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ITM - Chpt 3.docx

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Information Technology Management
Course Code
ITM 100
Ron Babin

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3.2 How Information Systems Impact Organizations and Business Firms Information systems have fundamentally changed the economics of organizations, becoming interactive tools deeply involved in the minute-to-minute operations and decision making of large organization. Economic Impacts - Economics  IT changes the relative costs of capital and of information - Info systems viewed as factor of production that can be substituted for traditional capital and labour. - Results in decline of middle managers and clerical workers - IT cost decrease results in its substitution for other forms of capital; buildings, machinery - Helps firms contract in size because it decreases transaction costs --- costs incurred when a firm buys on the marketplace what it cannot make itself Transaction Cost Theory – firms and industries seek to economize on transaction cost as they do with production costs fig 3-6 - Using markets are expensive, costs like locating and communicating with suppliers, monitoring contract compliance, buying insurance, obtaining information etc. - Firms have tried to use vertical integration to expand - Can lower cost of market participation (transaction costs), making ease to contract with external suppliers over internal sources - Causes companies to shrink in size (# of employees), as result outsourcing their production allows contracting with manufacturers rather than making their own Agency Theory – the firm is viewed as a ‘nexus of contracts’ (inter-collection of agreement/partnership) among self-interested individuals rather than as a unified, profit- maximizing entity fig.3-7 - Managers will seek to maximize their own utility at the expense of corporate shareholders. Agents operate in their own self-interest rather than in the best interests of the firm - Reduces agency cost as firms expand without added cost in supervising or hiring employees since it allows overseeing greater number of employees Organizational and Behavioural Impacts IT Flattens Organizations - Downsized bureaucratic organizations (developed before PC age) are inefficient, slow to change and less competitive, lead to reduced # of employees and levels - IT flattens hierarchy by broadening information to empower lower level employees, thus pushing decision-making among them without need of supervision - Eliminates middle managers due to more accurate info on time Post-industrial Organizations - Based more on history and sociology than economics with support to IT flattening hierarchy - Authority increasingly relies on knowledge and competence over formal positions - Shape flattens due to workers being self-managing, with decision making decentralized due to knowledge and information becoming more widespread throughout the film - Task-force-networked organizations, electronically, ease of disbandment and forming of group projects Understanding Organizational Resistance to Change - ISs are inevitably bound up in organizational politics because they allow access to information - ISs require change to individual routines, requires retraining and additional effort that may or may not compensate fig3-9 - Potential change to an organization’s structure, culture and business process leads to resistance, this causes IT investment flounder which do not increase productivity The Internet and Organizations - Increases the accessibility, storage, and distribution of information and knowledge of a organization - Helps lower transaction and agency costs - E.g deliver manuals to customers via site posting, up to date site information Implications for the Design and Understanding of Information Systems Central organizational factors to consider when planning a new system: o Environment the organization must function in o Structure of the organization: hierarchy, specialization, routines, business process o Organization’s culture and politics o Type of organization and style of leadership o Principal interest groups affect by the system and the attitudes of workers who will be using the system o Kinds of tasks, decisions, and business processes that the IS is designed to assist 3.3 Using Information Systems to Achieve Competitive Advantage - Firms that ‘do better’ than others have a competitive advantage over others, due to access to special resources more efficiently; doing better in terms of revenue growth, and higher stock market value Porter’s Competitive Forces Model fig 3.5  Most widely used model for understanding competitive advantage, provides a general view of the firm, its competitors, and the firm’s environment; five components: Traditional Competitors - All competitors continuously devise new, more efficient ways to produce by introducing new products and services to attract customers New Market Entrants - Varying ease of entrance to the market depending on industry type (ex/ pizza business vs. computer chip), since it is a free economy with mobile labour and free financial resources - New competition will have better equipment, young employees, but they lack brand recognition, internet reduces barriers to entry Substitute Products and Services - Similar products at a cheaper price, causing switch to the more cost efficient product among consumers Customers - The ability of customers to pressure companies into changing price - Profitability of a company depend largely on its ability to attract and retain customers Suppliers - The bargaining power of suppliers (market of inputs). Suppliers of raw materials, labour, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices Using Information Systems to Achieve Competitive Advantage fig 3.4 p.79 Product differentiation - Manufacturers and retailers are starting to use information systems to create products and services that are custom-tailored to fit the precise specifications of individual customers. - ISs enable new products and services or greatly change the customer convenience using existing products and services - Continuously introduces new and unique service Mass customization – the ability to offer individually tailored products or services using the same production resources as mass production Low-cost leadership - ISs are used to achieve the lowest operational costs and the lowest prices - E.g Wal-Mart continuous quick replenish system Focus on market niche - Identifies a special targeted subject for products and services to serve in - Increases profitability and market penetration. ISs enable companies to analyze customer buying patterns, tastes, and preferences closely so that they efficiently pitch advertising and marketing campaigns to smaller and smaller target markets. - The firm can provide a specialized product or service for this narrow
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