Preview Extract
Chapter 3
Strategy and Information Systems
True/False Questions
1) An organization's goals and objectives are determined by its competitive strategy.
Answer: True
Rationale:
Competitive strategy outlines how an organization will achieve its objectives and goals
within its industry. The goals and objectives of an organization are aligned with its
competitive strategy, which dictates how it will compete in the market and achieve success.
2) Organizational strategy begins with the formation of a value chain.
Answer: False
Rationale:
Organizational strategy typically begins with the identification of goals and objectives,
followed by an analysis of the external environment and internal capabilities. The formation
of a value chain is a component of strategy formulation, but it does not mark the starting
point of organizational strategy.
3) A major drawback associated with Porter's five forces model is that it ignores the rivalry
among firms in the industry.
Answer: False
Rationale:
Porter's five forces model specifically includes rivalry among existing competitors as one of
the five forces shaping industry competition. Therefore, it does not ignore this aspect, but
rather considers it as a fundamental factor in analyzing industry attractiveness and
competitiveness.
4) A major drawback of Porter's five forces model is that it does not analyze the threat of
substitutes when forming a corporate strategy.
Answer: False
Rationale:
Porter's five forces model explicitly includes the threat of substitutes as one of the forces
influencing industry competition. Therefore, it does consider the impact of substitute
products or services on a firm's strategy and industry dynamics.
5) According to Porter's five forces model, the intensity of each of the forces determines the
characteristics of the industry, how profitable it is, and how sustainable that profitability will
be.
Answer: True
Rationale:
Porter's five forces model assesses the competitive forces within an industry, including the
threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of
substitutes, and rivalry among existing competitors. The intensity of these forces shapes the
industry's attractiveness, profitability, and sustainability.
6) In the context of Porter's five forces model, the bargaining power of grain farmers in a
surplus year is an example of a weak market force.
Answer: True
Rationale:
In a surplus year, when there is an abundance of grain supply, the bargaining power of grain
farmers typically weakens because buyers have more options and leverage in negotiating
prices. This situation exemplifies a weak market force according to Porter's five forces
model.
7) In the context of Porter's five forces model, the bargaining power of suppliers is a weak
force when considering the example of students purchasing gasoline.
Answer: False
Rationale:
The bargaining power of suppliers is typically stronger when there are few alternative sources
of supply or when suppliers have significant control over essential resources. In the example
of students purchasing gasoline, if there are limited gas stations in the area or few alternative
fuel options, suppliers may have stronger bargaining power.
8) In the context of Porter's five forces model, the bargaining power of customers of
medicinal drugs is enhanced when pharmaceutical companies patent their products.
Answer: False
Rationale:
When pharmaceutical companies patent their products, it often restricts competition and
limits the availability of alternative options, thus reducing the bargaining power of customers.
Customers may have less leverage in negotiating prices or terms when there are few
substitutes available due to patent protection.
9) An organization responds to the structure of its industry by choosing a competitive
strategy.
Answer: True
Rationale:
The competitive strategy of an organization is determined in response to the competitive
forces and industry structure identified through tools like Porter's five forces analysis.
Different industry structures may require different strategic approaches, such as cost
leadership, differentiation, or focus, to achieve competitive advantage.
10) A telecom service provider focusing on high-end users is following an industry-wide
differentiation strategy.
Answer: False
Rationale:
A telecom service provider focusing on high-end users is likely pursuing a differentiation
strategy within the telecom industry, but it may not necessarily be industry-wide. Instead, it
may be targeting a specific segment of the market (high-end users) within the broader
telecom industry.
11) A furniture dealer offering a wide variety of designs to premium customers alone is
following an industry-wide cost leadership strategy.
Answer: False
Rationale:
This statement is false because offering a wide variety of designs to premium customers
suggests a differentiation strategy rather than a cost leadership strategy. Cost leadership
typically involves providing products or services at the lowest possible cost in the industry,
which may not align with offering premium designs.
12) Providing the lowest cost across an industry can be referred to as focused cost-leadership.
Answer: False
Rationale:
Focused cost leadership involves providing the lowest cost within a particular segment or
niche of the market, not necessarily across the entire industry. This strategy targets a specific
market segment rather than attempting to compete on cost across the entire industry.
13) Focused differentiation refers to providing a better product or service within an industry
segment.
Answer: True
Rationale:
Focused differentiation involves offering a unique product or service that targets a specific
market segment. This strategy aims to differentiate the business within a particular niche of
the market, often by meeting the specialized needs or preferences of customers within that
segment.
14) A business that selects a differentiation strategy would naturally structure itself around
low-cost activities.
Answer: False
Rationale:
A differentiation strategy focuses on providing unique or superior products or services that
are valued by customers, rather than solely on low-cost activities. While cost efficiency may
still be important, the primary emphasis is on creating value through differentiation rather
than competing on price alone.
15) Porter defines value as the amount of money that a customer is willing to pay for a
resource, product, or service.
Answer: True
Rationale:
Michael Porter defines value as the amount that buyers are willing to pay for what a firm
provides them. It represents the perceived benefit or utility that customers derive from a
product or service, relative to its price.
16) The difference between the value that an activity generates and the cost of the activity is
called revenue.
Answer: False
Rationale:
The difference between the value generated by an activity and the cost incurred to perform
that activity is referred to as the margin or profit margin, not revenue. Revenue is the total
income generated from sales of goods or services, irrespective of the costs associated with
producing them.
17) A business with a differentiation strategy will add cost to an activity only as long as the
activity has a positive margin.
Answer: True
Rationale:
In a differentiation strategy, businesses are willing to incur additional costs to create unique
or superior value for customers. However, these costs should be justified by the ability to
command a price premium or generate higher revenues due to the perceived value-added by
the differentiation.
18) A generic value chain consists of five primary activities and four support activities.
Answer: True
Rationale:
Porter's generic value chain model consists of nine activities, divided into primary activities
(inbound logistics, operations, outbound logistics, marketing and sales, and service) and
support activities (firm infrastructure, human resource management, technology
development, and procurement).
19) Inbound logistics is a supporting activity in the value chain of a manufacturing firm.
Answer: False
Rationale:
Inbound logistics is considered a primary activity in the value chain, as it involves activities
related to receiving, storing, and distributing inputs or raw materials for production processes.
It precedes the actual manufacturing or operations stage.
20) Activities such as collecting, storing, and physically distributing the product to buyers are
considered as primary activities in a value chain.
Answer: True
Rationale:
These activities are part of the primary activities in the value chain, specifically categorized
under outbound logistics. Outbound logistics involves activities related to the distribution of
finished products to customers, including transportation, warehousing, and order fulfillment.
21) In the inbound logistics activity of a value chain, the manufacturer receives, stores, and
disseminates inputs to the product.
Answer: True
Rationale:
Inbound logistics involves the activities associated with receiving, storing, and distributing
inputs or raw materials needed for the production process. These inputs are essential for
manufacturing the final product, making inbound logistics a critical part of the value chain.
22) Outbound logistics refer to transforming inputs into the final product.
Answer: False
Rationale:
Outbound logistics involve activities related to the distribution of finished products to
customers, including transportation, warehousing, and order fulfillment. It focuses on
delivering the final product to the end-users, rather than transforming inputs into the final
product, which is part of the operations activity.
23) A furniture manufacturer delivers products to its customers' houses. This is an example of
inbound logistics.
Answer: False
Rationale:
Delivering products to customers' houses is an example of outbound logistics, not inbound
logistics. Inbound logistics involves receiving, storing, and disseminating inputs or raw
materials to the production process, while outbound logistics focuses on distributing finished
products to customers.
24) The primary activity of sales and marketing is the collection, storage, and physical
distribution of the products to the buyers.
Answer: False
Rationale:
The primary activity of sales and marketing involves promoting and selling products or
services to customers, attracting potential buyers, and communicating the value proposition
of the offerings. It encompasses activities such as advertising, sales promotions, market
research, and customer relationship management.
25) In the value chain, the primary activity of customer service is concerned with inducing
the buyers to purchase the product and providing a means for them to do so.
Answer: False
Rationale:
The primary activity of customer service involves providing assistance and support to
customers before, during, and after the purchase of a product or service. It focuses on
enhancing customer satisfaction, addressing inquiries or concerns, and ensuring a positive
post-purchase experience.
26) Each stage of the generic value chain accumulates costs and adds value to the product.
The net result of this process is the total margin of the chain.
Answer: True
Rationale:
In the value chain, each stage involves activities that add value to the product or service, but
they also incur costs. The difference between the total value added and the total costs
incurred at each stage determines the margin or profitability of the value chain as a whole.
27) Unlike the primary activities, the support activities in the generic value chain do not
contribute to the production, sale, and service of the product.
Answer: False
Rationale:
Support activities in the value chain play a crucial role in enabling the primary activities to
operate efficiently and effectively. While they may not directly involve the production, sale,
or service of the product, they provide essential support functions such as procurement,
technology development, human resource management, and infrastructure.
28) Operations refer to transforming inputs into the final product.
Answer: True
Rationale:
Operations involve the activities related to transforming inputs or raw materials into the final
product or service. This includes manufacturing processes, assembly, packaging, and quality
control measures aimed at producing goods or delivering services to meet customer
requirements.
29) Support activities in a value chain include the processes of finding vendors, setting up
contractual arrangements, and negotiating prices.
Answer: True
Rationale:
Support activities in the value chain provide essential support functions that enable the
primary activities to operate efficiently. This includes activities such as procurement, where
vendors are identified, contracts are negotiated, and prices are determined to ensure a smooth
supply chain process.
30) A linkage is a network of activities that generate value by transforming inputs into
outputs.
Answer: False
Rationale:
A linkage refers to the relationships and interdependencies between activities within the value
chain. It represents how different activities are connected and how value is created as inputs
move through the chain. While linkages facilitate the flow of value, they do not themselves
generate value but rather enable value creation through coordination and integration of
activities.
31) The central idea of business process design is that organizations should automate or
improve their existing functional systems.
Answer: False
Rationale:
The central idea of business process design is not just about automating or improving existing
functional systems but rather about rethinking and redesigning entire business processes to
achieve efficiency, effectiveness, and alignment with organizational goals. It involves
analyzing, modeling, and optimizing processes to enhance performance and deliver value to
stakeholders.
32) Most of the value in a service company is generated by inbound logistics.
Answer: False
Rationale:
In a service company, the value is primarily generated by delivering intangible services to
customers rather than through inbound logistics, which typically apply to manufacturing or
product-based businesses. In a service-oriented organization, value creation is often attributed
to activities such as service delivery, customer experience, and relationship management.
33) Each activity in a business process is a business function that receives inputs and
produces outputs.
Answer: True
Rationale:
Each activity in a business process represents a specific task or set of tasks that transform
inputs into outputs. These activities can be considered as business functions within the
broader process context. They receive inputs, perform operations, and produce outputs that
contribute to achieving the overall objectives of the process.
34) The cost of the business process is the cost of the inputs plus the cost of the outputs.
Answer: False
Rationale:
The cost of a business process includes more than just the cost of inputs and outputs. It
encompasses various factors such as labor costs, overhead expenses, technology investments,
and other resources utilized in executing the process. Additionally, the value generated by the
process should ideally exceed its costs to ensure profitability and efficiency.
35) In a manufacturing business, the materials ordering process transforms cash into a raw
materials inventory.
Answer: True
Rationale:
In a manufacturing business, the materials ordering process involves purchasing raw
materials using cash or credit, which are then transformed into raw materials inventory. This
inventory is essential for production processes and represents a key component of the
manufacturing supply chain.
36) An inventory of raw materials is an example of a repository.
Answer: True
Rationale:
An inventory of raw materials serves as a repository or storage location for materials awaiting
use in production processes. It holds the raw materials until they are needed for
manufacturing operations, providing a centralized resource for managing and accessing
materials efficiently.
37) The sales process involves sales and marketing as well as outbound logistics activities.
Answer: True
Rationale:
The sales process typically encompasses activities related to identifying potential customers,
promoting products or services through marketing efforts, negotiating sales agreements, and
ultimately delivering the products or services to customers through outbound logistics
activities. It involves both sales and marketing functions as well as logistics operations to
ensure successful transactions.
38) Streamlining of business processes to increase margin is key to obtaining competitive
advantage.
Answer: True
Rationale:
Streamlining business processes to increase efficiency, reduce costs, and improve
productivity can indeed contribute to gaining a competitive advantage in the marketplace. By
optimizing processes, organizations can deliver products or services more effectively,
respond to customer needs faster, and differentiate themselves from competitors.
39) Most process design initiatives require people to work in new ways and to follow
different procedures.
Answer: True
Rationale:
Process design initiatives often involve reengineering or redesigning existing processes,
which may require employees to adopt new ways of working and adhere to different
procedures or workflows. Change management efforts are typically necessary to facilitate the
transition and ensure successful implementation of new processes.
40) A service company asks its customers to fill out application forms before offering service.
This is an example of a supporting business process.
Answer: True
Rationale:
The process of collecting customer information through application forms can be considered
a supporting business process within the broader service delivery framework. It supports the
main service offering by gathering necessary information from customers to initiate or
customize the service delivery process effectively.
41) Business processes that span value-generating activities determine the scope and
requirements of each organization's information systems.
Answer: True
Rationale:
Business processes that span across various value-generating activities within an organization
define the scope and requirements of the information systems needed to support those
processes. These systems are designed to facilitate and optimize the flow of information and
activities across different functional areas, ensuring alignment with organizational objectives
and enhancing efficiency and effectiveness.
42) Organizations cannot gain a competitive advantage by enhancing existing products or
services.
Answer: False
Rationale:
Organizations can indeed gain a competitive advantage by continuously enhancing existing
products or services to meet changing customer needs, improve quality, add new features, or
differentiate themselves from competitors. This ongoing improvement process allows
organizations to stay relevant in the market and maintain or enhance their competitive
position.
43) Creating a new product to add value to customers is an example of using product
implementations to achieve competitive advantage.
Answer: True
Rationale:
Introducing new products or services that provide unique value propositions to customers is a
strategy commonly used by organizations to gain a competitive advantage. By innovating and
developing products that address unmet needs or offer superior features, organizations can
attract customers and differentiate themselves from competitors in the market.
44) An organization that minimizes the costs associated with the delivery of its products uses
a product implementation tactic to obtain competitive advantage.
Answer: False
Rationale:
Minimizing costs associated with product delivery typically falls under the category of cost
leadership strategy rather than product implementation. Product implementation tactics focus
more on enhancing the value or features of the product itself rather than solely on cost
reduction strategies.
45) An organization is using product implementation to achieve competitive advantage when
it tries to reduce operational costs.
Answer: False
Rationale:
Product implementation strategies are primarily concerned with enhancing the value,
features, or performance of the product itself to differentiate it from competitors and attract
customers. While reducing operational costs may contribute to overall competitiveness, it is
not specifically related to product implementation tactics.
46) Information systems create competitive advantage by providing support to a product
rather than by becoming a part of the product.
Answer: False
Rationale:
Information systems can create competitive advantage by integrating directly into products or
services, enhancing their functionality, usability, or value proposition. By embedding
information systems within products or services, organizations can offer unique features or
capabilities that differentiate them from competitors and provide added value to customers.
47) Organizations can lock in customers by making it difficult or expensive for them to move
to another product.
Answer: True
Rationale:
Locking in customers refers to strategies aimed at increasing customer loyalty and reducing
the likelihood of customers switching to competing products or services. By implementing
barriers such as contractual commitments, high switching costs, or proprietary compatibility,
organizations can effectively retain customers and secure their market share.
48) The competitive strategy of locking in customers is called establishing high switching
costs.
Answer: True
Rationale:
Establishing high switching costs is a competitive strategy aimed at locking in customers by
making it difficult or costly for them to switch to alternative products or services. By creating
barriers such as contractual obligations, specialized equipment, or data migration challenges,
organizations can discourage customers from defecting to competitors.
49) Establishing alliances with other organizations increases the cost of operations, though
they do provide competitive advantages.
Answer: False
Rationale:
Establishing alliances with other organizations can indeed provide competitive advantages
such as access to new markets, resources, or expertise without necessarily increasing the cost
of operations. Strategic alliances enable organizations to leverage complementary strengths
and share risks or expenses, leading to mutual benefits and enhanced competitiveness.
50) To determine if an information system delivers a net savings in costs, the cost of
developing and operating the information system will need to be offset against the gains in
reduced errors and paper, ink, and printing costs.
Answer: True
Rationale:
Evaluating the cost-effectiveness of an information system involves comparing the expenses
associated with developing, implementing, and operating the system against the savings or
benefits it generates. This includes considering factors such as reduced errors, increased
efficiency, savings on material costs like paper, ink, and printing, and other tangible and
intangible benefits to determine if the system delivers a net positive return on investment.
Multiple Choice Questions
1) Which of the following factors determines the structure, features, and functions of an
information system used in a company?
A) the competitive strategy
B) the value of its brands
C) the size of the company
D) the technology used by competitors
Answer: A
Rationale:
The competitive strategy of a company plays a crucial role in determining the structure,
features, and functions of its information system. The system should align with the company's
competitive strategy to support its objectives and gain a competitive advantage in the market.
2) Porter's five forces model is used to assess ________.
A) industry structure
B) market share
C) internal competition
D) lifecycles of products
Answer: A
Rationale:
Porter's five forces model is primarily used to assess the industry structure by analyzing the
competitive forces that shape an industry's attractiveness and profitability. It helps in
understanding the dynamics of competition and identifying strategic opportunities and
threats.
3) According to Porter's five forces model, which of the following firms would be least
affected by the threat of substitutes?
A) a used car dealership in New York
B) a convenience store that sells retail products
C) a firm that sells the only drug for a disease
D) corner latte shops in Atlanta
Answer: C
Rationale:
According to Porter's five forces model, a firm that offers a product with no substitutes would
be least affected by the threat of substitutes. In this case, the firm selling the only drug for a
disease faces minimal competition from substitutes, thereby reducing the threat.
4) According to Porter's five forces model, which of the following would be most affected by
the threat of substitutes?
A) Microsoft Windows OS
B) Boeing jets
C) Southwest Airlines
D) Google Adwords
Answer: C
Rationale:
Southwest Airlines would be most affected by the threat of substitutes according to Porter's
five forces model. The airline industry faces competition from various substitutes such as
other modes of transportation (e.g., trains, cars) and alternative airlines, making the threat of
substitutes significant.
5) According to Porter's five forces model, in which of the following situations would the
suppliers have the highest bargaining power?
A) a single vendor providing raw materials to many department stores
B) a fashion outlet catering to a niche market
C) a bank liquidating during a fire sale
D) a large retailer buying goods from many small suppliers
Answer: A
Rationale:
According to Porter's five forces model, suppliers have the highest bargaining power when
they are few in number and provide critical or unique inputs to many buyers. In this scenario,
a single vendor providing raw materials to many department stores indicates a concentrated
supplier power.
6) According to Porter's five forces model, in which of the following examples would rivalry
be considered as a weak force affecting the market?
A) military services
B) used car dealers
C) book sellers
D) packaged food manufacturers
Answer: A
Rationale:
According to Porter's five forces model, rivalry tends to be a weak force affecting the market
when there are few competitors and the industry is characterized by collaboration rather than
intense competition. Military services often operate in regulated environments with limited
direct competition, making rivalry relatively weak.
7) A new drug that has shown promise in curing lung cancer has been discovered by a famous
chemical laboratory. This is the only drug effective for treatment of this disease. The
laboratory obtains a patent for the product and decides to sell it. This situation is
characterized by ________.
A) low threat of substitutions
B) high bargaining power of customers
C) high threat of new entrants
D) low bargaining power of suppliers
Answer: A
Rationale:
The situation described is characterized by a low threat of substitutions because the product
(the drug for curing lung cancer) has no substitutes available in the market due to its
uniqueness and effectiveness. The patent protection further reduces the threat of substitutions.
8) A group of grain farmers in a surplus year will have reduced ________.
A) bargaining power
B) threat of substitutes
C) risk of rivalry
D) threat of new entrants
Answer: A
Rationale:
In a surplus year, when there is an abundance of grain supply, grain farmers would experience
reduced bargaining power because buyers have more options and can negotiate for lower
prices. Surplus conditions weaken the bargaining position of suppliers.
9) Bargaining power of customers is likely to be the highest for markets involving ________.
A) public transportation
B) industrial products
C) patented drugs
D) luxury goods
Answer: B
Rationale:
The bargaining power of customers is likely to be highest in markets involving industrial
products because industrial buyers often make large-volume purchases and have the ability to
negotiate prices and terms with suppliers, exerting significant influence over the market.
10) The automobile industry is characterized by many manufacturers and intense competition
among them. This statement illustrates ________.
A) low threat of substitutions
B) high bargaining power of suppliers
C) high levels of rivalry
D) low bargaining power of customers
Answer: C
Rationale:
The statement illustrates high levels of rivalry in the automobile industry due to the presence
of many manufacturers competing for market share. Intense competition among rivals is a
defining characteristic of industries with high rivalry, such as the automobile industry.
11) ABC Motors is the largest manufacturer of cars. The company purchases raw materials
from many small-sized sellers across the globe. In this case, ABC Motors is characterized by
________.
A) very low threat of substitute products
B) high bargaining power over its suppliers
C) very low threat of new entrants to market
D) very high bargaining power over its customers
Answer: B
Rationale:
ABC Motors, being the largest manufacturer of cars, likely commands significant purchasing
power over its suppliers due to its large-scale operations and global presence. This grants the
company high bargaining power over its suppliers, allowing it to negotiate favorable terms
and prices for raw materials.
12) N-joi Ice Cream recently faced competition against their flagship brand of "black currant
ice cream." The competitor made significant in-roads into this market by offering three
varieties of "black currant ice cream." N-joi decided to counter this threat by introducing five
new varieties of ice creams. Which competitive strategy is N-joi implementing?
A) cost leadership
B) product differentiation
C) cost differentiation in the segment
D) service focus
Answer: B
Rationale:
N-joi Ice Cream is implementing a product differentiation strategy by introducing new
varieties of ice creams to counter the competition. Product differentiation involves offering
unique or distinct products or services to attract customers and differentiate oneself from
competitors.
13) An automobile company decides to improve the quality of all its products and bring more
variety into its product line. The company has decided to adopt ________.
A) focused cost-leadership
B) industry-wide differentiation
C) industry-wide cost leadership
D) focused differentiation
Answer: B
Rationale:
The automobile company's decision to improve the quality of all its products and increase
product variety aligns with an industry-wide differentiation strategy. Industry-wide
differentiation involves offering unique or differentiated products across the entire industry to
appeal to a broad customer base.
14) Focused differentiation occurs when ________.
A) a better product is provided within an industry segment
B) there is limited competition in an industry
C) the customers are highly price sensitive
D) product quality improves across an entire industry
Answer: A
Rationale:
Focused differentiation occurs when a company targets a specific market segment and
provides a better product or service within that segment compared to competitors. It involves
tailoring products or services to meet the specific needs and preferences of a particular
customer group.
15) Focused cost leadership is observed when a product has the lowest cost ________.
A) within an industry segment
B) across the product range offered by a company
C) within an industry
D) within the supply chain of a company
Answer: A
Rationale:
Focused cost leadership is observed when a company aims to be the lowest-cost producer
within a specific market segment. It involves achieving cost advantages in serving a
particular target market while maintaining competitive pricing to attract customers within that
segment.
16) The difference between the value that an activity generates and the cost of the activity is
called the ________.
A) margin
B) turnover
C) revenue
D) value-addition
Answer: A
Rationale:
The term "margin" refers to the difference between the value (or benefit) that an activity
generates and the cost incurred to perform that activity. It represents the profitability or
efficiency of an activity within a business process or value chain.
17) Porter defined value as the ________.
A) amount of money that a customer is willing to pay for an offering
B) extent of after-sale service provided to customers
C) perceived satisfaction of the customers and sellers after a transaction
D) actual money exchanged in return of a product/service
Answer: A
Rationale:
Porter defined value as the amount of money that a customer is willing to pay for an offering,
reflecting the perceived benefits or utility derived from the product or service. It emphasizes
the importance of delivering value to customers to achieve competitive advantage.
18) Identify the activity in the value chain that involves receiving and handling of raw
materials and other inputs to the product.
A) inbound logistics
B) procurement
C) operations
D) outbound logistics
Answer: A
Rationale:
Inbound logistics is the activity in the value chain that involves receiving, storing, and
distributing raw materials and other inputs to the production process. It encompasses
activities such as sourcing materials, inventory management, and transportation of goods
from suppliers to the manufacturing facility.
19) The difference between the total value added and the total costs incurred is called the
________ of the value chain.
A) actual value
B) total margin
C) gross revenue
D) gross turnover
Answer: B
Rationale:
The total margin of the value chain represents the difference between the total value added by
the activities performed within the chain and the total costs incurred to perform those
activities. It reflects the overall profitability or efficiency of the value chain.
20) A retail marketing company sells such products as agricultural produce and consumer
products. The company procures materials from farmers and local producers. This process of
obtaining the inputs needed for a business is called ________.
A) outbound logistics
B) inbound logistics
C) operations
D) internal marketing
Answer: B
Rationale:
The process of obtaining inputs needed for a business from external suppliers, such as
farmers and local producers, is called inbound logistics. It involves activities related to
sourcing, receiving, storing, and managing raw materials and other inputs to support the
production or service delivery process.
21) Which of the following value chain activities involves transforming raw materials into a
finished product or service?
A) operations
B) inbound logistics
C) marketing
D) maintenance
Answer: A
Rationale:
The activity of transforming raw materials into a finished product or service is part of the
operations function within the value chain. Operations encompass all the processes involved
in manufacturing, assembling, or providing the core product or service offered by the
company.
22) Which of the following value chain activities involves collecting, storing, and physically
distributing the product to buyers?
A) inbound logistics
B) operations
C) customer service
D) outbound logistics
Answer: D
Rationale:
Outbound logistics involves the processes of collecting, storing, and physically distributing
the finished product or service to customers or buyers. This activity ensures that the product
reaches its intended destination in a timely and efficient manner.
23) Which of the following value chain activities involves inducing buyers to purchase a
product and providing a means for them to do so?
A) inbound logistics
B) operations
C) sales and marketing
D) outbound logistics
Answer: C
Rationale:
The activity of inducing buyers to purchase a product and providing a means for them to do
so is part of the sales and marketing function within the value chain. This involves activities
such as advertising, promotions, sales campaigns, and customer relationship management to
attract and retain customers.
24) Which of the following value chain activities involves assisting users with handling of the
products after sale, thus maintaining and enhancing the products' value?
A) inbound logistics
B) customer service
C) operations
D) outbound logistics
Answer: B
Rationale:
Customer service is the value chain activity that involves assisting users with the handling of
products after sale, addressing their inquiries, resolving issues, and ensuring customer
satisfaction. This activity aims to maintain and enhance the value of products or services in
the eyes of customers.
25) Which of the following is a primary activity in the value chain?
A) receiving and disseminating inputs to the product
B) negotiating prices with vendors
C) finding suitable vendors to supply raw materials
D) setting up contractual arrangements with various suppliers
Answer: A
Rationale:
Receiving and disseminating inputs to the product is a primary activity in the value chain as it
directly involves the production or delivery of the core product or service. This activity
encompasses tasks related to inbound logistics, inventory management, and material
handling.
26) Mae manages delivery at a custom-kitchen outlet. Based on her customer's feedback, she
contacts Gem Cabinets and places an order for a full-motion wall mount. Which of the
following primary activities is Mae performing here?
A) inbound logistics
B) operations
C) customer service
D) marketing
Answer: A
Rationale:
Mae is performing the primary activity of inbound logistics by contacting Gem Cabinets to
procure a full-motion wall mount based on customer feedback. Inbound logistics involves the
processes of sourcing, receiving, storing, and disseminating inputs or materials required for
production or service delivery.
27) Lynn, the manager of a transportation company, is going through this week's delivery
schedule. She calls her team and assigns territories for each executive. She contacts the fleet
supervisor to arrange trucks for transportation. Which activity of the value chain is Lynn
executing?
A) inbound logistics
B) marketing
C) customer service
D) outbound logistics
Answer: D
Rationale:
Lynn is executing the activity of outbound logistics within the value chain by organizing and
arranging transportation for delivering goods or services to customers. Outbound logistics
involves managing the physical distribution of finished products or services from the
company to the end-users or buyers.
28) Which of the following is a support activity in the value chain?
A) receiving inputs to operationalize the production
B) distributing the products to retailers or buyers directly
C) assisting customers in using the product or service
D) setting up contractual arrangements for procurement
Answer: D
Rationale:
Setting up contractual arrangements for procurement is a support activity in the value chain.
Support activities are those functions that enable primary activities to be performed
efficiently. Procurement involves acquiring the necessary inputs, materials, or resources
required for production or service delivery.
29) Which of the following is considered a support activity in the value chain of a business?
A) operations
B) customer service
C) contract negotiation
D) marketing
Answer: C
Rationale:
Contract negotiation is considered a support activity in the value chain of a business. Support
activities are those functions that provide essential support to primary activities and enable
them to be performed efficiently. Contract negotiation involves negotiating agreements and
contracts with suppliers, vendors, or other business partners.
30) According to Porter's model of business activities, interactions across value activities are
called ________.
A) support activities
B) models
C) linkages
D) cross-functionalities
Answer: C
Rationale:
According to Porter's model, interactions across value activities are called linkages. These
linkages represent the connections or relationships between different activities within the
value chain. Effective management of linkages can lead to competitive advantage by
optimizing the overall value creation process.
31) Which of the following statements is consistent with the central idea of business process
design?
A) Technology should be used to supplement the existing value chain.
B) Business processes should not focus on the core competencies of organizations.
C) Organizations should create new business processes rather than improve existing systems.
D) Technology should be used to modify and improve standard business processes.
Answer: C
Rationale:
The central idea of business process design is to create new, more efficient business processes
rather than simply improving existing systems. This involves rethinking and redesigning
organizational workflows to achieve better outcomes and increased efficiency.
32) ________ argues that firms should create new, more efficient business processes that
integrate the activities of all departments involved in a value chain.
A) Internal supply chain design
B) Product differentiation model
C) Market differentiation model
D) Business process design
Answer: D
Rationale:
Business process design argues that firms should create new, more efficient business
processes that integrate the activities of all departments involved in a value chain. This
approach aims to streamline operations, improve efficiency, and enhance overall
organizational performance.
33) A(n) ________ is a network of activities that generate value by transforming inputs into
outputs.
A) business process
B) competitive strategy
C) linkage
D) information system
Answer: A
Rationale:
A business process is a network of activities that generate value by transforming inputs into
outputs. These activities are interconnected and contribute to achieving specific
organizational objectives or delivering products or services to customers.
34) The cost of the business process is the sum of the cost of the inputs and the ________.
A) cost of the activities
B) cost of the outputs
C) value of the outputs
D) value of the products
Answer: A
Rationale:
The cost of the business process includes the cost of the inputs required for the process, as
well as the cost of the activities involved in transforming those inputs into outputs. This
encompasses all expenses associated with carrying out the various steps within the process.
35) A ________ is a collection of something, such as data and raw materials.
A) value chain
B) cache
C) linkage
D) repository
Answer: D
Rationale:
A repository is a collection of something, such as data and raw materials, that is stored and
organized for future use. It serves as a centralized location for storing and managing
information or resources within an organization.
36) A database is an example of a ________.
A) repository
B) procedure
C) linkage
D) value chain
Answer: A
Rationale:
A database is an example of a repository. It is a structured collection of data or information
that is stored electronically in a computer system. Databases are commonly used to store and
organize large volumes of data for efficient retrieval and manipulation.
37) In a manufacturing business, the ________ transforms finished goods into cash.
A) inbound operation
B) manufacturing process
C) sales process
D) inbound logistic
Answer: C
Rationale:
In a manufacturing business, the sales process is responsible for transforming finished goods
into cash. This process involves activities related to marketing, selling, and distributing
products to customers, ultimately generating revenue for the organization.
38) Material ordering is a part of ________.
A) outbound logistics
B) marketing
C) operations
D) inbound logistics
Answer: D
Rationale:
Material ordering is a part of inbound logistics. Inbound logistics involves the processes of
sourcing, acquiring, and managing inputs or materials required for production or service
delivery. Material ordering is a critical component of this process, as it involves procuring the
necessary materials from suppliers or vendors.
39) Which of the following statements is true of business process designs?
A) Most process designs require people to work in new ways.
B) Business process designs do not involve following different procedures.
C) Business process designs should be accompanied by a change in management.
D) Process designs attract very little employee resistance.
Answer: A
Rationale:
True business process designs often require people to work in new ways, as they involve
rethinking and redesigning organizational workflows. Implementing new processes may
necessitate changes in roles, responsibilities, and procedures, which can sometimes lead to
resistance from employees accustomed to existing practices.
40) RAC Associates is a car rental company. The company rents cars to customers in the
United States. The company uses controls and procedures to prevent car theft. Such
procedures are examples of ________.
A) primary business processes
B) core activities
C) strategic activities
D) supporting business processes
Answer: D
Rationale:
The controls and procedures used by RAC Associates to prevent car theft are examples of
supporting business processes. Supporting business processes are those activities that
facilitate the efficient operation of primary business processes. In this case, preventing car
theft supports the primary business process of renting cars to customers.
41) RedDart is a premium freight provider in the United States. The company offers premium
shipment services to its customers. The company ships faster than its competitors and uses
tamperproof containers to ship its products. RedDart distinguishes itself from competitors by
________.
A) providing an enhanced service
B) locking in its suppliers
C) locking in its customers
D) offering low-cost operations and services
Answer: A
Rationale:
RedDart distinguishes itself from competitors by providing an enhanced service, including
faster shipment and the use of tamperproof containers. This emphasis on premium shipment
services sets RedDart apart and appeals to customers seeking higher-quality freight solutions.
42) Which of the following principles of competitive advantage is associated with product
implementations?
A) locking in customers
B) differentiating service offerings
C) locking in suppliers
D) establishing alliances
Answer: B
Rationale:
Product implementations are associated with the principle of differentiating service offerings.
By offering unique or superior products compared to competitors, companies can create a
competitive advantage and attract customers seeking those specific features or benefits.
43) Which of the following principles of competitive advantage is related to process
implementations?
A) creating new products
B) enhancing services
C) locking in suppliers
D) differentiating products
Answer: C
Rationale:
Process implementations are related to the principle of locking in suppliers. By optimizing
internal processes and establishing strong relationships with suppliers, organizations can
secure access to critical resources and components, thereby gaining a competitive advantage.
44) Huen Software, an application provider to the gaming industry, decided to increase its
portfolio by developing 3-D graphics-enabled games for the mobile gaming industry. By
doing this, which competitive strategy is Huen Software implementing?
A) creation of entry barriers
B) product differentiation
C) reduction of cost
D) locking in suppliers
Answer: B
Rationale:
Huen Software is implementing a product differentiation strategy by developing 3-D
graphics-enabled games for the mobile gaming industry. This strategy aims to distinguish its
products from competitors' offerings and attract customers seeking unique gaming
experiences.
45) PowerCruise, a holiday cruise firm, recently offered its existing customers, who had
registered for a two-year membership, an extension of six months to their membership
without any additional charges. By doing this, which competitive strategy did PowerCruise
implement?
A) creation of a new service
B) product differentiation
C) locking in customers
D) locking in suppliers
Answer: C
Rationale:
PowerCruise implemented a strategy of locking in customers by offering an extension of
membership without additional charges. This tactic aims to incentivize customers to remain
loyal to PowerCruise by making it more advantageous for them to continue using its services.
46) An organization wants to achieve competitive advantage through process
implementations. Which of the following actions would help them do that?
A) establishing alliances
B) creating new products
C) enhancing products
D) differentiating services
Answer: A
Rationale:
Establishing alliances would help the organization achieve competitive advantage through
process implementations. Collaborating with external partners or suppliers can streamline
operations, improve efficiency, and access additional resources or expertise, thereby
enhancing the organization's competitive position.
47) Synapz, a manufacturer of office automation products, recently received a patent for an
advanced therapeutic ergonomics technology. By doing this, Synapz has ________.
A) created an entry barrier
B) introduced product differentiation
C) locked in its suppliers
D) reduced the cost of operations
Answer: A
Rationale:
By receiving a patent for an advanced therapeutic ergonomics technology, Synapz has created
an entry barrier. This intellectual property protection prevents competitors from easily
replicating the technology, giving Synapz a competitive advantage in the market.
48) Locking in customers by making it difficult or expensive for customers to move to
another product is called establishing high ________.
A) entry barriers
B) switching costs
C) product standards
D) value differentiation
Answer: B
Rationale:
Locking in customers by making it difficult or expensive for them to switch to another
product is known as establishing high switching costs. This strategy aims to retain customers
by increasing the investment required for them to transition to alternative solutions or
providers.
49) July Networks provides digital television services across the country. They have a
cutting-edge technology that provides high-resolution visuals. Customers are required to pay
an up-front fee to cover the first two years of the subscription, when registering with July
Networks. By doing this, which competitive strategy is July Networks implementing?
A) differentiating the product
B) enhancing the product
C) locking in customers
D) standardizing the product
Answer: C
Rationale:
July Networks is implementing a strategy of locking in customers by requiring an up-front
fee to cover the first two years of the subscription. This approach incentivizes customers to
commit to the service and makes it less likely for them to switch to competitors.
50) A large software manufacturer attempts to lock in customers by making it difficult for
customers to change to another product. The strategy used is ________.
A) switching costs strategy
B) low-cost operation strategy
C) differentiation strategy
D) consumerist strategy
Answer: A
Rationale:
The strategy used by the large software manufacturer to lock in customers by making it
difficult for them to change to another product is a switching costs strategy. By increasing the
costs associated with switching to alternative products or providers, the manufacturer aims to
retain customers and enhance customer loyalty.
51) Organizations can lock in suppliers by making it difficult to switch to another
organization or by ________.
A) making it easy for the customers to switch products
B) reducing investments in their supply chain
C) making it easy to work with the organization
D) reducing the bargaining power of consumers
Answer: C
Rationale:
By making it easy to work with the organization, such as offering streamlined processes,
clear communication channels, and reliable payment terms, organizations can effectively lock
in suppliers. Suppliers are more likely to continue working with an organization that provides
a positive and efficient experience, reducing the likelihood of them switching to other buyers.
52) A group of manufacturing organizations purchases raw materials collectively to obtain
better deals. This is an example of obtaining competitive advantage by ________.
A) differentiating the industry
B) establishing standards
C) establishing alliances
D) enhancing the products
Answer: C
Rationale:
This scenario illustrates obtaining competitive advantage by establishing alliances. By
collaborating with other manufacturing organizations to collectively purchase raw materials,
each organization can leverage the collective bargaining power to negotiate better deals and
obtain cost advantages, thus gaining a competitive edge in the industry.
53) An organization implements an information system to optimize its supply chain. The
system helps the organization reduce wastages and inventory charges. Hence, the system
provides a competitive advantage to the organization. Here, the information system helped
the organization achieve competitive advantage by ________.
A) locking in customers
B) reducing costs
C) locking in suppliers
D) differentiating the products
Answer: B
Rationale:
The information system helped the organization achieve competitive advantage by reducing
costs. By optimizing the supply chain and reducing wastages and inventory charges, the
organization can operate more efficiently and lower its overall operational expenses, thereby
gaining a competitive edge in terms of cost-effectiveness.
54) Reduction in production cost results in ________.
A) decreased profitability
B) lower shareholder value
C) increased profitability
D) increased competition
Answer: C
Rationale:
Reduction in production cost results in increased profitability. By lowering production costs,
a company can improve its profit margins, leading to increased profitability. This allows the
company to reinvest in growth initiatives, reward shareholders, or remain competitive by
offering competitive prices in the market.
Essay Questions
1) Describe the process by which organizations develop their information systems.
Answer: An organization's goals and objectives are determined by its competitive strategy.
Thus, ultimately, competitive strategy determines the structure, features, and functions of
every information system. In short, organizations examine the structure of their industry and
determine a competitive strategy. That strategy determines value chains, which, in turn,
determine business processes. The structure of business processes determines the design of
supporting information systems.
2) Briefly explain Porter's five forces model.
Answer: Organizational strategy begins with an assessment of the fundamental characteristics
and structure of an industry. One model used to assess an industry structure is Porter's five
forces model. According to this model, five competitive forces determine industry
profitability: bargaining power of customers, threat of substitutions, bargaining power of
suppliers, threat of new entrants, and rivalry among existing firms. 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.
3) What are the four competitive strategies firms can choose from according to Porter's
model?
Answer: An organization responds to the structure of its industry by choosing a competitive
strategy. Porter followed his five forces model with the model of four competitive strategies.
According to Porter, firms engage in one of these four strategies. An organization can focus
on being the cost leader, or it can focus on differentiating its products from those of the
competition. Further, the organization can employ the cost or differentiation strategy across
an industry, or it can focus its strategy on a particular industry segment.
4) Briefly describe the concepts of value, margin, and value chain.
Answer: 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 value chain is a network of value-creating
activities. That generic chain consists of five primary activities and four support activities.
5) List the primary activities in a generic value chain.
Answer: The primary activities are (1) inbound logistics, (2) operations/manufacturing, (3)
outbound logistics, (4) sales and marketing, and (5) customer service.
6) Distinguish between the primary and support activities of a value chain.
Answer: Primary activities directly add value to the value chain of an organization. Examples
are operations and marketing.
The support activities in the generic value chain contribute 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.
7) What are support activities in a value chain?
Answer: The support activities in the generic value chain contribute 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.
Supporting functions add value, albeit indirectly, and they also have costs. It is difficult to
calculate the margin for such activities because the specific value added by a support activity
is difficult to know.
8) Explain linkages with an example.
Answer: 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 materials needs and then uses the material needs to schedule purchases. The
end result is just-in-time inventory, which reduces inventory sizes and costs.
9) What is the central idea of business process design?
Answer: The central idea of business process design is that organizations should not automate
or improve existing functional systems. Rather, they should create new, more efficient
business processes that integrate the activities of all departments involved in a value chain.
10) What is a business process? How do you determine the cost and margin of a business
process?
Answer: A business process is a network of activities that generate value by transforming
inputs into outputs. Each activity is a business function that receives inputs and produces
outputs. An activity can be performed by a human, by a computer system, or by both.
The cost of the business process is the cost of the inputs plus the cost of the activities. The
margin of the business process is the value of the outputs minus the cost.
11) Describe the challenges that an organization will face when changing business processes.
Answer: Changing business processes is not easy to do. Most process design requires people
to work in new ways, to follow different procedures, and employees often resist such change.
12) Summarize how organizations determine the scope and requirements of their information
systems.
Answer: Organizations analyze their industry and choose a competitive strategy. Given that
strategy, they design business processes that span value-generating activities. Those processes
determine the scope and requirements of each organization's information systems.
13) Briefly explain the process implementation competitive strategies.
Answer: Organizations can use various process implementation competitive strategies to gain
competitive advantage. 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. 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. Competitive advantage can also be gained by creating entry barriers
that make it difficult and expensive for new competition to enter the market. Another means
to gain competitive advantage is to establish alliances with other organizations. Finally,
organizations can gain competitive advantage by reducing costs.
14) Explain the concept of switching costs with an example.
Answer: Switching costs are the expenses that a customer must pay to move from the current
product to a competitor's offering. By making these switching costs high, it discourages the
client from leaving the current provider. In the past, long distance phone service was known
to carry high switching costs. Entering an agreement to construct a house also carries high
switching costs.
15) What are the areas that provide opportunity for technological growth in the next 10 years?
Answer: If you're looking for growth opportunities involving technology in the next 10 years,
one place to look is companies that support health and the government's management of
health care. Such companies might be consulting companies; they're always popular for the
government. But to make a stronger contribution, consider companies that find innovative
ways of providing information systems services to health care and government organizations
or that solve consumer problems created by such organizations.
Test Bank for Using MIS
David M. Kroenke
9780133029673, 9780135191767, 9780134106786, 9780138132484, 9780136100751, 9780134606996
