Learning Objectives
By the end of this chapter, you will be able to:
- Describe the two-way relationship between information systems and organizations.
- Explain how an organization’s strategy and culture can influence the design and adoption of its IS.
- Provide examples of how information systems can shape an organization’s structure and processes.
- Explain business process reengineering and resistance to change.
- Describe how IS supports competitive strategy.
The Two-Way Relationship
Information Systems and organizations have a mutual, two-way relationship. This means that not only do information systems have an impact on the organization, but the organization itself—its structure, culture, politics, and business processes—has a profound influence on the design and implementation of its information systems.
flowchart LR
O[Organization: strategy, culture, structure, people, processes] -->|shapes| IS[Information systems]
IS -->|changes| O
E[Environment: customers, competitors, regulations, technology] --> O
An information system is also more than technology: it combines people, processes, data, hardware, and software. A system succeeds only when all five fit together.
How Organizations Affect Information Systems
The organization and its culture will shape the type of information systems it builds and how they are used.
- Strategy: A company focused on being a low-cost leader will build systems that prioritize efficiency and cost reduction. A company focused on innovation will build systems that foster collaboration and creativity.
- Culture: An organization with a collaborative, open culture will have more success implementing social, collaborative tools than a company with a rigid, hierarchical culture.
- People: The skills and training of the employees will determine how effectively a new system can be used.
- Structure: A centralized organization tends to build central systems controlled by head office; a decentralized one lets branches choose their own tools.
- Politics and power: New systems can shift who controls information, so groups that lose influence may resist them.
- Environment: Regulations (such as central bank reporting rules), competitors, and customer expectations push organizations to adopt particular systems.
How Information Systems Affect Organizations
Information systems can fundamentally change how a business operates, affecting its structure, processes, and even its products and services.
- Flattening Organizations: By making information more widely available, IT can empower lower-level employees with more decision-making authority. This can reduce the need for middle managers, leading to a “flatter” organizational structure.
- Streamlining Business Processes: IT can automate and streamline business processes, making them faster, cheaper, and more accurate. Enterprise Resource Planning (ERP) systems, for example, can integrate processes across the entire organization.
- Enabling New Business Models: IT can be the foundation for entirely new ways of doing business. The rise of e-commerce (Amazon), the sharing economy (Uber), and digital subscription services (Netflix) are all examples of business models that would be impossible without information systems.
- Remote and virtual work: Collaboration tools allow teams to work from different locations, creating virtual organizations.
- Changing jobs and skills: Routine jobs shrink while roles in data analysis, IT support, and digital marketing grow.
| Before IS | After IS |
|---|---|
| Many layers of managers passing information up | Flatter structure; managers see data directly |
| Paper forms moved from desk to desk | Online workflows with automatic approvals |
| Decisions based on monthly reports | Decisions based on real-time dashboards |
| Work only at the office | Remote and mobile work |
Business Process Reengineering (BPR)
Simply automating an inefficient process makes it “inefficient, but faster.” Business Process Reengineering means radically redesigning a process to take full advantage of IT.
Example: loan approval at a bank
- Old process: the customer fills a paper form at the branch; it is sent to the regional office, then head office, with each step taking days; approval takes 2–3 weeks.
- Reengineered process: the customer applies through the mobile app; the system automatically checks credit history and documents; small loans are approved within hours, and only large loans go to a credit committee.
Resistance to Change
New systems often fail not because of technology but because of people. Common reasons for resistance include fear of job loss, lack of skills, loss of power or status, and habit. Organizations reduce resistance through:
- Involving users in system design.
- Training and support before and after launch.
- Clear communication about why the change is needed.
- Top management support and visible leadership.
- Phased rollout, starting with a pilot branch or department.
IS and Competitive Strategy
Information systems help organizations compete in several ways (following Porter’s generic strategies):
- Cost leadership — using IS to cut costs (e.g., automated inventory reduces waste).
- Differentiation — offering unique digital services (e.g., a bank’s superior mobile app).
- Focus — serving a niche market well (e.g., a trekking agency’s specialized online booking).
- Customer intimacy — using CRM data to know and retain customers.
Nepal Example
When Nepali banks introduced core banking systems, customers could transact at any branch rather than only their home branch. Branch processes changed, some manual back-office jobs shrank, and new roles in IT, digital banking, and customer support grew. Banks that combined the new system with staff training and process redesign gained the most; those that simply copied old paper processes into software saw limited benefits.
Summary
It is a mistake to think of information systems as just a technical component that can be plugged into a business. There is a complex, two-way relationship between an organization and its technology. The organization’s strategy, culture, structure, politics, people, and environment will influence the design of its systems, and in turn, those systems will have a powerful impact on the organization’s structure, processes, jobs, and ability to compete. Getting real value requires redesigning processes, managing resistance to change, and aligning IS with competitive strategy.
Key Takeaways
- Information systems and organizations have a mutual, two-way relationship.
- An organization’s strategy and culture shape its information systems.
- Information systems can flatten organizational structures and streamline processes.
- IT is a key enabler of new and disruptive business models.
- Business process reengineering and change management are needed to get full value from IS.
Discussion Questions
- How might the information systems at a creative advertising agency differ from those at a large accounting firm?
- Explain what is meant by IT “flattening” an organization.
- Can a company successfully implement a new information system without changing its business processes? Why or why not?
Exam-Style Questions
Short answer
- What is meant by the two-way relationship between IS and organizations?
- What is business process reengineering?
- List three reasons why employees resist new information systems.
Long answer
- Explain how organizations affect information systems and how information systems affect organizations.
- How can information systems help an organization gain competitive advantage? Explain with examples.
