MIS Chapter 2: Strategy and Technology: Concepts and Frameworks for Understanding What Separates Winners from Losers

9. FreshDirect's tech-efficient model actually leads to lower margins than its traditional grocery peers, but the firm makes this up with a greater sales volume. T/F

False FreshDirect does it all with margins in the range of 20 percent (to as high as 45 percent on many semiprepared meals), easily dwarfing the razor-thin 1 percent margins earned by traditional grocers.

20. Businesses benefit from economies of scale when the cost of an investment can be spread across increasing units of operational effectiveness or in serving a small supplier base. T/F

False (Businesses benefit from economies of scale when the cost of an investment can be spread across increasing units of production or in serving a growing customer base.)

7. Technology means FreshDirect's labor costs are higher than rivals', but the firm makes up for this in other ways.

False (FreshDIrect's labor costs are 60% lower than at traditional grocers)

10. _____ refer(s) to the payments made by suppliers to retailers for prime shelf space.

Slotting fees

scale advantages

advantages related to size

4. The _____ problem exists when savvy rivals watch a pioneer's efforts, learn from their successes and missteps, and then enter the market quickly with a comparable or superior product at a lower cost.

fast follower

18. A firm's _____ is the symbolic embodiment of all the information connected with a product or service.

brand

Viral Marketing

leveraging consumers to promote a product or service

24. The phenomenon of _________________________ exists when the value of a product or service increases along with a growing number of users.

network effects

13. The resource-based view of competitive advantage states that for a firm to maintain sustainable competitive advantage it must control a set of exploitable resources that have four critical characteristics. What are these characteristics?

rareness, value, imperfect imitability (tough to imitate), non substitutability

Information Asymmetry

A decision situation where one party has more or better information than its counterparty.

14. Sometimes technology can sound geeky and so technical that executives might think that it doesn't require managerial or investor attention. However, many investing in the telecom sector suffered from a lack of insight into how a key technology was impacting their industry. Telecom firms failed to anticipate the impact of a technology known as ____________ which enabled existing fiber to carry more transmissions than ever before.

A technology called dense wave division multiplexing (DWDM) enabled existing fiber to carry more transmissions than ever before. The end result: these new assets weren't rare and each day they seemed to be less valuable..

dense wave division multiplexing (DWDM)

A technology that increases the transmission capacity (and hence speed) of fiber-optic cable. Transmissions using fiber are accomplished by transmitting light inside "glass" cables. In DWDM, the light inside fiber is split into different wavelengths in a way similar to how a prism splits light into different colors.

imitation-resistant value chain

A way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling role.

Poter's Five Forces

Also known as Industry and Competitive Analysis. A framework considering the interplay between (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers.

network effects

Also known as Metcalfe's Law, or network externalities. When the value of a product or service increases as its number of users expands.

12. FreshDirect should be safe from competition with traditional grocery stores (since they would be straddling two models instead of getting FreshDirect's singular efficiency), and new startups are likely going to struggle to match FreshDirect's scale and brand. However, Amazon presents a particularly strong challenger to FreshDirect. Why?

Amazon has deep pockets and is aggressively seeking to expand into groceries

28. Which of the following describes the relationship between Apple's iOS and Google Maps. T/F

Apple's control of iOS gave it control of the distribution channel to reach its users, kicking Google out as the default mapping app and capturing the majority of user engagement.

private

As in "to go private" or "take a firm private." Buying up a publicly traded firm's shares. Usually done when a firm has suffered financially and when a turn-around strategy will first yield losses that would further erode share price. Firms (often called private equity, buyout, LBO, or leveraged buyout firms) that take another company private hope to improve results so that the company can be sold to another firm or they can reissue shares on public markets.

Straddling

Attempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival.

33. Which of the following is one of Porter's five forces?

Bargaining power of buyers

23. _____ are products or services that are nearly identically offered from multiple vendors.

Commodities

Non-Practicing Entities

Commonly known as patent trolls, these firms make money by acquiring and asserting patents, rather than bringing products and services to market.

Fast Follower Problem

Exists when savvy rivals watch a pioneer's efforts, learn from their successes and missteps, then enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominate.

30. Your firm had better lawyer up! Studies have shown that patents are the single most-important factor for enabling a firm to profit from innovations. T/F

False

15. Most successful firms typically leverage a single key resource for competitive advantage to create lasting, above-average industry profits. T/F

False, (Oftentimes, a firm with an effective strategic position can create an arsenal of assets that reinforce one another, creating advantages that are particularly difficult for rivals to successfully challenge.)

Sustainable Competitive Advantage

Financial performance that consistently outperforms industry averages.

36. Which of the following factors can weaken buyer bargaining power?

High switching costs

31. Which of the following observations is true? a. Internet businesses have relatively low barriers to entry. b. Low entry barriers nearly guarantee the success of Web-based business models. c. Barring a few exceptions, most established offline firms have caught up with today's Internet leaders. d. Timing and technology are sufficient to yield sustainable competitive advantages. e. The barriers to entry for most firms that compete on technology-alone are always extremely high.

Internet businesses have relatively low barriers to entry.

8. The phrase __________ refers to the number of times inventory is sold or used during the course of a year.

Inventory turns, also known as stock turnover or stock turns. Higher inventory turns mean a firm is selling product faster, so it collects money quicker than rivals. And those goods are fresher since they have been in stock for less time.

26. OpenTable's network effects are due entirely to the large number of consumers who use the service. T/F

OpenTable has what strategists call a two-sided market. In the firm's case, both restaurants and diners create the strong network effects, which has resulted in one clear winner ahead of all other competitors. Diners are attracted to a service with more restaurants, restaurants are attracted to the service that has the most diners.

Strategic Positioning

Performing different tasks than rivals, or the same tasks in a different way.

35. For providers of commodity products, how does the Internet typically impact price transparency and information asymmetry?

Price transparency increases while information asymmetry decreases

APIs (Application Programming Interfaces)

Programming hooks, or guidelines, published by firms that tell other programs how to get a service to perform a task such as send or receive data. For example, Amazon provides APIs to let developers write their own applications and Web sites that can send the firm orders.

Inventory Turns

Sometimes referred to as inventory turnover, stock turns, or stock turnover. It is the number of times inventory is sold or used during a given period. A higher figure means that a firm is selling products quickly.

11. _____ refers to attempts by an organization to occupy more than one position while failing to match the benefits of a more efficient, singularly focused rival.

Straddling

5. ______ is performing different tasks than rivals or the same tasks in different ways.

Strategic positioning refers to performing different activities from those of rivals, or the same activities in a different way. Strategic positioning can allow for businesses to be defensibly different, as opposed to operational effectiveness with its inherent risks of "sameness."

1. ______ is financial performance that consistently outperforms the industry average.

Sustainable competitive advantage Firms strive for sustainable competitive advantage - financial performance that consistently outperforms their industry peers. It can be difficult to sustain a competitive advantage because of new competitors with new copycat products which cause a cut in prices and costs.

22. _____ are costs that customers incur when moving from one product to another.

Switching costs

Switching costs

The cost a consumer incurs when moving from one product to another. It can involve actual money spent (e.g., buying a new product) as well as investments in time, any data loss, and so forth.

Price Transparency

The degree to which complete information is available.

6. TiVo was an innovator, an early mover, and so well known that the firm's name has become a verb in many households (as in "Did you TiVo that program?"), yet the firm has struggled to achieve consistent profitability. Which two factors are suggested as negatively impacting TiVo's success?

The firm's technology was copied and it lacked access to a key distribution channel (Rival devices offered by cable and satellite companies appear the same to consumers and are offered along with pay television subscriptions-a critical distribution channel for reaching customers that TiVo doesn't control.)

Distribution Channels

The path through which a products or services get to customers.

Inventory Turnover Ratio

The ratio of a company's annual sales to its inventory.

value chain

The set of activities through which a product or service is created and delivered to customers.

Resource-based view of competitive advantage

The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics. These resources must be (1) valuable, (2) rare, (3) imperfectly imitable, and (4) nonsubstitutable.

Brand

The symbolic embodiment of all the information connected with a product or service.

Affiliates

Third parties that promote a product or a service, typically in exchange for a cut of any sales.

27. The Apple Store represents a key distribution channel for the firm and the US's single most successful retail chain as defined by sales per square foot. T/F

True

25. A larger number of skilled workers who can use a given technology exists as a result of network effects. T/F

True (Third-party add-on products, books, magazines, or even skilled labor are all attracted to networks of the largest number of users, making dominant products even more valuable.)

2. When offerings are roughly the same, they are more commodity than differentiated. T/F

True (like milk)

21. Internet and tech-leveraging businesses are said to be highly scalable when profit margins often improve as firms leverage their infrastructure base across a growing number of customers. T/F

True, (Many Internet and tech-leveraging businesses are highly scalable since, as firms grow to serve more customers with their existing infrastructure investment, profit margins improve dramatically.)

economies of scale

When costs can be spread across increasing units of production or in serving multiple customers. Businesses that have favorable economies of scale (like many Internet firms) are sometimes referred to as being highly scalable.

Commodity

a basic good that can be interchanged with early identical offerings by others. Examples= mill, orange juice, and to a lesser extent Android phones and windows PCs The more commoditized an offering, the greater the likelihood that the competition will be based on price.

32. Moving first pays off when lead time is used to create:

critical resources for competitive advantage

34. A decision situation where one party has more or better information than its counterparty is known as _____.

information asymmetry

3. Performing the same tasks better than how rivals perform them is known as ______.

operational effectiveness (Operational effectiveness refers to performing the same tasks better than how rivals perform them. According to Michael Porter, many firms can suffer from margin eroding competition because they have defined themselves according to operational effectiveness rather than strategic positioning.)

Operational Effectiveness

performing the same tasks better than rivals perform them

19. Advantages related to a firm's size are referred to as _____.

scale advantages

29. Patent trolls hold intellectual property with the intention of:

suing or extorting large settlements from large firms.

16. The set of activities through which a product or service is created and delivered to customers is called the _____.

value chain

17. The term _________________ refers to leveraging consumers to promote a product or service.

viral marketing