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An adhocracy is a knowledge-based organization where goods and services depend on the expertise and knowledge of professionals.
The competitive forces model can be used to analyze today’s digital firm as well as traditional firms.
In an efficient customer response system, digital answering systems are used to monitor and respond to customer inquiries.
Business processes are collections of standard operating procedures.
The value chain model classifies all company activities as either primary or support.
The term business ecosystem describes the interplay between the various organizational forces within a firm.
The use of Internet technologies allows companies to more easily sustain competitive advantage.
As discussed in the chapter opening case, which of the four generic strategies did Sears employ to combat the competition offered by Target, Walmart, and Macy’s?
A) low-cost leadership
B) focus on market niche
C) customer and supplier intimacy
D) product differentiation
According to the ________ definition of organizations, an organization is seen as a means by which primary production factors are transformed into outputs consumed by the environment.
A) microeconomic
B) macroeconomic
C) sociotechnical
D) behavioral
How does the technical view of organizations fall short of understanding the full impacts of information systems in a firm?
A) It sees information systems as a way to rearrange the inputs and outputs of the organization.
B) It sees capital and labor as primary production factors.
C) It sees the inputs and outputs, labor and capital, as being infinitely malleable.
D) It sees the organization as a social structure similar to a machine.
Business processes are collections of
A) informal practices and behaviors.
B) formalized and documented practices.
C) routines.
D) rights and privileges.
Which of the following would not be considered a disruptive technology?
A) instant messaging
B) e-mail
C) Internet telephony
D) PCs
Mintzberg’s classification of organizational structure categorizes the knowledge-based organization where goods and services depend on the expertise and knowledge of professionals as a(n)
A) entrepreneurial structure.
B) divisionalized bureaucracy.
C) professional bureaucracy.
D) adhocracy.
The costs incurred when a firm buys on the marketplace what it cannot make itself are referred to as
A) switching costs.
B) transaction costs.
C) procurement.
D) agency costs.
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.
According to Leavitt’s model of 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.
Which of the following is not one of the competitive forces?
A) suppliers
B) other competitors
C) external environment
D) customers
The four major types of competitive strategy 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.
________ is the ability to offer individually tailored products or services using the same production resources as bulk production.
A) Mass customization
B) Size customization
C) Magnitude customization
D) Dimension customization
As described in the chapter case, the competitive force of ________ resulted in Starbuck’s downturn in 2008, and it employed information systems in a strategy of ________ to combat this force.
A) traditional competitors; product differentiation
B) new market entrants; product specialization
C) substitute products; market niche
D) customers; customer intimacy
Which of the following is one of the support activities in a firm’s value chain?
A) inbound logistics
B) operations
C) sales and marketing
D) technology
Which of the following activities would you perform to measure and compare your business processes to similar processes of other companies within your industry?
A) benchmarking
B) best practices
C) value chain analysis
D) strategic systems analysis
How are information systems used at the industry level to achieve strategic advantage?
A) by building industry-wide, IT-supported consortia and symposia
B) by raising the bargaining power of suppliers
C) by encouraging the entry of new competitors
D) by enforcing standards that reduce the differences between competitors
A collection of independent firms that use information technology to coordinate their value chains to produce a product or service for a market collectively is called a(n)
A) industry value chain.
B) business ecosystem.
C) value web.
D) consortia.
If two organizations pool markets and expertise that result in lower costs and generate profits it is often referred to as creating
A) a value web.
B) a value chain.
C) synergies.
D) core competencies.
Network economics
A) applies the law of diminishing returns to communities of users.
B) applies traditional economics to networked users.
C) sees the cost of adding new members as inconsequential.
D) balances the high cost of adding new members to a community against the lower cost of using network infrastructure.
A virtual company
A) uses the capabilities of other companies without being physically tied to those companies.
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.
You are consulting for a beverage 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.
Differentiate between the technical and behavioral definitions of an organization.
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.
List three organizational factors that can prevent a firm in fully realizing the benefits of a new information system, and provide examples for each.
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.
You are advising the owner of Smalltown Computer, a new, local computer repair store that also builds custom computers to order. What competitive strategies could Smalltown Computer exert? Which ones will it have difficulty exercising?
Low-cost leadership: Smalltown Computer may have difficulty competing against the warranty services or computer sales of major national computer manufacturers, such as Dell, but may be able to exercise low-cost leadership in comparison to any other local computer repair stores.
Product differentiation: Although many national computer manufacturers sell customized computers to the individual, Smalltown computer may be able to differentiate their product by using superior components and adding more services to their product.
Focus on market niche: Smalltown computer could determine a market niche geared to their advantage in being a local store with in-store technology support and assistance.
Customer and supplier intimacy: Smalltown computer 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, Smalltown will probably not be able to exercise as much control over suppliers as Dell or other manufacturers.
You are consulting with the owner of Better Bodies, a national chain of gyms. What strategies might Better Bodies use in applying information services to achieve a competitive advantage?
Better Bodies could use computers 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.
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?
Answers will vary. 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.
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.
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).
How is the concept of core competency relevant to Smalltown computer, a local computer repair store that builds custom computers? Give examples.
A core competency is an activity for which a company is a world leader, and from this perspective, Smalltown Computer 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 Smalltown Computer 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, Smalltown Computer might define a core competency as being able to advise customers as to the types of system they really need, and Smalltown Computer could engage in knowledge gathering activities to help employees assess customer need.
How is Internet technology useful from a network economics perspective? Give examples.
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.
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, RIM BlackBerry, 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).
Describe in detail the major factors to determine when performing a strategic systems analysis.
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?

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