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Chapter 3
Information Systems, Organizations, and Strategy
Learning Objectives
1. Which features of organizations do managers need to know about to build and use
information systems successfully? What is the impact of information systems on
organizations?
2. How does Porter’s competitive forces model help companies develop competitive
strategies using information systems?
Chapter Outline
3.1 Organizations and Information Systems
What Is an Organization?
Features of Organizations
3.2 How Information Systems Impact Organizations and Business Firms
Economic Impacts
3.3 Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
3.4 Using Systems for Competitive Advantage: Management Issues
Sustaining Competitive Advantage
Aligning IT with Business Objectives
Managing Strategic Transitions
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
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Agency theory, 120
Benchmarking, 133
Best practices, 133
Business ecosystem, 138
Competitive forces model, 124
Strategic transitions, 142
Support activities, 132
Switching costs, 128
Transaction cost theory, 119
Value chain model, 131
Value web, 135
Virtual company, 138
Teaching Suggestions
The opening case, “Will Sear’s Technology Strategy Work This Time?” illustrates some
of the ways that information systems help businesses compete and also the challenges of
sustaining a competitive advantage. However, it also points out that technology alone will
not save a company. Organizations that have lost their competitive edge and market share
must also evaluate their core competencies and strategies and improve those also.
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Section 3.1, “Organizations and Information Systems” The chapter begins by dissecting
an organization from both a technical and behavioral point of view. The technical
definition focuses on three elements: capital and labor; inputs from the environment; and
outputs to the environment. See Figure 3-2. The behavioral view emphasizes group
relationships, values, and structures as shown in Figure 3-3. These two definitions are not
contradictory. The technical definition focuses on thousands of firms in competitive
markets while the behavioral definition focuses on individual firms and an organization’s
inner workings.
Section 3.2, “How information Systems Impact Organizations and Business Firms” By
understanding that information systems impact organizations two ways, economically
and behaviorally, students can understand that technological change is much more than
just updating computer hardware and software. Technology becomes a substitute for
traditional capital like labor, buildings, and machinery. The transaction cost theory says
that firms and individuals seek to economize on transaction costs much as they do on
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Now, ask your students these questions from the text:
• Who makes sure that self-managed teams do not head off in the wrong direction?
• Who decides which person works on which team and for how long?
• How can managers evaluate the performance of someone who is constantly
rotating from team to team?
• How do people know where their careers are headed?
It’s very important for students to understand that the most common reason large IT
projects fail is not the failure of technology, but because of organizational and political
resistance to change. People simply don’t like change and will resist it in a variety of
ways. Ask students to analyze companies that have struggled with major organizational
Section 3.3, “Using Information Systems to Achieve Competitive Advantage” This
section is one of the most critical sections in the text. Understanding business strategy
and how information systems can aid employees in making far-reaching and deep-rooted
decisions is critical to the long-range success of any corporation. At this point, students
need to focus on business level strategies and the various ways firms achieve an
advantage over other firms. They will learn how to use these strategies in order to address
a key question: How can we compete effectively in a particular market?
Interactive Session: Technology: Technology Helps Starbucks Find New Ways to
Compete
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Case Study Questions
1. Analyze Starbucks using the competitive forces and value chain models.
Starbucks uses a product differentiation and customer intimacy competitive forces to
set itself apart from others by offering a unique experience of high-end specialty
coffees and beverages, friendly and knowledgeable servers, and customer-friendly
coffee shops.
2. What is Starbucks business strategy? Assess the role played by technology in
this business strategy.
Starbucks business strategy is product differentiation. It offers a unique experience of
high-end specialty coffees and beverages, friendly and knowledgeable servers, and
customer-friendly coffee shops. The company revamped its in-store technology and
3. How much has technology helped Starbucks compete? Explain your answer.
Starbucks launched what it calls the “Starbucks Digital Network,” a portal designed
specifically for mobile devices as opposed to traditional Web browsers. The site is
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Interactive Session: Technology: Auto Makers Become Software Companies
Case Study Questions
1. How is software adding value to automakers’ products?
Many auto makers are enhancing their vehicles with on-board software that improves
the customer experience. Some are working on technology that will allow cars to be
managed via the cloud. Software is a way to add more “value” and freshness to new
2. How are the automakers benefiting from software-enhanced cars? How are
customers benefiting?
Cars need to be connected to some kind of central system, which would coordinate
with public transit and other transportation methods. To do that, cars need to be
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3. What value chain activities are involved in enhancing cars with software?
Primary activities involved in enhancing cars with software include sales and
marketing, and service. That includes promoting and selling the new products and
features and perhaps enticing customers to upgrade their vehicles before they really
4. How much of a competitive advantage is software providing for automakers?
Explain your answer.
Although privacy concerns are key for some vehicle owners, automakers are hoping
that younger customers who have grown up using Facebook are less likely to care
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Section 3.4: “Using Systems for Competitive Advantage: Management Issues.” This
section reinforces the idea that information systems should be subservient to business
objectives. Have students use the information in the subsection “Management Checklist:
Performing a Strategic Systems Analysis” to analyze an organization they are familiar
with—the school they are attending or a place where they may have worked.
Review Questions
1. Which features of organizations do managers need to know about to build and
use information systems successfully? What is the impact of information systems
on organizations?
Define an organization and compare the technical definition of organizations
with the behavioral definition.
Students can make use of Figures 3-2 and Figure 3-3 in answering this question.
The technical definition defines an organization as a stable, formal social structure
that takes resources from the environment and processes them to produce outputs.
Identify and describe the features of organizations that help explain differences
in organizations’ use of information systems.
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Common features for organizations include:
• Routines and business processes: Standard operating procedures have been
developed that allow the organization to become productive and efficient
thereby reducing costs over time.
• Organizational politics: Divergent viewpoints about how resources, rewards,
and punishments should be distributed bring about political resistance to
Describe the major economic theories that help explain how information systems
affect organizations.
The two economic theories discussed in the book are transaction cost theory and
agency theory. The transaction cost theory is based on the notion that a firm incurs
transaction costs when it buys goods in the marketplace rather than making products
Describe the major behavioral theories that help explain how information
systems affect organizations.
Behavioral theories, from sociology, psychology, and political science, are useful for
describing the behavior of individual firms. Behavioral researchers theorize that
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Explain why there is considerable organizational resistance to the introduction
of information systems.
There is considerable organizational resistance to new information systems because
they change many important organizational dimensions, such as culture, structure,
Describe the impact of the Internet and disruptive technologies on organizations.
The Internet increases the accessibility, storage, and distribution of information and
knowledge for organizations; nearly any information can be available anywhere at
any time. The Internet increases the scope, depth, and range of information and
knowledge storage. It lowers the cost and raises the quality of information and
2. How does Porter’s competitive forces model help companies develop competitive
strategies using information systems?
Define Porter’s competitive forces model and explain how it works.
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This model provides a general view of the firm, its competitors, and the firm’s
environment. Porter’s model is all about the firm’s general business environment. In
Describe what the competitive forces model explains about competitive
advantage.
Some firms do better than others because they either have access to special resources
List and describe four competitive strategies enabled by information systems
that firms can pursue.
The four generic strategies, each of which often is enabled by using information
technology and systems include:
• Low-cost leadership: Lowest operational costs and the lowest prices.
Describe how information systems can support each of these competitive
strategies and give examples.
• Low-cost leadership: Use information systems to improve inventory
management, supply management, and create efficient customer response
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Explain why aligning IT with business objectives is essential for strategic use of
systems.
The basic principle of IT strategy for a business is to ensure the technology serves the
3. How do the value chain and value web models help businesses identify
opportunities for strategic information system applications?
Define and describe the value chain model.
The value chain model highlights specific activities in the business where competitive
strategies can best be applied and where information systems will most likely have a
strategic impact. The model identifies specific, critical leverage points where a firm
Explain how the value chain model can be used to identify opportunities for
information systems.
Information systems can be used at each stage of the value chain to improve
operational efficiency, lower costs, improve profit margins, and forge a closer
relationship with customers and suppliers. Organizations can use information systems