MIS 301 Information Systems in Organizations Dave Salisbury ( ) (web site)

What We Will Cover: Businesses as Open Systems How Businesses Organize to Create Value The Value Chain Applying IT to Create Business Value Strategically Fitting IT to the Organization: A Business Example

Student ROI (Return on Investment) Your investment of time and effort in this course will result in your being able to answer these questions: Why can organizations be thought of and modeled as open systems? How are organizations structured to optimize business value? How do value chains related to business organizations? In what ways can organizations apply IT to build business value? How can businesses strategically fit IT to the organization?

Businesses as Open Systems A business operates by transforming inputs into outputs and constantly interacting with its environment

Stakeholders and Boundaries A stakeholder is a person or entity that has an interest and an influence on how a business will function in order to succeed. A stakeholder can be external or internal relative to the business. All open systems have an organizational boundary which separates them from their environment but still allows them to interact with their environment.

Organizational Stakeholders

The Business Process To transform inputs into outputs (goods and services), organizations need to perform a series of steps known as a business process. Manufacturing processes directly create output in the form of a product. Other processes create a service.

Inputs to Open Systems Organizations Input TypeDescription Data, information, and knowledge Raw facts, summaries, information from research, and expert knowledge LaborEmployees who carry out a business process Raw Materials“Ingredients” from which company makes products CapitalMoney required by businesses to operate TechnologyMachines, IT Hardware, and software

Feedback Feedback is a special form of output created by a business process that is returned to the system (“fed back”). The output returned to the system is used to control the system’s future input, processes, and outputs. Businesses use feedback to monitor the efficiency and effectiveness of a given process. Businesses must stay alert to their environment as well as to their business processes.

What is a System? Manufacturing Process Input of Raw Materials Output of Finished Products Environment Other Systems Control by Management Control Signals Control Signals Feedback Signals Feedback Signals System Boundary

What is an Information System? Input of Data Resources (Forms) Data Processing (Updates, Queries) Output of Information (Reports) System to Support a Business Process Data Storage Feedback/Control

IS Components/Resources Input of Data Resources (Forms) Data Processing (Updates, Queries) Output of Information (Reports) System to Support a Business Process Data Storage People Data Hardware Software Network Other Systems

Systems Interact w/ Other Systems

Manufacturing and Production Engineering & Research Accounting, Finance, and Management Suppliers and Other Business Partners Procurement, Distribution, and Logistics Advertising Sales Customer Service Consumer and Business Customers Company Boundary Intranets The Internet Extranets The Inter-Networked Business

Technology versus Systems Technology Computers Telephones Tools Systems Intelligent application of technology along with people and procedures to do something useful

Organizing to Create Value All business organizations possess structures that organize information, responsibility, and authority. Types of organizational structures include functional, decentralized, and matrix structures. In functional and decentralized structures lines of authority are vertically oriented. A matrix organization is a blend of functional and decentralized organizations that uses teams.

Organizational Structures

Advantages of Organizational Forms Organizational Form Advantages FunctionalEconomies of Scale Technical expertise in functional areas Clear chain of authority and communications DecentralizedFaster response and greater flexibility Greater communication and coordination Greater development of breadth of skills MatrixIncreased flexibility and responsiveness Enhanced problem solving, cooperation, communication, and resource sharing Decision making lower in organization

Disadvantages of Organizational Forms Organizational Form Disadvantages FunctionalPoor communication and coordination between functional areas Relatively inflexible or slow responsiveness Employees may focus on functional goals DecentralizedDuplication of resources and efforts across units Less in-depth technical knowledge Less direct control by upper management MatrixFrustration due to dual lines of authority Increased need for coordination Potential for goal conflict

The Value Chain The value chain is a connected series of activities, each of which adds value or supports the addition of value to the firm’s goods and services1. Every action an organization takes, from securing the necessary raw materials (input), to making the goods or service (process), to completing a transaction with a customer (output), is either a primary activity or support activity. A transaction is an exchange of goods or services (value) between two or more parties. 1 Porter, M. E., “How competitive forces shape strategy.” Harvard Business Review, 1979, pp

An Organizational Value Chain

Primary Activities Primary activities are directly related to the production and distribution of the organization’s products and services that create business value for the organization and its customers. Example primary activities include inbound logistics (obtaining raw materials), operations (creating the product), outbound logistics (shipping the product), and marketing, sales, and service (selling the product).

Support Activities Support activities are value chain activities that an organization conducts to support the creation of business value. Support include administration, technology development, human resource (HR) management, and procurement. An organization’s value chain is the sum of its primary and support activities working together to create business value. The value chain is another way to view the organization as a system (inputs  processes  outputs). The value chain is also a useful tool for defining an organization’s core competencies and the activities it can pursue to gain a sustained competitive advantage.

IT Support for the Value Chain Through the intelligent use of IT, a business can increase its competitive advantage.

IT Support for the Value Chain Some IT and systems are specific to particular parts of the value chain or departments. Other systems, known as enterprise-wide systems, support and are used by the entire enterprise through a centralized database and coordinated software modules. IT can support almost every activity in the organization as well as helping to transform and integrate differing aspects of the value chain.

Applying IT to Create Business Value IT can be applied to value chain activities to create business value in 3 ways: automating, informating, and transforming. Automating uses technology to perform tedious or repetitive tasks faster, cheaper, more consistently, and with greater accuracy. Typically, the organization uses technology to do the same things are before, but with greater efficiency and accuracy. Later, the organization looks to use technology to do new things.

Using IT Automation to Create Business Value IndustryAutomationBenefits BankingATM machines, online banking Reduces costs associated with the processing of transactions Increases flexibility and improves access to services Grocery/ Retail Barcode inventory systems Increases speed and accuracy of transactions Improves accuracy Reduces costs and transfers control to customers TravelReservation and scheduling systems Faster and more efficient processing of reservations Allows transfer of processes to customers through online services

Applying Automation When applying automation within an organization to a single process, management considers answers to questions such as: What is the main goal, and what are the steps of the process? What data and information are required to carry out the process? How does data flow between the steps? How is the process affected by other processes? When should it occur? What starts it? How does the output effect other processes?

Automating Cash Withdrawal Process

Informating to Do Things Better Another way to view the application of IT is known as informating. Informating is recognizing the executing process also creates new data and information. An organization can then process these new data to improve its decision making or improve the process itself. With an informating view, IT can deliver more long-term benefits than from automation alone. To use informating, businesses need to determine if IT stores data that can be used for learning and decision-making.

Added Benefits of Informating IndustryIT ApplicationBenefits from Informating BankingATM machines, online banking Tracks use of services, to provide the most popular and profitable services to customers. Grocery/ Retail Barcode inventory systems Improves the ability to track inventory and predict demand for various sold items. TravelReservation and scheduling systems Enhances ability to predict demand. By observing supply and demand, airlines can adjust prices to increase profitability.

Transforming to Gain Competitive Advantage Since one of the primary goals of a business’s strategy is achieve a sustainable competitive advantage, most businesses have a transforming view of IT. This view seeks to use IT to acquire or continue a competitive advantage over competitors. There are two ways to obtain a competitive advantage: cost and differentiation. A company gains a cost advantage when it delivers the same benefits to customers as its competitors at a lower cost. A company gains a differentiation advantage when it delivers superior benefits to customers.

A Resource-Based View With a resource-based view, a company gains competitive advantage through the development of distinctive competencies. A company gains its distinctive competencies from a combination of its capabilities and its resources.

Using Distinctive Competencies & IT Distinctive competencies enable innovation, product quality, process efficiency, and customer responsiveness. IT can assist in all of these areas. Through automation with IT, a business can achieve a lower cost structure. Through informating with IT, a business can learn new ways to increase or transform its capabilities in order to differentiate its products.

Can Companies Gain a Unique Competitive Advantage with IT? A widely held view during the late 1990s and early 2000s was that companies can gain a unique competitive advantage with IT. Dr. Nicolas Carr argued that since the core functions of IT are available and affordable to all companies, it isn’t possible to gain competitive advantages with IT alone. If a company can automate a particular process, so can its competitors. Competitive advantage only comes from doing things other companies can’t do. A widely held view is that competitive advantage comes from the intelligent application of IT to support business strategies and to leverage distinctive competencies.

IT as advantage vs. necessity Strategic Advantage If you’re first, a novel technology creates an advantage Strategic Necessity Eventually, technology-based gains are lost because they are easily replicable

Information Technology Supports Strategic Management Innovative applications Create innovative applications that provide direct strategic advantage to organizations. Competitive weapons Information systems themselves are recognized as a competitive weapon Changes in processes IT supports changes in business processes that translate to strategic advantage Links with business partners IT links a company with its business partners effectively and efficiently.

Porter’s Competitive Forces Model Bargaining Power Threat

Sample Competitive Strategies Operational effectiveness Customer- orientation Entry-barriers Lock in customers or suppliers Increase switching costs Cost Leadership Differentiation Niche Growth Innovation Alliance

Information Technology Supports Strategic Management Cost reductions: IT enables companies to reduce costs. Relationships with suppliers and customers: IT can be used to lock in suppliers and customers, or to build in switching costs. New products: A firm can leverage its investment in IT to create new products that are in demand in the marketplace. Competitive intelligence: IT provides competitive (business) intelligence by collecting and analyzing information about products, markets, competitors, and environmental changes

Competitive Assessment Current Competitors What drives them? Actions & capabilities Strengths & weaknesses Competitive intensity Barriers to Entry What are they? Current basis for competition? How to build share? Substitutes What are they? Are they increasing? Are they really substitutes? Buyers & Suppliers Who has power in the transaction? Who captures value added for each part of the value chain?

Strategically Fitting IT to the Organization Four views of a how a business can derive benefit by applying IT to the organization: Support of the value chain; Automating; Informating; Gaining a competitive advantage. When applying IT, organizations must consider: interaction of technology with people who create and use it the organizational structure and culture the business processes, the environment within which the organization resides. Failure of IT often results from applying technology in a way that fits poorly with other organization components.

IT Application Newspaper Example ViewScopeBenefitsExample Support of value chain Organization-wideSystem view Focus on value-adding activities Fits IT to organization Use subscription data to forecast demand Use demographic data for target marketing and improved customer service AutomatingProcess/TransactionCost reduction, efficiency, quality, and consistency Online subscription reduces printing and handling costs InformatingProcess/TransactionKnowledge and learning of core competencies Use transaction data to understand subscription process and customers Transforming/ Competitive advantage Organization-wideConnects automating and informating of processes to strategy Develop a unique competency for delivering targeted content to customer segments