2. Principles of Information Systems,
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Chapter 2 Outline
• Organizations and Information
Systems
• Competitive Advantage
• Performance-Based Information
Systems
• Careers in Information Systems
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Porter’s Firm Value Chain*
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Operations Outbound
Logistics
Marketing
& Sales
Service
Materials
handling
delivery
Primary
Activities
Support
Activities
Mfg. &
assembly
Order
processing
Shipping
Product
Pricing
Promotion
Place
Customer
service
Repair
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Supplier’s
value
chain
Firm’s
value
chain
Channel’s
value chains
Buyer’s
value
chains
“The Value System”: interconnecting
Relationships between organizations*
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Example of strategic targets*
Suppliers:
Raw materials
Information
Labor
Capital
Insurance
Utilities
Transportation
Customers:
Channel
distributors
Consumers
Industrial
Reseller
Government
International
Competitors:
Direct
Potential
Substitute
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Organizational Structure
• Organizational subunits and their relationship with the
overall organization
• Categories of organizational structure:
– Team
– Traditional
– Multidimensional
– Project
– Virtual
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Hierarchical (Traditional)
Organizational Structures*
• In hierarchical (traditional)
organizations, middle managers tell
subordinates what to do and tell
superiors the outcomes.
• The information system supports this
hierarchy.
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Project/Team Organizational Structure
• (Here, we will assume project & team
organizational structure are the same).
• Organizational unit is often temporary project-
based teams assembled from members of
various functional areas, then disbanded at
the end of the project
• Project teams vary in size, often work groups
• Projects are usually based on major products
and services
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Multidimensional Organizational
Structure
• May incorporate several structures at the same
time
• Advantage:
– ability to simultaneously stress both traditional
corporate areas and important product lines
• Disadvantage:
– multiple lines of authority
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Matrix Organizational Structure*
• In matrixed
organizations, work is
organized in small
work groups and
integrated regionally
and nationally/globally.
• IS reduces operating
expenses by allowing
information to be
easily shared among
different managerial
functions.
Region
Industry
Region 1 Region 2 Region 3
Ind. 1 Position
for Ind. 1
in region 1
Pos. for
Ind.1 in
region 2
Pos. for
Ind.1 in
region 3
Ind. 2 Pos. for
Ind.2 in
region 1
Pos. for
Ind.2 in
region 2
Pos. for
Ind.2 in
region 3
Ind. 3 Pos. for
Ind.3 in
region 1
Pos. for
Ind.3 in
region 2
Pos. for
Ind.3 in
region 3
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Virtual Organizational Structure*
• Virtual organization refers to the
extensive use of IS and electronic
links to create an extremely flexible
organization
– Employs business units in
geographically dispersed areas
– People may never meet face to face
– Can be permanent or temporary
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Virtual Organizations*
• IT has made it possible for an individual to
work for an organization and live anywhere
• Virtual organization structure is “networked”.
Extensive collaboration takes place
electronically, esp. e-mail
• Managers in a virtual environment monitor
results, not progress
• Forms are electronic, tech. support through a
web interface
• Business processes are also usually through
the Web
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Flat Organizational
Structures*
• In flat structured organizations, work is
more flexible and employee do whatever is
needed.
• IS allows offloading extra work and
supports intra-firm communications.
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The “Networked” Virtual Organization*
Instead of rigid hierarchies, all parts of the company are
connected by formal and informal communications.
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Organizational Culture
• Shared understandings, values, and
assumptions in an organization
• Influences information systems
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Technology Diffusion, Infusion, and
Acceptance
• Technology diffusion - measure of widespread
use of technology
• Technology infusion - extent to which
technology permeates a department
• Technology Acceptance Model (TAM) -
specifies factors that can lead to higher usage of
technology
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Total Quality Management (TQM)
• Quality: ability of a product or service to
meet or exceed customer expectations
• TQM: approaches and techniques used
to achieve quality throughout the
organization
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Outsourcing and Downsizing
• Outsourcing: contracting with outside
professionals
• Downsizing: cutting the number of employees
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Outsourcing*
• Why Outsource?
– Means of cost control: e.g., maintenance
• Classic model: only outsource functions that
don’t give a competitive advantage
• Later (90s): sometime outsourcing even CA
functions is a good idea if done by outside
experts (but this is risky).
• Now, “selective outsourcing”: choose which IT
capabilities to retain in-house and which to
outsource.
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Factors driving outsourcing*
• Cost savings
• Highly qualified IT staff are difficult to find and
retain
• By bringing in outside expertise, management
needs to focus less on IS operations and more
on the information itself.
• Outsourcers are specialists, should understand
how to manage IS staff more effectively.
• Outsourcers may have larger IS resources that
provide greater capacity on demand.
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Disadvantages of outsourcing*
• Abdication of control
• High switching costs
• Lack of technological innovation
• Loss of ownership
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Competitive Advantage
• Competitive Advantage: a significant, long-
term benefit to a company over its competition
• The ability to establish and maintain a
competitive advantage is vital to the company’s
success
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Competitive Advantage
• Five forces motivate firms to seek
competitive advantage
– Rivalry among existing competition
– Threat of new entrants
– Threat of substitutions
– Buyers’ bargaining power
– Suppliers’ bargaining power
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Potential threat
of new entrants
Bargaining
power of buyers
Bargaining
power of
suppliers
Industry
competitors
Threat of substitutes
Strategic use
•Cost effectiveness
•Market access
•Differentiation of
product or service
Strategic use
•Selection of supplier
•Threat of backward
integration
Strategic use
•Switching costs
•Access to dist. channels
•Economics of scale
Strategic use
•Redefine products and services
•Improve price/performance
Strategic use
•Buyer selection
•Switching costs
•Differentiation
Porter’s competitive forces with potential
strategic use of information*
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Strategic Planning for
Competitive Advantage
• Change the structure of the industry
• Create new products or services
• Improve existing products or services
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Use information systems for
strategic planning
• Initially IS used to reduce costs
• Later, improve efficiency & meet corp. strategic
goals
• Usually embodied in a product or service
(SABRE is a classic example)
• Competitive advantage is often only temporary
• This is partly due to companies using IS to
compete with others who have created
successful IS-based products and services
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Productivity
• Productivity: a measure of output achieved
divided by input required
• A higher level of output for a given level of input
means increased productivity
• The text implicitly discusses “labor productivity”,
i.e., the level of output for a given unit of labor.
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Return on Investments and the Value
of Information Systems
• Earnings growth
• Market share
• Customer awareness and satisfaction
• Total cost of ownership (TCO): includes
indirect costs
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Justifying Information Systems
• Information Systems can be justified by
solving the “risk/reward” equation.
• Many IS departments try to formally
assess and manage risk.
– Assess risks
– Identify benefits
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Justifying Information Systems
• Assessment of Risk:
– 1. How well are the requirements understood?
– 2. To what degree does the project require
pioneering effort in technology?
– 3. Is there a risk of severe business
repercussions if the project is poorly
implemented?
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Justifying Information Systems
• The benefits from most IS projects fall
into one of the following categories:
– Tangible Savings
– Intangible Savings
– Needed to meet a Legal Requirement
– Keep the company modernized
– Pilot Project to gain experience in a new
area
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Roles, Functions, and Careers in
Information Systems Department
• Operations - focuses on the efficiency of
information
• Systems development - focuses on specific
development projects and ongoing
maintenance and review
• Support - provides user assistance
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Typical IS Titles and Functions
• Chief Information Officer (CIO) - employs the IS
department’s equipment and personnel to help
the organization attain its goals
• LAN administrators - set up and manage the
network hardware, software, and security
processes
• Internet careers
– Strategists
– Programmers
– Website operators
– Chief Internet Officer
• Consulting firms
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Chief Information Officer (CIO)*
• Gartner group definition:
“To provide technology vision and
leadership for developing and
implementing IT initiatives that create and
maintain leadership for the enterprise in a
constantly changing and intensely
competitive marketplace.”
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The Three Primary Responsibilities of
Information Systems
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Summary
• Value-added processes increase the
relative worth of combined inputs on their way
to becoming final outputs
• Business process reengineering involves
the radical redesign of business processes,
organizational structures, and information
systems
• Information systems personnel typically
work in an IS department that headed by a
CIO and includes systems analysts, and
computer programmers
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Principles and Learning Objectives
– Identify the value-added processes in the supply chain and
describe the role of information systems within them.
– Provide a clear definition of the terms organizational
structure, culture, and change and discuss how they affect
the implementation of information systems.
– Identify some of the strategies employed to lower costs or
improve service.
– Define the term competitive advantage and discuss how
organizations are using information systems to gain such an
advantage.
– Discuss how organizations justify the need for information
systems.
– Define the types of roles, functions, and careers available in
information systems.
