-managing and decision making becomes more decentralized • Growth of “virtual organizations”, networking of people, group, and companies to complete a task.

• Information systems seen as outcome of political competition between subgroups due to their influence access to a key resource --- information.

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

The Changing Role of Information Systems in Organizations

The Internet and Organizations

• The Internet is capable of dramatically reducing transaction and agency costs • Businesses are rapidly rebuilding some key business processes based on Internet technology • Internet technology becoming a key component of IT infrastructure 3.13

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems 1.

2.

3.

Examine what managers do and what information they need for decision making and other functions.

Understand how decisions are made and what kinds of decisions can be supported by IS.

Determine how IS can benefit managers.

3.14

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

The Role of Managers in Organizations

• • • • •

Classical Model:

Planning Five Functions of Managers Organizing Coordinating Deciding Controlling 3.15

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

The Role of Managers in Organizations

Behavioral Models:

Five Attributes of Managers Perform much work at non-stop pace Fragmented activities Prefer speculation, hearsay, current and ad-hoc information Prefer oral communication Maintain diverse web of contacts as informal information system. 3.16

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

The Role of Managers in Organizations

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Managerial Role Categories

Interpersonal: F igurehead, leader, liaison Informational: N erve center, disseminator, spokesperson Decisional: Entrepreneur, disturbance handler, resource allocator, negotiator 3.17

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

Managers and Decision Making

Decision Making Classified by Organizational Level Strategic: determines long-term objectives, resources, policies Management control: monitors effective usage of resources, performance Operational control: determines how to perform tasks and ways to distribute information 3.18

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

Managers and Decision Making

Decisions are classified as:

• • Unstructured: Nonroutine, decision maker provides judgment, evaluation, and insights into problem definition, no agreed-upon procedure for decision making Structured: Repetitive, routine, handled using a definite procedure 3.19

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

Information systems and levels of decision making

3.20

Figure 3-9 ©

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

Managers and Decision Making

Stages of Decision Making

Intelligence: problem Collect information, identify Design: problem Conceive alternative solution to a Choice: Select among the alternative solutions Implementation: Put decision into effect and provide report on the progress of solution 3.21

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

The decision-making process

3.22

Figure 3-10 ©

2005 by Prentice Hall

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

Window on Management

Why War Games Can’t Always Simulate the Battlefield

How useful are war games in simulating combat scenarios and predicting outcomes?

How would the models of decision making described here explain how they are designed and performed?

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Managers, Decision Making, and Information Systems

Implications for the Design and Understanding of Information Systems

Optimal Information Systems:

Flexible; provide many options for handling and evaluating data Support a variety of styles, skills, knowledge; keep track of many alternatives Sensitive to organization’s bureaucratic and political requirements 3.24

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

What Is a Strategic Information System?

• Computer system at any level of an organization • Changes goals, operations, products, services, or environmental relationships • Helps organization gain a competitive advantage 3.25

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Business Competitive Strategies Questions

• How can we compete effectively in this particular market?

3.26

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Business Competitive Strategies

• • • Become the low-cost producer Differentiate product or service Change scope of competition by enlarging or narrowing market 3.27

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Value Chain Model Firm seen as series or “chain” of activities that add a margin of value to firm’s products or services Highlights activities in business where competitive strategies are best applied Primary or support activities Firm’s value chain linked to value chains of other partners 3.28

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

• • Primary activities: Activities directly related to the production and distribution of the firm’s products and services that create value for the customers.

Supporting activities: Make the delivery of the primary activities possible and consist of organizational infrastructure, human resources, technology, and procurement.

3.29

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

The firm value chain and the industry value chain

3.30

Figure 3-11 ©

2005 by Prentice Hall

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Value Web

Value chain extended by Internet technology that connects all the firm’s suppliers, partners, and customers Collection of independent firms using IT to coordinate value chains to collectively produce a product or service More customer-driven, less linear than value chain Flexible, adaptive to changes in supply and demand 3.31

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

The value web

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Figure 3-12 ©

2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

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Product Differentiation

Strategy for creating brand loyalty by developing new and unique products and services not easily duplicated by competitors Information systems used to create new information technology-based products and services 3.33

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Product Differentiation Citibank: ATMs, Debit Cards CitiBank, Wells Fargo: On-Line Banking, One Statement NetBank: Virtual Banking SABRE: On-Line Ticketing, Booking, Reservation, Tour Package Dell: Assemble to Order Land’s End: Make to Order 3.34

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

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Focused Differentiation

Strategy for developing new market niches for specialized products and services Information systems used to produce data for sales and marketing; analyze customer behavior 3.35

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Focused Differentiation

Sears Roebuck: Target appliance buyers, gardening enthusiasts, and mothers-to-be.

Stein Roe Investors: Personalized ad. and services.

Canadian Imperial Bank of Commerce (CIBC): Personalized services to most profitable customers.

Transfer of non-profitable customers to on-line services.

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

Efficient Customer Response Systems

Links consumer behavior back to distribution, production, and supply chains Information systems used to link customer’s value chain to firm’s value chain Reduce inventory costs; deliver product or service more quickly to customer 3.37

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

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Efficient Customer Response Systems

Wal-Mart: Continuous replenishment system, efficient customer response.

Dell: Assemble to order.

Baxter International: stockless inventory.

Sales overhead for operating cost: Wal-Mart 16.6% (Retail average is 20.7%, Sears 24.9%) 3.38

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Stockless inventory compared to traditional and just-in-time supply methods

3.39

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2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-Level Strategy and the Value Chain Model

• •

Switching Costs

Cost of switching to competitive product; higher switching costs discourage customers going to competitors Information systems offer convenience, ease of use, raise switching costs 3.40

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Business-level strategy

3.41

Figure 3-14 ©

2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Firm-Level Strategy and Information Technology

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At firm level, information technology can:

Promote synergies between business units, pool resources Tie together operations of disparate business units Improve core competencies 3.42

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Firm-Level Strategy and Information Technology

• • Bank merger: Chemical and Chase Manhattan, Wells Fargo and Norwest, Deutsche and Bankers, Citicorp and Travelers Insurance.

– Provide cross-marketing, pool market and expertise, lower retail cost, increase customer access to products, tie operations together.

American Airline: World-One Alliance.

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Industry-Level Strategy and Information Technology

Industry-Level Strategies: Information partnerships Competitive forces model; e.g., developing industry standards, customer awareness, lower supplier cost Network economics: cost of adding new participant negligible, but adds great marginal gain 3.44

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Industry-Level Strategy and Information Technology

Information Partnerships

• • AA and Citibank, Northwest and MCI: frequent flier program – Increased customer loyalty – New credit card subscribers – Cross marketing Baxter International and Staple 3.45

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Industry-Level Strategy and Information Technology

• • •

Competitive Forces Model

Making standards for exchanging information and business transactions (make product substitution difficult and raise entry cost) Coordinate policies and regulations.

Example: Covisint for auto industry.

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Industry-Level Strategy and Information Technology

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Impact of Internet on Competitive Forces

Reduces barriers to entry Enables new substitute products and services Shifts bargaining power to customer Raises firm’s bargaining power over suppliers Suppliers benefit from reduced barriers to entry and from elimination of intermediaries Widens geographic market, increases number of competitors, reduces differentiation among competitors 3.47

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Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Porter’s competitive forces model

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Figure 3-15 ©

2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

The new competitive forces model

3.49

Figure 3-16 ©

2005 by Prentice Hall

Essentials of Management Information Systems, 6e Chapter 3 Information Systems, Organizations, Management, and Strategy

Information Systems and Business Strategy

Using Systems for Competitive Advantage: Management Issues

Network Economics • • • The law of diminishing returns.

– – The marginal gain of adding another participant is much larger than its marginal cost.

Build communities of users Customer loyalty and enjoyment Examples: eBay, iVillage, Nepster 3.50

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