Chapter 3 Summary

Q1: How Does Organizational Strategy Determine Information Systems Structure?

 

Organizations examine the structure of their industry and determine a competitive strategy. The structure of the business processes determines the structure of the information systems.

 

Q2: What Five Forces Determine Industry Structure?

 

The Five Forces Model has five different competitive forces that determine industry profitability: bargaining power of customers, threat of substitutions, bargaining power of supplier, rivalry among firms, and threat of new entrants.  Examining these five forces in relation to the industry an organization operates will determine the characteristics of the industry, how profitable that organization will be, and how sustainable that profitability will be.

 

Q3: How does Analysis of Industry Structure Determine Competitive Strategy?

 

A organization will look at its industry based on the five forces model and determine one of four different strategies. The firm can go with a low cost across a specific market, a low cost across the industry, differentiate across an industry or differentiate in a single market. The organization’s goals, objectives, culture and activities must be consistent with the firm’s strategy.

 

Q4: How Does Competitive Strategy Determine Value Chain Structure?

 

Porter defined value as the amount of money that a customer is willing to pay for your product or service. The difference between the value and the cost is the margin. A value chain has primary and support activities. All activities that directly go into the process of creating a good or service are primary activity such as manufacturing and shipping.  All other activities that are support activities such as accounting, human relations, and managing firm infrastructure.  Linkages are interactions between primary and support activities.

 

Q5: How do Business Processes Generate Value?

 

A business process is a network of activities that generate value by transforming inputs into outputs. The cost of the business process is the cost of inputs plus the cost of activities. Margin of the business process is the value of the outputs minus the cost.  Resources flow between or among activities in a business process.  The process of designing a business process and managing it called business process management.

 

Q6: How Does Competitive Strategy Determine Business Processes and the Structure of Information Systems?

 

Organizations analyze their industry and choose a competitive strategy. Using that strategy, business processes are designed that span the value generating activities.

 

Q7: How Do Information Systems Provide Competitive Advantages?

 

There are 8 principles that give a competitive advantage. Three relate to products and they are to create a brand new product, enhance a product or service, and/or differentiate products and services.  Information systems provide competitive advantages either as part of a product or by providing support for a product or service. The other five are process implementations and they are to lock in customers and buyers, lock in suppliers, raise barriers to market entry, establish alliances, and to reduce costs.