Learning Objectives

By the end of this chapter, you will be able to:

  • Identify and describe key organizational responses to business pressures.
  • Explain how organizations use strategic systems to gain a competitive advantage.
  • Define customer-centric strategies like mass customization and make-to-order.
  • Understand the role of e-commerce and business alliances as strategic responses.

How Organizations Respond to a Changing Environment

Faced with a multitude of market, technology, and societal pressures, organizations cannot afford to stand still. They must respond with strategic initiatives designed to counteract these pressures and turn them into opportunities. Information technology plays a central role in enabling these responses.

Organizations must respond strategically to business pressures Figure 1: Strategic Organizational Responses

flowchart TB
    PRESSURES["🌊 Business Pressures"]

    subgraph RESPONSES["Organizational Responses"]
        R1["🎯 Strategic Systems"]
        R2["👥 Customer Focus"]
        R3["🛒 E-Commerce"]
        R4["🤝 Business Alliances"]
        R5["⚙️ Process Improvement"]
    end

    PRESSURES --> RESPONSES
    RESPONSES --> SUCCESS["🏆 Competitive Success"]

    IT["💻 IT Enablement"] -.->|"Supports"| RESPONSES

    style SUCCESS fill:#2d5016,color:#fff
    style IT fill:#1565c0,color:#fff

Figure 2: IT-Enabled Organizational Responses

Here are some of the key ways organizations respond:

1. Strategic Systems for Competitive Advantage

Organizations develop and implement strategic information systems that enable them to gain a significant and sustainable advantage over their competitors. These systems are designed to support a specific business strategy, whether it’s being the lowest-cost producer or providing a differentiated product or service.

  • Example: Walmart’s legendary inventory management system gave it a massive cost advantage by minimizing stock levels and reducing waste, allowing it to offer lower prices than its rivals.

2. Customer Focus and Mass Customization

To combat the pressure of powerful customers, organizations have shifted from a product-centric model to a customer-centric one. The goal is to build strong customer relationships and increase loyalty.

  • Customer Relationship Management (CRM): Organizations use CRM systems to capture and analyze customer data, providing a 360-degree view of each customer. This enables personalized marketing, proactive customer service, and tailored product recommendations.
  • Mass Customization: This is the ability to produce a large quantity of customized products or services at a low cost. IT makes this possible by managing the complexity of customer orders and enabling flexible manufacturing processes.
    • Example: Dell allows customers to configure their own computers online, choosing specific components before the machine is built.

3. Make-to-Order and Supply Chain Improvements

Make-to-order is a production strategy where manufacturing begins only after a customer’s order is received. This approach, heavily reliant on IT to manage the flow of information, drastically reduces inventory costs and waste. It is a direct response to the need for efficiency and customization.

  • Supply Chain Management (SCM): Organizations are also using inter-organizational information systems to tightly integrate with their suppliers and distributors. This improves communication, reduces lead times, and makes the entire supply chain more efficient and resilient.

4. E-Business and E-Commerce

One of the most significant organizational responses has been the adoption of e-business and e-commerce. By moving business processes online, organizations can:

  • Expand their market reach globally with an online storefront.
  • Reduce the costs associated with physical stores and manual transactions.
  • Operate 24/7, providing constant access for customers.
  • Improve data collection by tracking user behavior on their websites.

5. Business Alliances

To compete more effectively, many organizations form strategic alliances with other companies. These can take several forms:

  • Joint Ventures: Two or more companies create a new, separate entity to pursue a specific opportunity.
  • Strategic Partnerships: Companies agree to collaborate on a project or in a specific area, such as co-marketing a product.
  • Affiliate Marketing: A business rewards affiliates for each customer brought in through the affiliate’s own marketing efforts.

These alliances rely on inter-organizational information systems to share data, coordinate activities, and manage financial transactions.

Summary

Organizations respond to business pressures by implementing a range of strategic initiatives that are heavily enabled by Information Technology. These responses include building strategic systems for competitive advantage, adopting a customer-centric focus through CRM and mass customization, streamlining operations with make-to-order production, expanding reach via e-commerce, and forming strategic business alliances. In each case, IT provides the essential tools to execute these strategies effectively.

Key Takeaways

  • Organizations use strategic initiatives to counter business pressures.
  • Customer-centricity, enabled by CRM, is a key response to empowered customers.
  • E-commerce allows businesses to reduce costs and expand their market reach.
  • IT is the fundamental enabler for nearly all modern organizational responses.

Discussion Questions

  1. Is it possible for a company to be successful today without some form of e-commerce?
  2. How does mass customization help a company respond to market pressures?
  3. Besides the examples given, can you think of another company that has used a strategic information system to gain a competitive advantage?