Chapter 3 - Dynamic Study Module Notes PDF

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Notes from the Chapter 3 DSM at CMICH, including the question, answer, and an explanation....

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There are four generic strategies, each of which often is enabled by using information technology and systems: low-cost leadership, product differentiation, focus on market niche, and strengthening customer and supplier intimacy. Which competitive strategy uses information systems to differentiate products, and enable new services and products?

WHAT YOU NEED TO KNOW Product differentiation is one of the four basic competitive strategies, and uses information systems to differentiate products, and enable new services and products. Low-cost leadership uses information systems to produce products and services at a lower price than competitors while enhancing quality and level of service. Customer and supplier intimacy uses information systems to develop strong ties and loyalty with customers and suppliers. Focus on market niche uses information systems to enable a focused strategy on a single market niche.

Information technology, especially the use of networks, can help firms lower the cost of market participation, making it worthwhile for firms to contract with external suppliers instead of using internal sources. Similarly, technology, by reducing the costs of acquiring and analyzing information, permits organizations to reduce costs because it becomes easier for managers to oversee a greater number of employees. According to agency theory, __________.

WHAT YOU NEED TO KNOW According to agency theory, a firm is viewed as a “nexus of contracts” among self-interest individuals rather than as a unified, profit-maximizing entity. Employees are hired to perform work on the owners’ behalf. According to Moore’s Law, the number of components of a microprocessor chip with the smallest manufacturing cost per component will double every 2 years. According to transaction cost theory, firms and individuals seek to spend less on the costs incurred when a firm buys on the marketplace what it cannot make itself. The competitive forces model provides a general view of the firm, its competitors, and the firm’s environment and includes five competitive forces that shape the fate of the firm.

Porter’s competitive forces model, the strategic position of the firm and its strategies are determined by competition with its traditional direct competitors, but they are also greatly affected by new market entrants, substitute products and services, suppliers, and customers. Organizations using information systems to deal with competitive forces __________.

WHAT YOU NEED TO KNOW Organizations using information systems to deal with competitive forces achieve the lowest operational costs. This increases the overall profits of the organizations. Organizations use information systems to achieve lower prices. Organizations use information systems technologies to automate all routine processes, thus reducing human intervention and increasing efficiency. Organizations use information systems to ward off new entrants in the industry.

In every industry, there's a firm that stands out from others. These firms are said to have a competitive advantage over others: They either have access to special resources that others do not, or they are able to use commonly available resources more efficiently. Firms that stand out often become the metric to which others are compared. __________ involves comparing the efficiency and effectiveness of a business process against strict standards and then measuring the performance against those standards.

WHAT YOU NEED TO KNOW Benchmarking involves comparing the efficiency and effectiveness of a business process against strict standards and then measuring the performance against those standards. Network economics are business models based on a network that may help firms strategically by taking advantage of network economics. Best practices are identified by consulting companies, research organizations, government agencies, and industry associations as the most successful solutions or problem-solving methods for consistently and effectively achieving a business objective. A movement between levels of sociotechnical systems is called a strategic transition.

The interaction between information technology and organizations is complex and is influenced by many mediating factors, including the organization’s business processes, politics, culture, surrounding environment, and management decisions. Which of the following best describes an organization?

WHAT YOU NEED TO KNOW An organization is a stable, formal social structure that takes resources from the environment and processes them to produce outputs. Electronic business, or e-business, refers to the use of digital technology and the Internet to execute the major business processes in the enterprise. Electronic commerce, or e-commerce, deals with buying and selling of goods and services over the Internet. E-government refers to the application of the Internet and networking technologies to digitally enable government and public sector agencies’ relationships with citizens, businesses, and other arms of government.

The value chain model describes the series or chain of basic activities that add a margin of value to a firm’s products or services. Some activities are directly related to an organizations manufacturing process, while other activities are related to an organization's infrastructure. Primary activities are the value chain model category that _________.

WHAT YOU NEED TO KNOW Primary activities are the value chain model category that is most directly related to the production and distribution of the firm’s products and services, which creates value for the customer. 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). Support activities are part of the value chain model. Switching costs refer to the expense a customer or company incurs in lost time and expenditure of resources when changing from one supplier or system to a competing supplier or system. Business ecosystem is another term for loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

Implementing information systems has economic, organizational, and behavioral effects on firms. Information technology, especially the use of networks, can help firms lower the cost of market participation (transaction costs), making it worthwhile for firms to contract with external suppliers instead of using internal sources. As a result, firms can shrink in size. In this example, information systems have what kind of an impact on an organization?

WHAT YOU NEED TO KNOW This example illustrates how information systems can have an economic impact on an organization. From the point of view of economics, IT changes both the relative costs of capital and the costs of information.

When faced with competitive forces, firms sometimes decide to compete by providing its products and services at the lowest industry prices. In order to use this competitive strategy, firms streamline their operations in order to generate the greatest output using the fewest possible inputs. For example, Walmart does not need to spend much money on maintaining large inventories of goods in its own warehouses. Their information systems enable them to replenish their inventory based on real-time information about its transactions. Which of the following is true of an efficient customer response system?

WHAT YOU NEED TO KNOW An efficient customer response system directly links consumer behavior to distribution and production and supply chains. Product differentiation is the process of making a product different, or seem different, from other products in its range and from competing products. The ability to offer individually tailored products or services using the same production resources as mass production is called mass customization. Benchmarking involves comparing the efficiency and effectiveness of your business processes against strict standards and then measuring performance against those standards.

Adopting a strategic information system generally requires changes in business goals and relationships as well as changes in business processes. Which of the following is a movement between levels of sociotechnical systems?

WHAT YOU NEED TO KNOW A movement between levels of sociotechnical systems is called a strategic transition. It is a change affecting both social and technical elements of an organization. Network economics are business models based on a network that may help firms strategically by taking advantage of network economics. Best practices are identified by consulting companies, research organizations, government agencies, and industry associations as the most successful solutions or problem-solving methods for consistently and effectively achieving a business objective. Benchmarking involves comparing the efficiency and effectiveness of a business process against strict standards and then measuring the performance against those standards.

Sometimes a technology and resulting business innovation comes along and radically changes the business landscape and environment. Substitute products that perform as well as or better than anything currently produced are called __________.

WHAT YOU NEED TO KNOW Substitute products that perform as well as or better than anything currently produced are called disruptive technologies. Product differentiation uses information systems to differentiate products, and enables new services and products. The ability to offer individually tailored products or services using the same production resources as mass production is called mass customization. A business ecosystem is another term for loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

Information systems exists to support the required activities a firm must carry out in order to transform business inputs into business outputs. Which of the following highlights 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?

WHAT YOU NEED TO KNOW The value chain 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 (see Figure 3.9). The value chain model highlights specific activities in the business where competitive strategies and information systems will have the greatest impact. Primary activities are most directly related to the production and distribution of the firm’s products and services, which create value for the customer. Primary activities are part of the value chain model. 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). Support activities are part of the value chain model. Switching costs refer to the expense a customer or company incurs in lost time and expenditure of resources when changing from one supplier or system to a competing supplier or system.

IT affects the cost and quality of information and changes the economics of information. Information technology helps firms contract in size because it can reduce the costs incurred when a firm obtains external resources. According to transaction cost theory, __________.

WHAT YOU NEED TO KNOW According to transaction cost theory, firms and individuals seek to spend less on the costs incurred when a firm buys on the marketplace what it cannot make itself. Firms try to reduce transaction cost through vertical integration, by growing the business, hiring more employees, and buying their own suppliers and distributors. According to agency theory, a firm is viewed as a “nexus of contracts” among self-interest individuals rather than as a unified, profit-maximizing entity. The competitive forces model provides a general view of the firm, its competitors, and the firm’s environment and includes five competitive forces that shape the fate of the firm. According to Moore’s Law, the number of components of a microprocessor chip with the smallest manufacturing cost per component will double every 2 years.

A firm is organized financially as a collection of strategic business units and the returns to the firm are directly tied to the performance of all the strategic business units. Information systems can improve the overall performance of these business units by promoting synergies and supporting those activities that a particular business unit performs better than other. What are core competencies?

WHAT YOU NEED TO KNOW Core competencies are activities at which a firm excels as a world-class leader. Any information system that encourages the sharing of knowledge across business units enhances competency. The idea of synergies is that when the output of some units can be used as inputs to other units, or two organizations pool markets and expertise, these relationships lower costs and generate profits. Benchmarking refers to setting strict standards for products, services, or activities and measuring organizational performance against those standards. Best practices are the most successful solutions or problem-solving methods that have been developed by a specific organization or industry.

The value chain model describes the series or chain of basic activities that add a margin of value to a firm’s products or services. Some activities are directly related to an organizations manufacturing process, while other activities are related to an organization's capital resources. Support activities consist of _________.

WHAT YOU NEED TO KNOW Support activities 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). Support activities are part of the value chain model and make the delivery of the primary activities possible. Primary activities include inbound logistics (receiving and storing materials for distribution to production), operations (transforming inputs into finished products), outbound logistics (storing and distributing finished products), sales and marketing, and service. Primary activities are part of the value chain model. Switching costs refer to the expense a customer or company incurs in lost time and expenditure of resources when changing from one supplier or system to a competing supplier or system. A core competency is an activity for which a firm is a world-class leader.

The research on IT and business performance has found that the more successfully a firm can align information technology with its business goals, the more profitable it will be, yet only a one-quarter of firms achieve the alignment. Most businesses make a mistake when it comes to adopting or implementing information technology because ________.

WHAT YOU NEED TO KNOW Businesspeople ignore IT instead of taking an active role in shaping it. In successful firms, managers understand what IT can do and how it works. In successful firms, managers take an active role in shaping its use. Instead of taking an active orle in shaping IT, business people tolerate failure in the IT area as just a nuisance to work around.

To align IT with the business and use information systems effectively for competitive advantage, managers need to perform a strategic systems analysis. Which of the following questions should managers be able to answer before implementing an IT?

WHAT YOU NEED TO KNOW To identify the types of systems that provide a strategic advantage to their firms, managers should ask the following questions: Where in the value chain will information systems provide the greatest value to the firm? While speed is important, aligning IT to the firms strategic goals and value chain are critical to the success of its implementation and adoption. While benchmarking to the leader(s) in your industry is important, information technology must be relevant to its strategic goal and enhance its core competency. Firms tend to underestimate the cost of NOT adopting information technology; especially when it becomes a disruptive technology.

Today, information systems support an economic model where the marginal costs of adding another participant are about zero, whereas the marginal gain is much larger. For example, the larger the number of subscribers in a telephone system, the greater the value to all participants because each user can interact with more people. Taking advantage of network economics, using the model of a virtual company, and creating a business ecosystem are all examples of how information systems help businesses use __________ to achieve competitive advantage.

WHAT YOU NEED TO KNOW Taking advantage of network economics, using the model of a virtual company, and creating a business ecosystem are all examples of how information systems help businesses use network-based strategies to achieve competitive advantage. Business models based on a network may help firms strategically by taking advantage of network economics. A virtual company uses networks to link people, assets, and ideas, enabling it to ally with other companies to create and distribute products and services without being limited to traditional organizational boundaries or physical locations. A business ecosystem is loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers. The idea of synergies is that when the output of some units can be used as inputs to other units, or two organizations pool markets and expertise, these relationships lower costs and generate profits. Core competencies are activities at which a firm excels as a world-class leader. Any information system that encourages the sharing of knowledge across business units enhances competency.

Benchmarking refers to setting strict standards for products, services, or activities and measuring organizational performance against those standards.

Amazon was an e-commerce leader with its rapid distribution of a wide array of products, but the firm now faces competition from eBay, Yahoo, and Google. The competitive advantages that strategic systems confer do not necessarily last long enough to ensure long-term profitability because ________.

WHAT YOU NEED TO KNOW This example illustrates the difficulty of sustaining competitive advantage. Because competitors can retaliate and copy strategic systems, competitive advantage is not always sustainable. Strategic systems are not difficult to duplicate. Markets and customer expectations change. Globalization has made changes in strategic systems even more rapid and unpredictable.

Instead of participating in a single industry, some of today’s firms participate in industry sets or collections of industries that provide related services and products that deliver value to the customer. A __________ is loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

WHAT YOU NEED TO KNOW A business ecosystem is loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers. The idea of synergies is that when the output of some units can be used as inputs to other units, or two organizations...