Information systems and organisational issues

Outline1. Organizations and Information Systems2. How Information Systems ImpactOrganizations and Business Firms3. Using Information Systems to Achieve CompetitiveAdvantageEconomic impacts•IT changes relative costs of capital and the costs ofinformation• Information systems technology is a factor ofproduction, like capital and labor•IT affects the cost and quality of information andchanges economics of information– Information technology helps firms contract in sizebecause it can reduce transaction costs (the cost ofparticipating in markets)• Outsourcing3-2122 © Prentice Hall 2011 3-22Transaction cost theoryThe Transaction Cost Theory of the Impact ofInformation Technology on the Organization•Firms seek to economize on transaction costs (thecosts of participating in markets)–Vertical integration, hiring more employees, buyingsuppliers and distributors•IT lowers market transaction costs for a firm, makingit worthwhile for firms to transact with other firmsrather than grow the number of employeesFIGURE 3-623 © Prentice Hall 2011 3-23Firms traditionally grew in size to reduce market transaction costs. IT potentially reduces thefirms market transaction costs. This means firms can outsource work using the market,reduce their employee head count and still grow revenues, relying more on outsourcing firmsand external contractors. 24 © Prentice Hall 2011 3-24