Strategic Use of Information Systems

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Questions and Answers

What is the primary goal of a for-profit company in terms of competitive advantage?

  • To eliminate competition entirely
  • To maximize customer satisfaction only
  • To minimize production time
  • To maximize profits by lowering costs and increasing revenue (correct)

Which of the following is NOT considered a strategic information system (SIS)?

  • A system for automating repetitive tasks (correct)
  • A system developed to provide a unique customer experience
  • A system that helps an organization seize new opportunities
  • A system that identifies and solves existing problems

Which initiative can lead to a competitive advantage by increasing market share?

  • Reducing costs to lower prices (correct)
  • Raising prices while maintaining quality
  • Focusing solely on customer service enhancements
  • Providing additional features with no cost savings

How can organizations achieve a competitive advantage according to the content?

<p>By combining multiple initiatives to create innovative strategies (A)</p> Signup and view all the answers

What type of advantage is typically achieved through lowering costs?

<p>Increased profit margins (D)</p> Signup and view all the answers

Which of the following best describes a major characteristic of an opportunity for organizations?

<p>Opportunities are often less tangible and harder to recognize. (D)</p> Signup and view all the answers

Which of the following is NOT one of the eight basic initiatives to gain competitive advantage?

<p>Increasing operational inefficiencies (A)</p> Signup and view all the answers

What role does automation play in competitive advantage?

<p>It enhances productivity and reduces costs. (A)</p> Signup and view all the answers

What is one advantage of using robots in manufacturing compared to manual labor?

<p>Robots can perform tasks at a lower cost. (A)</p> Signup and view all the answers

How has online customer service changed the nature of service provided by businesses?

<p>It shifted the service from labor intensive to technology intensive. (A)</p> Signup and view all the answers

What can help an organization gain a competitive advantage by limiting competition?

<p>Raising barriers to market entrants. (B)</p> Signup and view all the answers

What is an example of explicit switching costs?

<p>Fees charged for early termination of a contract. (B)</p> Signup and view all the answers

How do high switching costs benefit businesses?

<p>They retain customers by making it costly to switch. (A)</p> Signup and view all the answers

Which of the following scenarios illustrates the concept of implicit switching costs?

<p>A user spends time researching alternatives before switching providers. (C)</p> Signup and view all the answers

What role does intellectual property play in gaining a competitive advantage?

<p>It prevents competitors from using certain innovations. (D)</p> Signup and view all the answers

What was one of the first companies to automate online customer service by allowing customers to track parcels?

<p>FedEx (A)</p> Signup and view all the answers

What is meant by enhancing existing products or services?

<p>Adding features to increase the product's consumer value (A)</p> Signup and view all the answers

What is a key factor in locking in suppliers or buyers?

<p>Having bargaining power over them (D)</p> Signup and view all the answers

How do companies usually gain bargaining power with suppliers?

<p>By being a major player in their industry (D)</p> Signup and view all the answers

What leverage is most common in negotiations with suppliers?

<p>Purchase volume (B)</p> Signup and view all the answers

What impact does high switching costs have on buyers?

<p>It locks them into specific services or products (A)</p> Signup and view all the answers

What example illustrates a situation where buyers are locked into a product?

<p>Investing in enterprise software that requires ongoing services (D)</p> Signup and view all the answers

What strategy did Wal-Mart use to maintain its competitive advantage over suppliers?

<p>Utilizing advanced data analytics (A)</p> Signup and view all the answers

What is the ultimate goal of locking in either suppliers or buyers?

<p>To create barriers to exit for customers or suppliers (C)</p> Signup and view all the answers

What is a potential consequence of deciding to switch telephone companies before a contract expires?

<p>You might lose your investment in the telephone. (B)</p> Signup and view all the answers

What is an indirect switching expense related to software?

<p>Time and money spent training employees on new software. (D)</p> Signup and view all the answers

Why might organizations hesitate to switch from MS Office to alternatives like Sun Microsystems' StarOffice?

<p>They are likely accustomed to the MS Office interface. (B)</p> Signup and view all the answers

What strategy do manufacturers often use to build customer loyalty?

<p>Selling printers at or below manufacturing cost. (A)</p> Signup and view all the answers

What can be considered an effective competitive advantage when creating new products or services?

<p>Creating a unique offering that fulfills a widespread need. (C)</p> Signup and view all the answers

How does product differentiation benefit a company?

<p>It allows companies to convince consumers their product is superior. (B)</p> Signup and view all the answers

What result does high switching costs have on consumers?

<p>It creates a tendency to stay with current providers. (D)</p> Signup and view all the answers

Why is locking in customers considered a strategic advantage?

<p>It reduces the risk of losing existing customers to competitors. (B)</p> Signup and view all the answers

What is a key factor for companies to gain competitive advantages in the enterprise software market?

<p>Enhancing software and support services (D)</p> Signup and view all the answers

What enhances a company's negotiating power with suppliers?

<p>Being a significant customer to the supplier (B)</p> Signup and view all the answers

Which strategy helps companies maintain influence over their buyers?

<p>Creating fear of high switching costs (D)</p> Signup and view all the answers

How does Wal-Mart exert negotiating power over its suppliers?

<p>By requiring suppliers to use compatible information systems (D)</p> Signup and view all the answers

What significance does the volume of purchases hold for companies?

<p>It increases their influence over suppliers (C)</p> Signup and view all the answers

What type of software is highlighted as beneficial for managing various operations in institutions?

<p>Enterprise Resource Planning (ERP) Software (C)</p> Signup and view all the answers

Which company is mentioned as a prime example of effectively using negotiating power?

<p>Wal-Mart (C)</p> Signup and view all the answers

What is typically required of companies after they purchase enterprise software?

<p>Integration of training and support services (D)</p> Signup and view all the answers

What is a major challenge for companies trying to shift suppliers according to their operational methods?

<p>The high cost of switching suppliers (D)</p> Signup and view all the answers

Which software feature is crucial for preventing supply shortages or overstocking?

<p>Integrated inventory tracking systems (B)</p> Signup and view all the answers

How do companies benefit from negotiating power in their supply chain?

<p>By forcing suppliers to drop prices and follow company procedures (B)</p> Signup and view all the answers

What implication does software lock-in have for enterprise solutions?

<p>Long-term commitment to the purchasing company (C)</p> Signup and view all the answers

What competitive advantage is highlighted for companies investing substantially in services and parts?

<p>Greater influence over supplier negotiations (D)</p> Signup and view all the answers

What commonality do enterprise software companies like SAP, Oracle, and Infor share?

<p>They offer integrated solutions for various business processes (D)</p> Signup and view all the answers

Flashcards

Strategy

A plan to help an organization outperform its competitors.

Strategic Information Systems (SISs)

Information systems developed to seize opportunities and enhance competitive advantage.

Competitive Advantage

A condition where a company achieves higher profits than its competitors by maximizing revenue and lowering costs.

Initiatives for Competitive Advantage

Actions taken to gain an edge over competitors, such as improving products or lowering costs.

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Reduce Costs

A strategy where companies lower expenses to offer lower prices and attract more customers.

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Automation

Using technology to increase productivity and reduce costs in a business.

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Innovation

The essence of strategy, often involves trying new approaches others haven’t used.

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Market Share

The percentage of an industry's sales that a particular company controls, indicating its competitiveness.

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Automation in customer service

Using technology to handle customer service tasks instead of human employees.

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Switching costs

Costs incurred when a customer changes providers or brands.

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Explicit switching costs

Clear costs such as fees charged for ending service contracts.

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Implicit switching costs

Indirect costs incurred when switching providers, like time or satisfaction loss.

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Legal protection of intellectual property

Laws that prevent others from using inventions or creative works without permission.

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High switching costs strategy

Increasing customer expenses to make it harder for them to change providers.

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Automating operations with technology

Using technology to operate tasks more efficiently than manual processes.

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Indirect Switching Expenses

Costs associated with transitioning to new software or systems, including time and training.

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Product Differentiation

A strategy to make a product appear unique compared to competitors' offerings.

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Customer Lock-In

A strategy to keep customers engaged with a product or service by imposing high switching costs.

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High Switching Costs

Costs that make it expensive for customers to switch to competitors.

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Competitive Advantage through Innovation

Gaining a market edge by introducing new products or services that fulfill customer needs.

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Printer Cartridge Costs

High expenses associated with purchasing specific cartridges for printers, which can lock customers to a brand.

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Enticing Offers

Promotions or deals that can persuade customers to switch from one product or service to another.

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Enhancing Products or Services

Adding features or value to existing products/services to increase consumer appeal.

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Bargaining Power

The leverage a company has to influence suppliers or buyers due to its size or importance.

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Lock in Suppliers

A strategy where companies ensure suppliers rely on them by increasing purchasing demands.

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Lock in Buyers

A method where companies make it difficult for customers to switch to competitors due to costs or investments.

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Purchasing Volume

The amount a company spends on products/services, giving it power over suppliers.

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Enterprise Applications

Comprehensive software systems that manage a range of business operations, often locking users in.

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Enterprise Software

Software solutions designed for organizations, such as SAP and Oracle.

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Competitive Power

A company's ability to influence suppliers and buyers in their favor.

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Negotiation Influence

The ability to impact decisions between buyers and suppliers.

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Supplier Importance

The role suppliers play in a company’s operational success.

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Wal-Mart's Strategy

Wal-Mart uses its negotiation power to enforce supplier conditions.

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Purchase Volume Power

Higher buying amounts give companies leverage over suppliers.

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Enterprise Resource Planning (ERP)

Integrated software to manage core business operations across departments.

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Lock-in Effect

When customers are deterred from switching due to high switching costs.

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Information Systems Integration

Linking information systems with operational processes for efficiency.

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Supplier Dependency

A situation where a company becomes reliant on a specific supplier for critical resources.

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Training and Implementation Costs

Expenses related to onboarding new software in a company.

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Information System Requirements

Specifications that suppliers must meet to collaborate with a company like Wal-Mart.

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Buyer’s Market Dynamics

Market conditions where buyers have more power and options than suppliers.

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Software Vendor Importance

The crucial role software vendors play in providing essential tools for companies.

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Study Notes

Strategic Use of Information Systems

  • A strategy is a plan designed to help an organization outperform its competitors
  • Many information systems are built to solve problems, but others are designed to seize opportunities
  • Identifying a problem is easier than creating an opportunity
  • Opportunities are less tangible and require more imagination, creativity, and vision.
  • Information systems that help seize opportunities are often called strategic information systems (SISs)
  • These can be developed from scratch or evolve from existing ISs
  • In a free-market economy, strategy is used to develop new products, address unmet needs, change services, and retain existing customers to increase the organization's value.

Competitive Advantage

  • Competitive advantage, in terms of a for-profit company, is achieved by maximizing profits through lowering costs and increasing revenue.
  • A for-profit company achieves competitive advantage when its profits increase significantly.

8 Basic Ways to Gain Competitive Advantage

  • Reduce costs: Sell more units at a lower price while maintaining or increasing profit margin.
  • Raise barriers to market entrants: Deter potential entrants to enjoy less competition and increased market potential.
  • Establish high switching costs: Increase costs for customers to switch to a competitor, making it economically impractical.
  • Create new products or services: Offer unique products or services, giving an advantage until competitors copy them.
  • Differentiate products or services: Convince consumers one's product or service is better than competitors', even if it isn't.
  • Enhance products or services: Add features to increase consumer value.
  • Establish alliances: Combine goods/services from different industries for special prices.
  • Lock in suppliers or buyers: Either suppliers or buyers can be locked into a business' operation to gain bargaining power

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