Module Review Questions

1 January 2017

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. The technical definition of an organization is a stable, formal social structure that takes resources from the environment and develops them to outputs. The definition of an organization also focuses on three elements: Capital, labor, and production and products for consumption.

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The technical definition also infers that organizations are more stable than an informal group, and are formal legal entities, and are social structures. On the other hand behavioral definition of an organization defines it as a collection of rights, privileges, obligations, and responsibilities that are carefully balanced over a period of time through conflict and conflict resolution. This definition highlights the people within the organization, their ways of working, and their relationships.

The relationship between technical definition and behavioral definition shows us how a firm can combine capital, labor, and information technology which impacts the inner workings of the organization. * Identify and describe the features of organizations that help explain differences in organizations’ use of information systems. Features that are common among an organization include the following: * Routines and business processes: Standard operating procedures (SOP) have been developed to allow an organization to become productive and efficient thereby reducing costs over time. Organizational politics: Differing viewpoints about how resources, rewards, and punishments should be distributed bring about political resistance to organization change. * Organizational culture: Assumptions that define the organizational goals and products create limitation on change, especially technological change. * Organizational environments: A shared relationship exists between an organization and environments; information systems provide organizations a way to identify external changes that might require an organizational response. Organizational structure: Information systems reflect the type of organizational structure – entrepreneurial, machine, divisional, and professional bureaucracy, or adhocracy. * Describe the major economic theories that help explain how information systems affect organizations. There are two economic theories discussed in the book: transaction cost theory and agency theory. Transaction cost theory is based on that a firm incurs transaction costs when it buys goods in the marketplace rather than making products for itself.

For example, traditional firms seek out to reduce transaction costs by getting bigger, hiring more employees, vertical and horizontal integration, and small-company takeovers. Information technology can help a firm lower the cost of market participation (transaction costs) and help firms shrink in size while producing the same or greater amount of output. In contrast, an agency theory views the firm as an interconnection of contracts among interested individuals. The owner employs employees to perform work on his or her behalf and delegates some decision making authority to them.

Therefore employees need constant supervision and management, which creates management costs. As management costs rise the introduction of information technology reduces costs by providing information more easily so that managers can supervise a larger number of people with fewer resources. * Describe the major behavioral theories that help explain how information systems affect organizations. Behavioral theories, ranging from sociology, psychology, and political science, are useful for describing the behavior of individual firms.

Behavioral researchers theorize that information technology could change the decision-making hierarchy by lowering the costs of information acquisition and distribution. For instance, IT could eliminate middle managers and their clerical support by sending information from operating units directly to senior management enabling information to be sent directly to lower-level operating units. IT even allows organizations to act as a virtual organization since they are no longer limited by geographic locations. One behavioral approach views information systems as the outcome of political competition between organizational subgroups.

IT has become very involved with competition because it controls who has access to what information, and can control who does what, when, where, and how. * 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, politics, and work. The first model described by the book states that changes in technology are absorbed, deflected, and defeated by organizational task arrangements, structures, and people.

In this model the only way to bring about change is to change the technology, tasks, structure, and people simultaneously. A second model, which requires the need to unfreeze organizations before introducing an innovation, quickly implementing the new system, and then refreezing or institutionalizing the change. * Describe the impact of the Internet and disruptive technologies on organizations. As the Internet increases the accessibility, storage, and distribution of information and knowledge for organizations; nearly any information can be available anywhere at any time.

This Internet increases the scope, depth, and range of information and knowledge storage. It also lowers the cost and raises the quality of information and knowledge distribution. Furthermore, lowers transaction costs and information acquisition costs. By using the Internet, organizations may reduce several levels of management, enabling a closer and quicker communication between upper levels and the lower levels management. Disruptive technologies caused by technological changes can have an effects on different companies depending on how they handle the changes.

For example, some companies create the disruptions and succeed very well whereas other companies learn about the disruption and successfully adopt it. Other companies are obliterated by the change that they were very efficient at doing what no longer needs to be done. Some disruptions mostly benefit the firm. Other disruptions mostly benefit consumers as well. 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.

The Porter’s competitive forces model provides a general view of a firm, its competitors, and the firm’s general business environment. In this model, five competitive forces shape the fate of the firm: * traditional competitors * new market entrants * substitute products and services * customers * suppliers * Describe what the competitive forces model explains about competitive advantage. Some businesses do better than others because they have access to special resources that others do not, or they are able to use common available resources more efficiently.

The reason for this could be because of greater knowledge and information of assets. Nonetheless, they excel in revenue growth, profitability, or productivity, ultimately increasing their stock market valuations compared to their competitors. * List and describe four competitive strategies enabled by information systems that firms can pursue. Their four generic strategies, each of which has allowed a firm to use of information technology as a strategy. They are: * Low-cost leadership: Lowest operational costs and the lowest prices.

Product differentiation: Enable new products and services, or greatly change the customer convenience in using existing products and services. * Focus on market niche: Enable a specific market focus and serve this narrow target market well than its competitors. * Strengthen customer and suppliers: Tighten links with suppliers and develop closeness with customers. * 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 systems.

Example: Sam’s Club, Costco Product differentiation: Use information systems to create products and services that are customized and personalized to fit the precise specifications of individual customers. Example: Apple, Starbucks. Focus on market niche: Use information systems to produce and analyze data for finely tuned sales and marketing techniques. Analyze customer buying patterns, tastes, and preferences closely in order to efficiently pitch advertising and marketing campaigns to smaller target markets. Example: Whole Foods.

Strengthen customer and supplier intimacies: Use information systems to facilitate direct access from suppliers to information within the company. Increase switching costs and loyalty to the company. Example: Amazon. com * 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 business and not the other way around. The more successfully a firm can align its IT with its business goals, the more profitable it will be.

Business people must take an active role in shaping IT to the enterprise. A business cannot ignore IT issues nor tolerate failure in this area or just see it as a nuisance to work around. Businesses must understand what IT can do, how it works, and measure its impact on revenues and profits. 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.

The model also identifies specific and critical leverage points where a firm can use information technology the most effectively to enhance its competitive position. The value chain model views the firm as a series of basic activities that add a margin of value to a firm’s products or services. These activities are categorized as either primary or support activities. Primary activities are most directly related to production and distribution of the firm’s products and services, which create value for the customer. Support activities make the delivery of primary activities possible and consist of organization infrastructure.

A firm’s value chain can be linked to the value chains of its suppliers, distributors, and customers. * 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 to help examine how value-adding activities are performed at each stage of the value chain.

Information systems can also improve the relationship with customers and with suppliers. Furthermore, information systems can help businesses track benchmarks in the organization and identify best practices of their particular industries. After analyzing various stages in the value chain, an organization can devise a list of candidate applications for information systems. * Define the value web and show how it is related to the value chain. A value web is a collection of independent firms that use information technology to coordinate their value chains to collectively produce a product or service.

Customer driven value web operates in a less linear fashion than the traditional value chain. The value web is a networked system that can synchronize the business processes of customers, suppliers, and trading partners among different companies in an industry or in related industries. * Explain how the value web helps businesses identify opportunities for strategic information systems. Information systems enable value webs to be flexible and adaptive to changes in supply and demand. Relationships can be bundled or unbundled in response to changing market conditions.

Firms can accelerate their time to market and to customers by optimizing their value web relationships by making quick decisions on who can deliver the required products or services at the right price and location. Information systems make it possible for companies to establish and operate value webs. * Describe how the Internet has changed competitive forces and competitive advantage The Internet has nearly destroyed some industries and severely threatened others. The Internet has also created entirely new markets and formed the basis of thousands of new businesses.

The Internet has enabled new products and services, new business models, and new industries to rapidly develop. For this reason the Internet has created a competitive rivalry which has become much more intense over the last decade. Internet technology is based on universal standards that any company can use, making it easy for rivals to compete on price alone and for new competitors to enter the market. Because of this information is available to everyone, and the Internet raises the bargaining power of customers, who can quickly find the lowest cost provider on the Web.

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