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Information Systems,
Organizations, and Strategy
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3-1 Which features of organizations do managers need to know about to
build and use information systems successfully?
The Mutual Influence of Information Systems and Organizations
Mutual Influence: Information systems (IS) and organizations shape each other—IS
serve business needs, while organizations must adapt to new technologies.
Complex Relationship: The impact of IS depends on organizational structure,
processes, culture, politics, environment, and management decisions.
Manager’s Role: Leaders decide which systems to build, their functions, and how to
implement them.
Unintended Consequences: Not all effects of IS can be predicted (e.g., email overload
from digital communication tools).
Organizational Awareness: Success with IS requires understanding how they affect
workflows and social dynamics.
Adaptability Needed: Businesses must remain flexible to leverage new technologies
effectively.
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 What is an Organization?

Technical Definition:
A formal, stable structure that takes inputs (capital, labor) from the environment,
processes them, and produces outputs (goods/services).
Seen as a production system where technology and labor transform inputs into
outputs.
Example: A factory takes raw materials (input) and converts them into products
(output).
Behavioral Definition:
A social structure where people develop routines, relationships, and informal
agreements over time.
Involves rights, privileges, obligations, and conflict resolution—not just formal rules.
Example: Employees adapt workflows beyond official procedures.
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 How do these definitions of organizations relate to information systems
technology?
Technical View
Organizations as production systems (inputs → outputs)
IS optimizes efficiency and replaces labor/capital
Behavioral View
Organizations as social structures with norms/power dynamics
IS disrupts workflows, roles, and decision-making
Successful IS implementation requires both,
Technical functionality (systems)
Organizational adaptation (people)
Takeaway: "Technology changes systems, but people determine success."
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 Features of An Organization Managers Should Know About
1. Routines & Business Processes
Routines are standardized procedures (SOPs) that organizations develop to handle
recurring tasks efficiently.
They enable employees to work productively by providing clear steps for expected
situations.
Examples:
Receptionists collecting patient information.
Nurses preparing patients for exams.
Doctors following diagnostic protocols.
Business Processes are interconnected sets of routines that create value (e.g., order
fulfillment, customer onboarding).
Over time, firms become collections of business processes, optimizing workflows for
cost reduction and efficiency.
Challenge: Routines create resistance to change, making process innovation difficult.
Key Insight: Successful IS implementation must align with or redesign existing routines. 8
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 Features of An Organization Managers Should Know About
2. Organizational Politics
Organizational politics is the competition for power, influence, and resources among
individuals or groups within an organization, shaping decisions beyond formal
structures
Core Challenge: Every department/leader has: Different priorities, Competing resource
needs, Territory to protect
How Politics Sink IT Projects

Survival Tactics

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 Features of An Organization Managers Should Know About
3. Organizational Culture
Deeply held, often unspoken assumptions that define how an organization operates
("the way things are done here").
Shapes goals, workflows, and decision-making (e.g., "Professors teach, students learn"
in universities).
Key Traits:
Invisible but powerful: Rarely written down but guides behavior.
Unifying force: Reduces conflict by aligning shared values.
Resists change: Clings to legacy processes, even when inefficient.
Impact on Technology:
Major barrier to IT adoption if systems challenge cultural norms (e.g., remote work tools
in office-centric cultures).
Requires gradual adaptation: Culture evolves slower than technology.
Example: A hospital’s culture prioritizing doctor autonomy may resist centralized AI
diagnostics. 11
 Features of An Organization Managers Should Know About
4. Organizational Environments
Organizations ↔ Environment Relationship
Organizations breathe life from their environment, drawing essential resources:
Financial capital to fuel operations
Human talent to drive innovation
Customer demand to sustain growth
Simultaneously, the environment molds organizations through:
Regulatory frameworks setting boundaries
Competitive forces pushing evolution
Societal trends reshaping expectations
This dynamic creates a continuous feedback loop where organizations and their
environment co-evolve in an increasingly digital world. (Current statistics show 78% of
Fortune 500 companies now employ AI-driven environmental scanning systems) 12
 chat gpt

Organizations and their environments exist in a symbiotic relationship — each shaping and supporting
the
other.
 Organizations Draw Resources from the Environment:
Financial Capital – To fund operations and expansion.
Human Talent – Skilled individuals who drive productivity and innovation.
Customer Demand – Essential for revenue, feedback, and sustained growth.
 Environment Shapes the Organization Through:
Regulatory Frameworks – Laws and compliance requirements guide organizational behavior.
Competitive Forces – Rivalry pushes organizations to innovate and improve.
Societal Trends – Public expectations and values influence company culture and strategy.
 Feedback Loop: Co-evolution
Organizations adapt to their environments.
In turn, they influence those environments through products, culture, and impact.
This continuous feedback loop ensures survival, relevance, and growth.
 Modern Trend: Digital Adaptation
78% of Fortune 500 companies now use AI-driven environmental scanning systems to stay
proactive and
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4. Organizational Environments

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4. Organizational Environments

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 Features of An Organization Managers Should Know About
5. Organizational Structure
Five Core Structures (Mintzberg's Model):
Entrepreneurial Structure: Flat, flexible (startups)
Machine Bureaucracy: Hierarchical, rigid (manufacturing)
Professional Bureaucracy: Expert-driven (hospitals, universities)
Divisionalized Bureaucracy: Decentralized (multinational corporations)
Adhocracy: Project-based (consulting firms)
Structure Dictates IS Design:
Professional Bureaucracies: Multiple parallel systems (e.g., separate hospital records
for admins vs. doctors)
Entrepreneurial Firms: Rapidly outgrown "quick fix" systems
Divisionalized Bureaucracies: Fragmented systems across locations/business units
Key Point: "One-size-fits-all" IT solutions fail - systems must match organizational DNA 17
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 Features of An Organization Managers Should Know About
6. Other Organizational Features
Organizations vary by:
1.Purpose - coercive (prisons), utilitarian (businesses), or normative (universities)
2.Stakeholders - serving members, clients, shareholders, or the public
3.Leadership - ranging from authoritarian to democratic
4.Tasks - routine (manufacturing) vs. non-routine (consulting) work

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3-2 What is the impact of information systems on organizations?

1. Economic Impacts
Cost Transformation:
IT substitutes for labor (reducing clerical/middle management jobs)
IT replaces physical capital (machinery, buildings) due to lower costs
Transaction Cost Reduction:
IT lowers costs of market participation (e.g., supplier coordination)
Enables outsourcing (e.g., automakers sourcing 70% parts externally)
Reduces need for vertical integration (smaller firms, higher efficiency)
Agency Cost Reduction:
IT improves monitoring and oversight of employees
Reduces need for middle management layers
Organizational Impact:
Firms shrink in size (fewer employees) while growing revenue
Example: Eastman Chemical tripled revenue with 40% fewer employees 20
1. Economic Impacts

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2. Organizational & Behavioral Impacts
a. IT Flattens Organizations
Large bureaucracies become inefficient; IT enables downsizing and fewer hierarchy
levels
IT empowers lower-level employees with information, reducing need for middle
managers
Benefits:
Faster decision-making
Broader management span of control
Lower management costs
Increased efficiency
Key Point: IT reduces hierarchical layers while improving organizational agility.

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2. Organizational & Behavioral Impacts (continued)
b. Postindustrial Organizations & IT
IT enables flatter, knowledge-based hierarchies where authority stems from expertise
Promotes decentralized decision-making and self-managing teams
Facilitates task force structures (e.g., Accenture's project-based teams across 56
countries)
Key Challenges:
Maintaining direction without traditional oversight
Evaluating rotating team members
Career path visibility in fluid structures
Key Point: IT enables but doesn't guarantee effective virtual organizations

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2. Organizational & Behavioral Impacts (continued)
c. Organizational Resistance to IT Change
Why Resistance Occurs:
IT alters power structures & access to information
Disrupts routines & requires retraining
Challenges existing culture/processes
Key Resistance Factors:
Nature of the IT innovation
Organizational structure
Employee culture
Affected tasks
70%+ IT failures stem from human/organizational factors (not tech)
“Technical success ≠ adoption success—political/cultural alignment is critical"
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The Internet and Organization

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 How do Porter’s competitive forces model, the value chain model,
3-3 synergies, core competencies, and network economics help companies
develop competitive strategies using information systems?

Firms that “do better” than others are said to have a competitive advantage over
others: They either have access to special resources that others do not, or they are able
to use commonly available resources more efficiently—usually because of superior
knowledge and information assets. In any event, they do better in terms of revenue
growth, profitability, or productivity growth (efficiency), all of which ultimately in the
long run translate into higher stock mar ket valuations than their competitors.
But why do some firms do better than others, and how do they achieve competitive
advantage?
How can you analyze a business and identify its strategic advantages? How can you
develop a strategic advantage for your own business? And how do information systems
contribute to strategic advantages?
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 Porter’s Competitive Forces Model
Arguably, the most widely used model for understanding competitive advan tage is Michael
Porter’s competitive forces model.
This model provides a general view of the firm, its competitors, and the firm’s environ ment.
Earlier in this chapter, we described the importance of a firm’s environ ment and the
dependence of firms on environments. Porter’s model is all about the firm’s general
business environment.
In this model, five competitive forces shape the fate of the firm.
1. Traditional Competitors
2. New Market Entrants
3. Substitute Products and Services
4. Customers
5. Suppliers 31
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1. Traditional Competitors
All firms operate in a shared market space with other competitors.
Competitors continuously devise new, more-efficient production methods.
They introduce new products and services to stay competitive.
Companies aim to attract customers through brand development.
Firms impose switching costs to retain customers and discourage them from moving to
rivals.
N.B. Switching Cost: The expenses, effort, or inconveniences a customer faces when
changing from one product or service provider to another. High switching costs can lock
customers into a brand, reducing the likelihood of them moving to a competitor.
Switching costs include financial costs, time/effort, learning curves, emotional
attachments, compatibility issues, and lost loyalty benefits.
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2. New Market Entrants
In a free-market economy, new companies continuously enter industries, depending on
barriers to entry.
Some sectors (e.g., pizza shops, small retail) have low barriers to entry, while others
(e.g., semiconductor manufacturing) require high capital, expertise, and technology.
Advantages of new entrants:
No legacy costs (old factories, outdated equipment).
Younger, cheaper, and more innovative workforce.
No burden of weak or outdated brand reputations.
Higher motivation to disrupt established competitors.
Disadvantages of new entrants:
Heavy reliance on external financing (expensive debt/equity).
Less experienced workforce.
Low brand recognition, making customer acquisition harder.

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3. Substitute Products & Services
Substitute offerings fulfill the same need as existing products but in different ways.
They create pressure on pricing and force innovation in traditional industries.
Examples:
Video streaming (Netflix) vs. cable TV
Plant-based meat (Beyond Meat) vs. animal meat
E-books (Kindle) vs. physical books

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4. Customers
Customers drive profitability—businesses must attract, retain, and charge premium
prices where possible.
Customer power increases when:
Switching is easy (low barriers to competitors).
Price transparency exists (e.g., online comparisons).
Products are undifferentiated (commoditized markets).
Result: Businesses face pressure to lower prices or enhance value to avoid losing
customers.

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Customers – Summary
Customers are key to business success — companies must:
Attract new customers
Keep existing ones
Charge higher prices when possible
 Customer Power Increases When:
Switching is easy → Customers can change brands with little cost or effort
Price transparency exists → People can easily compare prices online
Products are similar → If many brands offer the same thing, it’s easy to switch
 Result:
Businesses face pressure to lower prices or offer better value, or else they risk losing
customers to competitors.
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5. Suppliers
Supplier power affects profits—if suppliers raise costs, firms can’t always pass them to
customers.
More suppliers = More control (over price, quality, delivery).
Fewer suppliers = Less control (suppliers can demand higher prices).

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 Information System Strategies for
Dealing with Competitive Forces
What is a firm to do when it is faced with all these competitive forces?
And how can the firm use information systems to counteract some of these forces?
How do you prevent substitutes and inhibit new market entrants?
There are four generic strategies, each of which often is enabled by using
information technology and systems:
1. low-cost leadership,
2. product differentiation,
3. focus on market niche, and
4. strengthening customer and supplier intimacy

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1 Low-Cost Leadership Strategy:
Uses IT to minimize operational costs and offer lowest prices
Example: Walmart's inventory management system

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2. Product Differentiation Strategy:
Goal: Use IT to create unique products/services or enhance customer experience
Big Tech Examples:
Google Assistant: Added natural conversations & smart displays (2018)
Google Maps: Integrated Assistant for voice interaction
ML Kit: Enabled text/face/image recognition for developers
Non-Tech Example (Crayola):
Uses tech to create innovative educational products
Mass Customization Example:
NikeID: Lets customers design sneakers (colors, materials, logos)
Orders sent to automated factories (delivered in ~3 weeks)
Key Advantage:
Makes products hard to copy quickly
Builds brand loyalty through personalization

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3. Market Niche Strategy:
Goal: Use IT to target & serve niche markets better than competitors
Key Tools:
Data analytics from:
Credit card transactions
Retail scanners (e.g., supermarkets)
Website interactions
CRM systems (e.g., Hilton's OnQ for guest preferences)
Examples:
Hilton Hotels: Analyzes guest data to offer perks (e.g., late checkouts) to profitable
customers
Credit Card Companies: Mine purchase data to:
Identify profitable cardholders
Assess credit risks
Outcome:
Enables hyper-personalized marketing
Maximizes ROI from high-value customers 47
4. Strengthening Customer & Supplier Intimacy:
Supplier Integration
Automakers (Toyota, Ford):
Share real-time production schedules with suppliers
Let suppliers manage shipments (improves lead times)
Customer Personalization
Amazon:
Tracks user preferences
Recommends products based on purchase history
Benefits:
Increases switching costs (locks in partners/customers)
Boosts loyalty through tailored experiences
N.B. Companies often combine strategies (e.g., Starbucks uses differentiation + niche
marketing)
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 The Internet’s Impact on Competitive Advantage
Aspect Negative Impacts Positive Impacts

• Price-based competition intensifies

• Enables global market access
Competitive Rivalry • New entrants easily emerge
• Lowers barriers to entry for startups
• Lower profit margins
• Buyers easily compare prices
• Personalized marketing (e.g.,
Customer Power (bargaining power ↑)
Amazon recommendations)
• Brand loyalty harder to maintain
Decimated: New Markets:
• Printed encyclopedias • E-commerce (Amazon)
Industries Disrupted • Travel agencies • Streaming (YouTube, Spotify)
Threatened: • Digital ads (Google)
• Retail, music, newspapers, telecom

Business Models • Traditional models become obsolete • New revenue streams

(e.g., brick-and-mortar stores) (subscriptions, SaaS, platforms)
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Key Outcome Forces firms to adapt or perish Drives innovation and efficiency
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 The Business Value Chain Model

It shows how different activities inside a company add value to a product or service.
The goal is to analyze where value is added and how to make the company more
efficient and competitive.

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 The Business Value Chain Model (continued)
The value chain model highlights specific activities in the business where competitive
strategies can best be applied (Porter, 1985) and where informa tion systems are most
likely to have a strategic impact. This model identifies specific, critical leverage points
where a firm can use information technology most effectively to enhance its
competitive position.
The value chain model views the firm as a series or chain of basic activities that add a
margin of value to a firm’s products or services. These activities can be categorized as
either primary activities or support activities (see Figure 3.9).

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 The Business Value Chain Model (continued)
Primary activities are most directly related to the production and distribution of the
firm’s products and services, which create value for the customer. Primary activities
include inbound logistics, operations, outbound logistics, sales and marketing, and
service. Inbound logistics includes receiving and storing materials for distribution to
production. Operations transforms inputs into finished products. Outbound logistics
entails storing and distributing finished products. Sales and marketing includes
promoting and selling the firm’s products. The service activity includes maintenance
and repair of the firm’s goods and services.
Support activities make the delivery of the primary activities possible and consist of
organization infrastructure (administration and management), human resources
(employee recruiting, hiring, and training), technology (improving products and the
production process), and procurement (purchasing input).
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The Business Value Chain Model (continued)

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Extending the Value Chain: The Value Web

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 Synergies, Core Competencies, and Network-Based Strategies
Synergies

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Enhancing Core Competencies with IS

Using strengths in new markets

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Network-Based Strategies

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Network-Based Strategies

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 Virtual Company Model – What is it?
A virtual company is a business that doesn’t own physical things like factories or warehouses. Instead,
it
uses networks and partnerships to do important work like production, shipping, etc.
➡ It’s a network-based business that works with partners instead of doing everything itself.

 Key Features:
No Ownership of Physical Assets
– The company does not own factories, inventory, or equipment.
Depends on IT Networks
– Uses the internet, extranets, and cloud platforms to coordinate with partners.
Agile and Scalable
– It can change quickly when the market changes and grow easily when needed.

✅ In Simple Terms:
A virtual company focuses on being flexible and connected, using technology to work with others
instead of doing everything by itself.
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Network-Based Strategies

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Summary

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3-4 What are the challenges posed by strategic information systems, and
how should they be addressed?

Sustaining Competitive Advantage

Aligning IT with Business Objectives
Managing Strategic Transitions

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THANK YOU