Review Question

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.
• Identify and describe the features of organizations that help explain differences in organizations’ use of information systems.
• Describe the major economic theories that help explain how information systems affect organizations.
• Describe the major behavioral theories that help explain how information systems affect organizations.
• Explain why there is considerable organizational resistance to the introduction of information systems.
• Describe the impact of the Internet and disruptive technologies on organizations.

Answer:

• The technical definition defines an organization as a stable, formal social structure that takes resources from the environment and processes them to produce outputs. This definition of an organization focuses on three elements: Capital, labor, and production and products for consumption. The technical definition also implies that organizations are more stable than an informal group in terms of longevity and routines.Organizations are formal legal entities with internal rules and procedures that must abide by laws. Organizations are also social structures because they are a collection of social elements.
• The behavioral definition states that an organization is a collection of rights, privileges, obligations, and responsibilities that are delicately 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 technical and behavioral definitions of organizations are not contradictory. They complement each other: The technical definition tells us how thousands of firms in competitive markets combine capital, labor, and information technology, whereas the behavioral model takes us inside the individual firm to see how that technology affects the organization’s inner workings.
• Common features for organizations include:
• Routines and business processes: Standard operating procedures are precise rules, procedures, and practices that have been developed to cope with virtually all expected situations that allow the organization to become productive and efficient thereby reducing costs overtime.
• Organizational politics: Divergent 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 a powerful restraint on change, especially technological change.
• Organizational environments: Reciprocal relationships exist 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 bureaucracy, divisionalized bureaucracy, professional bureaucracy, or adhocracy.
• The two major economic theories 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 for itself. Traditionally, firms ought to reduce transaction costs by getting bigger, hiring more employees, vertical and horizontal integration, and small-company takeovers. Information technology helps firms lower the cost of market participation (transaction costs) and helps firms shrink in size while producing the same or greater amount of output.
• The agency theory views the firm as a nexus of contracts among interested individuals. The owner employs agents (employees) to perform work on his or her behalf and delegates some decision making authority to the agents. Agents need constant supervision and management, which introduces management costs. As firms grow, management costs rise. Information technology reduces agency costs by providing information more easily so that managers can supervise a larger number of people with fewer resources.
• Behavioral theories, 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. IT could eliminate middle managers and their clerical support by sending information from operating units directly to senior management and by enabling information to be sent directly to lower-level operating units. It even enables some organizations to act as virtual organizations because they are no longer limited by geographic locations. 
• One behavioral approach views information systems as the outcome of political competition between organizational subgroups. IT becomes very involved with this competition because it controls who has access to what information, and information systems can control who does what, when, where, and how.
• There is considerable organizational resistance to new information systems because they change many important organizational dimensions, such as culture, structure, politics, and work. Levitt puts forth a model that says 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. In a second model, the authors speak of the need to unfreeze organizations before introducing an innovation, quickly implementing the new system, and then refreezing or institutionalizing the change.
• 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 knowledge distribution. That is, it lowers transaction costs and information acquisition costs. By using the Internet, organizations may reduce several levels of management, enabling closer and quicker communication between upper levels of management and the lower levels. The Internet also lowers agency costs.
• Disruptive technologies caused by technological changes can have different effects on different companies depending on how they handle the changes. Some companies create the disruptions and succeed very well. Other companies learn about the disruption and successfully adopt it. Other companies are obliterated by the changes because they are very efficient at doing what no longer needs to be done. Some disruptions mostly benefit the firm. Other disruptions mostly benefit consumers.