Module 7 Organization and Information Technology

By: Monica M

Syllabus
IT Capabilities and their organizational impact Fundamentals of strategic advantage Using IT for strategic advantages Refer: Kenneth C Laudon & Jane P Laudon Chapter No. 3

Organization
Organization
A formal collection of people and other resources established to accomplish a set of goals An organization is a stable, formal social structure that takes resources from the environment & processes them to produce output

Organization- Technical Definition

Capital and labor (the primary production factors provided by the environment) are transformed by the firm through the production process into products and services (outputs to the environment). The products and services are consumed by the environment, which supplies additional capital and labor as inputs in the feedback loop.
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Organization & IT

Organization & IT
The Interaction between IT and Organization is very complex & Influenced by the mediating factors
Environment Culture Structure Business process Politics Management Decision
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Organization & IT Features/Factors

Organizational Environment:
Organization reside in environment from where they draw resources and to which they supply goods and services IT is the key instrument for environmental scanning, helps managers to identify the changes in the environment

Organizational Culture:
The set of assumption the organization and people will follow in an organization The major understandings and assumptions for a business, a corporation, or an organization The organizational culture is a powerful restraint on change especially technological changes ( Resistant to change) Organization avoids to do changes in the basic assumption
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Organization & IT Features/Factors

Organization Structure: Organizational subunits and the way they are related to the overall organization Flat organizational structure Information systems can reduce the number of levels in an organization by providing managers with information to supervise larger numbers of workers and by giving lower-level employees more decision-making authority An organizational structure with a reduced number of layers of management

Business process:
The business process will become very effective over time as individuals develops routine for producing goods and services Firm is able to reduce the cost and increases the effectiveness by use of IT in an organization
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Organization & IT Features/Factors

Organization politics:
The resources, rewards, and punishments will create the differences in both managers and employees, that result in the political struggle for resources, competition and conflict

Management Decision:
As Managers, need to decide which system will be built, how it is beneficial to the organization, how to implement
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Organization, IT & IS

Strategy
Strategy is a long term plan formulated and executed over a period of time by firms such that their resources are best utilized and output of the firm is optimized (a) Where are we right now? (b) Where do we want to go? (c) How do we get there?

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Fundamentals of Strategic Advantage

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Fundamentals of Strategic Advantage Information technology can change the way businesses compete. For this reason, you should view information systems strategically, that is, as vital competitive networks, as a means of organizational renewal, and as a necessary investment in technologies that help an enterprise achieve its strategic objectives.

Strategic Advantage and Strategic Necessity

Strategic advantage refers to obtaining a sustainable competitive edge over competitors. The ability to obtain a greater than normal return on investment. A strategic necessity is a system that must be installed to remain competitive and stay in business.

Strategic uses of Information system

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Eight ways to gain strategic advantage

Reduce Costs Raise barriers to new entrants Establish High Switching Costs Create New Products/Services Differentiate Products/Services Enhance Products/Services Establish Alliances Lock in suppliers and buyers
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Eight ways to gain strategic advantage

1. Reduce Costs: If a firm can operate at a reduced cost the impact will be there on the Margins. 2. Raise barriers to new entrants: The easier it is to enter into a business venture, the more will be the number of people who would try various things. That gives a lot of variety for the consumer to choose from and hence becomes difficult to differentiate one offering from the other E.G - One click purchase by amazon.com, Banks- ATM
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Eight ways to gain strategic advantage

3. Establish High Switching Costs: Switching costs are costs incurred when a customer wants to switch over to a competitors products/service 4. Create New Products/Services: This gives companies an advantage called the First Mover Advantage. 5. Differentiate Products/Services: In a world that is full of competition, there is no end to product variety E.G Pepsi and Coke
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Eight ways to gain strategic advantage

6. Enhance Products/Services: Enhancing product experience is another strategy to gain competitive advantage. Adding new features to the product/service 7. Establish Alliances: Alliances with suppliers, vendors and customers are critical to the success of any businesses.
For example, Intel sells its processors to IBM as well as HCL and DELL. But, lets say, if IBM has a strategic alliance in which, using its own supply chain, IBM can deliver back reusable components of microchips to Intel and help it to reduce its cost, then Intel would be willing to supply microprocessors to IBM at a cheap cost
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Eight ways to gain strategic advantage

8. Lock in suppliers and buyers: Suppliers and buyers can be locked in by asking them to collaborate only and only with the business entity and not with any competitors. For example, if Toyota puts in a condition that a person who owns Toyota Showroom cannot own any other car showroom in the city, then Toyota has attempted to lock in a retailer into its network.
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Strategic Information System

Information systems that provide a firm with competitive products and services which give it a strategic advantage over its competitors in the marketplace.
Information systems that promote business innovation, improve operational efficiency.

Strategic Roles for Information Systems

Improving business Process Promoting business/product innovation Locking in customers and suppliers Interorganizational IS, EDI electronic data interchange, automatic inventory replenishment system Creating switching costs Make customers dependent on the continued use of innovative IS. Raising barriers to entry discourage competitors from entering a market

IT Capabilities
Capabilities: routine processes that reflect a firms ability to perform repeatedly a productive task which relates either directly or indirectly to a firms capacity for creating value (Grant 1996). IT Capabilities: The ability of firms to develop, use, and manage IT effectively to achieve firm objectives The focus in this study: business-oriented IT capabilities

IT capabilities & their Organizational Impacts

Capability Transactional Geographical Automational Analytical Informational Sequential Organizational Impact / Benefit IT can transform unstructured processes into routine transactions IT can transfer information with rapidity and ease across large distances IT can replace or reduce human labor in a process IT can bring complex analytical methods and solve IT can bring vast amount of detailed information IT can enable to execute the sequence of tasks effectively

Knowledge Management
Tracking Disintermediation

IT allows the capture and dissemination of knowledge and expertise to improve the process
IT allows the detailed tracking of task status, inputs, and outputs IT can be used to connect two parties who would otherwise communicate through an intermediary

Porters 5 Force Model

E.G: Mumbai Dabbawallas

Competition: Its difficult to replicate dabbawallass supply chain network

New entrants: Fast food joints as well as office canteens. However, since neither of these serve home food, the dabbawallas' core offering remains unchallenged. Bargaining power of buyers: Delivery rates are so nominal (about Rs 300 per month) that one simply wouldn't bargain any further. Bargaining power of sellers: minimum infrastructure and practically no technology is used, hence they are not dependent on suppliers. Threat of a new substitute product or service: No substitutes to home cooked food in Indian scenario, hence threat to the dabbawalla service is not an issue at least in the foreseeable future.

Using Information Systems to Achieve Competitive Advantage

Rivalry among current competitors

All firms share market space with competitors who are continuously devising new products, services, efficiencies, switching costs

New market entrants

Some industries have high barriers to entry, e.g. computer chip business New companies have new equipment, younger workers, but little brand recognition
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Using Information Systems to Achieve Competitive Advantage

Substitute products and services

Substitutes customers might use if your prices become too high, e.g. iTunes substitutes for CDs

Customers / Buyers
Can customers easily switch to competitors products? Can they force businesses to compete on price alone in transparent marketplace?

Suppliers
Market power of suppliers when firm cannot raise prices as fast as suppliers
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The value chain of a firm

Value Chain Model

According to Porters Value chain model, the activities conducted in any manufacturing organizations can be divided into two parts: Primary activities and support activities. Primary activities are most directly related to the production and distribution of the firms products and services that create value for the customer. Inbound logistics, operations, outbound logistics, marketing and sales, and customer service. Support activities include procurement of resources, technology development, human resources management, and administrative coordination.

Managerial Challenges Of Information Technology

Business/IT Challenges *Speed and flexibility requirements of product development, manufacturing, and delivery cycles, *Integration of e business and e commerce into the organizations strategies, process, structure, and culture

Business/IT Developments

Business/IT Goals

* Use of the internet, intranets, extranets, and the WEB

*Give customers what they want, when and how they want it, at the lowest cost *Coordination of manufacturing and business process with suppliers and customers

Strategic capabilities using IT

Capabilities of IT
Overcome/Breaking Time Barriers Information technology is used to shorten the intervals between the various critical steps in a business process. Telecommunications is a lot faster than most other forms of communications, thus, it provides information to remote locations immediately after it is requested. Overcome/Breaking Geographic Barriers Telecommunications networks enable you to communicate with people almost anywhere in the world. Telecommunications and computing technologies make it possible to distribute key business activities to where they are needed, where they are best performed, or where they best support the competitive advantage of a business. 32

Capabilities of IT
Overcome/Breaking Cost Barriers Computers and telecommunications can often significantly reduce the cost of business operations when compared with other means of information processing and communications. For example, Information technologies have also helped companies cut labor costs, minimize inventory levels, reduce the number of distribution centers, and lower communications costs. Overcome/Breaking Structural Barriers Computers and telecommunications networks can help a business develop strategic relationships by establishing new electronic linkages with customers, suppliers, and other business entities.
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Thank You..
By: Monica M

Important Questions
Explain organization and IT Explain IT Capabilities and their impact on organization Explain how company can achieve strategic advantages What are the strategic capabilities of IT Using Information Systems to Achieve Competitive Advantage
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