Chapter 2 - Information Systems in organisations
Chapter: Organizations and Role of Information Systems
Computers and information systems help make it possible for organizations to improve the way they
The use of information systems to add value to the organization is strongly influenced by organizational structure, culture, and change.
Organizations use information systems to support their goals. System performance is measured by its efficiency and effectiveness. Efficiency is a measure of what is produced divided by what is consumed; effectiveness measures the extent to which a system achieves its goals. A systems performance standard is a specific objective.
An organization is a formal collection of people and other resources established to accomplish a set of goals.
Organizations are systems with inputs, transformation mechanisms, and outputs. Value-added processes increase the relative worth of the combined inputs on their way to becoming final
outputs of the organization. The value chain is a series (chain) of activities that includes (1) inbound logistics, (2) warehouse and storage, (3) production, (4) finished product storage, (5)
outbound logistics, (6) marketing and sales, and (7) customer service.
Organizational structure refers to how organizational subunits relate to the overall organization. Several basic organizational structures include traditional, project, team, and virtual.
Organizational culture consists of the major understandings and assumptions for a business, corporation, or organization.
Organizational change deals with how organizations plan for, implement, and handle change. Change
can be caused by internal or external factors. The stages of the change model are unfreezing, moving, and refreezing. According to the concept of organizational learning, organizations adapt
to new conditions or alter practices over time.
Because information systems are so important, businesses need to be sure that improvements or completely new systems help lower costs, increase profits, improve service, or achieve a competitive advantage.
Business process reengineering, Continuous improvement, Total quality management are improvement initiatives. Six Sigma is often used in quality control. It is based on a statistical term that means 99.9997 percent of the time, products and services will meet quality standards. Companies can achieve this quality level by repeatedly applying six sigma technique with additional inputs from their understanding of the system inputs.
Developing information systems that measure and control productivity is a key element for most organizations. A useful measure of the value of an IS project is return on investment (ROI). This measure investigates the additional profi ts or benefits that are generated as a percentage of the investment in IS technology. Total cost of ownership (TCO) can also be a useful
Information systems must be applied thoughtfully and carefully so that society, businesses, and
industries can reap their enormous benefits.
Systems development involves creating or modifying existing business systems. The major steps of this process and their goals are systems investigation (gain a clear understanding of
what the problem is), systems analysis (define what the system must do to solve the problem), systems design (determine exactly how the system will work to meet the business needs),
systems implementation (create or acquire the various system components defined in the design step), and systems maintenance and review (maintain and then modify the system so that
it continues to meet changing business needs).
Effective information systems can have a major impact on corporate strategy and organizational success. Businesses around the globe are enjoying better safety and service, greater effi ciency and effectiveness, reduced expenses, and improved decision making and control because of information systems. Changes in society as a result of increased international trade and cultural exchange due
to globalization have always had a significant impact on organizations and their information systems. These opportunities, however, introduce numerous obstacles and issues, including challenges involving culture and language.
Principle:Information systems personnel are the key to unlocking the potential of any new or modified system.
Organisations and information systems
Organisation is a collection of people and other resources established to accomplish a set of goals.
1. Inputs = resources (people, materials, money)
2. Transformation mechanism = processes that increase the value of the inputs.
3. Outputs = goods / services.
Value-added process = a transformation that turns inputs into goods of increasing value.
Value chain = a series of activities from upstream and downstream management:
Raw materials Inbound logistics (organising complex operations) Warehouse & storage
Finished Product storage Outbound logistics Marketing & sales Customer service
The value chain is a concept that reveals how organisations can add value to their products.
Each activity is investigated to determine what can be done to increase the value to the company. Value to the customer can be increased and cost to the company can be decreased.
Role of an IS in value-added processes:
IS ensures effectiveness & efficiency, turns feedback into information (The IS is external to the
process and serves to monitor / control it).
ISs are so intertwined with the value-added process that they are considered part of the
process itself. (The IS is internal and plays an integral role by providing input, aiding product
transformation, producing output)
Organisational structureOrganisational structure is the way organisational subunits relate to the overall organisation.
Major department heads report to a president / top-level manager.
Hierarchical structure: A managerial pyramid shows the hierarchy of decision making.
Strategic tactical operational non-management employees.
Line positions = positions directly associated with making, packing / shipping goods.
E.g. A production supervisor who reports to the vice president of a production.
Staff positions = positions not directly involved with the formal chain of command.
E.g. A legal counsel reporting to the president.
The trend now is to reduce the number of management levels.
Flat organisational structure: Fewer management layers empowers employees at lower levels
to make decisions without permission.
Empowerment = giving employees more responsibility to make decisions, take certain
actions, and have more control over their jobs.
* Faster action and quicker resolution of problems
* Cost reduction
* Higher quality products and services
Employees feel the responsibility to make the whole organisation work better.
Empowerment happens by providing info directly to employees at lower hierarchy levels.
Structure centred on major products / services.
E.g. When each product is produced by a separate unit.
Traditional functions (marketing, finance, production…) are positioned in each unit.
Many projects are temporary, and the members join other teams when the project is completed.
Structure centred on work teams / groups. Each team has a team leader who reports to an upper-level manager.
4. Multidimentional (or matrix)
Incorporates several structures at the same time.
E.g. An organisation can have both traditional functional areas and major project units.
Advantage: Ability to stress both traditional corporate areas and important product lines.
Disadvantage: Multiple lines of authority - Employees have a functional + project boss, which
can lead to conflicts, so one boss should have priority.
Organisational culture and changeOrganisational culture is a set of major understandings and assumptions shared by the employees of an organization. We may include suppliers and customers also into it. The culture consists of visible behavior, stated values and unstated beliefs.
These understandings (values, approaches…) can be formed rapidly or over years and are
often not stated or documented in goal statements or formal policies.
Organisational culture can affect the development & operation of information systems:
A procedure associated with a new IS might conflict with an informal procedural rule.
Organisational change = changes in the way individuals, groups and the enterprise work. This can refer to behavior in behavior included in culture.
Internal factors causing change: Activities initiated by employees.
External factors causing change: Activities initiated by competitors, laws, economy etc.
Introducing / modifying an IS causes changes in tasks, work groups.
Overcoming resistance to change can be the hardest part of bringing IS into a business.
Change model = a representation of change theories that identifies the phases of change.
Unfreezing = ceasing old habits and creating a climate receptive to change.
Moving = the process of learning new methods and systems.
Refreezing = reinforcing changes to make the new process accepted.
Organisational learning = adapting to new conditions or altering practices over time.
Employees learn better ways of doing things and incorporate them into daily activities.
Adjustments can be radical or incremental.
Reengineering (Process Redesign)
Making fundamental changes in the way a company does business (Radical redesign) due to the publication of new research that has an impact on business processes and the new technologies that result fron the new research.
Changes: Organisational structure, values, information systems…
Benefits: reduced delivery time, increased quality & profitability, satisfaction…
Hurdle: helping employees understand the benefits.
Continuous improvement= Constantly trying to improve business processes.
Continuous improvement suggests improvement in the processes that are implemented through reengineering. The reengineered process is further improved incrementally with the experienced gained by using it.
Strong action taken for a serious problem Routine action for minor improvements
Both executives and workers participate in continuous improvment. Top-down driven by executives Worker driven
Broad scope; across departments Narrow scope; focus on tasks
Goal: achieve major breakthrough Goal: continuous improvements
Often led by outsiders Led by workers close to the business
IS is integral to the solution IS provides data to guide improvement team
Technology diffusion, infusion and acceptanceTo be effective, reengineering & continuous improvement efforts must be accepted and used
throughout the organisation.
Technology diffusion = a measure of how widely technology is spread.
An organisation with ISs in most departments has a high level of technology diffusion.
Technology infusion = a measure of how deeply imbedded technology is in an area.
E.g. if you use computers in all aspects of designing something.
Technology Acceptance Model (TAM) = an explanation of the factors that can lead to higher
acceptance and usage of technology in an organisation.
Includes: Perceived usefulness of the technology
Ease of its use
Quality of the information system
Degree to which the organisation supports the use of the IS.
Total quality management (TQM)Techniques that offer commitment to quality throughout the organisation.
(Quality = the ability of a product to meet customer expectations)
Involves: Developing awareness of customer needs
Adopting a strategic vision for quality
Rewarding employees for producing high-quality products
Computers and information systems help TQM. Capturing and analyzing customer feedback and expectations, providing support to design, manufacture, and delivery activities, Information systems play their role.
It is important to note that managers of information systems have to implement TQM in their department also. IS persons also have to provide total quality service to internal and external customers.
Outsourcing and downsizingThese are Strategies to contain costs.
Outsourcing = contracting with outside professional services to meet specific business needs.
Reasons for outsourcing a business process:
You can focus more closely on core business.
Cost savings, or benefits from the expertise of the service provider.
Examples of business processes that can be outsourced:
Development of advertising materials
Product sales promotion
Telecommunications network support
Downsizing = reducing the number of employees to cut costs. (Rightsizing)
Weakened lines of communication
Drop in employee activity
To overcome problems:
* Encourage early retirement
* Transfer employees to other branches
Competitive advantageA competitive advantage is a significant and (ideally) long-term benefit to a company over its competition.
1. Factors leading to firms seeking competitive advantage
Five force model:
A) Rivalry among competitors
Industries with stronger rivalries have more firms seeking competitive advantage.
B) Threat of new entrants
A threat exists when it is cheap and easy for someone to enter the industry.
C) Threat of substitute products & services
If similar products & services are available, firms get more competitive.
D) Bargaining power of customers and E) suppliers
Large buyers influence firms (Less influence if they can’t use the threat of buying elsewhere).
Suppliers can help an organisation obtain competitive advantage by entering into strategic
alliances with them.
When they do so, suppliers act like part of the company.
Suppliers and companies can link their computers & personnel to obtain fast reaction times to
get the supplies over quickly when they are needed to satisfy customers.
2. Strategic planning for competitive advantageA. Altering the industry structure
= Changing the industry to become more favourable to the company.
This can be accomplished by gaining more power over suppliers and customers.
(E.g. by insisting that suppliers be located close to major plants).
A company can also create barriers to new companies entering the industry.
(E.g. by buying expensive new technology, which discourages newcomers).
Creating strategic alliances (partnerships)
(Joint production of goods discourages new companies entering the market).
B. Creating new products & services
An organisation should introduce new products & services every few months.
C. Improving existing product lines & services
Improvements can be either real or perceived.
D. Using IS for strategic purposes
ISs can improve organisational effectiveness and support the fundamental business strategy.
Example of a strategic IS = a large central repository to create a merchandising database.
Companies must constantly update / acquire new systems to remain competitive.
Performance-based information systems
There have been 3 major stages in the business use of IS:
A: In the 60s IS were oriented towards cost reduction and productivity.
B: In the 80s IS were oriented towards gaining a competitive advantage.
C: Today there’s a shift from strategic management to performance-based management.
(This stage carefully considers both strategic advantage and costs)
= A measure of the output achieved divided by the input required. (O / I) * 100%
= Efficiency in industrial production.
The higher the level of output for a given level of input, the greater the productivity.
Once a basic level of productivity is measured, an IS can monitor and compare it over time.
As well as measuring productivity, an IS can also be used within a process to increase
Measuring productivity is important because improving productivity boosts a nation’s standard
It is difficult to measure the impact that investments in IS have on productivity.
Information technology is not productive by itself - It takes people to deliver gains in output.
If information technology can give employees the knowledge they need to act quickly, this
productivity explosion will lead to an increase in the world’s standard of living.
2. Return on investment (ROI) & value of IS
ROI = profits generated as a percentage of the investment in IS technology.
= The increase in profit.
= The percentage of sales that one company’s products have in relation to the total market.
Customer awareness and satisfaction
Surveys & questionnaires determine if customer awareness & satisfaction has increased.
Total cost of ownership (TCO)
= Measurement of the total costs of owning equipment: computers, networks, support
3. Justifying IS
To avoid waste, each potential IS project should be reviewed to ensure it meets an important
business need, is consistent with corporate strategy, and leads to attainment of goals.
Risk can be assessed by asking:
a. How well are the requirements of the system understood?
b. To what degree does the project require a lot of effort in technology that is new to the firm?
c. Is there a risk of severe repercussions if the project is poorly implemented?
5 common justifications for implementing an IS:
(These are 5 benefits an organisation will derive from implementing an IT project).
* Tangible savings
= Savings that can be quantified, like money (reduced staff, increased sales…)
* Intangible savings
= Soft-dollar savings whose magnitude is hard to measure (improved control, customer
perceptions, better managerial decisions…)
* Legal requirement
Implementation of the project is required to meet a federal regulation.
Implementation of the project is needed to keep up to date. (Like Y2K compatibility).
* Pilot project
The project is done to gain experience in a new technology / area.
Careers in Information Systems
Operations focuses on the use of information systems in corporate or business unit computer facilities.
System operators run and maintain IS equipment.
Focus on specific development projects and ongoing maintenance & review. (Effectiveness)
Systems analysts and programmers.
SupportFocus on providing assistance in hardware & software use, data administration, training…
A specialised group manages the acquisition of hardware and software, and sets guidelines &
standards for the organisation to follow in making purchases.
Single vendor solution:
One outside source supplies all IS needs.
Advantages: cost savings and built-in compatibility.
Risks: lack of flexibility, vendor complacency, missing out on other vendors’ new products.
Focuses on planning, policies, and procedures regarding the use of corporate data.
= A support function that provides users with assistance, training, standards
Information service unit= A miniature IS department attached to one of the above functional areas.
Project assignments and resources are provided by the functional area to which it reports.
The salaries of staff in the IS unit may be budgeted by either the IS dept or the functional area
Typical IS titles and functions
Chief information officer (CIO)
Role: to employ an IS department’s equipment and personnel.
Some top concerns:
Integrating IS operations with corporate strategies
Keeping up with technology
Defining & assessing the value of systems development projects.
Works with the CFO (chief financial officer) and CEO in managing corporate resources.
Set up and manage the network hardware, software and security processes.
Career in Consulting Organizations
Career in Hardware an Software Vendor Organizations.