The research done on IT and business performance by Luftman, 2003 has found that (a) the more successfully a firm can align information technology with the business goals, the more profitable it will be, and (b) only one-quarter of firms achieve alignment of IT with the business. About half of a business firm’s profits can be explained by alignment of IT with business.
Information systems help companies compete by maintaining low costs, differentiating products or services, focusing on market niche, strengthening ties with customers and suppliers, and increasing barriers to market entry with high levels of operational excellence.
It helps businesses to leverage their core competencies by promoting the sharing of knowledge across business units. Information systems facilitate business models based on large networks of users or subscribers that take advantage of network economics. A virtual company strategy uses networks to link to other firms so that a company can use the capabilities of other companies to build, market, and distribute products and services. In business ecosystems, multiple industries work together to deliver value to the customer. Information systems support a dense network of interactions among the participating firms.
Impact of Information systems on organizations:
The introduction of a new information system will affect organizational structure, goals, work design, values, and competition between interest groups, decision making, and day-to-day behavior. At the same time, information systems must be designed to serve the needs of important organizational groups and will be shaped by organization’s structure, business processes, goals, culture, politics and management. Information technology can reduce transaction and agency costs, and such changes have been accentuated in organizations using the internet. New systems disrupt established patterns of work and power relationships, so there is often considerable resistance to them when they are introduced.