MIS Chapter 3

9) The two strength factors that relate to all three competitive forces are ________ and customer loyalty.

D) switching costs

12) Focus differentiation is a strategy in which a product is unique and is used by a wide range of consumers.

F

15) A business that selects a differentiation strategy will always structure itself around least-cost activities.

F

17) Customer service falls under the category of supporting activities in a value chain.

F

18) Procurement falls under the category of primary activities in a value chain.

F

19) Porter's definition of technology is narrow because it only includes research and development.

F

2) Porter originally developed the five forces model in order to understand organizations' competitive environment.

F

20) Support activities are business functions that relate directly to the production of the organization's products or services.

F

21) A business with a cost strategy will add cost to an activity only as long as the activity has a positive margin.

F

22) Each stage of the generic value chain accumulates costs and subtracts value from the product.

F

24) Receiving, storing, and disseminating inputs to a product is an operations function.

F

27) Firm infrastructure excludes general management, finance, accounting, legal, and government affairs.

F

28) Supporting activities are easier to calculate than primary activities.

F

3) According to Porter's five forces model, a company is profitable if all the five competitive forces are strong.

F

30) Manufacturing systems avoid linkages to reduce inventory costs.

F

32) Inbound and outbound logistics are the primary value generators in a service-oriented company.

F

36) Two companies with the same value chain activities will have the same business processes.

F

38) An information system can be part of a product, but it cannot provide support for a product or service.

F

39) Raising barriers to market entry is a product implementation principle.

F

4) The bargaining power of competitors is one of the competitive forces identified by Porter.

F

6) If the costs of switching to another vendor are high, then the strength of the competitive forces is low.

F

7) The strength of bargaining power forces does not depend on the availability of substitutes.

F

8) Typically, as an individual, a customer has substantial bargaining power over a large manufacturing industry.

F

6) Porter's five competitive forces can be grouped into two types: forces related to ________ and forces related to supply chain bargaining power.

competition

17) An organization responds to the structure of its industry by choosing a ________ strategy.

competitive

1) A competitive strategy followed by an organization is derived from the ________ of its industry.

structure

22) Porter defined ________ as the amount of money that a customer is willing to pay for a resource, product, or service.

value

8) What is a value chain? List the primary activities in a value chain.

: A value chain is a network of value-creating activities. The generic value chain developed by Porter consists of five primary activities and four support activities. The primary activities are: a. Inbound logistics-deals with receiving, storing, and disseminating inputs to the product. b. Operations-involves transforming inputs into the final product. c. Outbound logistics-deals with collecting, storing, and physically distributing the product to buyers. d. Marketing and sales-involves inducing buyers to purchase the product and providing a means for them to do so. e. Customer service-involves assisting customer's use of the product and thus maintaining and enhancing the product's value.

12) What is the criterion on which business processes should run?

: According to Porter, whether business processes are low-cost or high-service, these processes and systems used must create sufficient value that they will more than cover their costs. If not, the margin of those systems will be negative. If a value chain's margin is negative, the company must make some change. Either the value must be increased, or the costs of the value chain need to be reduced

Differentiate between value and margin.

: Porter defined value as the amount of money that a customer is willing to pay for a resource, product, or service. The difference between the value that an activity generates and the cost of the activity is called the margin. A business with a differentiation strategy will add cost to an activity only as long as the activity has a positive margin.

Describe some competitive advantage strategies that are based on business processes

: Some of the competitive strategies that are based on business processes include: 1. Locking in customers-organizations can lock in customers by making it difficult or expensive for customers to switch to another product. This strategy is sometimes called establishing high switching costs. 2. Locking in suppliers-organizations can lock in suppliers by making it difficult to switch to another organization, or, stated positively, by making it easy to connect to and work with the organization. 3. Creating entry barriers-competitive advantage can be gained by creating entry barriers that make it difficult and expensive for new competition to enter the market. 4. Establishing alliances-another means to gain competitive advantage is to establish alliances with other organizations. 5. Reducing costs-organizations can gain competitive advantage by creating better business processes at reduced costs. Such reductions enable the organization to reduce prices and/or to increase profitability.

Describe the support activities in a value chain

: The support activities in the generic value chain facilitate the primary activities and contribute only indirectly to the production, sale, and service of the product. They include procurement, which consists of the processes of finding vendors, setting up contractual arrangements, and negotiating prices. Porter defined technology broadly. It includes research and development, but it also includes other activities within the firm for developing new techniques, methods, and procedures. He defined human resources as recruiting, compensation, evaluation, and training of full-time and part-time employees. Finally, firm infrastructure includes general management, finance, accounting, legal, and government affairs. Supporting functions add value, albeit indirectly, and they also have costs.

12) Which of the following is true if the threat from substitutes is strong?

A) Customers are likely to switch to competitors' products.

23) Which of the following is true of a value chain?

A) Support activities facilitate the primary activities.

24) A business that selects a differentiation strategy would ________.

A) add cost to an activity provided it has a positive margin

4) Which of the following statements describes suppliers in a position of strong bargaining power?

A) coffee planters during a season of frost that decreases production

35) According to Porter, the processes and systems in an organization pursuing differentiation strategy must ________ to avoid negative margins.

A) create sufficient value to cover their costs

3) Porter originally developed the five forces model to determine the ________.

A) potential profitability of an industry

16) The bargaining power of a customer is weak if ________.

A) the availability of a rival product is limited

10) In which of the following cases is the strength of competitive forces low?

A) when switching costs are high

3) What are the four competitive strategies based on Porter's five forces model?

An organization responds to the structure of its industry by choosing a competitive strategy. Porter defined four fundamental competitive strategies. According to Porter, a firm can engage in one of these four fundamental competitive strategies. An organization can focus on being the cost leader, or it can focus on differentiating its products from those of the competition. Further, an organization can employ the cost or differentiation strategy across an industry, or it can focus its strategy on a particular industry segment. To be effective, the organization's goals, objectives, culture, and activities must be consistent with the organization's strategy.

41) Jupiter Shop is an online store. Customers have to create an online account to purchase products. The purchased products are delivered free of cost. The address of delivery is stored, so that customers can choose the same address for future purchases. Jupiter Shop features seasonal discounts and exchange offers. It also accumulates redeemable points for regular shoppers. Which of the following statements describes the use of IS by Jupiter Shop to lock-in customers?

B) saving the delivery addresses

14) The strength of bargaining power depends on the availability of substitutes and ________ compared to the size of suppliers or customers.

B) the relative size of the firm

15) Which of the following statements describes a scenario in which the bargaining power of a supplier is strong?

B) The availability of raw materials is less.

30) Each stage of the value chain not only adds value to the product but also ________.

B) accumulates costs

8) In Porter's five factor model, each of the three competitive forces concerns the danger of ________.

B) customers taking their business elsewhere

37) Which of the following is a product implementation principle of competitive advantage?

B) enhance products or services

19) A firm introduces a new range of laptops that concentrate on delivering good graphics performance. Which of the following competitive strategies has the firm adopted if these laptops have relatively low prices?

B) focus low cost

27) Which of the following primary value chain activities induce buyers to purchase a product and provide a means for them to do so?

B) sales and marketing

32) ________ includes general management, finance, accounting, legal, and government affairs.

C) Firm infrastructure

13) Which of the following is true of new entrants?

C) They are yet to develop relationships with suppliers.

39) Which of the following is a process implementation principle of competitive advantage?

C) establishing alliances

26) Which of the following primary activities describes collecting, storing, and physically distributing products to buyers?

C) outbound logistics

21) According to Porter, to be effective, the organization's goals and activities must be consistent with the organization's ________.

C) strategy

5) Simpson's Lawn Services decides to offer two free mowing services for all customers who booked garden landscaping in the fall. Which of the following forces is Simpson's Lawn Services addressing?

C) the threat posed by Roger's Landscapes, a new competitor

11) If customers perceive the benefits of an alternative to be similar to that of a product, then the ________.

C) threat from the substitute is strong

2) A competitive strategy of an organization determines its ________.

C) value chains

29) Which of the following is true of supporting activities?

D) Negotiation of prices is considered a supporting activity.

36) Which of the following statements is true of business processes?

D) The processes implementing a value chain must create sufficient value to cover their costs.

28) Which of the following statements describes a customer service activity?

D) assisting with the use of the product

31) Which of the following is a primary activity in the value chain?

D) delivering products to consumers

18) Which of the following competitive strategies does a company follow if it produces a uniquely formulated anti-ageing face cream targeted at women above the age of forty?

D) focus differentiation

40) Which of the following is least likely to be an outcome of organizations forming alliances with each other?

D) increase in purchasing costs

20) Which of the following is an example of a competitive strategy employed by a firm?

D) launching a unique product targeted at a section of consumers

38) Which of the following strategies is also called establishing high switching costs?

D) locking in customers

Describe the primary activities in a value chain using an example.

In a bicycle manufacturing unit, the primary activities of a value chain are followed. The manufacturer acquires raw materials using the inbound logistics activity. This activity concerns the receiving and handling of raw materials and other inputs. The accumulation of those materials adds value in the sense that even a pile of unassembled parts is worth something to some customer. A collection of the parts needed to build a bicycle is worth more than an empty space on a shelf. The value is not only the parts themselves but also the time required to contact vendors for those parts, to maintain business relationships with those vendors, to order the parts, to receive the shipment, and so forth. In the operations activity, the bicycle maker transforms raw materials into a finished bicycle, a process that adds more value. Next, the company uses the outbound logistics activity to deliver the finished bicycle to a customer. Of course, there is no customer to send the bicycle to without the marketing and sales value activity. Finally, the service activity provides customer support to the bicycle users.

2) Describe Porter's five forces model.

Organizational strategy begins with an assessment of the fundamental characteristics and structure of an industry. Porter's five forces model is used as a way of understanding organizations' competitive environments. Porter's five competitive forces can be grouped into two types: forces related to competition and forces related to supply chain bargaining power. The competitive forces are: competition from vendors of substitutes, competition from new competitors, and competition from existing rivals. The bargaining power forces include the bargaining power of suppliers and the bargaining power of customers. The intensity of each of the five forces determines the characteristics of the industry, how profitable it is, and how sustainable that profitability will be. Organizations examine these five forces and determine how they intend to respond to them. That examination leads to competitive strategy.

Briefly describe how organizational strategy determines the functions of information systems.

Organizations examine the structure of their industry and, from that, develop a competitive strategy. That strategy determines value chains, which, in turn, determine business processes. The nature of business processes determines the requirements and functions of information systems.

10) How did Porter define technology, human resources, and firm infrastructure?

Porter defined technology broadly. It includes research and development, but it also includes other activities within the firm for developing new techniques, methods, and procedures. He defined human resources as recruiting, compensation, evaluation, and training of full-time and part-time employees. Finally, firm infrastructure includes general management, finance, accounting, legal, and government affairs.

How does competitive strategy determine value chain structure?

Porter defined value as the amount of money that a customer is willing to pay for a resource, product, or service. A value chain is a network of value-creating activities. Organizations analyze the structure of their industry, and, using that analysis, they formulate a competitive strategy. They then need to organize and structure the organization to implement that strategy. If, for example, the competitive strategy is to be a cost leader, then business activities need to be developed to provide essential functions at the lowest possible cost. A business that selects a differentiation strategy would not necessarily structure itself around least-cost activities. Instead, such a business might choose to develop more costly systems, but it would do so only if those systems provided benefits that outweighed their risks.

9) Explain value chain linkages.

Porter's model of business activities includes linkages, which are interactions across value activities. For example, manufacturing systems use linkages to reduce inventory costs. Such a system uses sales forecasts to plan production; it then uses the production plan to determine raw material needs and then uses the material needs to schedule purchases. The end result is just-in-time inventory, which reduces inventory sizes and costs.

Distinguish between a primary and a support activity in the value chain.

Primary activities are business functions that relate directly to the production of the organization's products or services. Primary activities include inbound logistics, operations, customer service, and sales and marketing. These activities add value to a product. Support activities are business functions that assist and facilitate the primary activities. Supporting functions add value to a product indirectly. They also have costs and contribute to a margin. It is difficult to calculate their margins because the specific value added is difficult to measure.

) How can one develop competitive strategies using products? How can information systems help in the process?

Some competitive techniques are created through products and services, while some are created through the development of business processes. There are three principles that concern products and services. Organizations gain a competitive advantage by creating new products or services, by enhancing existing products or services, and by differentiating their products and services from those of their competitors. An information system can be part of a product or it can provide support for a product or service.

33) Business processes implement value chains or portions of value chains.

T

40) Establishing alliances with other organizations promotes product awareness.

T

5) The three competitive forces in Porter's model concern the danger of customers taking their business elsewhere.

T

1) Competitive strategy determines an organization's value chain.

T

10) Vendor knowledge and vendor relationships serve as a barrier to entry for new competitors.

T

11) An organization can choose to either minimize cost or maximize differentiation to gain a competitive advantage.

T

13) According to Porter, to be effective, an organization's goals and activities must be consistent with the organization's strategy.

T

14) Organizations analyze the structure of their industry and use that analysis to formulate a competitive strategy.

T

16) The difference between the value that an activity generates and the cost of the activity is called the margin.

T

23) The support activities in the generic value chain facilitate the primary activities and contribute only indirectly to a product's value.

T

25) A company uses the outbound logistics activity to deliver the finished product to a customer.

T

26) Porter's model of business activities includes linkages, which are interactions across value activities.

T

29) Value chain analysis has a direct application to manufacturing businesses.

T

31) Value chains exist in service-oriented companies.

T

34) Each value chain is supported by one or more business processes.

T

35) No matter what competitive strategy is being used, the value chain activities remain the same.

T

37) If a value chain's margin is negative, the company must make some change.

T

41) Information systems can be a part of products.

T

9) Availability of substitutes plays a role in determining the bargaining power of suppliers.

T

7) Which of the following groups' bargaining power is considered as one of the five competitive forces in Porter's five forces model?

customers

33) Porter's model of business activities includes ________, which are interactions across value activities.

linkages

34) A manufacturing system uses sales forecasts to plan production. It uses the production plan to determine raw material needs and then uses the material needs to schedule purchases. This ultimately leads to reduced inventory costs. Which of the following is being used to reduce the inventory cost?

linkages

25) The difference between the value that an activity generates and the cost of the activity is called the ________.

margin