ITM 100 Class 11: Info Systems & Strategy

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Questions and Answers

What is the primary goal of the low-cost leadership strategy?

  • To increase product diversity
  • To offer products at a lower price than competitors (correct)
  • To strengthen supplier relationships
  • To offer the highest quality products

Which of the following is an example of product differentiation?

  • Walmart's inventory management
  • Toyota's production efficiency
  • Hilton Hotel's loyalty program
  • Nike's customization options (correct)

What does Michael Porter's competitive forces model primarily provide a view of?

  • Pricing strategies in a competitive market
  • Customer behavior patterns
  • Technological advancements in industries
  • The firm, its competitors, and the environment (correct)

What is a key feature of the focus on market niche strategy?

<p>Specializing in a single market niche (A)</p> Signup and view all the answers

Which strategy enhances customer and supplier intimacy?

<p>Implementing information systems to build strong relationships (C)</p> Signup and view all the answers

Which of the following is NOT one of Porter's five competitive forces?

<p>Economic downturns (B)</p> Signup and view all the answers

How has the Internet affected competitive advantage in certain industries?

<p>By transforming some industries while intensifying rivalry (C)</p> Signup and view all the answers

How can information systems influence the threat of new entrants in an industry?

<p>By creating barriers to entry (C)</p> Signup and view all the answers

What factors increase switching costs for buyers?

<p>Higher costs and effort (A), Valuable incentives offered (B)</p> Signup and view all the answers

What is one potential impact of the Internet of Things (IoT) on competition?

<p>Increased switching costs for customers (A)</p> Signup and view all the answers

What factor increases the bargaining power of buyers in a market?

<p>Ease of switching to competitors’ products (B)</p> Signup and view all the answers

What characteristic defines traditional competitors in a market according to Porter's model?

<p>They continuously develop new products and efficiencies. (D)</p> Signup and view all the answers

What does the Business Value Chain Model emphasize?

<p>Primary and support activities that add value (B)</p> Signup and view all the answers

Under what conditions is the bargaining power of suppliers strongest?

<p>When the volume of purchases is small (A), When quality of inputs is crucial (C)</p> Signup and view all the answers

What determines the threat of substitute products?

<p>Buyers’ willingness to switch (B), The level of differentiation among products (D)</p> Signup and view all the answers

What could be a consequence of increased competition through product differentiation?

<p>Higher rivalry among competitors (C)</p> Signup and view all the answers

In what way do substitute products impact consumer choice?

<p>They provide alternatives if prices rise. (A)</p> Signup and view all the answers

When is rivalry among industrial competitors considered high?

<p>When exit costs from the industry are high (B)</p> Signup and view all the answers

What can companies do to manage challenges posed by strategic information systems?

<p>Invest in employee training and development. (C)</p> Signup and view all the answers

Why do new market entrants sometimes struggle in an industry?

<p>They often have little brand recognition. (D)</p> Signup and view all the answers

What might NOT increase switching costs for buyers?

<p>Reducing the time required to switch (B)</p> Signup and view all the answers

Which factor does NOT contribute to the bargaining power of suppliers?

<p>High levels of competition among suppliers (C)</p> Signup and view all the answers

Which aspect impacts a buyer's willingness to replace a product?

<p>The clarity of product information (A), The cost of substitutes (D)</p> Signup and view all the answers

What situation generally leads to lower rivalry among industrial competitors?

<p>High demand for products (B), Significant product differentiation (C)</p> Signup and view all the answers

What does the Value Web primarily focus on?

<p>Synchronized IT coordination among independent firms (B)</p> Signup and view all the answers

How do synergies benefit firms?

<p>By using outputs from one unit as inputs for another (C)</p> Signup and view all the answers

Which of the following best describes a virtual company?

<p>An organization that creates and distributes products while minimizing traditional boundaries (A)</p> Signup and view all the answers

What is a key characteristic of network economics?

<p>Low marginal costs and increasing value with participant growth (B)</p> Signup and view all the answers

Core competencies are built on which of the following?

<p>World-class leadership in a specific activity (A)</p> Signup and view all the answers

What is the purpose of benchmarking in the context of operational efficiency?

<p>To compare with industry best practices for improvement (C)</p> Signup and view all the answers

What role do keystone firms play in a business ecosystem?

<p>They provide essential resources and services to the ecosystem (A)</p> Signup and view all the answers

The digital firm era underscores which aspect of industry competition?

<p>Dynamic interactions among industry sets in a business ecosystem (D)</p> Signup and view all the answers

Flashcards

Porter's Competitive Forces Model

Michael Porter's model helps companies understand the forces that shape their industry and how they can use information systems to improve their competitive position.

Traditional Competitors

Companies that sell similar products or services and compete for the same customer base.

Barriers to Entry

Obstacles that make it difficult for new businesses to enter a specific industry.

Substitute Products and Services

Products or services that offer similar benefits or solutions to customers, even if they're not directly the same.

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Bargaining Power of Buyers

The ability of customers to easily switch to a competitor's product or service.

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Bargaining Power of Suppliers

The leverage suppliers have in setting prices and dictating terms.

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IT Influence on Competitive Forces

The ability of information systems to create barriers to entry or enhance a company's competitive advantage.

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Strategic Information Systems

Information systems can be used to create a competitive advantage by creating barriers to entry, enhancing bargaining power, and managing relationships with customers and suppliers.

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Switching costs

The costs a buyer incurs when switching from one supplier to another.

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How do suppliers increase switching costs?

Switching costs are higher when suppliers offer valuable incentives like lower prices, easier processes, or helpful information.

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Threat of Substitute Products

The strength of this force depends on how likely buyers are to switch to a substitute and the switching costs associated with it.

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Industrial Competitors

Rivalry among competitors is intense when it's costly to exit the industry, growth is slowing down, or products lack differentiation.

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Competitive Forces and Information Resources

These forces influence the competitive landscape for businesses. Understanding them helps organizations use information resources strategically.

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Strategic Use of Information Resources

The potential to use information resources strategically is crucial for navigating the five competitive forces.

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Five Competitive Forces

The Five Competitive Forces model helps analyze competitiveness in an industry. They are bargaining power of buyers, bargaining power of suppliers, threat of new entrants, threat of substitute products, and rivalry among existing competitors.

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Low-cost leadership

A strategy where a company aims to offer products or services at a lower price than competitors, often achieved through efficient operations and cost optimization.

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Product differentiation

A strategy where a company differentiates itself by offering unique products, services, or features that appeal to customers and command a premium price.

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Focus on market niche

A strategy where a company focuses on a specific market niche or segment, tailoring its products or services to the specific needs and preferences of that group.

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Strengthen customer and supplier intimacy

A strategy where a company uses information systems to foster strong relationships with customers and suppliers, leading to increased loyalty and reduced customer churn.

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Internet of Things (IoT)

The use of Internet-connected sensors in products to gather data and enable new functionalities and services.

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Smart products

Products that integrate with the Internet of Things, often incorporating sensors and data connectivity for enhanced features and functions.

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Business Value Chain Model

A model that breaks down a business into a series of activities that add value to products or services, highlighting areas where competitive strategies can be applied.

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Primary Activities

Activities within the Business Value Chain Model that directly relate to the creation of value in a product or service, such as manufacturing, marketing, and distribution.

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Value Web

A group of independent companies working together, leveraging synchronized IT to coordinate value chains, creating a more customer-centric and agile operation compared to traditional linear chains.

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Value Chain

A company's internal processes for creating, producing, and delivering products or services, broken down into primary and support activities. Information systems can be used to optimize efficiency in each step.

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Synergies

The advantages gained when combining the outputs of different units or entities. It's like 1 + 1 = 3.

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Core Competencies

A specific activity or function where a company excels at a global level. It's built upon expertise, experience, and knowledge shared across the organization.

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Network-based Strategies

A strategy utilizing networks to collaborate with other companies. It leverages network economics, virtual company models, and business ecosystems.

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Network Economics

A principle where the cost of adding a new participant is virtually zero, but the value of the community or system increases significantly. Think of snowballing value.

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Virtual Company

A company that utilizes networks to collaborate with other companies. It outsources functions and operates across organizational and physical boundaries.

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Business Ecosystems

A collection of companies in an industry that provide related products and services, working together in a connected ecosystem of partnerships. Examples include Microsoft and Facebook.

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Study Notes

Information Systems, Organizations, and Strategy

  • ITM 100 Class 11 covers information systems, organizations, and strategy, drawing material from the 17th edition of Management Information Systems by Laudon and Laudon.

Learning Objectives

  • Objective 3.3 examines how Porter's competitive forces model, value chain, synergies, competencies, and network economics influence company strategies using information systems.
  • Objective 3.4 analyses the challenges posed by strategic information systems and their solutions.

Porter's Competitive Forces Model (1 of 3)

  • Porter's model explains why some firms excel in their industry.
  • It gives a broad view of the firm, its rivals, and the overall market environment.
  • Five forces influence a firm's success: traditional competitors, new market entrants, substitute products, customers, and suppliers.

Porter's Competitive Forces Model (2 of 3)

  • Traditional competitors: All firms share the market with constant innovation in products, services and efficiency.
  • New market entrants: High barriers to entry exist in some industries, like the computer chip business. New businesses face challenges with equipment, employees and brand recognition.

Porter's Competitive Forces Model (3 of 3)

  • Substitute products: Customers will switch if prices become too high. For instance, iTunes replaced CDs.
  • Customers: Easy customer switching to competitors' products can force businesses to compete solely on price in a transparent marketplace.
  • Suppliers: Market power of suppliers increases when the firm can't quickly increase prices to match.

Figure 3.8 Porter's Competitive Forces Model

  • A visual representation of the five forces' interaction surrounding a central "Firm" node.

Application of five competitive forces model

  • IT's influence on competitive forces: The presence of IT affects the strength of each competitive force.

Five competitive forces with potential strategic use of information resources

  • IT shapes the competitive forces and businesses strategically utilize them.

Information System Strategies for Dealing with Competitive Forces (1 of 3)

  • Four generic IT strategies for dealing with competitive forces are listed:
    • Low-cost Leadership
    • Product Differentiation
    • Market Niche Focus
    • Strengthen customer and supplier intimacy

Information System Strategies for Dealing with Competitive Forces (2 of 3)

  • Low-cost leadership: Offering products or services at lower prices than competitors (e.g., Walmart's responsive customer system).
  • Product differentiation: Enabling new products/services that enhance customer convenience and experience (e.g., Google/Nike).
  • Customization: Mass customization; customer experience management.

Information System Strategies for Dealing with Competitive Forces (3 of 3)

  • Market niche focus: Enabling a specialized approach to a particular market niche (e.g., Hilton's On Q System).
  • Customer Supplier Intimacy: Strengthen relationships with customers and suppliers to enhance loyalty and increase switching costs (e.g., Toyota, Amazon).

The Internet's Impact on Competitive Advantage

  • The internet alters some industries greatly, either enabling or threatening them (e.g., travel agencies, media).
  • Rivalry in those industries intensified by universal standards.
  • New opportunities arise to build brands and loyal customer bases using IT.

Smart Products and the Internet of Things

  • Growing use of internet-connected sensors in products, like smart fitness equipment and health trackers, expand product differentiation opportunities.
  • Increased competition arises as more companies enter or provide smart products.

The Business Value Chain Model

  • A firm's activities in creating value from product or services
  • Primary activities are directly related to value creation, while support activities enable primary ones.
  • IT assists businesses in efficiency and intimacy with both customers and suppliers.

Figure 3.9 The Value Chain Model

  • A diagram illustrating the firm's activities that add value, from procurement to customer service, supported by various information systems like scheduling, human resources, and logistics.

Extending the Value Chain: The Value Web

  • Firms' value chains intertwine with those of suppliers, distributors, and customers.
  • A value web is a collection of independent firms using synchronized IT to collaboratively produce products or services.
  • It's more customer-centric and less linear compared to conventional value chains.

Figure 3.10 The Value Web

  • A diagram illustrating a value web, showing the interconnectedness of firms in diverse industries and the role of ERP systems (Enterprise Resource Planning), Supply Chain Management Systems, and Customer Relationship Management Systems.

Synergies

  • Synergy occurs when outputs from one business unit become inputs for other units, leading to increased organizational expertise.
  • Examples: Bank of New York and JP Morgan Chase merger, Google acquiring YouTube.

Core Competencies

  • Core competencies are a firm's strongest activities.
  • These activities rely on knowledge, expertise, and effective information sharing across different business units.
  • An example is Procter & Gamble's use of intranets and subject matter experts to enhance these competencies.

Network-Based Strategies

  • Firms use networks to leverage each other's capabilities.
  • These strategies include network economics, virtual companies, and business ecosystems.

Network Economics

  • Adding new participants to a network has almost zero marginal cost, while the value gains are significant.
  • The value of networks scale along with size; software and communities are good examples.
  • This contrasts with traditional economics which usually have diminishing returns.

Virtual Company Model

  • Companies collaborate without traditional boundaries, using networks.
  • An example is Li & Fung, which manages production and shipping for fashion companies by outsourcing to numerous suppliers.

Business Ecosystems and Platforms

  • Ecosystems encompass firms that offer related services and products.
  • Platforms, examples include Microsoft and Facebook, are key components.
  • Niche firms can thrive in larger ecosystem networks with good IT integration.

Figure 3.11 An Ecosystem Strategic Model

  • A depiction of industries integrated within a competitive ecosystem.
  • A digital firm must consider inter-industry boundaries and competition within industry sets through a dynamic view of customer-supplier networks.

Challenges Posed by Strategic Information Systems

  • Sustaining competitive advantages and avoiding competitors' copycat moves are critical.
  • Aligning IT with business objectives through analysis and strategy is essential.
  • Organizational structure and value chains must adapt to industry demands.

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