Digital Technologies, Organizations, and Strategy Flashcards
The Technical Definition of an Organization
The technical definition of an organization: “a stable, formal social structure that takes resources from the environment and process them to produce outputs”
Capital and labor are primary production factors provided by the environment
The organization transforms these inputs into products and services in a production function
The products and services are consumed by environments in return for supply inputs
Stable and formal: routine and internal rules and procedures that must abide by laws
See model
The Behavioral View of Organizations
“an organization is a collection of rights, privileges, obligations and responsibilities balanced over a period of time through conflict and conflict resolution”
More realistic than the technical view, and it focuses on the fact that people who work in organizations develop set ways of working, so new IT systems can take a long time and disrupt company culture
There is a lag between implementing a technical system and teaching employees and managers how to use the system
See model
Characters of all organizations
Bureaucracies with clear-cut divisions of labor and specialization
Specialists are arranged in a hierarchy of authority where everyone is accountable to someone
authority is limited to specific actions governed by abstract rules or procedures
Organizations try to hire employees based on technical qualifications and professionalism, not personal connections
Principle of efficiency: maximizing output using limited inputs
Characteristics that different from organization to organization
Routines and business processes
Organizational Politics (views on how resources should be distributed)
Organizational Culture (unspoken assumptions about what products the organization should produce and how, which makes agreements more likely – but often restrains technological change)
Organizational Environments (social and physical environment surrounding them, such as employees, legislations, customers and competitors’ actions – environments tend to change quicker than the organization, so they struggle to adopt)
Organizational Structure (level of hierarchy, bureaucracy)
Different goals, different leadership styles, types of tasks (routine, consulting)
Organizational Structure (problems with systems in different types of organizational structures)
The information systems within different types of organizational structures can determine the nature of the problem with the systems:
o Professional Bureaucracy (e.g. Hospital): e.g. Parallel patient record systems operated by the administration, another by doctors, another by nurses and social workers
o Entrepreneurial Structure: poorly designed systems developed in a rush, which quickly outgrow their usefulness
o Divisionalized bureaucracy: not just one integrating information system, but instead each location or division has its own set of information systems
Mintberg’s classification with five basic kinda of organizational structure: See Mintberg’s classification model
Transaction cost theory
Transaction cost: the cost incurred when a firm buys on the marketplace what it cannot make itself
All costs you have to bear to get access to something on the market: the cost of the goods, transportation, the cost of time through negotiation, lawyers you need to sign the purchase agreements, the cost of looking for suppliers (search cost) (information technology and internet have drastically reduced this part because it’s so much easier for companies too to compare suppliers)
Firms try to safe on transaction costs through e.g. vertical integration (buying suppliers), hiring more employees –> but information systems can save money without vertical integration
50 years ago: a manufacturer would attempt to be geographically close to their suppliers - so a car manufacturer would build their factory next to a steel factory in order to lower their transaction costs (transportation)
Now: labor is cheaper in other countries, companies build their manufacturing factories abroad where labor is cheap and then it’s still cheaper to transport it to the stores, because globalization made transportation and communication across borders cheaper –> new way to lower transaction cost
Agency Theory (Jensen & Meckling, 1976)
The firm is a “nexus of contracts” among self-interested individuals requiring supervision
Especially for manufacturing companies
The more people you hire in operational management and operational workers, the more middle managers you need because otherwise people will start to slack off (according to agency theory)
Information systems can reduce this cost through acquiring and analyzing information because it becomes easier for managers to oversee more employees –> reduces management cost
Organizational and Behavioral Impacts of IT
IT flattens hierarchies by broadening distribution of information to empower lower level employees and increase management efficiency
Organizational Resistance to Change: organizational politics influence access to the resource “information”
Organizational Resistance to change (four factors)
Four factors of organizational resistance to innovation
- The nature of the IT innovation
- The organization’s structure
- The culture of people in the organization
- The tasks affected by the innovation
organizational politics influence access to the resource “information”
Organizational factors to consider when planning a new system
the environment in which the organization must function
the structure of the organization: hierarchy, specialization, routines, and business processes
the organization’s culture and politics
the type of organization and style of leadership
the principal interest groups affected by the system and the attitudes of workers who will be using the system
the kinds of tasks, decisions and business processes the information system is designed to assist
Porter’s Five Forces
Competitors
New Market Entrants / Threat of new entrants: depends on the entry barriers (capital cost, expertise and knowledge required to start), e.g. SAS threatened by new flight company entering market
Substitute Products and Services / Threat of Substitution: depends on cost of change (and product differentiation), and has to be different industries – such as SAS being substituted by DBS
Customers / Buyer Power: low switching costs means customer have high buying power, and the Internet increases buyer power through showing competitors’ prices instantly.
Suppliers / Supplier Power: depends on the number of suppliers, the uniqueness of their service, the switching costs for the firms
Information System Strategies for Dealing with Competitive Forces
Low Cost Leadership: use IS to achieve low operational costs and the lowest prices
Efficient customer response system: directly links customer behavior to distribution and production and supply chains
Product Differentiation: use IS to enable new products and services or change customer convenience and experience in using existing products and services
Mass customization: use IS to mass personalize
Focus on Market Niche:
Use IS to enable specific market focus and serve the narrow target market better than competitors, such as use data for finely tuned sales and marketing techniques, customer buying patterns
Strengthen Customer and Supplier Intimacy:
Use IS to tighten linkages with suppliers and customers –> increase switching costs
See models
Low Cost Leadership (strategies for dealing with competitive forces)
use IS to achieve low operational costs and the lowest prices
Efficient customer response system: directly links customer behavior to distribution and production and supply chains
Product Differentiation (strategies for dealing with competitive forces)
Use IS to enable new products and services or change customer convenience and experience in using existing products and services
Mass customization – use IS to mass personalize
See table for examples
Focus on Market Niche (strategies for dealing with competitive forces)
Use IS to enable specific market focus and serve the narrow target market better than competitors, such as use data for finely tuned sales and marketing techniques, customer buying patterns
