Chapter 3: Information Systems, Organizations, Management ...



Chapter 3

Information Systems, Organizations, Management, and Strategy

True-False Questions

| |The interaction between information technology and organizations is simple and is not influenced by other mediating factors. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 72 |

| |E-mail and instant messaging have become a dominant form of business communication. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 72 |

| |An organization is less stable than an informal group in terms of longevity and routines. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 73 |

| |Organizations are social structures. |

| | |

| |Answer: True Difficulty: Medium Reference: p. 73 |

| |The technical and behavioral definitions of organizations are contradictory. |

| | |

| |Answer: False Difficulty: Medium Reference: p. 74 |

| |Peter Drucker was the first person to describe the “ideal-typical” characteristics of an organization. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 74 |

| |Standard operating procedures are precise rules, procedures, and practices that have been developed to cope with virtually |

| |all expected situations. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 75 |

| |Organizations that survive over time become less efficient. |

| | |

| |Answer: False Difficulty: Medium Reference: p. 75 |

| |Organizational culture restrains political conflict and promotes common understanding, agreement on procedures, and common |

| |practices. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 76 |

| |Organizations generally have more features in common with each other than they have unique features. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 78 |

| |It is the systems analysts job to translate business problems and requirements into information requirements and systems. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 80 |

| |The role of the CFO is a senior management position that oversees the use of information technology in a firm. |

| | |

| |Answer: False Difficulty: Medium Reference: p. 80 |

| |By reducing overall management costs, information technology enables firms to increase revenues while shrinking the number of|

| |middle managers and clerical workers. |

| | |

| |Answer: True Difficulty: Medium Reference: p. 82 |

| |In virtual organizations, work is tied to geographic location. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 83 |

| |Micromarketing can help companies pinpoint tiny target markets for finely customized products and services. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 84 |

| |Research on project implementation failures demonstrates that the most common reason for failure of large projects to reach |

| |their objectives is organizational and political resistance to change. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 85 |

| |The classical model of management is still popular today. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 86 |

| |Managers do not behave as the classical model of management has led us to believe. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 86 |

| |Mintzberg has defined the five modern attributes of managerial behavior. |

| | |

| |Answer: False Difficulty: Hard Reference: p. 87 |

| |Information systems provide only limited assistance for management decision making. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 88 |

| |The rational model of human behavior is built on the idea that people engage in basically consistent, rational, |

| |value-maximizing calculations. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 88 |

| |People tend to choose the first available alternative that moves them toward the ultimate goal, not necessarily the |

| |alternative that is best. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 88 |

| |Understanding the environment in which an organization must function is not relevant when building a new information system. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 89 |

| |According to bureaucratic models of decision making an organization’s most important goal is the preservation of the |

| |organization. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 89 |

| |If an information system is not built with a clear understanding of the organization and a clear understanding of exactly |

| |what is expected of it, it will not be able to deliver genuine benefits. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 89 |

| |The value chain model classifies all company activities as either primary or support. |

| | |

| |Answer: True Difficulty: Medium Reference: p. 91 |

| |In the value chain model, primary activities are most directly related to the production and distribution of the firm’s |

| |products and services that create value for the customer. |

| | |

| |Answer: True Difficulty: Medium Reference: p. 91 |

| |Digitally enabled networks can be used not only to purchase supplies but also to closely coordinate production of many |

| |independent firms. |

| | |

| |Answer: True Difficulty: Medium Reference: p. 91 |

| |Many of information technology-based products and services were developed originally by financial institutions. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 93 |

| |One way an organization can increase profitability and market penetration is to mine existing data. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 94 |

| |The just-in-time supply method allows stockless inventory. |

| | |

| |Answer: False Difficulty: Hard Reference: p. 96 |

| |Supply chain management and efficient customer response systems allow digital firms to engage in business strategies not |

| |available to traditional firms. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 96 |

| |The idea driving synergies is that when the output of some units can be used as inputs to other units, the relationship can |

| |lower cost and generate profits. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 97 |

| |The competitive forces model was created for today’s digital firm. |

| | |

| |Answer: False Difficulty: Hard Reference: p. 99 |

| |In the age of the Internet, Porter’s traditional competitive forces model is still at work, but competitive rivalry has |

| |become much more intense. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 99 |

| |Customers are one of the competitive forces that affect an organization’s ability to compete. |

| | |

| |Answer: True Difficulty: Easy Reference: p. 99 |

| |Business ecosystems typically have one or a few keystone firms that dominate the ecosystem and create the platforms used by |

| |other niche firms. |

| | |

| |Answer: True Difficulty: Medium Reference: p. 100 |

| |The law of diminishing returns always applies to digital, as well as traditional companies. |

| | |

| |Answer: False Difficulty: Medium Reference: p. 101 |

| |The more people that use Microsoft Office software and related products, the greater its value. |

| | |

| |Answer: False Difficulty: Medium Reference: p. 102 |

| |The competitive advantages strategic systems confer usually last long enough to ensure long-term profitability. |

| | |

| |Answer: False Difficulty: Easy Reference: p. 103 |

Multiple-Choice Questions

| |The interaction between information technology and organizations is very complex and is influenced by a great many |

| |mediating factors, including the organization structure, business processes, politics, culture, management decisions |

| |and: |

| | |

| |a. the surrounding environment. |

| |b. the economic basis of the company. |

| |c. the availability of trained employees. |

| |d. the cash flow within the company. |

| | |

| |Answer: a Difficulty: Easy Reference: p. 72 |

| |A stable, formal social structure that takes resources from the environment and processes them to produce outputs is |

| |called a(n): |

| | |

| |a. micro system. |

| |b. organization. |

| |c. bureaucracy. |

| |d. value chain. |

| | |

| |Answer: b Difficulty: Easy Reference: p. 73 |

| |_____________________ are common features of all organizations. |

| | |

| |a. Culture, routines, and politics |

| |b. Power, technology, and business processes |

| |c. Formal structure, politics, and goals |

| |d. Formal structure, function, and environments |

| | |

| |Answer: a Difficulty: Hard Reference: p. 74 |

| |The behavioral view of organizations emphasizes group relationships and ____________. |

| | |

| |a. values |

| |b. abstract rules and procedures |

| |c. structures |

| |d. Both a and c |

| | |

| |Answer: d Difficulty: Medium Reference: p. 74 |

| |In 1911, this German sociologist called organizations bureaucracies: |

| | |

| |a. Max Webber |

| |b. Franz Kafka |

| |c. Anne Frank |

| |d. Paul Gerhardt |

| | |

| |Answer: a Difficulty: Medium Reference: p. 74 |

| |Virtually all information systems that bring about significant changes in goals, procedures, productivity, and personnel|

| |are: |

| | |

| |a. doomed to failure. |

| |b. going to elicit serious political opposition. |

| |c. going to require a CIO. |

| |d. unnecessary. |

| | |

| |Answer: b Difficulty: Easy Reference: pp. 75-76 |

| |Routines for producing goods and services are sometimes called: |

| | |

| |a. bureaucratic structures. |

| |b. standard operating procedures. |

| |c. routine tasks. |

| |d. formal structures. |

| | |

| |Answer: b Difficulty: Medium Reference: p. 75 |

| |Collections of routines for producing goods and services are referred to as: |

| | |

| |a. business processes. |

| |b. work with routine tasks. |

| |c. standard reporting procedures. |

| |d. mediating factors. |

| | |

| |Answer: a Difficulty: Medium Reference: p. 75 |

| |The greatest difficulty of bringing about organizational change – especially the development of new information systems |

| |is: |

| | |

| |a. computerizing manual systems. |

| |b. recruiting qualified employees. |

| |c. political resistance. |

| |d. perceiving environmental change. |

| | |

| |Answer: c Difficulty: Medium Reference: p. 76 |

| |Fundamental assumptions about what products the organization should produce, how it should produce them, where, and for |

| |whom is known as: |

| | |

| |a. motivational factors. |

| |b. organizational culture. |

| |c. business processes. |

| |d. standard operating procedures. |

| | |

| |Answer: b Difficulty: Medium Reference: p. 76 |

| |Mintzberg classifies ______________________basic kinds of organizational structures. |

| | |

| |a. five |

| |b. six |

| |c. seven |

| |d. eight |

| | |

| |Answer: a Difficulty: Easy Reference: p. 76 |

| |According to Mintzberg, a ______________________ is an example of a professional bureaucracy structure. |

| | |

| |a. midsize manufacturing firm |

| |b. law firm or school system |

| |c. consulting firm |

| |d. small start-up business |

| | |

| |Answer: b Difficulty: Easy Reference: p. 77 |

| |According to Mintzberg, a ______________________ is an example of a divisionalized bureaucracy structure. |

| | |

| |a. midsize manufacturing firm |

| |b. law firm or school system |

| |c. small start-up business |

| |d. very large established company |

| | |

| |Answer: d Difficulty: Easy Reference: p. 77 |

| |Only ______________________ percent of the Fortune 500 companies of 1919 still exist today. |

| | |

| |a. 10 |

| |b. 20 |

| |c. 30 |

| |d. 40 |

| | |

| |Answer: a Difficulty: Hard Reference: p. 77 |

| |These information specialists constitute the principal liaisons between the information systems groups and the rest of |

| |the organization: |

| | |

| |a. systems analysts. |

| |b. programmers. |

| |c. end users. |

| |d. Web-page developers. |

| | |

| |Answer: a Difficulty: Easy Reference: p. 80 |

| |The role of ______________________ is a senior management position that oversees the use of information technology in |

| |the firm. |

| | |

| |a. CTO |

| |b. CFO |

| |c. CIO |

| |d. CEO |

| | |

| |Answer: c Difficulty: Easy Reference: p. 80 |

| |Information systems managers are: |

| | |

| |a. highly-trained technical specialists who write computer software instructions. |

| |b. specialists who translate business problems and requirements into information requirements and systems. |

| |c. leaders of the various specialists in the information system department. |

| |d. in change of the information systems function in the organization. |

| | |

| |Answer: c Difficulty: Easy Reference: p. 80 |

| |______________________ are representatives of departments outside of the information systems group for whom applications|

| |are developed. |

| | |

| |a. End users |

| |b. Programmers |

| |c. Analysts |

| |d. IS managers |

| | |

| |Answer: a Difficulty: Easy Reference: p. 80 |

| |Although ____________________ theories try to explain how large numbers of firms act in the marketplace, |

| |__________________________ theories are more useful in describing the mechanics of actual firms. |

| | |

| |a. behavioral; transaction |

| |b. economic; behavioral |

| |c. economic; agency |

| |d. agency; behavioral |

| | |

| |Answer: b Difficulty: Hard Reference: p. 81 |

| |__________________________organizations use networks to link people, assets, and ideas. Work is no longer tied to |

| |geographic location. |

| | |

| |a. Hierarchical |

| |b. Vertical |

| |c. Virtual |

| |d. Manufacturing |

| | |

| |Answer: c Difficulty: Easy Reference: p. 83 |

| |__________________________is the ability to offer individually tailored products or services using the same production |

| |resources as bulk production. |

| | |

| |a. Mass customization |

| |b. Size customization |

| |c. Magnitude customization |

| |d. Dimension customization |

| | |

| |Answer: a Difficulty: Easy Reference: p. 84 |

| |Managers as planners, organizers, coordinators, decision makers, and controllers describe the principles of the: |

| | |

| |a. classical model of management. |

| |b. interpersonal model of management. |

| |c. transactional model of management. |

| |d. virtual organization. |

| | |

| |Answer: a Difficulty: Medium Reference: p. 86 |

| |For the manager, no technological support systems exist for the managerial roles of: |

| | |

| |a. liaison or negotiator. |

| |b. spokesperson or resource allocator. |

| |c. entrepreneur or nerve center. |

| |d. figurehead or disturbance handler. |

| | |

| |Answer: d Difficulty: Hard Reference: p. 87 |

| |According to the Mintzberg model of management, managerial roles are: |

| | |

| |a. where managers initiate activities, handle disturbances, allocate resources, and negotiate conflict. |

| |b. where managers act as figureheads and leaders for the organization. |

| |c. where managers act as a liaison, disseminating and allocating resources. |

| |d. the expectations of the activities that managers should perform in an organization. |

| | |

| |Answer: d Difficulty: Easy Reference: p. 87 |

| |According to the Mintzberg model of management, interpersonal roles are: |

| | |

| |a. where managers initiate activities, handle disturbances, allocate resources, and negotiate conflict. |

| |b. where managers act as figureheads and leaders for the organization. |

| |c. where managers act as a liaison, disseminating and allocating resources. |

| |d. the expectations of the activities that managers should perform in an organization. |

| | |

| |Answer: b Difficulty: Easy Reference: p. 87 |

| |According to the __________________________model of human behavior, an individual identifies goals, ranks all possible |

| |alternatives actions by their contributions to those goals, and chooses the alternative that contributes most to those |

| |goals. |

| | |

| |a. hierarchical |

| |b. rational model |

| |c. choice model |

| |d. decisional model |

| | |

| |Answer: b Difficulty: Easy Reference: p. 88 |

| |At the business level the most common analytical tool for identifying opportunities for strategic systems is: |

| | |

| |a. DSS. |

| |b. the value web. |

| |c. ESS. |

| |d. value chain analysis. |

| | |

| |Answer: d Difficulty: Medium Reference: p. 91 |

| |A ______________________ is a collection of independent firms that use information technology to coordinate their value |

| |chains to produce a product or service for a market collectively. |

| |a. portal |

| |b. business link |

| |c. value web |

| |d. primary activity |

| | |

| |Answer: c Difficulty: Medium Reference: p. 91 |

| | |

| |When a firm provides a specialized product or service for a narrow target market better than competitors, they are using|

| |a: |

| |a. product differentiation strategy. |

| |b. focused differentiation strategy. |

| |c. value web strategy. |

| |d. customization strategy. |

| | |

| |Answer: b Difficulty: Medium Reference: p. 93 |

| | |

| |The cost of acquiring a new customer has been estimated to be _____________ times that of retaining an existing |

| |customer. |

| | |

| |a. three |

| |b. six |

| |c. five |

| |d. seven |

| | |

| |Answer: c Difficulty: Easy Reference: p. 94 |

| |Which of the following is most likely to raise switching costs: |

| | |

| |a. just-in-time supply method. |

| |b. stockless inventory method |

| |c. traditional delivery method |

| |d. vendor-supported supply method |

| | |

| |Answer: b Difficulty: Medium Reference: p. 96 |

| |When the output of some units can be used as inputs to other units, or if two organizations pool markets and expertise |

| |that result in lower costs and generate profits it is often referred to as creating: |

| | |

| |a. digital strategies. |

| |b. switching costs. |

| |c. synergies. |

| |d. low-cost producer strategies. |

| | |

| |Answer: c Difficulty: Easy Reference: p. 97 |

| |Which of the following is not an example of firm-level strategy: |

| | |

| |a. an information system integrating the operations of a company and its subsidiaries |

| |b. an information system for knowledge-sharing |

| |c. an information system for cross-marketing among a firm and its subsidiaries |

| |d. an information system enabling a firm and its suppliers to share order status data |

| | |

| |Answer: d Difficulty: Medium Reference: p. 97 |

| |An information system can enhance core competencies by: |

| | |

| |a. providing better reporting facilities. |

| |b. creating educational opportunities for management. |

| |c. allowing operational employees to interact with management. |

| |d. encouraging the sharing of knowledge across business units. |

| | |

| |Answer: d Difficulty: Medium Reference: p. 98 |

| |The ______________________ model is used to describe the interaction of external influences, specifically threats and |

| |opportunities that affect an organization’s strategy and ability to compete. |

| | |

| |a. network economics |

| |b. competitive forces |

| |c. strategic transitions |

| |d. environmental conditions |

| | |

| |Answer: b Difficulty: Medium Reference: p. 99 |

| |___________ is determined by the nature of the players in an industry and their relative bargaining power. |

| | |

| |a. Industry structure |

| |b. Industry opportunities |

| |c. Industry threats |

| |d. Industry power |

| | |

| |Answer: a Difficulty: Easy Reference: p. 99 |

| |Which of the following is not one of the competitive forces: |

| | |

| |a. suppliers. |

| |b. other competitors. |

| |c. external environment |

| |d. customers. |

| | |

| |Answer: c Difficulty: Medium Reference: p. 99 |

| |This traditional model assumes a relatively static industry environment, relatively clear-cut industry boundaries, and a|

| |relatively stable set of suppliers, substitutes, and customers, with a focus on industry players in a market |

| |environment: |

| | |

| |a. Porter’s competitive forces model. |

| |b. Porter’s value chain model. |

| |c. Porter’s model of diminishing returns. |

| |d. Porter’s generic strategy model. |

| | |

| |Answer: a Difficulty: Easy Reference: p. 100 |

| |Another term for loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, |

| |transportation service firms, and technology manufacturers is: |

| | |

| |a. Keystone firm. |

| |b. Niche firm. |

| |c. business portal. |

| |d. business ecosystem. |

| | |

| |Answer: d Difficulty: Easy Reference: p. 100 |

| |The more any given resource is applied to production, the lower the marginal gain in output, until a point is reached |

| |where the additional inputs produce no additional output is referred to as: |

| | |

| |a. the point of no return. |

| |b. the law of diminishing returns. |

| |c. supply and demand. |

| |d. inelasticity. |

| | |

| |Answer: b Difficulty: Easy Reference: p. 101 |

Fill In the Blanks

| |A(n) organization, by technical definition, is a stable, formal, social structure taking resources from the environment and |

| |processing them to produce outputs. |

| | |

| |Difficulty: Easy Reference: p. 73 |

| |A(n) bureaucracy is a formal organization with a clear-cut division of labor, abstract rules and procedures, and impartial |

| |decision making that uses technical qualifications and professionalism as a basis for promoting employees. |

| | |

| |Difficulty: Easy Reference: p. 74 |

| |Max Weber was the first to describe the “ideal-typical” characteristics of organizations in 1911. |

| | |

| |Difficulty: Easy Reference: p. 74 |

| |An organization arranges specialists in a hierarchy of authority in which everyone is accountable to someone and authority is|

| |limited to specific actions. |

| | |

| |Difficulty: Medium Reference: p. 74 |

| |Routines are the precise rules, methods, and practices developed by organizations to cope with virtually all expected |

| |situations. |

| | |

| |Difficulty: Easy Reference: p. 75 |

| |The organizational culture is the set of fundamental assumptions about what products the organization should produce, how |

| |and where it should produce them, and for whom they should be produced. |

| | |

| |Difficulty: Medium Reference: p. 76 |

| |The examination by management of the external changes that might require an organizational response is called environmental |

| |scanning. |

| | |

| |Difficulty: Hard Reference: p. 77 |

| |A(n) programmer is a highly trained technical specialist who writes computer software instructions. |

| | |

| |Difficulty: Easy Reference: p. 80 |

| |A(n) systems analyst is a specialist who translates business problems and requirements into information requirements and |

| |systems, acting as a liaison between the information systems department and the rest of the organization. |

| | |

| |Difficulty: Easy Reference: p. 80 |

| |A(n) chief information officer is the senior manager in charge of the information systems function in the firm. |

| | |

| |Difficulty: Easy Reference: p. 80 |

| |A(n) end user is a representative of the department outside the information systems group for whom applications are |

| |developed. |

| | |

| |Difficulty: Easy Reference: p. 80 |

| |The transaction cost theory states that firms grow larger because they can conduct marketplace transactions internally more |

| |cheaply than they can with external firms in the marketplace. |

| | |

| |Difficulty: Medium Reference: p. 81 |

| |Traditionally, firms have tried to reduce transactions costs through vertical integration, by getting bigger, hiring more |

| |employees, and buying their own suppliers and distributors. |

| | |

| |Difficulty: Hard Reference: p. 81 |

| |The agency theory views the firm as a nexus of contracts among self-interested individuals who must be supervised and |

| |managed. |

| | |

| |Difficulty: Medium Reference: p. 81 |

| |A(n) virtual organization uses networks to link people, assets, and ideas to create and distribute products and services |

| |without being limited to traditional organizational boundaries or physical locations. |

| | |

| |Difficulty: Easy Reference: p. 83 |

| |Mass customization is the ability to offer individually tailored products and services using the same production resources as|

| |mass production. |

| | |

| |Difficulty: Easy Reference: p. 84 |

| |Information systems inevitably become bound up with organizational politics because they influence access to information. |

| | |

| |Difficulty: Easy Reference: p. 84 |

| |A(n) behavioral model is a description of management based on behavioral scientists’ observation of what managers actually do|

| |in their jobs. |

| | |

| |Difficulty: Easy Reference: p. 87 |

| |A(n) managerial role is the expectation of the activities that a manager will perform in an organization. |

| | |

| |Difficulty: Medium Reference: p. 87 |

| |A manager presenting employees with awards for high performance would be performing a(n) interpersonal role. . |

| | |

| |Difficulty: Medium Reference: p. 87 |

| |The rational model of human behavior is built on the idea that people engage in basically consistent, rational, |

| |value-maximizing calculations. |

| | |

| |Difficulty: Easy Reference: p. 88 |

| |Organizational models of decision making take into account the structure and political characteristics of an organization. |

| | |

| |Difficulty: Medium Reference: p. 89 |

| |In the bureaucratic model of decision making an organization’s most important goal is the preservation of the organization. |

| | |

| |Difficulty: Hard Reference: p. 89 |

| |In political models of decision making, what an organization does is a result of bargains struck among key leaders and |

| |interest groups. |

| | |

| |Difficulty: Medium Reference: p. 89 |

| |The value chain model highlights the primary or support activities that add a margin of value to a firm’s products or |

| |services where information systems can best be applied to achieve a competitive advantage. |

| | |

| |Difficulty: Medium Reference: p. 91 |

| |A(n) primary activity is one that is directly related to the production and distribution of a firm’s products or services. |

| | |

| |Difficulty: Easy Reference: p. 91 |

| |A(n) support activity is a part of the organization’s infrastructure, human resources, technology, and procurement that makes|

| |the delivery of the firm’s products or services possible. |

| | |

| |Difficulty: Medium Reference: p. 91 |

| |The value web is the customer-driven network of independent firms that use information technology to coordinate their value |

| |chains to collectively produce a product or service for a market. |

| | |

| |Difficulty: Hard Reference: p. 91 |

| |Product differentiation is a competitive strategy for creating brand loyalty by developing new and unique products and |

| |services that are not easily duplicated by competitors. |

| | |

| |Difficulty: Easy Reference: p. 93 |

| |Focused differentiation is a competitive strategy for developing new market niches for specialized products or services where|

| |a business can compete in the target area better than its competitors. |

| | |

| |Difficulty: Easy Reference: p. 93 |

| |Switching costs are the expenses incurred by a customer or company in lost time and resources when changing from one supplier|

| |or system to a competing supplier or system. |

| | |

| |Difficulty: Medium Reference: p. 96 |

| |A(n) core competency is an activity at which a firm excels as a world-class leader. |

| | |

| |Difficulty: Medium Reference: p. 97 |

| |A(n) information partnership is a cooperative alliance formed between two or more corporations for the purpose of sharing |

| |information to gain strategic advantage. |

| | |

| |Difficulty: Medium Reference: p. 98 |

| |Porter’s competitive forces model illustrates that a firm faces a number of external threats and opportunities. |

| | |

| |Difficulty: Medium Reference: p. 99 |

| |The Internet can lower transaction and agency costs. |

| |Difficulty: Medium Reference: p. 99 |

| |American Airlines awarding a mile in its frequent flier program for every dollar a customer spends on MCI long-distance |

| |telephone calls is an example of a(n) information partnership. |

| | |

| |Difficulty: Medium Reference: p. 99 |

| |A(n) business ecosystem is a term used to describe loosely coupled but interdependent networks of suppliers, distributors, |

| |outsourcing firms, transportation service firms, and technology manufacturers. |

| | |

| |Difficulty: Medium Reference: p. 100 |

| |According to the law of diminishing returns the more any given resource is applied to production, the lower the marginal gain|

| |in output, until a point is reached where the additional inputs produce no additional outputs. |

| | |

| |Difficulty: Medium Reference: p. 101 |

| |The Internet can make competitive advantage disappear very quickly because virtually all companies can use this technology. |

| | |

| |Difficulty: Medium Reference: p. 103 |

| |Sociotechnical changes that affect both social and technical elements of an organization, can be considered strategic |

| |transitions – a movement between levels of sociotechnical systems. |

| | |

| |Difficulty: Medium Reference: p. 104 |

Essay Questions

| |Distinguish between the behavioral definition of an organization and the technical definition. |

| | |

| |The technical definition of an organization is that it is a stable, formal, social structure that takes resources from the |

| |environment and processes them to produce outputs. The behavioral definition of an organization is that it is a collection |

| |of rights, privileges, obligations, and responsibilities delicately balanced over time through conflict and conflict |

| |resolution. |

|. |List at least four of the six structural characteristics of all organizations. Which two of these do you think are most |

| |important to the digital firm as opposed to the traditional firm? As always, support your answer. |

| | |

| |The six characteristics are: a clear division of labor, hierarchy, explicit rules and procedures, impartial judgments, |

| |technical qualifications for positions, and maximum organizational efficiency. Hierarchy and efficiency are probably the |

| |most affected by the digital firm. |

| |From an economic standpoint, information system technology can be viewed as a factor production that can be freely |

| |substituted for capital and labor." What is the meaning of this sentence, and how does it change the traditional managerial |

| |perspective? |

| | |

| |There are, of course, several possible answers. One of them could be: |

| | |

| |Traditionally, labor has been a rising cost. Information technology, by providing better data, reporting, and speed of |

| |dissemination of information, makes it possible for individual middle managers to have a wider span of control. This means |

| |that fewer middle managers and fewer clerical workers are needed, which reduces costs. This in turn results in a flatter, |

| |more open, organization. Information technology also provides more precise and accurate information for running the |

| |organization, with the potential of reducing unnecessary work and increasing efficiency. |

| | |

| |Distinguish between the transaction cost theory of the impact of information technology on the organization and the agency |

| |cost theory of the impact of information technology on the organization. Are these theories contradictory or complementary? |

| |Support your answer. |

| | |

| |The transaction costs theory says the firms traditionally grew in size in order to reduce transaction costs. Information |

| |technology potentially reduces the cost for growing size, shifting the transaction costs that occur inward, opening up the |

| |possibility of revenue growth without increasing size, where even revenue growth is accompanied by shrinking size. The agency|

| |cost theory says that as firms grow in size and complexity, traditionally they experience rising agency costs. Information |

| |technology shifts the agency costs curve down to the right, allowing firms to increase size while lowering agency costs. |

| | |

| |One answer might be that the two theories are complementary in that each is concerned with the relationship between company |

| |size and cost, and each one makes the point that the use of information technology allows the company (through its managers) |

| |to do more with less expenditure. However, the success of the transaction cost theory is measured in the need for fewer |

| |employees, while the agency cost theory measures success in that the company can increase its size at the same time it lowers|

| |costs. |

| |Discuss the impact of the Internet on the competitive forces model |

| |. |

| |The traditional competitive forces are still at work, but the Internet has made competitive rivalry much more intense. |

| |Internet technology is based on universal standards that any company can use, making it easy for rivals to compete on price |

| |alone and for new competitors to enter the market. Easy access to information on the Internet raises the bargaining power of |

| |customers, who can quickly find the lowest-cost provider on the Web, lowering profits. At the same time, the Internet |

| |creates new opportunities for building brands and building very large and loyal customer bases that are willing to pay a |

| |premium for the brand. The traditional Porter model assumes a relatively static industry environment; relatively clear-cut |

| |industry boundaries; and a relatively stable set of suppliers, substitutes, and customers, with the focus on industry players|

| |in a market environment. Instead of participating in a single industry, some of today’s firms participate in industry sets |

| |and business ecosystems that —collections of industries that provide related services and products. |

| |Your text lists five attributes of managerial behavior that differ greatly from the classical description. What are these |

| |five attributes, and how do they differ from the classical description? |

| | |

| |The five attributes are: |

| |managers perform a great deal of work at an unrelenting pace, |

| |managerial activities are fragmented, |

| |managers prefer speculation, hearsay, and gossip – ad hoc information – because printed information is often too old, |

| |managers prefer oral forms of communication to written forms because oral media provide greater flexibility, require less |

| |effort, and bring a faster response, |

| |and finally, managers give high priority to maintaining a diverse and complex web of contacts that acts as an informal |

| |information system and helps them execute their personal agendas and short- and long-term goals. |

| | |

| |The classical model of management describes managers as planners, organizers, coordinators, decision makers, and controllers.|

| |The impression left in the mind of the student is one of reserved dignity, wisdom, and tremendous self-control. (This might |

| |be termed "manager as father figure.") Behavioral models state that the actual behavior of managers appears to be less |

| |systematic, more informal, less reflective, more reactive, less well organized, and much more frivolous than a classical |

| |model of management would indicate (and this might be termed "manager as elder brother"). |

| |Managerial roles are expectations of the activities that managers should perform in an organization. Mintzberg found that |

| |these managerial roles fell into three categories. List and discuss these three categories. |

| | |

| |Interpersonal roles – managers act as figureheads for the organization when they represent their companies to the outside |

| |world and perform symbolic duties. Managers act as leaders, attempting to motivate, counsel, and support subordinates. |

| |Managers also act as liaisons between various organizational levels; within each of these levels, they serve as liaisons |

| |among the members of the management team. Managers provide time and favors, which they expect to be returned. |

| |Informational roles – managers act as the nerve centers of their organizations, receiving the most concrete, up-to-date |

| |information and redistributing it to those who need to be aware of it. Managers are therefore information disseminators and |

| |spokespersons for their organizations. |

| |Decisional roles – managers make decisions. They act as entrepreneurs by initiating new kinds of activities; they handle |

| |disturbances arising in the organization; they allocate resources to staff members who need them; and they negotiate |

| |conflicts and mediate between conflicting groups in the organization. |

| |Value chain analysis is useful at the business level to highlight specific activities in the business where information |

| |systems are most likely to have a strategic impact. Discuss this model, identify the activities, and how the model can be |

| |applied to the concept of information technology. |

| | |

| |The value chain model identifies specific, critical leverage points where a firm can use information technology most |

| |effectively to enhance its competitive positions. Exactly where can it obtain the greatest benefit from strategic |

| |information systems – what specific activities can be used to create new products and services, enhance market penetration, |

| |lock in customers and suppliers, and lower operational costs? This model views the firm as a series or chain of basic |

| |activities that add a margin of value to a firm’s products or services. These activities can be categorized as either |

| |primary activities or support activities. |

| |Primary activities – are most directly related to the production and distribution of the firm’s products and services that |

| |create value for the customer. Primary activities include inbound logistics, operations, outbound logistics, sales and |

| |marketing, and service. |

| |Support activities – make the delivery of the primary activities possible and consist of organization infrastructure |

| |(administration and management), human resources (employee recruiting, hiring, and training, technology (improving products |

| |and the production process), and procurement (purchasing input). |

| |List at least four of the six central organizational factors to consider when planning a new information system. |

| | |

| |The environment in which the organization must function. |

| |The structure of the organization: hierarchy, specialization, and standard operating procedures. |

| |The organization’s culture and politics. |

| |The type of organization and its style of leadership. |

| |The principal interest groups affected by the system and the attitudes of workers who will be using the system. |

| |The kinds of tasks, decisions, and business processes that the information system is designed to assist. |

| |At the business level, what are the three most common competitive strategies? What new capabilities for supporting business |

| |level strategy do digital firms provide? |

| | |

| |The strategies are: |

| |Become the below-cost producer. |

| |Differentiate your product or service. |

| |Change the scope of competition by either enlarging the market to include global markets or narrowing the market by focusing |

| |on a small niche not well served by your competitors. |

| | |

| |The capabilities provided by digital firms are: |

| |Managing the supply chain. |

| |Building efficient customer sense and response systems. |

| |Participation in value webs to deliver new products and services to market. |

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