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  Ch 3 - Information Systems, Organizations, and Strategy

1. Opening Case - eBay     (p77)

   1. Problem: Can eBay expand its auction business to become the "best marketplace out there"?

   2. Desired Solution: "make shopping more customer-friendly".  eBay acquired Shopping.com, StubHub, partnered with Buy.com.  Fixed price sales now account for 40% of revenue.

   3. Illustrates the benefits of using a product differentiation strategy when the cost to new market entrants is high.  See Porter's Competitive Forces Model below.
       

2. Organizations and Information Systems     (p79)
   1. Features of Organizations
      1. Business Processes
      2. Organizational Politics - divergent viewpoints about resource distribution
      3. Organizational Culture

      4. Organizational Environment - changing public tastes, government regulations, new technologies, new products

      5. Organizational Structure

         1. Entrepreneurial - small, young entrepreneur as CEO

         2. Machine bureaucracy - large firm with centralized mgt and decision making

         3. Divisionalized bureaucracy - multiple machine bureaucracies, with central headquarters - GM

         4. Professional bureaucracy - knowledge-based firm with strong department heads, weak centralized authority - law firm

         5. Adhocracy - task force firm with weak central mgt - consulting firm.

   2. All these features affect the kinds of info systems used by an organization.
       

3. How Info Systems Impact Organizations     (p86)

   1. Over the last decade, info systems have fundamentally changed the economics of organizations and greatly increased the possibilities for organizing work.

   2. Economic Impacts
      1. Info systems technology (IT) can be viewed as a factor of production that can be substituted for traditional capital and labor.
      2. Decreasing IT costs has resulted in the substitution of IT for many middle managers and clerical workers.  As a result, their numbers have declined.
   3. Organizational and Behavioral Impacts
      1. IT flattens organizations - Fig 3-8 - with IT, lower-level employees receive info to make decisions with less supervision.  Span of control increases.
      2. Postindustrial Organizations have more self-managing professional workers requiring less supervision.  Span of control increases.
      3. Understanding Organizational Resistance to Change
         1. Many new info systems require changes in business processes, politics, culture, environment, and structure (see II.A above).
         2. Unless there is a corresponding benefit, most people resist such changes.  More in Chapter 14.
             
4. Using Info Systems to Achieve Competitive Advantage      (p92)
   1. Porter's Competitive Forces Model - five competitive forces shape the fate of the firm
      Note by PJL (for your info only): Michael E. Porter, Professor at Harvard Business School, is a leading authority on competitive strategy and international competitiveness.  See www.isc.hbs.edu and http://en.wikipedia.org/wiki/Michael_Porter.

      1. Traditional Competitors - fewer competitors increase competitive advantage

      2. New Market Entrants - higher barriers of entry increase competitive advantage

      3. Substitute Products - fewer substitute products increase competitive advantage - Internet telephone service can substitute for traditional telephone service

      4. Customers - increased customer product knowledge decreases competitive advantage - Internet decreased competitive advantage in textbook market

      5. Suppliers - increased supplier capacity may decrease supplier prices and increase competitive advantage - increased supply of laptop components increases competitive advantage of laptop manufacturer
          

   2. Info System Strategies for Dealing with Competitive Forces

      1. Low-Cost Leadership - use info systems to achieve low operating cost - Wal-Mart

      2. Product Differentiation - use info systems to improve customer convenience - mass customization - Lands' End custom-tailored shirts

      3. Focus on Market Niche - use Customer Relationship Mgt (CRM) systems to focus marketing efforts - Hilton OnQ - more profitable guests receive late check-outs

      4. Strengthen Customer and Supplier Intimacy - use Supply Chain Mgt (SCM) systems to develop strong ties and loyalty with customers and suppliers - Chrysler gives suppliers access to production schedules
          

5. The Value Chain Models     (p102)
   1. The Firm Value Chain Model - views the firm as a chain of activities that add a margin of value to a firm's products - Fig 3-11
      1. Primary Activities - with examples of value adding systems (These may actually be modules of Enterprise Applications - Ch2 VI, Ch9)
         1. Inbound logistics - automated warehousing system
         2. Operations - computer-controlled machining system
         3. Sales and Marketing - lead management system
         4. Service - equipment maintenance system
         5. Outbound Logistics - automated shipment scheduling system
      2. Support Activities - with examples of value adding systems
         1. Management - Executive Support System (ESS) - Ch2 III.D.
         2. Human resources - workforce planning system
         3. Technology - Computer-aided design (CAD) - p426
         4. Procurement - supplier development
   2. The Industry Value Chain Model - views the industry as a chain of activities that add a margin of value to an industry's products - Fig 3-11, bottom
      Suppliers' supplier   >>>   Supplier   >>>   Firm   >>>   Distributors   >>>   Customers.
   3. Both these value chain models are used to identify where info systems are most likely to have a strategic impact to achieve operational excellence.
       
   4. Application of Value Chain Models to Amazon.com
      1. In 1995, Jeff Bezos started Amazon.com as a virtual bookstore.  In 1998, he expanded "to become the best place to buy any product available online", but had to increase his staff and physical inventory.  For additional background info, see Amazon.com and http://en.wikipedia.org/wiki/Amazon.com.
      2. Be prepared to discuss the following questions:
         1. In 2001, Amazon applied a Six Sigma quality program, closed some warehouses, reduced staff 15%, and reduced fulfillment costs from 15% of revenue in 2000 to 10% in 2003.  Conjecture how Amazon could use the Firm Value Chain Model to make this possible.
             
         2. Nordstrom, Macy's and Target use Amazon to sell their goods and then pay Amazon commissions.  For this situation, identify the players in the Industry Value Chain Model.  Why do department stores sell their products on Amazon?
             
         3. Amazon sells directly on its webpages many of the products that the department stores sell on Amazon.  For this situation, identify the players in the Industry Value Chain Model.  Why does Amazon sell the same products?
             
         4. Do you think Amazon can continue to be successful? Explain your answer.