Chapter 3 Summary: Information Systems, Organizations, and Strategy

Information technology (IT) is an integral part of an organization or firm and affects the overall economics of the business. IT reduces costs of capital and labor by improving efficiency. As new technology is developed and the cost decreases, it becomes a wiser choice for investment by management as well as replacing traditional capital costs. The text states that IT flattens organizations, meaning that valuable decision making information is more accessible to all levels of the organization, therefore reducing the need for so many levels of management. As company wide information and reports are accessed in real-time, managers are also able to make quicker decisions. These factors reduce the need for additional managers and provide lower-level employees with more knowledge and growth opportunities.

As with any new change, there comes resistance. Often times, IT brings about unwanted change because people will have to re-learn their jobs or new software and this can be challenging and frustrating. However, it is in the best interest of the company to streamline business processes, reduce labor, and implement new technology. It’s important for the IT team to keep in mind the culture and hierarchy of the company when designing new tools and implementing new applications. A good IT team will also recognize the fears and frustrations that may be a result of the new changes brought about and will try to ease those emotions prior to implementation as well as encourage the organization’s leadership to be an avid supporter of the technology.

The text describes Michael Porter’s competitive forces model to show the advantages to competition in a market and in many of the areas, information technology brings a better organization forward. The different areas of competition are: traditional competitors, new market entrants, substitute products, suppliers, and customers. Essentially, the model represents a basic understanding of economics in a market. In order for a firm to exceed its competition, it will need to excel in all of these areas and the most helpful resource for success is information technology.

Information technology can reduce operational costs by creating systems specifically tailored to an organization’s products and services. An example would be companies such as Netflix, Hulu, and Apple TV that provide new technologies in which many consumers are choosing over traditional cable services because of the accessibility and low costs. IT also helps firms with product differentiation. Nearly everyone knows the difference between an iPhone and Android phone because of the different types of operating systems, media market, branding, and through the promotion of the items via commercials and social media. Through focusing on a market niche, companies like Shutterfly can tailor online products, marketing, and coupon offers to consumers based on data collected from a DSS information system during each transaction. Finally, information systems strengthen customer and supplier intimacy and reduce the risk of losing customer loyalty by linking the consumer and supplier. Businesses utilize different information systems to obtain and keep their competitive advantages.

Source: Laudon, Kenneth C. & Jane P. Laudon. Management Information Systems: Managing the Digital Firm 12^th ed. Pearson Hall, 2010.