Management Information Systems: Managing the Digital Firm, 17e (Laudon)

Chapter 3 Information Systems, Organizations, and Strategy

6) Which of the following statements about business processes is not true?

A) Business processes influence the relationship between an organization and information
technology.
B) Business processes are a collection of standard operating procedures.
C) A business firm is a collection of business processes.
D) Business processes are usually ensconced in an organization's culture.
E) Business processes are typically unaffected by changes in information systems.
* Business processes are often significantly impacted by changes in information systems, which
can lead to improvements or modifications in how processes are carried out.

25) Which model is used to describe the interaction of external forces that affect an
organization's strategy and ability to compete?
A) Network economics model
B) Competitive forces model
C) Competitive advantage model
D) Demand control model
E) Agency costs model
*Michael Porter's Competitive Forces Model:
This model provides a general view of the firm, its competitors, and the firm’s environment.

26) Which of the following industries has the lowest barrier to entry?
A) Automotive
B) Computer chip
C) Solar energy
D) Airline
E) Small retailer
*Small retailers typically have lower barriers to entry compared to industries like automotive,
computer chips, solar energy, and airlines, which require significant capital investment and
regulatory compliance.

27) All of the following are competitive forces in Porter's model except:
A) suppliers.
B) new market entrants.
C) disruptive technologies.
D) customers.
E) substitute products.
*Michael Porter’s competitive forces model:
• Provides a general view of the firm, its competitors, and environment
• Five competitive forces shape fate of firm:
– Traditional competitors
– New market entrants
– Substitute products and services
– Customers
– Suppliers

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28) Which of the following marketplace forces would be of least concern to a manufacturer of
deep-sea oil rigs?
A) Product differentiation
B) Traditional competitors
C) Low number of suppliers
D) New market entrants (The deep-sea oil rig industry has high barriers to entry)
E) Low number of customers

29) Which of the following substitute products would be of most concern for a cable TV
distributor?
A) Streaming music services
B) Broadcast TV
C) Satellite radio
D) On-demand Internet television
E) Terrestrial radio

30) Walmart's continuous replenishment system is an example of a firm using information

systems to: (share inventory info with suppliers)
A) strengthen ties to its customers.
B) simplify the industry value chain.
C) develop synergies.
D) focus on market niche.
E) achieve low-cost leadership. (helps keep inventory costs low & ensures products are always
available, supporting its low-cost leadership strategy)

31) A firm can exercise greater control over its suppliers by having:
A) more suppliers. (firm has the upper hand of bargaining)
B) fewer suppliers.
C) global suppliers.
D) local suppliers.
E) only a single supplier.

32) Amazon's use of the Internet as a platform to sell books more efficiently than traditional
bookstores illustrates which of the following strategies?
A) Low-cost leadership (reduces costs associated with physical stores)
B) Marketing effectiveness
C) Focusing on market niche
D) Strengthening supplier intimacy
E) Developing synergies

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33) The four major competitive strategies are:
A) low-cost leadership, substitute products and services, customers; and suppliers.
B) low-cost leadership, product differentiation, focus on market niche, and customer and supplier
intimacy.
C) new market entrants, substitute products and services, customers, and suppliers.
D) low-cost leadership, new market entrants, product differentiation, and focus on market niche.
E) customers, suppliers, new market entrants, and substitute products.
*The four major competitive strategies:
• Low-cost leadership
• Product differentiation
• Focus on market niche
• Strengthen customer and supplier intimacy

34) Walmart's continuous replenishment system allows it to do all of the following except:
A) provide mass customization.
B) transmit orders to restock directly to its suppliers.
C) keep costs low.
D) better meet customer demands.
E) fine-tune merchandise availability.
*While Walmart's system(low-cost leadership) helps with inventory management and cost
control, it does not support mass customization, which involves tailoring products to individual
customer preferences.

35) Firms use a ________ strategy to provide a specialized product or service for a narrow target
market better than competitors.
A) product differentiation
B) market niche (targeted focus)
C) mass customization
D) process efficiency
E) low-cost leadership

36) The ability to offer individually tailored products or services using the same production
resources as bulk production is known as:
A) mass marketing.
B) micromarketing.
C) micro customization.
D) niche customization.
E) mass customization.

39) Which of the following best illustrates the use of information systems to focus on market
niche?
A) A car manufacturer's website that lets you customize the features on the car you are
purchasing.
B) A restaurant chain analyzing local sales figures to determine which menu items to serve.
C) A bookseller selling an e-book reader that reads only the bookseller's books.
D) A department store creating specialized products for preferred customers.
E) A clothes manufacturer expanding its offerings to new styles.

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43) Which of the following is a competitive force challenging the publishing industry?
A) Positioning and rivalry among competitors
B) Low cost of entry
C) Substitute products or services (e-books, online news, and other digital content)
D) Customers' bargaining power
E) Suppliers' bargaining power

41) The Internet increases the bargaining power of customers by:

A) creating new opportunities for building loyal customer bases.
B) making more products available.
C) making information available to everyone.
D) lowering transaction costs.
E) enabling the development of new services.

40) All of the following are IT-enabled products and services providing competitive advantage
except:
A) Amazon's one-click shopping.
B) Apple's iTunes.
C) Ping's golf club customization.
D) PayPal's online person-to-person payment system.
E) Nike's use of celebrities to market their products. (not an IT-enabled product or service)

47) Which of the following would a company employ to measure and compare its business
processes to similar processes of other companies within their industry?
A) Benchmarking (comparing a company's processes and performance metrics to industry best
practices)
B) Best practices
C) Value chain analysis
D) Strategic systems analysis
E) Secondary activities

48) The most successful solutions or methods for achieving a business objective are called:
A) value activities.
B) best processes.
C) core competencies.
D) best practices.
E) benchmarks.

49) Information systems can be used at the industry level to achieve strategic advantage by:
A) building industrywide, IT-supported consortia and symposia. (help standardize practices and
create strategic advantages.)
B) raising the bargaining power of suppliers.
C) encouraging the entry of new competitors.
D) enforcing standards that reduce the differences between competitors.
E) decreasing switching costs.

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58) ________ is a competitive strategy for creating brand loyalty by developing new and unique
products and services that are not easily duplicated by competitors.
A) Product differentiation
B) Low-cost leadership
C) Focusing on market niche
D) Strengthening customer intimacy
E) Strengthening supplier intimacy

59) The expenses incurred by a customer or company in lost time and resources when changing
from one supplier or system to a competing supplier or system are known as:
A) retention costs.
B) preservation costs.
C) differentiation costs.
D) switching costs.
E) variation costs.

37) In environmental scanning, a firm may use information systems to:

A) transform inputs into products and services.
B) analyze the performance of its intranet.
C) identify external events that may affect it.
D) keep track of the temperature within its data centers.
E) develop a unified organizational culture.
*Environmental scanning involves using information systems to monitor and analyze external
events and trends that could impact the organization.

38) Which of the following is not a true statement about value webs?
A) Value webs involve a collection of independent firms that use information technology to
coordinate their value chains.
B) Value webs are more customer-driven than traditional value chains.
C) Value webs operate in a less linear fashion than traditional value chains.
D) Value webs are inflexible and cannot adapt quickly to changes in supply and demand.
E) Value webs involve highly synchronized industry value chains.
*Value webs are designed to be flexible and adaptive, allowing firms to respond quickly to
changes in supply and demand.

42) Hilton Hotels uses its OnQ system for which of the following purposes?
A) To lower its operating costs
B) To benchmark its progress against competitors
C) To create synergies with its suppliers
D) To take advantage of network economics
E) To estimate each guest's profitability and give additional privileges to profitable customers
*The OnQ system helps Hilton Hotels identify and reward their most profitable customers.

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44) The value chain model:
A) categorizes five related advantages for adding value to a firm's products or services.
B) sees the supply chain as the primary activity for adding value.
C) categorizes four basic strategies a firm can use to enhance its value chain.
D) highlights specific activities in the business where competitive strategies can best be applied.
E) enables more effective product differentiation.
* The value chain model identifies primary and support activities within a business where
competitive strategies can be implemented to add value.

45) Which of the following represent the primary activities of a firm?

A) Inbound logistics, operations, outbound logistics, sales and marketing, and service
B) Inbound logistics, operations, outbound logistics, technology, and service
C) Procurement, inbound logistics, operations, technology, and outbound logistics
D) Procurement, operations, technology, sales and marketing, and services
E) Organization infrastructure, human resources, technology, and procurement

46) Which of the following is a support activity in a firm's value chain?

A) Inbound logistics
B) Operations
C) Sales and marketing
D) Service
E) Technology (provide the necessary infrastructure and support to enable primary activities)

50) In network economics, the value of a commercial software vendor's software products:
A) increases as more people use them.
B) decreases as more people use them.
C) increases due to higher marginal gain in output.
D) decreases according to the law of diminishing returns.
E) is unrelated to the number of people that use them.

51) When two organizations pool markets and expertise that result in lower costs and generate
profits, they are creating:
A) a value web.
B) a value chain.
C) net marketplaces.
D) core competencies.
E) synergies. (Lead to greater efficiency and profitability than when operating independently)

52) Which of the following is an example of synergy in business?

A) Amazon's use of the Internet to sell books
B) Bank of America acquiring Countrywide Financial Corporation to reach a large pool of new
customers
C) Blockbuster combining traditional video rental with online video rental
D) Walmart's order entry and inventory management system to coordinate with suppliers
E) Nike's use of technology to improve its product offerings

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53) Information systems enhance core competencies by:
A) providing better reporting facilities.
B) creating educational opportunities for management.
C) allowing operational employees to interact with management.
D) encouraging the sharing of knowledge across business units.
E) fostering synergies among departments.
* Information systems facilitate the sharing of knowledge and best practices, enhancing the
organization's core competencies.

54) The idea that the more any given resource is applied to production, the lower the marginal
gain in output, until a point is reached where the additional inputs produce no additional value, is
referred to as:
A) the point of no return.
B) the law of diminishing returns. (adding more of a resource to production eventually yields
smaller increases in output)
C) supply and demand.
D) network inelasticity.
E) virtual economics.

55) Which of the following statements about network economics is not true?
A) Uber is an example of a business model that is based on the principle of network economics.
B) The law of diminishing returns does not always apply to every situation.
C) From a network economics perspective, the value of a community of people grows as the
number of participants in the community increases.
D) Information technology can be strategically useful from a network economics perspective.
E) In network economics, the marginal cost of adding new members to the network is higher
than the marginal gain.
*In network economics, the marginal cost of adding new members is typically low, while the
marginal gain is high due to network effects.

56) A virtual company:

A) uses networks to link people, assets, and ideas.
B) uses Internet technology to maintain a virtual storefront.
C) uses Internet technology to maintain a networked community of users.
D) provides entirely Internet-driven services or virtual products.
E) is limited by traditional organizational boundaries.

57) Which of the following is an example of a keystone firm within a business ecosystem?
A) Apple and the mobile platform ecosystem
B) GUESS and the fashion ecosystem
C) Citibank and the ATM ecosystem
D) American Airlines and the computerized reservation ecosystem
E) Nike and the athletic apparel ecosystem

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60) The ________ model highlights the primary or support activities that add a margin of value
to a firm's products or services where information systems can best be applied to achieve a
competitive advantage.
A) competitive forces
B) value chain
C) bargaining power
D) new entrant
E) rivalry

61) The parts of an organization's infrastructure, human resources, technology, and procurement
that make the delivery of the firm's products or services possible are known as ________
activities.
A) primary
B) auxiliary
C) secondary
D) service
E) support

62) A(n) ________ is a collection of independent firms that use information technology to
coordinate their value chains to collectively produce a product or service for a market.
A) value chain
B) support web
C) value web
D) consortium
E) net marketplace

63) A(n) ________ is an activity for which a firm is a world-class leader.

A) expertise area
B) competitive advantage
C) growth driver
D) efficiency
E) core competency
* A core competency is an activity or capability that a firm excels in and is recognized as a
leader in the industry.

64) Why does Amazon need to worry about competitors in online shopping?
A) E-commerce is affected by the law of diminishing returns.
B) Internet technologies are universal, and therefore usable by all companies.
C) Internet shopping produces cost transparency.
D) The Internet enables the production or sales of substitute products or services.
E) The Internet increases switching costs.

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95) You are consulting for a natural food products distributor who is interested in determining
the benefits it could achieve from implementing new information systems. What will you advise
as the first step?
A) Identify the business ecosystem the distributor is in
B) Implement a strategic transition to the new system
C) Perform a strategic systems analysis
D) Benchmark existing systems
E) Set up a strategic transition

96) Sociotechnical changes affecting a firm adopting new information systems requiring
organizational change can be considered:
A) organizational adjustments.
B) strategic transitions.
C) systems alterations.
D) business goal transitions.
E) sociotechnical transitions.
*Strategic transitions involve significant changes in both technology and organizational structure
to successfully adopt new information systems.

1) The interaction between information technology and organizations is influenced:

A) solely by the decision making of middle and senior managers.
B) by the development of new information technologies.
C) by many factors, including structure, politics, culture, and environment.
D) by two main macroeconomic forces: capital and labor.
E) by the rate of growth of the organization.

2) Which of the following statements about organizations is not true?

A) An organization is a stable, formal social structure that takes resources from the environment
and processes them to produce outputs.
B) An organization is a formal, legal entity with internal rules and procedures that must abide by
laws.
C) An organization is a collection of people and other social elements.
D) An informal group can be considered to be an organization.
E) An organization is a collection of rights, privileges, obligations, and responsibilities delicately
balanced over a period of time through conflict and conflict resolution.
*An informal group lacks the formal structure, rules, and procedures that define an organization.

3) According to the ________ definition of organizations, an organization is seen as a means by

which capital and labor are transformed by the organization into outputs to the environment.
A) microeconomic views organizations as entities that transform inputs (capital and labor) into
outputs (goods and services)
B) macroeconomic
C) sociotechnical
D) behavioral
E) psychological

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4) Which of the following statements about the technical view of organizations is not true?
A) It focuses on how inputs are combined to create outputs when technology changes are
introduced into a company.
B) It sees capital and labor as being easily substituted for one another.
C) It emphasizes group relationships, values and structures.
D) It sees the organization as a social structure similar to a machine.
E) It sees the firm as being infinitely malleable.
*The technical view focuses on the mechanical aspects of organizations, such as inputs and
outputs, rather than social aspects like group relationships and values.

5) Which of the following is not a major feature of organizations that impacts the use of
information systems?
A) Business processes
B) Environments
C) Structure of the organization
D) Agency costs
E) Leadership styles

7) Which of the following technologies disrupted the traditional publishing industry?

A) Instant messaging
B) e-mail
C) Digital photography
D) PCs
E) World Wide Web (revolutionized the publishing industry by enabling digital distribution and
access to content)

8) Under Mintzberg's classification of organizational structure, knowledge-based organizations

fall under the category of:
A) entrepreneurial structures.
B) divisionalized bureaucracies.
C) professional bureaucracies. (organizations that rely on the expertise and knowledge of
professionals, such as universities and hospitals)
D) adhocracies.
E) machine bureaucracies.

9) Mintzberg classifies a large bureaucracy existing in a slowly changing environment that

produces standard products and is dominated by centralized management as a(n) ________
bureaucracy.
A) machine (standardized processes, centralized management, and a stable environment)
B) professional
C) divisionalized
D) multidivisional
E) ad hoc

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10) Which of the following is an example of a divisionalized bureaucracy?
A) Startup firm
B) University
C) Fortune 500 firm (Large organizations often have a divisionalized structure, with separate
divisions operating semi-independently.)
D) Midsize manufacturer
E) Consulting firm

11) Along with capital, ________ is the primary production input that the organization uses to
create products and services.
A) structure
B) culture
C) politics
D) feedback
E) labor
*Labor, along with capital, is a fundamental input used by organizations to produce goods and
services.

12) The divergent viewpoints about how resources, rewards, and punishments should be
distributed, and the struggles resulting from these differences are known as organizational:
A) culture.
B) politics. (conflicts and power struggles over the distribution of resources and rewards)
C) structure.
D) environments.
E) business processes.

13) Which of the following statements about disruptive technologies is not true?
A) Disruptive technologies radically change the business landscape and environment.
B) Disruptive technologies may be substitute products that perform better than other products
currently being produced.
C) Disruptive technologies may sometimes simply extend the marketplace.
D) Disruptive technologies may put entire industries out of business.
E) Firms that invent disruptive technologies as first movers always become market leaders.
* Being a first mover with a disruptive technology does not guarantee market leadership, as other
factors such as execution and market adoption play crucial roles.

14) As discussed in the chapter opening case, which of the following statements about Starbucks
is not true?
A) Starbucks strives to offer customers high-quality coffee, friendly servers, and customer
friendly stores.
B) Starbucks plans to increase its online sales of coffee products using new technology.
C) Starbucks plans to use IT innovations to enhance the customer experience.
D) Starbucks is trying to create a unique customer experiences in stores.
E) Starbucks is planning to sell coffee, branded mugs, and espresso machines on its website.

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19) When a firm buys on the marketplace what it cannot make itself, the costs incurred are
referred to as:
A) switching costs.
B) network costs.
C) procurement.
D) agency costs.
E) transaction costs.
*Transaction costs are the expenses incurred when a firm buys goods or services from external
sources rather than producing them internally.

20) All of the following statements are true about information technology's impact on business
firms except:
A) it helps firms expand in size. (does not directly cause)
B) it helps firms lower the cost of market participation.
C) it helps reduce internal management costs.
D) it helps reduce transaction costs.
E) it helps reduce agency costs.

21) According to agency theory, the firm is viewed as a(n):

A) unified, profit-maximizing entity.
B) task force organization that must respond to rapidly changing environments.
C) entrepreneurial endeavor.
D) "nexus of contracts" among self-interested individuals.
E) entrepreneurial structure.
* Agency theory views the firm as a collection of contracts between self-interested individuals,
each seeking to maximize their own benefits.

22) According to research on organizational resistance, the four components that must be
changed in an organization in order to successfully implement a new information system are:
A) environment, organization, structure, and tasks.
B) technology, people, culture, and structure.
C) organization, culture, management, and environment.
D) tasks, technology, people, and structure.
E) costs, tasks, structure, and management.

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17) Routines are also called standard operating procedures.
Answer: TRUE

65) Smart products are an example of the Internet of Things.

Answer: TRUE

66) A company's competitive advantages ultimately translate into higher stock market
valuations than its competitors.
Answer: TRUE

67) The competitive forces model cannot be used to analyze modern digital firms which face
new competitive forces that are not true of traditional firms.
Answer: FALSE

68) Customers are one of the competitive forces that affect an organization's ability to compete.
Answer: TRUE

69) High product differentiation is a sign of a transparent marketplace.

Answer: FALSE

70) The effect of the Internet has been to increase the bargaining power of customers.
Answer: TRUE

71) An efficient customer response system directly links consumer behavior to distribution,
production, and supply chains.
Answer: TRUE

72) Information systems are used to enable new products and services via product differentiation.
Answer: TRUE

73) Mass customization offers individually tailored products or services using the same resources
as mass production.
Answer: TRUE

80) A firm can be said to have competitive advantage when it has access to resources that others
do not.
Answer: TRUE

83) Smart products generally lower switching costs.

Answer: FALSE

84) Mintzberg's classification identifies five forces in an industry's environment that affect the
strategic position of a firm.
Answer: FALSE (Michael Porter)

97) Research has shown that a majority of firms are able to align their information technology
with their business goals.
Answer: FALSE
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98) The use of Internet technologies allows companies to more easily sustain competitive
advantage.
Answer: FALSE

74) Switching costs increase when customers are strongly linked to products and platforms.
Answer: TRUE

15) All organizations have bedrock, unquestioned assumptions that define their goals and
products.
Answer: TRUE

16) A machine bureaucracy is a knowledge-based organization where goods and services depend
on the expertise and knowledge of professionals.
Answer: FALSE

75) The value chain model classifies all company activities as either primary or support
activities.
Answer: TRUE

76) In the value chain model, support activities are most directly related to the production and
distribution of the firm's products and services, which create value for the customer.
Answer: FALSE

77) When the output of some units in a firm can be used as inputs to other units, synergies
develop, which can lower costs and generate profits.
Answer: TRUE

78) According to the network economics perspective, the more people offering products on
eBay's site, the greater the value of the site to all who use it.
Answer: TRUE

79) The term business ecosystem describes the loosely coupled but interdependent networks of
suppliers, distributors, outsourcing firms, transportation service firms, and technology
manufacturers.
Answer: TRUE

81) The law of diminishing returns only applies to digital products.

Answer: FALSE

82) The inventors of a disruptive technology typically benefit the most from the technology; it is
rare that fast followers catch up quickly.
Answer: FALSE

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85) You are advising the owner of ABC Computers, a small local computer shop that repairs and
also builds custom computers to order. What competitive strategies could ABC Computers
employ? Which ones may it have difficulty executing?
Answer:
Low-cost leadership: ABC Computers may have difficulty competing against the computer
sales and warranty services of major national computer manufacturers, such as Dell, but may be
able to implement low-cost leadership in comparison to any other local computer stores.
Product differentiation: Although many national computer manufacturers sell customized
computers for individuals, ABC Computers may be able to differentiate its product by using
superior components and adding more services to its product.
Focus on market niche: ABC Computers could focus on being a local store with in-store
technology support and assistance as a market niche.
Customer and supplier intimacy: ABC Computers has an advantage in customer intimacy, in
that it can develop relationships with local customers on a face-to-face basis. This advantage
could be augmented to offset the low-cost leadership of national manufacturers, such as Dell.
Because of much smaller production scales, ABC Computers will probably not be able to
exercise as much control over suppliers as does Dell or other manufacturers.

92) Select a popular product or company that you are familiar with, such as Apple's iPad. Apply
Porter's competitive forces model to that product and/or company. Which of the four generic
strategies is the company using?
Answer: One example answer using Apple's iPad is:
• Competitors to the iPad include the Microsoft Surface and many others, but few as widely
known.
• New market entrants: There is not a huge barrier to entry in this field; many other
technology companies offer tablet computers.
• Substitute products and services: Smartphones are a substitute product or service.
• Customers: The iPad still has the highest brand recognition among consumers, diminishing
the bargaining power of customers. However, this advantage has diminished as other similar
products that are as well designed enter the marketplace.
In terms of the iPad, Apple seems to be focused on product differentiation by creating a product
with unique features and capabilities.

18) How are the technical and behavioral definitions of an organization different?
Answer:
The behavioral definition of an organization is that it is a collection of rights, privileges,
obligations, and responsibilities that is delicately balanced over a period of time through conflict
and conflict resolution.
The technical definition sees an organization as an entity that takes inputs from the environment
and processes these to create products that are then consumed by the environment.
The technical view sees capital and labor as interchangeable units, with the ability to rearrange
these units at will, whereas the behavioral view sees that rearranging some aspects of the
organization, such as an information system, will have important consequences and changes for
the organization's other units.

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23) List three organizational factors that can prevent a firm in fully realizing the benefits of a
new information system, and provide examples for each.
Answer:
Features of organizations include the organization's culture, politics, and structure. A new
information system might be resisted by end users or by managers for political reasons because
they are concerned about the political changes the system implies. For example, a new system
might lessen the authority of a manager in overseeing the employees, and he or she may not want
to relinquish this power. A new information system might challenge the organization's culture
and be resisted for this reason. For example, an information system might allow students at a
university to take self-managed courses, while the university's basic cultural assumptions include
the concept that professors are the purveyors of knowledge. An information system, by allowing
the distribution of knowledge, may be better used in a company with a flatter organization. A
company with a highly stratified hierarchy may have difficulty adjusting its business processes
and structures to an information system that does not follow the same business hierarchy of
information.

24) What is agency theory? How does information technology enable a firm to reduce agency
costs?
Answer:
According to agency theory, the firm is viewed as a "nexus of contracts" among self-interested
individuals rather than as a unified, profit-maximizing entity. A principal (owner) employs
"agents" (employees) to perform work on his or her behalf. However, agents need constant
supervision and management; otherwise, they will tend to pursue their own interests rather than
those of the owners. As firms grow in size and scope, agency costs or coordination costs rise
because owners must expend more and more effort supervising and managing employees.
Information technology, by reducing the costs of acquiring and analyzing information, permits
organizations to reduce agency costs because it becomes easier for managers to oversee a greater
number of employees. By reducing overall management costs, information technology enables
firms to increase revenues while shrinking the number of middle managers and clerical workers.

86) You are consulting with the owner of Better Fitness, a national chain of gyms. What
strategies might Better Fitness use in applying information services to achieve a competitive
advantage?
Answer:
Better Fitness could use computers, smart products, and mobile apps to monitor and evaluate
health and fitness of members and customize workouts in product differentiation strategy. They
could use information systems for sales and marketing data research in order to define a niche
market that would bring greater profits. They could allow customers to review their health data
and add additional information or view statistics to create customer intimacy. If the individual
gyms are franchises, then a network could be used for franchisees to share data and research new
sales tactics, etc.

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87) The text describes Michael Porter's view of the Internet as somewhat negative. What
negative influences does Porter see? Describe several positive influences the Internet has on
business. Do these outweigh the negative influences?
Answer: An example of a possible answer is:
Porter sees the Internet as creating ever more intense rivalry, through allowing new competitors
to enter the market, and forcing competition on price alone, raising the bargaining power of
customers, and dampening profits. Positive influences of the Internet would be lowering
telecommunications costs, creating new opportunities for building brands and loyal customer
bases, lowering costs of globalization. You could also view Porter's negative take on lowering
the barrier to entry as a positive for new companies. The Internet's influence being negative or
positive depends in part on the point of view from which the influence is being seen. For
example, a telephone utility is impacted negatively by the emergence of Internet telephony,
whereas other industries may be impacted positively either through the use of this technology or
through engaging in Internet telephony as a business.

88) Value chain analysis is useful at the business level to highlight specific activities in the
business where information systems are most likely to have a strategic impact. Discuss this
model, identify the activities, and describe how the model can be applied to the concept of
information technology.
Answer:
The value chain model identifies specific, critical leverage points where a firm can use
information technology most effectively to enhance its competitive positions. Exactly where can
it obtain the greatest benefit from strategic information systems? What specific activities can be
used to create new products and services, enhance market penetration, lock in customers and
suppliers, and lower operational costs? This model views the firm as a series or chain of basic
activities that add a margin of value to a firm's products or services. These activities can be
categorized as either primary activities or support activities.
• Primary activities are most directly related to the production and distribution of the firm's
products and services that create value for the customer. Primary activities include: inbound
logistics, operations, outbound logistics, sales and marketing, and service.
• Support activities make the delivery of the primary activities possible and consist of:
organization infrastructure (administration and management), human resources (employee
recruiting, hiring, and training), technology (improving products and the production process),
and procurement (purchasing input).

89) How is the concept of core competency relevant to ABC Computers, a local computer store
that repairs and builds custom computers? Give examples.
Answer:
A core competency is an activity for which a company is a world leader, and from this
perspective, ABC Computers does not have a core competency, as there are thousands of similar
firms with longer track records. However, it might be good business practice for ABC
Computers to define its core competencies in ways that differentiate its products from those of
competitors and enable it to provide superior service or products. In defining a core competency,
the business management can then determine ways to enable employees to understand and reach
higher levels of quality production and service. For example, ABC Computers might define a
core competency as being able to advise customers as to the types of system they really need,
and ABC Computers could engage in knowledge gathering activities to help employees assess
customer need.
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90) How is Internet technology useful from a network economics perspective? Give examples.
Answer:
In network economics, the cost of adding a participant in the network is negligible, while the
gain in value is relatively much larger. The Internet itself is an example of a successful
implementation of network economics–the more people participate, the more valuable and
essential a commodity it is. If a company were to provide a service through the Internet such as a
project management application, the costs to the company of adding another user are small (as
the software infrastructure or application is already built), and the more users are signed up, the
more profit is made.

91) Define and describe a business ecosystem. Give an example of a business ecosystem.
Answer:
A business ecosystem is a collection of loosely coupled but interdependent industries (suppliers,
distributors, technology manufacturers, etc.) that provides related services and products. It is
similar to a value web, except that cooperation takes place across many industries rather than
many firms.
Business ecosystems can be characterized as having one or a few keystone firms that dominate
the ecosystem and create the platforms used by other niche firms. Keystone firms in the
Microsoft ecosystem include Microsoft and technology producers such as Intel and IBM. Niche
firms include thousands of software application firms, software developers, service firms,
networking firms, and consulting firms that both support and rely on the Microsoft products.
Another example of a business ecosystem is the mobile Internet platform. In this ecosystem there
are four industries: device makers (Apple iPhone, Samsung, Motorola, LG, and others), wireless
telecommunication firms (AT&T, Verizon, T-Mobile, Sprint, and others), independent software
applications providers (generally small firms selling games, applications, and ring tones), and
Internet service providers (who participate as providers of Internet service to the mobile
platform).

93) Why are disruptive technologies "tricky"? Provide examples.

Answer:
Disruptive technologies can be tricky because firms that invent disruptive technologies as first
movers do not always benefit if they lack the resources to exploit the technology or fail to see the
opportunity. For example, the MITS Altair 8800 is widely regarded as the first PC, but its
inventors did not take advantage of their first-mover status. Second movers, so-called fast
followers such as IBM and Microsoft, reaped the rewards. Citibank's ATMs revolutionized retail
banking, but other banks copied them. Now all banks use ATMs, and the benefits go mostly to
the consumers.

94) Why has the Internet made competitive rivalry more intense?
Answer:
The Internet has made competitive rivalry more intense because Internet technology is based on
universal standards that any company can use, making it easier for rivals to compete on price
alone and for new competitors to enter the market. Because information is available to everyone,
the Internet also raises the bargaining power of customers, who can quickly find the lowest-cost
provider on the web, which may dampen profits. The Internet also widens the geographic
market, increasing the number of competitors and reducing differences among competitors, and
makes it more difficult to sustain operational advantages.

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99) What are the major factors to consider when performing a strategic systems analysis?
Answer:
One major factor is the structure of the industry the firm is in. For example, what competitive
forces are at work in the industry, and what is the basis for competition? What is the nature and
direction of change in the industry, and how does the industry use IT?
A second major factor is determining the firm and industry value chains. For example, how is the
company creating value for the customer? Are best practices being used and core competencies
leveraged? Is the industry supply chain or customer base changing, and what will the effect be?
Can the firm benefit from strategic partnerships or value webs? And where in the value chain
will information systems provide the greatest value to the firm?
The third major factor to consider is has the firm aligned IT with its business strategy and goals.
Have these goals been correctly stated or defined? Is IT improving the right business processes
and activities in accordance with the firm's goals? Are we using the right metrics to measure
progress?

100) Research has shown that the more successfully a firm can align its IT with its business
goals, the more profitable it will be. What practical steps should a firm use in aligning IT with its
goals?
Answer:
Steps to align IT with your organization's goals include: identifying your business strategy and
goals and breaking these goals into concrete activities and processes; identifying how you
measure progress toward these goals; determining how IT can help achieve these goals and
improve business processes and activities; and measuring the actual performance of the business.

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