Review Questions for Chapter 3: Achieving Competitive Advantage with Information Systems

1. Define Porter’s competitive forces model and explain how it works.

This model provides a general view of the firm, its competitors, and the firm’s environment. Porter’s
model is all about the firm’s general business environment. In this model, five competitive forces shape
the fate of the firm:

 Traditional competitors: It describes the intensity of competition in the market, which is already
present, making it valuable for a business to consider before entering a market or coming up
with a unique offering.

 New market entrants: For a business, having a unique offering in the market is everything. What
this would mean is that any new entry offering the same products or services is a potential
threat to the company's ability to have a competitive aspect in the market and therefore, is
relevant for any business.

 Substitute products and services: In a saturated market, with various small operators, the fact
that similar products would give an overall impact over the ability of the company to make
better use of their processes would create the necessary understanding for consideration of
substitutes as a viable consideration.

 Customers: In a saturated industry with direct competition, the customer dictates the value and
pricing of a product rather than a company. It would mean that there is a large number of small
operators, selling almost the same type of products or services.

 Suppliers: It defines an industry where the power of supplier is high, leading to a few suppliers
holding power, essentially deciding the price at which they do business, and since there is no
substitute for this input, a company needs to create the necessary outlook for this competitive
force.

All the forces allow a company to recognize the market opportunities and threats present in a particular
industry, creating the need to formulate a better strategic outcome for being able to compete in the
market.

2. List and describe four competitive strategies enabled by information systems that firms can
pursue.

Below are the four competitive strategies enabled by information systems:

 Low-cost leadership: Lowest operational costs and the lowest prices.

 Product differentiation: Enable new products and services, or greatly change the customer
convenience in using existing products and services.

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  Focus on market niche: Enable a specific market focus and serve this narrow target market
better than competitors.

 Strengthen customer and suppliers: Tighten linkages with suppliers and develop intimacy with
customers.

3. Define and describe the value chain model.

The value chain model highlights specific activities in the business where competitive strategies can
best be applied and where information systems will most likely have a strategic impact. The model
identifies specific, critical leverage points where a firm can use information technology most effectively
to enhance its competitive position.

The value chain model views the firm as a series of basic activities that add a margin of value to a
firm’s products or services. The activities are categorized as either primary or support activities. Primary
activities are most directly related to the production and distribution of the firm’s products and services,
which create value for the customer. Support activities make the delivery of primary activities possible
and consist of organization infrastructure. A firm’s value chain can be linked to the value chains of its
suppliers, distributors, and customers.

4. List and describe the four main ways of organizing a business internationally and the types of
systems configuration for global business organizations.

Below are the four main ways of organizing a business internationally:

 Domestic exporter: heavy centralization of corporate activities in a home country. Production,

 Multinational: concentrates financial management and control in a central home base, but
decentralizes production, sales, and marketing to suit local market conditions.

 Franchiser: create, design, and finance the product in the home country, but rely on foreign
operations for further production, marketing, and human resources. Often, the product must be
produced locally because it is perishable.

 Transnational: a stateless, truly globally managed firm. It has no single national headquarters,
but instead has many regional headquarters and perhaps a world headquarters. Nearly all of the
value-added activities are managed from a global perspective without reference to national
borders.

Below are the 4 types of systems configuration for global business organizations.

 Centralized: systems development and operations occur totally at the domestic home base.

 Duplicated: systems development occurs totally at the home base, but operations are handed
over to autonomous units in foreign locations.

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 Decentralized: each foreign unit designs its own, totally unique solutions and systems.

 Networked: systems development and operations occur in an integrated and coordinated

5. List and describe the steps companies should take to make sure BPM (business process
management) is successful.

Steps companies can take to make sure BPM is successful include:

1. Identify processes for change: organizations need to understand what business processes need
improvement. Managers need to determine what business processes are the most important
and how improving these processes will help the business performance.

2. Analyze existing processes: existing business processes should be modeled and documented,
noting inputs, outputs, resources, and the sequence of activities. The process design team
identifies redundant steps, paper-intensive tasks, bottlenecks, and other inefficiencies.

3. Design the new process: the process design team will try to improve the process by designing a
new one. A new streamlined “to-be” process will be documented and modeled for comparison
with the old process. The new process design needs to be justified by showing how much it
reduced time and cost or enhanced customer service and value.

4. Implement the new process: The new process must be translated into a new set of procedures
and work rules. New information systems or enhancements to existing systems may have to be
implemented to support the redesigned process. The new process and supporting systems are
rolled out into the business organization.

5. Continuous measurement: The new process must be continually measured because some
process may deteriorate over time as employees fall back on old methods, or they may lose
their effectiveness if the business experiences other changes.