Look, Read, Understand, Apply


Organization and Information Technology

Information Systems, Organizations, and Strategy

Managers need to know several features of the organization to build and use information systems successfully. An information system is an enabler to achieve effectiveness and efficiency but, without a clear understanding of organizations’ features, it is almost impossible to get any kind of help from the information system. The relationship between information technology and organizations is highly influenced by several features of an organization like structure, business processes, culture, politics, leadership, surrounding environment, leadership, management decisions.

As a manager it is necessary to understand own organization to get benefits from the information systems; the manager has to know what kind of system to be built, how to build, implement, build or purchase.


An organization is a formal social structure consisting of a group of people, machines taking resources from the environment and producing outputs for the surrounding environment. Capital and labor are input resources from the environment; transformation of the inputs into products and services in the production process; the products and services are output for the environment.

Features of Organizations

  • Routines and Business Processes
  • Organizational Politics
  • Organizational Culture
  • Organizational Structure
  • Organizational Environments

Information Systems impact organizations and business firms

Information systems can have both economic and behavioral impacts on business firms.

Economic impacts: Information technology changes costs of capital and cost of information. Information technology can help business firms to decrease the number of employees as it can perform tasks that are done by humans. This results in a decline in the number of middle number managers and other workers.

Decrease in cost of Information technology can also decrease in other capital investments like buildings and machinery. Managers may be increase investment in IT as IT and outsource other processes. IT helps to contract size of firms as it reduces transaction costs.

Provide an example to illustrate where Information technology can be substituted for traditional capital and labor.

Decrease in cost of information technology means it can be substituted for other forms of capital such as buildings, machines.

Information technology helps firms lower the cost of market participation.

Information technology reduce internal management costs.

Agency theory: The firms consist of self-interested individuals, rather than a unified, profit-maximizing entity.

Information technology helps to reduce the costs required for supervising and managing employees.

Organizational and behavioral impact of IT

IT Flattens Organizations: IT helps employees to get information about their needs anytime, anywhere within the organization; this enables employees to make decisions on their own; employees become self-managing, increasing management efficiency.

Understanding Organizational Resistance to change: Four factors need serious consideration while talking about the organizational resistance on innovation

consideration while talking about the organizational resistance on innovation.
  • The nature of IT innovation
  • The organization's structure
  • The culture of people in the organization
  • The tasks impacted by the innovation

The Internet helps to access and distribute information and knowledge; Internet is capable of lowering agency and transaction cost for the organizations.

Information system can bring benefits for organization if and only if information systems are built with a clear understanding of the organization. There are several factors need serious consideration when planning a new system:

  • The environment of the organization
  • the structure of the organization
  • culture and politics of the organization
  • type and leadership style of organization
  • nature of employees
  • kinds of tasks, decision, business processes

Information Systems for Competitive Advantage