Introduction to Information Systems Information Systems and Strategy.docx

Introduction to Information Systems Information Systems and Strategy 1) According to Porter's model, cost of transportation is one of the five forces that influence industry competition. Answer: FALSE 2) The threat of new entrants in an industry is very high when startups can open a business with little capital and few employees. Answer: TRUE 3) Network effects refer to the ability of a product to fit into a new system. Answer: FALSE 4) The presence of loyalty programs reduces the switching costs of a product or service. Answer: FALSE 5) The power of suppliers is high when there are many suppliers in a market. Answer: FALSE 6) The threat of substitutes is high when alternative products are available. Answer: TRUE 7) Rivalry within an industry will be high if firms compete mainly on price. Answer: TRUE 8) Sustaining technologies are radical and unexpected breakthroughs that replace lower-end products and rapidly overtake high-end products of the market. Answer: FALSE 9) Creative destruction refers to an innovation that fails miserably and leads to huge losses within the industry. Answer: FALSE 10) Government action can influence how Porter's five forces operate in industries. Answer: TRUE 11) Companies are embedded in a complex ecosystem where events in one arena affect the whole community. Answer: TRUE 12) Procurement and technology support are primary activities of a value chain. Answer: FALSE 13) A value chain can be extended by incorporating feedback from customers. Answer: TRUE 14) A benchmark is a baseline measurement considered as optimal, though it is sometimes simply an industry average. Answer: TRUE 15) A low-cost leadership strategy means offering a highly differentiated product at a price that is lower than the market price. Answer: FALSE 16) Differentiating the product or service for a particular market niche is called product differentiation strategy. Answer: FALSE 17) All types of organizational strategies leverage information systems to succeed. Answer: TRUE 18) Since the operational requirements for nonprofits are completely different from businesses, information systems do not offer any strategic uses to nonprofits. Answer: FALSE 19) E-government involves efforts to make unclassified information available to citizens via the Internet. Answer: TRUE 20) While IT consumes a significant amount of the funds required for running a business, the funds for growing an organization are closely tied to strategy, innovation, and competitive advantage. Answer: TRUE 21) Which of the following is true according to Porter's model? A) When start-up costs are low, the threat of new entrants to existing businesses is high. B) The power of buyers reduces when deep discounts can be demanded of suppliers. C) The power of suppliers is high when constant competition forces them to innovate. D) The threat of substitutes is high when there are very few alternative products. Answer: A 22) Durall is a leading manufacturer of decorative crafts in Canada. Which of the following, if true, will indicate that the threat of new entrants is high for Durall? A) Durall has a patent for its manufacturing process. B) The crafts that Durall manufactures are low-priced. C) The process of manufacturing the crafts is labor intensive. D) The decorative crafts industry is capital intensive. Answer: B 23) Orange, an online-gaming site, has millions of users. The site has many games which pit users against each other. The relative standing of each user is presented in the form of an elaborate ranking system for each game. Users pride themselves on gaining the highest points and the highest rank possible. This rise in user participation has increased the value of Orange significantly. This is an example of ________. A) monopolistic competition B) internal marketing C) network effects D) guerilla marketing Answer: C 24) Network effects refer to the ________. A) increased value of a product or service because there are more people using it B) the additional costs incurred by customers when they change suppliers C) the leveraging influence of customers over suppliers D) ability of suppliers to charge more owing to the lack of competition Answer: A 25) Which of the following is the best example of an attempt to create network effects? A) A fashion apparel outlet introduces a loyalty program for its customers. B) A retailer provides discounts on bulk purchases. C) A kitchenware manufacturer introduces a differentiated range of products. D) A telecom service provider introduces a family plan that provides free calls within the family. Answer: D 26) ________ are the costs that customers incur when they change suppliers. A) Network costs B) Switching costs C) Overhead costs D) Opportunity costs Answer: B 27) Which of the following strategies is devised to raise switching costs? A) A chain of supermarkets offers higher discounts to its regular customers. B) A vendor reduces the range of products that it distributes to retailers. C) An automotive company conducts a trade contest. D) A company offers commission to its employees for pushing the company's products. Answer: A 28) Which of the following organizations faces higher switching costs? A) an organization that wants to automate its processes B) an organization that moves it data center to cloud storage C) an organization that buys an information system to manage its own records D) an organization that wants to switch to open-source software Answer: C 29) Which of the following companies will have the highest buying power? A) a company that sells agricultural products procured from numerous farmers B) a firm that is an exclusive dealer for an automotive company C) a bank that borrows from the Federal Reserve D) a company that procures IT services from a large software company Answer: A 30) Melloc is one of many suppliers selling milk to retail customers. Since there are many sellers, price is a major determinant of market success. Which of the following statements about Melloc is true? A) Melloc's customers have to deal with higher switching costs. B) Melloc will be in a position to dictate terms with its customers. C) Melloc faces powerful buyers in the retail market. D) Melloc has a strong control over the market. Answer: C 31) If a supplier has a limited number of buyers, then the ________. A) threat of substitutes is low B) network effects are greater C) buyers have to deal with greater switching costs D) buyers will have more power Answer: D 32) How did online markets affect the dynamics between buyers and suppliers? A) It decreased the threat of new entrants in many industries. B) It reduced the network effects of many products. C) It increased the costs of switching. D) It granted more power to the buyers. Answer: D 33) Which of the following factors increases the power of suppliers? A) disruptive innovation B) high switching costs C) low-scale operations D) lack of competitive advantage Answer: B 34) Carbon Automotive manufactures engines for different cars. The company supplies its products to leading car manufacturers in Europe and America. Which of the following statements indicates that Carbon has high bargaining power? A) Carbon has only four customers and all of them are large companies. B) Carbon's customers do not expect differentiation in its engines from one vehicle to another. C) The selling point of many cars is that they contain Carbon engines. D) The automobile industry in the U.S. is characterized by low levels of competition. Answer: C 35) ________ is high in an industry when alternative products that offer attractive savings are available. A) The power of suppliers B) The threat of substitutes C) Network effects D) The switching cost Answer: B 36) Videoconferencing has evolved as an alternative for business travel. This best illustrates ________. A) the threat of substitutes in a market B) the absence of network effects C) monopolistic competition in markets D) increased power of the suppliers Answer: A 37) A substitute poses a greater threat when it ________. A) operates in a different market in comparison with the focal product B) has a similar nature to the focal product but operates in a different target market C) provides the same focal product or service through different means D) does not directly impact the profitability of another product or service Answer: C 38) Which of the following results in decreased market profitability? A) the absence of the threat of new entrants B) intense rivalry among competitors, based on price C) lack of competition among suppliers in an industry D) a lack of leveraging power over suppliers Answer: B 39) Rivalry in an industry is high when the ________. A) industry is characterized by differentiation B) market is in the development stage C) purchasing power of buyers is low D) companies mainly compete on price Answer: D 40) Which of the following is a valid observation on price-based rivalry among existing competitors? A) It is damaging for the competitors and the industry in which they operate. B) It leads to quality-based competition and innovation. C) It results in hidden losses for the customers. D) It decreases the price sensitivity of customers. Answer: A 41) Competition is not severe in the telecommunication industry in Brazil. More than ninety percent of the market is dominated by four large players. Which of the following will increase the rivalry among these four players? A) a government regulation hindering the entry of new players B) a significant slowdown in market growth C) a decision by one of the dominant players to launch its products in Argentina D) a ban on Internet telephony Answer: B 42) A disruptive innovation is ________. A) a new product or service that is harmful to the people or society B) a method used in production that raises environmental concerns C) a new product or service that has the potential to reshape an industry D) a technology that increases switching costs and entry barriers for newcomers Answer: C 43) Which of the following is an example of a disruptive innovation? A) LCD monitors replaced CRT monitors in televisions. B) Apple launched iPhone 4 replacing iPhone 3. C) Ford introduced small cars for the middle class. D) Land Rover markets most of its four-wheel drives in high-altitude regions. Answer: A 44) Which of the following illustrates a sustaining technology? A) Digital cameras replaced cameras that required film. B) Digital music sold over the Internet disallowed simultaneous downloads. C) LCD monitors were introduced to replace analog monitors. D) Car manufacturers invented airbags to improve safety of passengers. Answer: D 45) Which of the following is most closely associated with sustaining technologies? A) improvements that streamline existing processes B) radical breakthrough that replaces low-end products C) potential to reshape and reform an industry D) association with new product or service, led by technology Answer: A 46) Which of the following is an accurate justification for the view that the Internet is the most important disruptive innovation of the twentieth century? A) The Internet rejigged existing business processes and streamlined them, giving many companies marginal advantages. B) Switching costs have increased after the advent of the Internet as a medium of trade. C) The Internet reduced entry barriers for newcomers and empowered buyers with more information. D) Competition became oligopolistic with only a few companies investing in technology. Answer: C 47) Creative destruction occurs when ________. A) disruptive innovations threaten established players B) sustaining technologies replace old procedures and processes C) bad industrial practices are eradicated through government regulations D) new products or services are introduced by underperforming players Answer: A 48) Which of the following is true of creative destruction? A) It makes use of illegal innovations and techniques to displace established businesses. B) It presents newcomers with an opportunity to succeed against incumbents in an industry. C) It happens when technologies that provide process-streamlining advantages come to the fore. D) It increases the operational costs of the entire industry and reduces profits. Answer: B 49) In the context of Porter's five forces, what impact will patents have on a business? A) Patents will increase market competition. B) Patents will increase the number of substitutes for a given product. C) Patents will reduce the threat of new entrants in an industry. D) Patents will reduce the bargaining power of suppliers. Answer: C 50) Which of the following governmental actions will increase the threat of new entrants in a market? A) The Federal Reserve reduces the interest rates on credit for small businesses. B) The Department of Commerce offers a patent to an existing player. C) The Government squeezes money from the market through open-market operations. D) The Federal Reserve increases the cash reserve ratio to tackle inflation. Answer: A 51) Which of the following is commonly used by organizations to influence the operation of Porter's five forces? A) evasion of taxes B) selling at prices below the existing market price C) lobbying for governmental action D) selling at prices above the existing market price Answer: C 52) Which of the following pairs of products are complementary to each other? A) computer and software B) tea and coffee C) petroleum and natural gas D) gold and silver Answer: A 53) Which of the following is true of an ecosystem? A) An ecosystem insulates Porter's five forces against disruptive innovations. B) Events in one arena of an ecosystem can affect all players involved. C) The power of suppliers and the threat of new entrants are reduced in an ecosystem. D) An ecosystem can reduce the complementary effect between products and services. Answer: B 54) The ecosystem in which a company is embedded is a(n) ________. A) natural community that is restricted to the members of its value chain B) economic community that includes related industries C) community focused entirely on the immediate competitors of a company D) community constituted by markets that are not related to the company Answer: B 55) In cloud computing, employees use information systems that are ________. A) designed to perform without an Internet connection B) installed locally within an organization C) hosted by a vendor in a data center D) more expensive than locally-hosted versions Answer: C 56) Which of the following is based on the cloud computing concept? A) an email system hosted locally in an organization's data center B) an information system shared by two or more businesses and accessed via the Internet C) a standard operating system that can be installed on many computers D) a mobile connection that supports voice and video calls Answer: B 57) Which of the following is a fundamental characteristic of an ecosystem? A) It opposes any moves to make fundamental changes in an industry. B) It decreases the impact of the five forces on an industry. C) It includes the related industries making complementary products and services, the competitors themselves, the suppliers, and the consumers. D) It groups together multiple unrelated industries to reduce a domino effect or a ripple effect. Answer: C 58) The activities that are directly related to the process by which products and services are created, marketed, sold, and delivered are called ________ activities. A) composite B) supporting C) compound D) primary Answer: D 59) Which of the following best describes support activities? A) It refers to activities directly related to the process by which products and services are created, marketed, sold, and delivered. B) It refers to activities that help the transformation of raw materials to finished products. C) It refers to processes including administration and management, human resources, procurement, and technology assistance. D) It refers to activities that comprise multiple tasks and are performed by one person or department. Answer: C 60) Which of the following is a primary activity of an automobile manufacturer? A) assembling automobile parts B) administration and management of infrastructure C) human resource management D) inventory tracking Answer: A 61) Which of the following is a support activity of a consumer goods manufacturer? A) outbound logistics B) marketing C) customer service D) procurement Answer: D 62) Which of the following statements is true of the value chain? A) The value chain ends when the customer buys a product. B) The value chain includes primary and support activities used to produce a product. C) The value chain's extended activities neither offer strategic opportunities nor risks. D) The value chain does not involve the intermediaries that a company maintains. Answer: B 63) Which of the following statements is true of the value chain? A) Understanding a customer's own value chain does not offer strategic advantages to a company. B) As the extended value chain lengthens, responsibility for harmful consequences becomes more diffuse. C) The value chain ends at product delivery and any extension to it has no bearing on strategic advantages. D) A company's value chain is limited to the internal activities of the company and does not depend on external factors. Answer: B 64) Which of the following actions of a sugar manufacturing company is an extension of its value chain beyond its own primary and support activities? A) The company intensifies its marketing activities to cater to new customers. B) The company buys a large sugarcane plantation in another country. C) The company adds a few more distributors to extend the reach of its products. D) The company launches a new promotional campaign to attract more buyers. Answer: B 65) "Total value transfer of tangible goods happens at the point of sale." Which of the following statements contradicts this judgment? A) The drive to reduce costs can lead to ethically questionable decisions. B) Events in the external parts of the chain can also offer strategic opportunities. C) The value chain does not end when the buyer pays for the product or service. D) As the extended value chain lengthens, responsibility for harmful consequences becomes more diffuse. Answer: C 66) Alduro Plastics, a utensils manufacturing company, decides to extend its value chain by acquiring a manufacturer of raw materials. Which of the following, if true, would most support Alduro's decision? A) The company's major supplier displays a sloppy attitude while supplying materials. B) The company's production schedule is seasonal. C) The company has projected a growth of 8 percent for the current financial year. D) The company's managing director has resigned recently. Answer: A 67) A company incorporates contributions from buyers who help add value to the company's products and services. Which of the following best describes this action? A) creation of a supply chain B) performing a promotional activity C) creation of a value chain D) extension of the value chain Answer: D 68) eBay's customers enrich the website by reviewing products that they purchase. These reviews are used by buyers to evaluate the sellers on eBay. eBay also provides special privileges to sellers who have higher ratings. This is an example of ________. A) reverse engineering B) value chain extension C) focused strategy D) niche marketing Answer: B 69) Which of the following is a major ethical issue arising out of value chain extension? A) Who is responsible when there is damage? B) How many members should there be in the chain? C) What should be the marketing strategy? D) Should the company make revenue by expansion? Answer: A 70) Which of the following is a shortcoming of the extended value chain? A) It is difficult to allocate responsibility in the event of a mishap. B) It reduces the strategic advantages offered by a shorter chain. C) It alienates customers by not taking their opinions into account. D) It cannot be expanded beyond the support activities of a company. Answer: A 71) ________ is a reference point used as a baseline measurement. A) A focused niche strategy B) A value chain model C) A benchmark D) A strategic enabler Answer: C 72) An IT company uses industry average as a standard for measuring its financial performance. Here, the industry standard is used as a(n) ________. A) scheme B) outline C) benchmark D) objective Answer: C 73) Which of the following is a useful benchmark for information systems? A) the amount of IT spending per employee in an organization B) the number of temporary employees in an organization C) the number of unused computers in an organization D) the number of monthly employee promotions in an organization Answer: A 74) Roland Inc. is a fashion apparels retailer in the U.S. It wants to measure how its investment is helping create value in comparison with its competitors. Which of the following metrics used by Roland can be classified as a benchmark in this scenario? A) the number of leaves taken by employees B) the total number of brand outlets C) the average number of sales made per day D) the number of customers on a sales promotion list Answer: C 75) Which of the following is a key attribute of the low-cost leadership strategy? A) providing unique add-ons to supplement the products or services B) focusing on a specific market segment C) optimizing the value chain by eliminating unwanted expenditures D) offering products and services with superior qualities Answer: C 76) Which of the following illustrates a low-cost leadership strategy? A) CGlass sells inexpensive, fashionable eyewear in comparison with its competitors. B) Brown Valley offers huge discounts on bulk purchases from its retail outlets. C) Clay Mansion imports ceramic vases from Europe and Asia. D) Felt sells consumer durables through franchise outlets. Answer: A 77) Southwest Airlines offers better fares compared to most of its competitors. This helps the company attract customers. Which of the following strategies is being used by Southwest Airlines? A) product differentiation B) focused strategy C) focused differentiation D) low-cost leadership strategy Answer: D 78) Which of the following is essential if an organization has to follow a low-cost leadership strategy? A) market leadership on product quality B) relentless search for ways to reduce operating expenses C) product differentiation to distinguish itself from competitors D) focus on a segment or sector of the market Answer: B 79) Which of the following statements describes the product differentiation strategy? A) adding special features to a product for which customers are willing to pay more B) selling the same product in more than one market at different price levels C) pricing of product or services at moderate levels D) selling a range of products across different geographical locations Answer: A 80) How can a company avoid the trap of competing only on price? A) by keeping the price at a level higher than the competitors B) by following a pricing strategy inconsistent with the market equilibrium C) by differentiating the products or services that it offers D) by selling at a price much lower than the competition Answer: C 81) Element Inc. manufactures a new range of smartphones to take on incumbent competitors. Element grabs a huge chunk of the market share in its first year because of its feature-rich smartphones. Element's smartphones come with bigger screen sizes, greater memory capacities, and a free online music subscription for two years. The competitors fail to lure customers despite massive price reductions. Which of the following strategies is being used by Element? A) focused niche strategy B) loss leader strategy C) cost leadership strategy D) product differentiation Answer: D 82) Differentiating the product or service for a particular segment of the market is called a ________. A) market leadership strategy B) focused niche strategy C) market penetration strategy D) cost leadership strategy Answer: B 83) Lifetime Television, an American cable television company, specifically targets female viewers. The channel is devoted to movies, sitcoms, and dramas that are either geared toward women or feature women in lead roles. This is an example of a ________ strategy. A) market leadership B) cost leadership C) focused niche D) price leadership Answer: C 84) Which of the following best describes the primary goal of a focused niche strategy? A) adding special features or unique add-ons to a product for which customers agree to pay more B) tailoring products and services based on the special preferences of a small group of customers C) offering similar products at lower prices than competitors in a market D) developing innovative products that threaten the survival of competitors' products Answer: B 85) Which of the following companies has a focused niche strategy? A) Playball, a merchandise company, customizes T-shirts based on customer requests. B) Complus, a computer hardware manufacturer, offers discounts on bulk purchases. C) Table Top, a clothing retailer, offers end-of-season sales. D) Tracer, a fountain pen manufacturer, launches a new brand of pens. Answer: A 86) "The information and communications technology (ICT) component is at the very heart of the company's competitive advantage." Which of the following statements is the most accurate justification of this claim? A) Companies benefit from the cost savings made possible through information systems. B) Cost of implementing technology has increased over a period of time. C) Most businesses are involved in the sale of technical or technological services. D) Established players in a market favor creative destruction over sustaining technologies. Answer: A 87) "Low-cost leaders must automate their processes." Which of the following is the most compelling reason to support this argument? A) Automation will help them differentiate their products. B) Automation will help them reach a wider target audience. C) Automation will help them eliminate human labor in certain activities. D) Automation will help them improve their brand image. Answer: C 88) Which of the following typically is the biggest cost component in an organization's IT spending? A) cost of keeping the IT services running B) cost of buying computer hardware C) cost of buying new software D) cost of building IT infrastructure other than computers Answer: A 89) Which of the following is a common way to decrease the IT spending of a company? A) shifting to proprietary software B) moving to cloud computing C) increasing in-house IT personnel D) reducing outsourcing operations Answer: B 90) Which of the following best illustrates the strategic use of IT? A) maintaining the IT systems of a company B) establishing a data center to store key information C) transforming the business model of an organization D) licensing the software that a company will use Answer: C 91) IT acts as a strategic enabler when ________. A) a company's average IT spending per employee is very low B) it focuses on the growth of an organization C) it is used to create work schedules D) employees learn to use IT services Answer: B 92) Which of the following is a tool used to reduce health care costs by digitizing patient history? A) magnetic resonance imaging B) ultrasonography C) CT-scan D) electronic medical record Answer: D 93) Which of the following statements is true of a strategic enabler? A) It enables research and innovation in an organization. B) It reduces expenses in the day-to-day operations of a business. C) It transforms a business or helps build a new business model. D) It differentiates a product or services from a competitor's offerings. Answer: C 94) Which of the following is a feature of nonprofit organizations that differentiates them from for-profit organizations? A) lack of shareholders B) lack of target customers C) lack of stakeholders D) lack of products or services Answer: A 95) Why do nonprofit organizations stand to gain from using information systems, just like business? A) Nonprofits, like businesses, spend huge amounts on IT maintenance. B) Nonprofits and businesses have the same set of primary activities and secondary activities. C) Like business, nonprofits are answerable to shareholders and stakeholders. D) The operational requirements to run nonprofits are similar to the operational requirements for businesses. Answer: D 96) Which of the following statements is true about the use of IT in nonprofit organizations? A) Nonprofit organizations have no shareholders and do not require a dedicated IT strategy. B) Nonprofit organizations do not require significant IT support unless they are transformational in nature. C) Nonprofit organizations need IT support and strategy to achieve their objectives. D) Nonprofit organizations need not invest in IT if their organization objectives are not directly related to IT. Answer: C 97) Which of the following is a strong reason to believe that IT is essential to manage nonprofits? A) Nonprofit organizations are generally bigger than for-profit businesses. B) Operational requirements for nonprofits are similar to for-profit businesses. C) Most nonprofit organizations have a concealed profit motive. D) Many nonprofit organizations are supported and funded by for-profit businesses. Answer: B 98) Why are the operational requirements to run nonprofits considered similar to businesses? A) Operations such as payroll, accounting and finance, and human resources are essential for nonprofits. B) Most of the nonprofit organizations generate profit in some way, and operations are essential for tax planning. C) The procedural objectives for for-profit organizations and nonprofit organizations are the same. D) The branding requirements for for-profit organizations and nonprofit organizations are the same. Answer: A 99) E-government involves ________. A) a supply chain system specifically designed for governmental trade B) governmental involvement in conducting e-commerce C) a government elected through online voting D) efforts to make unclassified information available to citizens online Answer: D 100) Which of the following statements is true of e-government? A) It includes efforts to make classified information available to the general public. B) It saves people the time spent in commuting to and waiting at government offices. C) It is limited to issues such as e-governance and tax collection, whereas nonprofits involve a larger variety of issues. D) It addresses issues that are strategic in nature, whereas nonprofits use IT to address issues that are operational in nature. Answer: B 101) Identify the project for which governmental funding is most critical. A) a project to launch a new, low-cost car B) a scheme to improve the financial status of a company C) a research project on hybrid oil D) an infrastructure project that should be completed in one year Answer: C 102) New information systems will enable the creation of electric meters that run "backwards." Which of the following best explains this statement? A) IT will allow customers to manipulate their electricity bills. B) IT has been instrumental in reducing the global power consumption. C) IT has not made any significant contribution to the field of electricity distribution and measurement. D) IT will allow customers to see their patterns of daily energy usage. Answer: D 103) Which of the following is true of IT spending in an organization? A) Increased IT spending is usually associated with investor dissatisfaction and reduces companies' market value. B) The funds used to run a business are mainly for the kinds of IT resources that now fall into the commodity category C) Since IT is only an operational requirement and not a strategy enabler, companies should seek to reduce IT spending. D) Organizations should spend money on things that create a comparative advantage rather than on IT. Answer: B 104) "IT resources have become a commodity." Which of the following statements best supports this claim? A) IT resources are available to all the players in a market. B) Implementation of IT resources increases employee productivity. C) Technology helps organizations perform better than their competitors. D) Most IT investments are applied to growing and transforming an organization. Answer: A 105) CopyIT, a copy machine manufacturing company, sustains its investment in technological innovation, particularly in areas such as color science, digital imaging, and nanotechnology. These strategic investments, made only in specific areas, keep the company ahead of the competition. Which of the following messages does this example convey? A) Large IT investments are essential for the success of a company in today's business environment. B) Although many technologies are commodities, the ability to extract their value requires human imagination. C) Very little of the IT spending in today's business environment is concentrated on running a business. D) IT investments must be made on the most modern technology available in the market. Answer: B 106) List Porter's five forces. Answer: Porter's model includes five interrelated forces that influence industry competition. The five forces are threat of new entrants, power of buyers, power of suppliers, threat of substitutes, and rivalry among existing competitors. 107) Explain the threat of new entrants to businesses. Answer: The threat of new entrants in an industry is very high when startups open shop with little capital, few employees, and next to no experience. Incumbents in the industry must keep their prices low to ward off newcomers, so profitability suffers. New entrants might also come from established companies in other industries, whose leaders decide to diversify and encroach on another. 108) What are network effects? Provide an example. Answer: Network effects refer to the increased value of a product or service that results simply because there are more people using it. A large customer base can be significant because of network effects. The value of Facebook, for example, is low if you can only connect a few people. But the more people who use that social network, the more valuable it becomes to everyone. 109) What are switching costs? Answer: Switching costs are the costs customers incur when they change suppliers. Royalty programs and initial costs, among other strategies, increase the costs of switching. For example, switching costs are high in the software industry. 110) Explain the power of buyers. Answer: The power of buyers increases when they have leverage over suppliers and can demand deep discounts and special services. If a supplier has a small number of buyers, the supplier is at a disadvantage since losing even one could be devastating. Buyer power also rises when many suppliers offer similar, undifferentiated products and the buyer can deal with any of them to get about the same product, with negligible switching costs. 111) Explain the power of suppliers with an example. Answer: The power of suppliers is the advantage sellers have when there is a lack of competition and they can charge more for their products and services. This is one of Porter's five competitive forces. Microsoft is an example. Given the dominance of its Windows operating system, PC assemblers around the world risk losing customers if they don't install it. 112) Explain how rivalry among competitors affects businesses. Answer: The profitability of an industry and its competitive structure is affected by the intensity of rivalry among existing competitors, particularly with respect to how they are competing, and what they compete on. If firms compete mainly on price, rivalry is high and the industry as a whole becomes less profitable because price cutting triggers rounds of retaliation and damaging price wars. 113) What is a disruptive innovation? How is it different from sustaining technologies? Answer: A disruptive innovation is a new product or service, often springing from technological advances, that has the potential to reshape an industry. For example, Kodak, Casio, Olympus, and other companies began offering digital cameras that needed no film in the 1990s, transforming the industry within a few short years. Sustaining technologies, on the other hand, offer important improvements to streamline existing processes and give companies marginal advantages. 114) What impact do government policies have on business? How do businesses try to influence government policies? Answer: Government policies and funding priorities can have dramatic effects on how industries operate and how they evolve. Patents reduce the threat of new entrants. Government's market actions, taxes, and regulations also affect business. Government also affects the industry structure through judges and courts. For instance, anti-trust laws prevent dominant players from exploiting their power and becoming monopolies. Organizations frequently lobby for government action to influence how the five forces operate and to improve industry profitability. Lobbyists concentrate on regulatory policy, taxes, government subsidies, and other issues that affect the industry. 115) What impact does the ecosystem have on businesses? Answer: Companies are embedded in a complex ecosystem-an economic community that includes the related industries making complementary products and services, the competitors themselves, the suppliers, and also the consumers. Events in one arena, particularly a disruptive innovation, ripple through the whole community, affecting all the players and the five forces for the industries involved. 116) Explain Porter's value chain model and the types of activities involved in it. Answer: Porter's value chain model describes the activities a company performs to create value, as it brings in raw resources from suppliers, transforms them in some way, and then markets the product or service to buyers. In the model, the company performs primary activities directly related to the process by which products and services are created, marketed, sold, and delivered. Support activities encompass all the other processes and offices the company needs, including administration and management, human resources, procurement, and technology support. 117) What is a benchmark? Provide an example. Answer: A benchmark is a reference point used as a baseline measurement. Often it indicates a measurement that would be considered optimal or best practices within the industry, though it is sometimes simply an industry average. For the value chain, one benchmark might be the percent of total budget allocated to each of the primary and support activities. 118) Explain various competitive strategies in business, with examples. Answer: The low-cost leadership strategy means offering a similar product at a lower price compared to competitors. A relentless search for ways to reduce operating expenses and achieve efficiencies pervades this strategy. An example is Walmart. Another approach is product differentiation, adding special features or unique add-ons for which customers are willing to pay more. The strategy tends to reduce threats from substitute products and also erects barriers to new entrants. An example is Apple. Differentiating the product or service for a particular market niche is called a focused niche strategy. Research in Motion (RIM), for example, positions its Blackberry smartphone for the business and government segment, with its conservative looks and business-oriented features. 119) Explain the importance of IT for nonprofit organizations. Answer: While nonprofit organizations have no shareholders, they do have objectives that need strategic planning and that benefit from strategic use of information systems. Running, growing, and transforming the organization are all very relevant to nonprofits, just as they are to the for-profit world, and information systems play a key role. Nonprofit organizations use IT for various operational requirements; they use information systems for payroll, accounting and finance, human resources, asset management, and related tasks. Many nonprofits also need information systems to track sales and customer transactions, since they may sell products and services, either as part of their mission or as ancillary activities. 120) Do you think the strategic importance of IT has reduced? Explain your answer. Answer: Some think that IT resources have become so commonplace that their strategic importance has diminished and they have become a commodity-a widely available staple, much like electricity or rail transport. Although many technologies are indeed commodities, this view may not be true as it requires human innovation for sustainable advantage from technology. Innovative information systems in which creative people leverage technology to grow and transform the organization are critical for effective strategy. Student answers will vary.