Strategy and Information Systems - Test Practice Answer Key

Strategy and Information Systems 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 number of competitors E) the company's PE ratio Answer: A 2) An organization's goals and objectives are determined by its competitive strategy. Answer: TRUE 3) The collective technical capability of an organization determines its competitive strategy. Answer: FALSE 4) Explain the relation between competitive strategies and 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. 5) Porter's five forces model is used to assess ________. A) industry structure B) market share C) internal competition D) life cycles of products E) future product demand Answer: A 6) 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) a corner latte shop in Atlanta E) a food vendor at a county fair Answer: C 7) According to Porter's five forces model, a student's choice of lunch options at a large food court would be an example of a strong force for ________. A) rivalry B) threat of new entrants C) threat of substitutions D) bargaining power of customers E) industry power Answer: C 8) According to Porter's five forces model, in which of the following situations would the supplier have the highest bargaining power? A) a dealer of a patented material for smartphone manufacturers B) a fashion designer catering to a niche market C) a restaurant owner who serves only army veterans D) a retailer who buys finished goods from many small suppliers E) a defense contractor that only makes products for the U.S. Navy Answer: A 9) 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) search engine designers B) used car dealers C) holiday tour agents D) packaged food manufacturers E) insurance providers Answer: A 10) A mining company develops a new processing technique using only light and patents the process. 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 E) low threat of new entrants Answer: A 11) According to Porter's five forces model, an oil producer will have increased ________ if the supply of oil drops sharply. A) bargaining power B) threat of substitutes C) risk of rivalry D) threat of new entrants E) industry coalescence Answer: A 12) Bargaining power of customers is likely to be the highest for markets involving ________. A) limited edition apparel B) industrial products C) patented drugs D) vintage cars E) rare paintings Answer: B 13) The automobile industry is characterized by many manufacturers and intense competition among them. According to Porter's five forces model, 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 E) low levels of rivalry Answer: C 14) LNG is a large multinational appliance manufacturer. The company gets raw materials from many vendors. In this case, LNG is characterized by ________. A) very low threat of substitute products B) high bargaining power over its suppliers C) very low threat of new entrants in the market D) very high bargaining power over its customers E) low bargaining power over its suppliers Answer: B 15) A major drawback of Porter's five forces model is that it ignores the rivalry among firms in the industry. Answer: FALSE 16) Briefly explain Porter's five forces model. Answer: Porter's five forces model is used to assess an industry structure. 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. 17) I-scream-4 Ice Cream recently faced competition against their flagship brand of "Orange peel ice cream." A competitor made significant in-roads into the market by offering three varieties of "Orange peel ice cream." I-scream-4 Ice Cream decided to counter this threat by introducing five new varieties of ice creams. Which competitive strategy is I-scream-4 Ice Cream implementing? A) cost leadership B) product differentiation C) cost differentiation D) service focus E) innovation focus Answer: B 18) An automobile company decides to improve the quality of its products and bring more variety into its entire product line. The company has decided to adopt ________. A) focused cost leadership B) industry-wide differentiation C) industry-wide cost leadership D) focused differentiation E) broad differentiation Answer: B 19) Focused differentiation occurs when ________. A) better service is provided within an industry segment B) there is limited competition in an industry C) customers, of a niche segment, are provided low-cost products D) product quality improves across an entire industry E) lowest cost across the industry Answer: A 20) Focused cost leadership is observed when a product has the lowest cost ________. A) within an industry segment B) across the product mix offered by a company C) across the entire industry D) among a group of competitors E) across multiple product categories Answer: A 21) An organization responds to the structure of its industry by choosing a competitive strategy. Answer: TRUE 22) An automobile manufacturer focusing on low-end buyers is following an industry-wide differentiation strategy. Answer: TRUE 23) According to Porter's four competitive strategy model, what are the four competitive strategies from which firms can choose? Answer: An organization responds to the structure of its industry by choosing a competitive strategy. According to Porter's competitive strategy model, 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 or services 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. 24) 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) profit E) quick ratio Answer: A 25) 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 E) perceived quality differences across products Answer: A 26) 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) manufacturing D) outbound logistics E) optimized ordering Answer: A 27) 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) total revenue D) gross turnover E) taxable income Answer: B 28) A retail company sells agricultural produce and consumer products. The company procures materials from farmers and local producers. This process is an example of ________. A) outbound logistics B) inbound logistics C) operational management D) internal marketing E) customer service Answer: B 29) Which of the following statements best describes the role of operations in a value chain? A) transforming inputs into the final products B) collecting, storing, and distributing products to buyers C) inducing buyers to purchase products and providing a means for them to do so D) receiving, storing, and disseminating inputs to products E) assisting customers' use of products Answer: A 30) 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 E) sales and marketing Answer: D 31) 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 E) customer service Answer: C 32) 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 E) sales and marketing Answer: B 33) Which of the following is a primary activity in the value chain? A) receiving and handling of raw materials and other inputs B) negotiating prices with vendors C) finding suitable vendors to supply raw materials D) setting up contractual arrangements with various suppliers E) investigating new designs Answer: A 34) Kai runs a local auto parts store. A customer comes in and asks for special supercharger. Kai orders it from the factory. This activity can be classified under ________. A) inbound logistics B) operations C) customer service D) marketing E) outbound logistics Answer: A 35) Lynn, the manager of a transportation company, goes through the product delivery schedule. She assigns territories to each executive of the delivery team, and also contacts the fleet supervisor to arrange trucks for transportation. Which activity of the value chain is Lynn executing? A) inbound logistics B) marketing C) sales D) outbound logistics E) customer service Answer: D 36) Madison, the project manager of a sports apparel company, estimates that the demand for jogging shoes is likely to decline in the coming months. He advises the procurement department to order raw material accordingly to ensure minimum wastage. This intercommunication that facilitates smooth operations is called ________. A) market research B) outbound logistics C) strategizing D) linkages E) interoperation Answer: D 37) Which of the following employees performs a support activity in the value chain? A) Jackson is involved in the development of technological infrastructure. B) Sofia is a member of the recruitment team. C) Nathaniel is in charge of setting up contractual agreements with vendors. D) Nora is a financial analyst who rates and gives investment advice. E) Noah is the corporate accountant who manages tax liabilities. Answer: C 38) Which of the following paved the way for the creation of a business process design? A) support activities B) triggers C) linkages D) primary activities E) electronic data interchanges Answer: C 39) 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 focus on improving individual functional systems. C) Organizations should create new business processes instead of improving existing systems. D) Technology should be used to modify and improve standard business processes. E) Experimental technology can drive innovative business processes. Answer: C 40) The ________ created by Porter states that firms should create new, more efficient business processes that integrate the activities of all departments involved in a value chain. A) Six Sigma methodology B) product differentiation model C) Lean Manufacturing method D) business process design E) Lean Innovation model Answer: D 41) Porter defined value as the amount of money that a customer is willing to pay for a resource, product, or service. Answer: TRUE 42) The difference between the value that an activity generates and the cost of the activity is called margin. Answer: TRUE 43) A business with a differentiation strategy will add cost to an activity only as long as the activity has a positive margin. Answer: TRUE 44) In the inbound logistics activity of a value chain, the manufacturer receives, stores, and disseminates inputs to a product. Answer: TRUE 45) The primary activity of sales and marketing is the collection, storage, and physical distribution of the products to the buyers. Answer: FALSE 46) In the value chain, customer service is concerned with inducing buyers to purchase the product and providing a means for them to do so. Answer: FALSE 47) The total margin of the value chain is the difference between the total value added and the total costs incurred. Answer: TRUE 48) Support activities in a value chain include the processes of finding vendors, setting up contractual arrangements, and negotiating prices. Answer: TRUE 49) A linkage is a network of activities that generate value by transforming inputs into outputs. Answer: FALSE 50) Briefly describe the concepts of value, margin, and value chain as defined by Porter. 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. 51) Define the primary activities in a generic value chain. Answer: The primary activities in a generic value chain are as follows: (1) Inbound logistics—It is the receiving, storing, and disseminating of inputs to the products. (2) Operations/manufacturing—It is the transforming of inputs into the final products. (3) Outbound logistics—It is the collecting, storing, and physically distributing of the products to buyers. (4) Sales and marketing—It is defined as inducing buyers to purchase the products and providing a means for them to do so. (5) Customer service—It is defined as assisting customers' use of the products and thus maintaining and enhancing the products' value. 52) 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. 53) What are the various 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 it is difficult to know the specific value added by a support activity. 54) 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 material needs and then uses the material needs to schedule purchases. The end result is just-in-time inventory, which reduces inventory sizes and costs. 55) Explain the concept 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. 56) A(n) ________ is a network of activities that generate worth by transforming inputs into outputs. A) business process B) competitive strategy C) value chain D) information system E) linked investment Answer: A 57) 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 E) cost of the products Answer: A 58) Which of the following defines a repository? A) a backup plan of action in case of emergencies B) a department devoted specifically for market research C) a place where finished goods undergo a quality check before shipment D) a collection of something, such as data or raw materials E) a financial center for storing overnight balances Answer: D 59) Neil creates an application which facilitates the easy storage and access of employee information like name, age, experience, and qualification for his organization. The application is an example of a(n) ________. A) repository B) program C) linkage D) activity E) array Answer: A 60) In a manufacturing business, which of the following transforms finished goods into cash? A) warehouse operations B) manufacturing process C) sales process D) outbound logistics E) inbound logistics Answer: C 61) As the purchasing manager of a company that designs costumes, Natalie orders yards of fabric in preparation for Halloween. Natalie's duties can be classified under the ________ category of a business process. A) outbound logistics B) marketing C) operations D) inbound logistics E) sales Answer: D 62) Which of the following statements is TRUE of business process designs? A) Most process designs require people to work in new ways. B) They do not involve the need to follow different procedures. C) They should be accompanied by a change in management. D) Process designs very rarely attract employee resistance. E) Process designs map directly to existing work processes. Answer: A 63) Each activity in a business process is a business function that receives inputs and produces outputs. Answer: TRUE 64) The cost of the business process is the cost of the inputs plus the cost of the outputs. Answer: FALSE 65) In a manufacturing business, the materials ordering process transforms cash into a raw materials inventory. Answer: TRUE 66) An inventory of raw materials is an example of a repository. Answer: TRUE 67) The sales process involves sales and marketing as well as outbound logistics activities. Answer: TRUE 68) The streamlining of business processes to increase margin is key to obtaining competitive advantage. Answer: TRUE 69) 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. 70) RAC Associates is a car rental company that rents cars to tourists in the United States. The company uses tracking devices and magnetic locks to prevent car theft. These procedures are examples of ________. A) primary business processes B) core activities C) strategic activities D) supporting business processes E) premeditated activities Answer: D 71) 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 E) raising barriers to market entry Answer: B 72) Cooper, the owner of a small bicycle manufacturing company, is striving to keep his organization running smoothly while remaining profitable in a highly competitive market. Cooper chooses process implementation to give his company a competitive edge over others. Which of the following principles is he most likely to implement? A) creating new products B) enhancing services C) reducing costs D) differentiating products E) redesign existing products Answer: C 73) Hueblue Software, an application provider to the gaming industry, decided to enhance its portfolio by developing motion-control-enabled games for the mobile gaming industry. In this scenario, which competitive strategy is Hueblue Software implementing? A) establishment of alliances B) product differentiation C) raising barriers to market entry D) locking in buyers E) locking in customers Answer: B 74) FunText is a company that owns an app used for text messaging. It recently offered a six month membership extension to its existing customers without any additional charges. Which competitive strategy is FunText trying to implement in this scenario? A) creation of a new service B) product differentiation C) locking in customers D) locking in suppliers E) enhancing existing products Answer: C 75) ________ is a means through which an organization can gain a competitive advantage through process implementations. A) Establishing alliances B) Creating new products C) Enhancing products D) Differentiating services E) Creating new services Answer: A 76) Streamtech, a manufacturer of automobiles, recently received a patent for an unmanned search boat. By doing this, Streamtech has ________. A) created an entry barrier B) introduced product differentiation C) locked in its suppliers D) reduced the cost of operations E) established an alliance Answer: B 77) 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) brand value E) technological dependency Answer: B 78) The International Zoological club publishes a monthly magazine for zoology enthusiasts. Members are required to pay an initial fee to cover the first two years of the subscription when registering with the club. In this scenario, the International Zoological club is ________. A) enhancing services B) establishing alliances C) locking in customers D) standardizing the product E) creating a new product Answer: C 79) A large software manufacturer attempts to lock in customers by making it difficult for them to substitute their software with one from another company. The strategy used by the company is referred to as ________. A) switching costs strategy B) low cost operation strategy C) standardization strategy D) marketing strategy E) bait-and-switch strategy Answer: A 80) Organizations can lock in suppliers either by making it difficult to switch to another organization or by ________. A) increasing the margin on their products B) reducing investments in their supply chain C) making it easy to work with the organization D) reducing the bargaining power of consumers E) increasing the complexity of their products Answer: C 81) A group of shoe manufacturing firms purchases raw materials collectively from a single supplier to obtain better deals. This is an example of obtaining competitive advantage by ________. A) differentiating the industry B) locking in customers C) establishing alliances D) enhancing the products E) creating a new service Answer: C 82) PL Inc. implements an information system to improve its supply chain. The system helps the organization to reduce wastes and optimally utilize its resources. In this scenario, implementing the information system has helped PL Inc. to gain a competitive advantage by ________. A) enhancing its products B) reducing its costs C) establishing alliances D) differentiating its products E) locking in customers Answer: B 83) Reduction in production cost results in ________. A) better customer service B) lower shareholder value C) increased profitability D) increased competition E) increased process complexity Answer: C 84) Which of the following principles of competitive advantage is related to process implementations? A) create new products B) enhance services C) reduce costs D) differentiate products E) create new services Answer: C 85) Which of the following principles of competitive advantage is related to process implementations? A) create new products B) lock in buyers C) enhance services D) differentiate services E) create new services Answer: B 86) Which of the following principles of competitive advantage is related to process implementations? A) create new products B) enhance services C) differentiate services D) raise the barriers to market entry E) create new services Answer: D 87) Identify the principle of competitive advantage that is associated with product implementations. A) lock in customers B) enhance services C) lock in suppliers D) establish alliances E) raise barriers to market entry Answer: B 88) Jason's Burgers, a famous diner, recently started taking orders online to reduce the customer wait time. This arrangement was perfect for busy office workers who frequented the place, and the sales went up considerably. Jason's Burgers attempted to ________. A) reduce costs B) raise barriers to market entry C) establish alliances D) lock in customers E) create a new product Answer: D 89) Launch Cars, a car manufacturing company, has patented its breakthrough technology that reduces pollutant emissions by half. The company is now an active supporter of anti-pollution laws that are likely to diminish the profitability of many other auto makers. Launch Cars is attempting to ________. A) reduce costs B) raise barriers to market entry C) establish alliances D) lock in customers E) lock in suppliers Answer: B 90) Organizations cannot gain a competitive advantage by enhancing existing products or services. Answer: FALSE 91) Creating a new product to increase margin is an example of using product implementations to achieve competitive advantage. Answer: TRUE 92) Information systems create competitive advantage by providing support to a product rather than by becoming a part of the product. Answer: FALSE 93) Organizations can lock in customers by making it difficult or expensive for them to move to another product. Answer: TRUE 94) The competitive strategy of locking in customers by making it difficult for them to move to another product is called establishing high switching costs. Answer: TRUE 95) Briefly explain product implementation in competitive strategies. Answer: Organizations gain a competitive advantage by creating new products or services, by enhancing existing products or services, and by differentiating their products and services from those of their competitors. Information systems create competitive advantages either as part of a product or by providing support to a product. 96) Briefly explain process implementation in 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. 97) Which of the following is most likely to change in the next ten years? A) model of business strategy B) competitive advantage mechanism C) relationship between competitive advantage and information systems D) pace of integration of new technology E) principles of competitive advantage Answer: D 98) What kind of technological changes can be expected in the next ten years? Answer: In the next 10 years, business models, strategies, and competitive advantages are unlikely to change. Their relationships to business processes and IS are also unlikely to change. They may evolve and new models may rise to the surface, but those new models will likely be extensions of existing models within existing paradigms. What is likely to change, however, is pace. The speed of business is continuing to accelerate because of faster Internet speeds, new networked devices, and improved hardware. The Web and other social sites (e.g., Twitter, Facebook, etc.) enable the rapid spread of new ideas and innovations. They also require businesses to constantly be on alert for changes that may affect their strategy in the near future. 99) Give an example of a technology that is likely to have a major effect on competitive strategies in the years to come. Answer: Augmented reality (AR) and virtual reality devices (VR) are just now being released to consumers. Drones are currently used by hobbyists and some small companies, but large-scale commercial use is still in the experimental stage. Self-driving cars are in the late development to early adoption phases and are getting a lot of attention from manufacturers and consumers. By 2027, new 3D applications, games, and user interfaces will be developed. Consequently, companies may need to redesign their business processes. Drones and self-driving cars will see widespread use and have a major effect on competitive strategies. For many products, transportation is a major cost. Entire value chains will be disrupted as transportation and delivery costs plummet. Robotics will likely be the next big area of technological expansion. 100) What changes will the pace of change bring about in the future? Answer: We can reasonably assume that the pace of change and the pace at which new technology is integrated will be fast and increasing, possibly accelerating, in the next 10 years. We need to view this increased pace as rapidly creating opportunities in which you can excel. You know it's coming. You know that, if not self-driving vehicles, then some other new technology-based product that is being constructed in someone's garage today will change the competitive landscape for the company for which you will work.