Lauden Chapter 3 Information Systems, Organizations, and Strategy

INTERACTIVE SESSION: ORGANIZATIONS

HOW MUCH DO CREDIT CARD COMPANIES KNOW ABOUT YOU?
1. What competitive strategy are the credit card companies pursuing? How do information systems
support that strategy?
2. What are the business benefits of analyzing customer purchase data and constructing behavioral
profiles?
3. Are these practices by credit card companies ethical? Are they an invasion of privacy? Why or why
not?
1. What competitive strategy are the credit card companies pursuing? How do information systems
support that strategy?
Answer:
Competitive strategies of credit card companies
The third chapter that is in the text has to do with explaining the fundamentals of an organization, its
economical and behavioral impacts amongst other topics that induce various models of information
systems which are used to gain a competitive advantage. Other topics mentioned induce the use of
strategic management to sustain a competitive advantage through information technology (IT) and
information systems (IS) techniques.
Competitive Advantages Mentioned in Case Study:
There are a number of competitive advantages that the companies can realize with customers using
their products. The unique system that is in place which has a specific cote for major categories of
purchases can be advantageous for them to see where customers are spending their credit lines the
most. In this day and age, that may be gas stations food outlets, restaurants, and the like as mentioned.
The marketing aspect of the card is where the biggest competitive advantage can be made. Since they
have all this aggregate data and can see trends as to where customers are purchasing goods and
services they can tailor marketing materials to existing and new customers to purchase more at those
outlets. In turn, they can offer a 'rebate' of some kind like some premium credit cards does. Customers
with higher credit scores can bask in the savings and benefits here with these types of carols. The
competitive advantage that can be realized here is the fact that the mathematical formulas and insights
that are used to determine risk can provide an advantage as to predict tow one is likely to pay off the
balance (or not) as well as determine a projected credit history in the future. These algorithms and
formulas are top secret from one another and are usually held under a lock and key because if
duplicated, this can have severe consequences for stakeholders and the company that owns those in the
first place.
Application of Information Systems:
The application of information systems to the case study is quite vast in this situation for three (3)
Different reasons.
The first and foremost is that the credit card companies must have massive data centers in place in
order to store the information that is processed, retrieved, and refined as their customers use their
cards on a daily basis. Though it may not be very large data bits and bytes, they are numerous and can
be quite comprehensive. Having these in place ensures that the company can use them to do
comprehensive data analysis when required.
The second reason is that it is now commonly required per state and federal statues to have information
on file for at least three (3) or more years — depending on the jurisdiction. Thus, credit card companies
have to invest billions of dollar in information systems infrastructures in order to store this data.
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The maintenance of these can be funded through transactional processing costs which are paid by a
merchant when the card is swiped or entered in.
Extending the second point out, massive databases that are out there for every consumer that uses
credit cards is another reason that information systems are very important here. In this case, this is vital
because this is the determining factor whether or not a person will receive credit or not.
These agencies are in a similar situation with respect to having massive information systems in place in
order to provide an answer to a credit card company whether or not a customer should get a card, have
a limit increased or worse off decreased.
A final point here is that given the way that we live globally, without information systems in this
situation, the credit card industry would simply not work very well. Back in the day (as it feels like a
generation ago when it is only about 20-25 years at the time this was written); most credit card
transactions were processed with a ditto-like machine where a carbon copy and imprint of the card had
to be put on a form and then a signature was required. This would have to be sent off to a processing
facility and then input into a database for the transaction to post. The same would happen when a
payment was posted. This process could take several days where now it takes seconds. Though many
jobs were lost; this is the inevitable truth of how information systems changes the way we live.
For the good 01' plastic in the wallet, it has drastically changed the way we live. While the answers here
apply from the data that was gathered from the case study, it is recommended that one takes a moment
and think outside of the box for some other competitive advantages that credit card companies can take
full benefit from as well as how information systems has changed the way we live.

2. What are the business benefits of analyzing customer purchase data and constructing behavioral
profiles?
Answer
The purpose of this question is for a student to think about some of the benefits the credit card
companies can gain from the accumulation of data from purchases that are made on their cards. If one
reads the case study carefully, there are a number of benefits that are shown below that can be derived
from the article.
• One of the biggest benefits is for the companies to tailor specials and promotions which will entice and
motivate cardholders to spend more money.
o This can be through rebate programs, chances to win cash and prizes, or things similar.
o Financing offers can be another option here while the company may not make as much in the short
term, the interest that has to be paid on outstanding debt after a promotional term ends would come
back into their pocket.
• Another benefit is that it is likely to cause consumers to want to have their card over another. Using
the data they have can help them create meaningful and proper promotions which cause consumers to
want to get their card with them over a rival.
• Though one may not look at this as a benefit, one of the benefits that is on the company side is that
they can detect when credit card fraud is being committed or unusual spending activities.
o Since it is required to have these records on file per federal law according to the case study, this
information is available at a moment's notice.
o Aside from the fact that the cardholder could be inconvenienced for their account turned off
temporarily due to unusual activity, this may actually be a saving grace for them which will result in
them being more loyal to a brand.
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o Another angle to look this at has to do with the financial liabilities the company would have to write
down otherwise if nothing was done,
• The fourth and final benefit that will be mentioned here is that credit card companies can develop new
product and card lines to tailor to customers and their respective credit profiles. Note that the use of the
data presented can show where customers with good or not-so-good credit could be in line for a better
credit product.
o This will, in turn, increase customer counts, interest amounts paid, and so on.

Before charging off to the next problem, while the answers here apply from the data that was gathered
from the case study, it is recommended that one takes a moment and think outside of the box for some
other benefits that credit card companies can take full benefit from with the data they receive as well as
how information systems has changed the way we live.

3. Are these practices by credit card companies ethical? Are they an invasion of privacy? Why or why
not?
Answer:
Practices by credit card companies —Ethical or not Topics that this question should revolve around
include the reduction of the credit limit (or increase) without warning, suspending cards due to possible
fraudulent activity, profiling, and the like.
Depending on how one would want to answer this question, this can go either way in all truthfulness.
Persons that would be for the practices that the credit card companies would employ here would
include some of the following arguments in the bulleted list below:
• In order to protect the financial interests of stockholders, stakeholders, bond issuer & receivers, and
the like, they must have steps in place to limit the liability that would be on their shoulders should
something happen.
• Secondly, per federal guidelines, there are a number of restrictions, rules, and regulations that are in
place which credit card companies would have to abide by which require them to collect data, analyze
customer accounts, and so on.
• Next, it is a service that the credit card companies can provide their customers which can assist them
in times of need and in the event identify theft has occurred.
• Finally, information that is being collected is bits and bytes that they already have and per the
customer agreement for the card, as long as the customer signs and accepts those, then it is a legally
binding document that gives them the right to do these practices.
While the persons may favor this, there are four (4) equally tough opposing points that can be argued in
the opposite direction. These are included below for one to see if they take that stance instead.
• The most concerning point that one could argue is that the credit card companies are getting 'too
much information' in the sense that they have access to nearly everything one does in their lives.
o Note that this point could be argued that credit card companies can get information like work history,
tax information, and general spending habits from the stores that the cards are used. This metadata as it
is viewed can be comprehensive and maybe a bit too impersonal.
• A second opposing point here is that credit card companies can do whatever they please without little
or no reason as to why. This imbalance of power is very disturbing for a number of reasons which would
take this point outside the scope of the case study.
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• A third opposing point which is a big concern for most consumers is that the information that is
provided is sold to other credit card companies which will entice them to want to get further in the hole
and get their credit products as well.
• Finally, persons may be singled out unintentionally because of inconsistent purchase behaviors. This is
in reference to the first couple of sentences where a person went on vacation and then had his credit
reduced for high usage.
o Common sense would tell one that the opposite should be true even after the fact he paid off the
bloody balance!
It is recommended that one takes a moment and think outside of the box for some other reasons for or
against the ethical (or non-ethical) practices the credit card companies are doing in the passage
provided. While there is no wrong way to look at this question; one's answer must be supported
somehow by what is provided in the text.

INTERACTIVE SESSION: TECHNOLOGY IS THE IPAD A DISRUPTIVE TECHNOLOGY?

1. Evaluate the impact of the iPad using Porter’s competitive forces model.
2. What makes the iPad a disruptive technology? Who are likely to be the winners and losers if the iPad
becomes a hit? Why?
3. Describe the effects that the iPad is likely to have on the business models of Apple, content creators,
and distributors.
1. Evaluate the impact of the iPad using Porter’s competitive forces model.
Answer:
Beginning with the first one, one should take a moment and explain what the Porter's competitive
forces model is all about. Shown below is a graphic which presents a visual aid in the explanation of this
model before going into a little bit more detail:

As one can see; there are five (5) major players that are mentioned above as well as in the text. At the
core of the model, there is continuous fighting amongst competitors and in this case Apple. Note that all
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share the same space where goods and services can be sold. In the case we have here, this is a digital
and live environment since most of the rivals have physical media while Apple has digital equivalents.
The threat of new entrants is where Apple comes in because of the technologies they possess which
have turned the media landscape upside clown. Substitutes like the Amazon Kindle e-readers, Nook e-
reader line, and others can be classified by the top blue shaded arrow. The bargaining power of
suppliers on the left are the companies that produce the media and a lot of fighting has and will
continue to take place in this sphere. Finally, the customers —shown in the red arrow on the right are
ones that have to be attracted to the changes that take place. Since Apple and others have total control
on pricing, customers are in a take-it or leave-it situation. Thus, these five (5) pieces make up the model
that would apply here.

The second part of the question asks one to examine the impacts of the tablet device mentioned on the
media industries briefly mentioned in the article. Shown below are several points that can be taken
away from the little amount of literature presented to one:
• One of the biggest threats to the media industry is the profit margins they have been able to enjoy for
many years now.
o Since the digital media is less expensive to create, maintain, and produce, this has led to thousands of
people laid off from their jobs and several companies being forced to consolidate in order to survive.
• Another big change here is that customers have quickly changed their habits as to how they want to
receive data per se and as of a result, physical media companies like music companies, book publishers,
and the like are slow to react.
• A third point than be deduced from the model above is that the speed changes are taking place is
much more rapid than ever before. Since the iPad was introduced in the marketplace in 2010, the way
one digests media has gone through a major transformation and is much more mobile than ever before.
• A final point is that even though these changes are significant, this is not the end as the model
suggests that this is a never-ending cycle.

2. What makes the iPad a disruptive technology? Who are likely to be the winners and losers if the
iPad becomes a hit? Why?
Answer:
Moving on to the second part of the problem, one would need to now look at the winners and losers of
the device in question becoming a hit. Note that the authors assume that the device becomes a hit and
to this day, it is still the most popular tablet device out there. Here are a few items from both sides of
the coin below for one to digest:
Winners
Consumers are the most beneficial here because of the technologies that they can have in their hand,
on the go, and the like.
• Application developers.
• Companies that want to embrace mobile technologies for personal or professional use.
• Education (regardless of the level because it can be applied to the learning process through
applications and interactive websites).
• And so on.
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Losers
• The biggest loser here are the media companies because they have to quickly rethink and re-strategize
their efforts in order to survive in a digital and non-digital environment.
• Though consumers can be winners, they are losers as well because information that is in electronic
formats isn't easily transferrable from one device to another.
• Physical stores like bookstores, music shops, and the like,
And so on.

3. Describe the effects that the iPad is likely to have on the business models of Apple, content
creators, and distributors.
Answer:
The best way to answer this question is to think about this question from Porter's model of competitive
forces. Note that one of the biggest things that can be said here is that the marketplace will become
very fierce because millions of developers will attempt to try to get their prized application in the store
for people to downbad, purchase, and use. Mentioned bebw are the three (3) critical groups that are
shown in the text that have to be reviewed here:
Apple
• The challenge for the company is to determine which applications are good and which ones aren't.
Usually once a year at a minimum, the company goes through a scrubbing-down process to chuck out
applications that get little or no response from users in order to keep it fresh.
• The business model that they have which used to be the 'Rip, Burn, and Distribute' is a thing of the
past as they are now more focused on digital content and incremental changes instead of radical
redesigns. Note that this is subject to change depending on when this is viewed.
• A concluding point here is that the business model has more dimensions because it is not just
hardware they have to focus on. It is now on content, hardware, platforms, and so on.
Content Creators
• One of the biggest impacts here is the ability to showcase their works to hundreds of millions of
people and monetize their efforts to some degree. Most applications will fetch a dollar or two but some
are as high as 540.00.
• Another impact is that it gives them a chance to collaborate and work with others in partnerships to
come up with content that one couldn't do on their own.
• A final impact that can be mentioned here is that the number of creators in the space is far more than
ever before and can make it difficult to be known or recognized.
Distributors
• Especially for music, video & television, and book publishers, the impacts are significant. More and
more people would rather have a Kindle or iPad than have a clunky book that weighs several pounds.
• A major impact that can be seen here is that companies will need to diversify their product offering list
to a two-headed strategy: physical media and digital content.
• Though inevitable, it will require the businesses to drastically change the way they do business and
therefore, cut or adjust head counts in order to accommodate the changing business landscape.

Will TV Succumb to the Internet? CASE STUDY

1. What competitive forces have challenged the television industry? What problems have these forces
created?
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2. Describe the impact of disruptive technology on the companies discussed in this case.
3. How have the cable programming and delivery companies responded to the Internet?
4. What management, organization, and technology issues must be addressed to solve the cable
industry’s problems?
5. Have the cable companies found a successful new business model to compete with the Internet? Why
or why not?
6. If more television programs were available online, would you cancel your cable subscription? Why or
why not?
1. What competitive forces have challenged the television industry? What problems have these forces
created?
Answer:
First identify the competitive forces that have challenged the television industry and explain the
problems that these forces created.
Competitive forces:
• Advancements in the Internet
• YouTube
Advancements in the Internet have caused many problems for the television industry. Widespread use
of high-speed Internet access, powerful PCs with high-resolution display screens, smartphones, and file-
sharing services have made it easier to view movies and television shows.
Problems caused by the Internet:
• The ability to illegally download television shows online.
• This eliminates the need for a television.
• Because of this, the television industry has to compete with the Internet for sales.
YouTube allows users to upload video content from television shows and movies Problems caused by
YouTube:
• YouTube has no way of ensuring that all of the sites content is authorized clips of copyrighted
material.
• Unauthorized content of copyrighted material means that a company loses money.
• The site provides another means of watching programs that otherwise could be viewed on a television.
2. Describe the impact of disruptive technology on the companies discussed in this case.
Answer
First determine what is meant by "disruptive technology". Then explain how the companies in this case
were impacted by it.
Definition of "disruptive technology":
Disruptive technologies are alternative products that can perform up to par or much better than what is
currently being produced.
Examples of "disruptive technology":
• A printer substituted for the printing press
• E-mail substituted for paper mail
• An mp3 player substituted for a CD player
• Web-based video content services substituted for televisions
Companies such as the television networks NBC, Fox, ABC, Comedy Central, PBS, USA Network, TNT, etc.
were impacted by the Internet and the disruptive technologies that came with it. The web-based video
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content services such as YouTube and Hulu took customers from cable and satellite companies and
made it difficult for them to maintain their sales.
3. How have the cable programming and delivery companies responded to the Internet?
Answer:
Identify the way in which the cable programming and delivery companies responded to the problems
that the Internet brought them and explain how it is beneficial.
Television networks such as NBC. ABC, and USA Network made their content available on their own
website.
Benefits:
• The programs are available for cable subscribers so the cable and satellite companies are not losing
customers.
• Revenue is generated from the same amount of advertising as seen on traditional TV.
• Subscribers cannot skip these advertisements like they can on illegally downloaded content or other
television programs that are streamed online.
4. What management, organization, and technology issues must be addressed to solve the cable
industry’s problems?
Answer:
Identify the management, organization, and technology issues and give explanations on how the cable
industry's problems can be solved.
Management:
• The CEOs of the television network companies have to find a way to use the Internet to their
advantage.
• They have to appeal to their subscribers and make their service one-of-a-kind.
• Subscribers will show loyalty to a company if they feel that they are receiving outstanding service that
they can't get through web-based content service providers.
Organization:
• Shifting to a new strategic plan requires everyone to be on the same page.
• Companies need to be on the same page with each other as well as employees within a company.
• Those responsible for making content available online need to devise a structured plan that brings
about the best possible outcome, service, profit, and growth for the company.
• Also, the television networks need to be in contact with the companies being advertised so that the
same amount of revenue is generated from traditional TV advertisements.
Technology:
• Issues include sites that have unauthorized content such as YouTube, increased sales of smartphones,
and improved speeds in Internet access.
• Regulations can be enabled to prevent the amount of piracy of illegally uploaded television programs
and movies.
• Extreme repercussions for illegally uploaded and downloaded content would minimize this issue.
• Television networks can make their content available on smartphones through the design of
applications that allow cable subscribers to view television shows wherever they are on their phones.
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5. Have the cable companies found a successful new business model to compete with the Internet?
Why or why not?
Answer:
First identify what the new business model is that cable companies have adopted. Then give reasoning
as to why it is and isn't successful. The new business model that cable companies have adopted is one
that attempts to work with the Internet as opposed to working against it.
New business model:
• Make content available online through the television network's website.
• Develop trial programs that allow televisions shows to be viewed online by cable subscribers.
• Still have online advertisements throughout the program so that revenue can be generated.
• Develop smartphone applications that allow television programs to be viewed anywhere by
subscribers.
Reasons the new business model is successful:
• Smartphone use has increased over the years so television programs are more available at a moment's
notice.
• Billions of dollars in revenue has been generated from online advertisements despite the fear that it
won't be able to compete with the revenue from traditional TV advertisements.
• Online traffic for television network websites is generated.
• People are subscribing to these trial programs which show that this idea is not a failure.
Reasons the new business model isn't successful:
• Cable companies will always lose money as long as the Internet is around so no new business model
will completely eliminate this issue.
• More ways will be introduced for unauthorized content to be made available.
• There are no strict laws against illegally sharing video files.
• Uploading and downloading pirated television programs and movies has increased over the years and
will undeniably continue to increase in the future.
6. If more television programs were available online, would you cancel your cable subscription? Why
or why not?
Answer:
Examine the pros and cons for a person to cancel his cable subscription if more television programs
were available online.
Pros for canceling a cable subscription:
• If the person has a smartphone or tablet they can view shows at a more convenient time and place.
• More money can be saved on a monthly or yearly basis depending on the payment plan of the cable
subscription.
• Viewers can pause or replay a television show instead of waiting for a rerun on a traditional TV.
• Eliminates the need for a traditional TV.
Cons for canceling a cable subscription:
• The viewing experience may not be as enjoyable as a traditional TV in cases of slow internet speed.
• Viewers may have to wait longer to watch a TV show instead of watching it on time through a cable
subscription.
• Viewing experience may not be as ideal as a traditional TV considering that trial programs are still in
the works and have not been perfected.
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• Viewers may have to pay more if each television network requires a subscription to watch a show
through their website.
• If a user doesn't have a smartphone or tablet then access to a TV show is reduced to a desktop or
laptop.
Review Questions
1. Which features of organizations do managers need to know about to build and use information
systems successfully? What is the impact of information systems on organizations?
• Define an organization and compare the technical definition of organizations with the behavioral
definition.
• Identify and describe the features of organizations that help explain differences in organizations’ use
of information systems
• Describe the impact of the Internet and disruptive technologies on organizations.
• Describe the major economic theories that help explain how information systems affect organizations.
• Describe the major behavioral theories that help explain how information systems affect
organizations.
• Explain why there is considerable organizational resistance to the introduction of information systems.
2. How does Porter’s competitive forces model help companies develop competitive strategies using
information systems?
• Define Porter’s competitive forces model and explain how it works.
• Describe what the competitive forces model explains about competitive advantage.
• List and describe four competitive strategies enabled by information systems that firms can pursue.
• Describe how information systems can support each of these competitive strategies and give
examples.
• Explain why aligning IT with business objectives is essential for strategic use of systems.
3. How do the value chain and value web models help businesses identify opportunities for strategic
information system applications?
• Define and describe the value chain model.
• Explain how the value chain model can be used to identify opportunities for information systems.
• Define the value web and show how it is related to the value chain.
• Explain how the value web helps businesses identify opportunities for strategic information systems.
• Describe how the Internet has changed competitive forces and competitive advantage.
4. How do information systems help businesses use synergies, core competences, and networkbased
strategies to achieve competitive advantage?
• Explain how information systems promote synergies and core competencies.
• Describe how promoting synergies and core competencies enhances competitive advantage.
• Explain how businesses benefit by using network economics.
• Define and describe a virtual company and the benefits of pursuing a virtual company strategy.
5. What are the challenges posed by strategic information systems and how should they be addressed?
• List and describe the management challenges posed by strategic information systems.
• Explain how to perform a strategic systems analysis.
1. Which features of organizations do managers need to know about to build and use information
systems successfully? What is the impact of information systems on organizations?
• Define an organization and compare the technical definition of organizations with the behavioral
definition.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• Identify and describe the features of organizations that help explain differences in organizations’ use
of information systems
• Describe the impact of the Internet and disruptive technologies on organizations.
• Describe the major economic theories that help explain how information systems affect
organizations.
• Describe the major behavioral theories that help explain how information systems affect
organizations.
• Explain why there is considerable organizational resistance to the introduction of information
systems.
Answer:

First, give the technical and behavioral definitions for an organization. Then compare the two.
Technical definition:
• Defined as a stable, formal social structure that takes resources from the environment and processes
them to produce outputs.
• The focus is on three elements, the first of which is that capital and labor are primary production
factors provided by the environment.
• The second element is that the organization turns these inputs into products and services
• The third element is that the products and services are consumed by the environments in return for
supply inputs.
Behavioral definition:
• Defined as a collection of rights, privileges, obligations, and responsibilities that is delicately balanced
over a period of time through conflict and conflict resolution.
• This definition helps describe how the firm is affected on the inside by technology.
Comparison:
• The technical and behavioral definitions complement each other.
• The technical definition helps explain how each firm combines capital, labor, and information
technology to produce an output.
• The behavioral definition helps explain the inside workings of a firm and how all aspects of the firm are
affected by technology.
Next, list the features of an organization. Describe each feature and how it relates to an organization's
use of information systems.
Features of an organization:
• Routines and business processes
• Organizational politics
• Organizational culture
• Organizational environments
• Organizational structure
Routines and business processes:
• Routines are standard operating procedures that are developed by an organization to deal with certain
situations.
• Routines help employees become more productive and efficient.
• As efficiency increases, an organization can reduce its costs over time.
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Organizational politics:
• Within a firm are many different viewpoints about how resources, rewards, and punishments should
be distributed.
• The differing viewpoints create political struggle for resources, competition, and conflict.
• Information systems investments bring significant changes in strategy, business objectives, business
processes, and procedures that all relate to an organization's politics.
Organizational culture:
• An organization has assumptions about what products they should produce, how it should produce
them, where, and for whom.
• Changes in technology are often seen as threats to an organization's culture.
• These changes can bring about resistance which will lead to decreased production and empbyee
morale.
Organizational environments:
• Organizations are dependent on the social and physical environment that surrounds them.
• An organization cannot exist without people willing to work reliably and consistently for a set wage or
revenue from customers.
• Organizations can also affect their environment by forming partnerships with other organizations to
influence organizational politics.
• Information systems help in this area by a process known as environmental scanning.
• Environmental scanning helps managers identify external changes that might require an organizational
response.
Organizational structure:
• The types of information systems within an organization define the structure of that firm.
• Smaller firms tend to have poorly designed systems while professional firms usually have well
designed systems to keep up with the needs of their customers.
Next, list the major economic theories and give reasons as to how they explain the effect of information
systems on organizations.
Major economic theories:
• Transaction cost theory
• Agency theory
Transaction cost theory:
• Firms and individuals seek to economize on transaction costs.
• Information technology helps an organization reduce transaction costs because it will buy the
technology on the marketplace instead of developing their own systems.
• As transaction costs decrease, the number of employees in an organization decreases because it is
easier and much more cost-effective to purchase resources for their information system rather than
making the product themselves.
Agency theory:
• States that an organization is viewed as a collection of contracts among self-interested individuals
rather than one, unified body.
• The owner of an organization has employees that will perform work on the owner's behalf.
• These employees have supervisors and managers who make sure the jobs are performed as desired by
the owner.
• If an organization expands, the cost of hiring supervisors and managers increases.
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• Information technology helps reduce internal management costs.

• Supervisors and managers have an easier way of overseeing many employees.
Next, list the major behavioral theories and give reasons as to how they explain the effect of information
systems on organizations.
Behavioral theories:
• IT flattens organizations
• Postindustrial organizations
IT flattens organizations:
• This theory suggests that information systems broaden the distribution of information to empower
lower-level employees.
• This leads to employees having increased management efficiency and a flattening of hierarchies.
• Also, information technology allows lower-level employees to make more decisions without
supervision because they receive the information needed to make these decisions.
• Information technology allows supervisors and managers to receive more information which leads to
faster decision making. This means that an organization doesn't need as many managers.
• With the advancements in information technology, organizations have gotten rid of thousands of
middle managers.
Postindustrial organizations:
• This theory suggests that on a historical standpoint, authority increasingly relies on knowledge and
competence rather than formal positions.
• Lower-level employees feel the need to self-manage because information technology allows
information to flow more freely throughout all aspects of the organization and not just the higher-level.
• Decision making becomes decentralized and causes the shape of the organization to flatten.
Next, give reasons behind the organizational resistance to the introduction of information systems.
Reasons behind organizational resistance to information systems:
• Information systems have the potential to change an organization's structure, culture, business
processes, and strategy.
• Employees resist information systems because it requires them to learn a new way of doing things.
• These changes require time, patience, and even additional costs and can lead to a decreased
productivity.
• New information systems require changes in personal routines because an employee has to be
retrained to handle the new system.
Lastly, list and describe the impact of the Internet and disruptive technologies on organizations.
Impact of the Internet on organizations:
• The Internet increases the accessibility, storage, and distribution of information and knowledge for
organizations.
• The Internet is a huge factor in reducing transaction and agency costs.
• Organizations are altering their business processes to accommodate Internet technology
• Also, the Internet is a huge component of an organization's IT infrastructure.
• Considering modern advancements in technology, an organization will have a very difficult time
surviving if it doesn't accommodate the Internet.
Definition of disruptive technologies:
• A technology or innovation that radically changes the business landscape and environment.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• These technologies are substitute products that perform just as well or even better than what is being
currently produced.
Impact of disruptive technologies on organizations:
• Disruptive technologies can cause entire industries to be put out of business.
• Advancements in music and file sharing have caused a dramatic decrease in CD sales.
• Also, forms of digital photography have caused film photography to be nearly obsolete.
• On the other hand, disruptive technologies can extend the market, causing an organization to turn into
a low-cost competitor for whatever was previously sold.
• An organization has to adapt to disruptive technologies in order to make a profit or survive in the
marketplace.
2. How does Porter’s competitive forces model help companies develop competitive strategies using
information systems?
• Define Porter’s competitive forces model and explain how it works.
• Describe what the competitive forces model explains about competitive advantage.
• List and describe four competitive strategies enabled by information systems that firms can pursue.
• Describe how information systems can support each of these competitive strategies and give
examples.
• Explain why aligning IT with business objectives is essential for strategic use of systems.
Answer:
First, define what Porter's competitive forces model is. Then explain exactly how the model works.
Porter's competitive forces model:
• A model for understanding competitive advantage.
• Provides a general view of the firm, its competitors, and the firm's environment.
• The model focuses on the firm's general business environment.
• Consists of five competitive forces that shape a firm.
Five competitive forces in Porter's competitive forces model:
• Traditional competitors
• Newt market entrants
• Substitute products and services
• Customers
• Suppliers
Traditional competitors:
• All firms share the same market space with other competitors.
• The competitors are constantly coming up with innovative and efficient ways to produce.
• They accomplish this by introducing new products and services, and attracting customers by
developing their brands and imposing switching costs on their customers.
New market entrants:
• The free economy allows for new companies to enter the marketplace.
• Some industries make it easy for new competitors but others make entry difficult.
• New companies have an advantage in that they can hire younger employees who are highly
motivated, cost less, and are potentially more innovative.
Substitute products and services:
• If prices become too high, a customer might choose to use a substitute product.
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• If there are a great number of substitute products in an industry, a company will have a difficult time
controlling pricing and generating profit.
Customers:
• In order to generate profit, a company has to be able to attract and retain customers while charging
high prices.
• The customers have more power if they can switch to substitute products and services.
Suppliers:
• A firm's profits can be impacted by the supplier if the firm cannot raise prices as fast as the supplier
can.
• If a firm has many different suppliers, it has a greater control over price, quality, and delivery
schedules.
Next, give a list and explain what the competitive forces model explains about competitive advantage.
What the competitive forces model explains about competitive advantage:
• Firms that are more successful can attribute that success to the fact that they are covering all areas of
the competitive forces model.
• This may be because they have access to special resources that other firms do not.
• This may also be because they are able to use commonly available resources more efficiently.
• Firms that have a competitive advantage can also attribute that to having superior knowledge and
information assets.
• The model explains that a mastery of the five competitive forces will lead to revenue growth,
profitability, or productivity growth.
• This will also lead to firms having higher stock market valuations than their competitors.
Next, identify the four competitive strategies enabled by information systems that firms pursue. Give
descriptions for each strategy.
Competitive strategies:
• Low-cost leadership
• Product differentiation
• Focus on market niche
• Strengthen customer and supplier intimacy
Low-cost leadership:
• The Internet allows information systems to produce products and services at a lower price than
competitors.
• At the same time quality and level of service is enhanced.
Product differentiation:
• Information systems can differentiate products and enables new services and products.
• This gives power to the customers because they have a broader range of products and services from
which they can choose.
Focus on market niche:
• Information systems enable a focused strategy on a single market niche.
• It allows for a more specialized strategy that targets a specific market.
Strengthen customer and supplier intimacy:
• The Internet also allows information systems to develop trust and loyalty with customers and
suppliers.
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Next, give a list of real life examples of how information systems can support the four competitive
strategies.
Low-cost leadership:
• Information systems are used to achieve lower operational costs and low prices.
• An example is Walmart.
• Walmart implements an inventory replenishment system that sends orders for new merchandise
directly to suppliers as soon as consumers pay for their purchases at the cash register.
• This allows Walmart to not spend a lot of money on maintaining large inventories of goods in its own
warehouse.
• Also, this system meets customer demands because money is not wasted on items that are not selling.
Product differentiation:
• Information systems are used to enable new products and services that conveniently cater to the need
of a customer.
• An example is Google and how they introduce new and unique search services on its Web site, such as
Google Maps.
• Another example is eBay and how it purchased PayPal.
• eBay made it much more simpler for customers to pay sellers and expanded the use of its auction
marketplace.
Focus on market niche:
• Information systems are used to enable a specific market focus, and serve this narrow target market
better than competitors.
• Information systems produce and analyze data for finely tuned sales and marketing techniques.
• A company is able to analyze customer buying patterns, tastes, and preferences and make necessary
changes to target these smaller markets.
• An example of this is Hilton Hotels' OnQ system that analyzes detailed data collected on active guests.
• The system determines the preferences and profitability of each and guest. -Hilton uses this
information to give profitable customers more privileges such as late check- outs.
Strengthen customer and supplier intimacy:
• Information systems are used to tighten linkages with suppliers and develop intimacy with
Customers.
• An example is how Chrysler Corporation is able to facilitate direct access by suppliers to production
schedules.
• The system also allows the supplier to decide how and when to ship supplies to Chrysler factories.
• This gives suppliers more freedom while efficiently producing to the needs of the customer.

Lastly, list reasons as to why aligning IT with business objectives is essential for strategic use of systems.
Start by discussing the effects of IT on business performance.
Research of IT on business performance:
• The more successfully a firm can align information technology with its business goals, the more
profitable it will be.
• One-quarter of all firms achieve effective use of IT with the business.
Why IT-business objectives alignment is essential:
• Many firms ignore aligning IT with business objectives because they fail to understand the concept.
• Failure to align IT with business objectives can prove costly and lead to poor performance.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• Firms that are successful in aligning IT with business objectives tend to be more profitable.
• A firm must work actively to ensure that their IT has a positive effect on their business goals.

3. How do the value chain and value web models help businesses identify opportunities for strategic
information system applications?
• Define and describe the value chain model.
• Explain how the value chain model can be used to identify opportunities for information systems.
• Define the value web and show how it is related to the value chain.
• Explain how the value web helps businesses identify opportunities for strategic information
systems.
• Describe how the Internet has changed competitive forces and competitive advantage.
Answer:
First define what the value chain model is and describe it.
Value chain model:
• Highlights specific activities in the business where competitive strategies can be best applied and
where information systems are most likely to have a strategic impact.
• The model identifies specific and critical areas where a firm can implement information technology
most effectively to gain a competitive edge.
• The model views the firm as a series or chain of basic activities that add a margin or value to a firm's
products or services.
• The activities are categorized as primary or support.
Primary activities:
• Primary activities are directly related to the production and distribution of the firm's products and
services.
• The products and services create value for the customer.
• These activities include inbound logistics, operations, outbound logistics, sales and marketing; and
service.
• Inbound logistics refers to the materials that are received and stored for distribution to production.
• A firm's operations are what turn the inputs into finished products.
• Outbound logistics refers to the storing and distributing of the finished products.
• Sales and marketing entails the promotion and selling of the finished product.
• Service includes the maintenance and repair of the goods and services that the firm provides.
Support activities:
• Support activities make the delivery of the primary activities possible.
• These activities include organization infrastructure, human resources, technology, and procurement.
• Organization infrastructure refers to the administration and management.
• Human resources involve employee recruiting, hiring, and training.
• Technology includes product improvement and the production process.
• Procurement entails the organization having to purchase the input that is turned into the finished
product.

Next, list and describe ways that the value chain model identifies opportunities for information systems.
Ways that the value chain model identifies opportunities for information systems:
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• Information systems can be implemented in the primary and support activities to improve efficiency,
cut costs, generate profit, and improve customer relationships.
• It forces an organization to critically examine how they perform value-adding activities at each stage of
the value chain.
• Allows an organization to see how they can improve their business processes.
• The organization can determine how they can use information systems to improve operational
efficiency.
Next, give a definition for the value web and explain how it is related to the value chain.
Value web:
• Defined as a collection of independent firms that use information technology to collectively coordinate
their value chains to produce a product or service for a market.
• Value webs are tailored to fit the needs of the customer.
• It operates in a less linear manner than the traditional value chain.
How it is related to the value chain:
• Value webs are described as highly synchronized industry value chains.
• It is also flexible and adaptive to changes in supply and demand.
• It synchronizes the business processes of customers, suppliers, and trading partners among different
companies in an industry or in related industries.
• Value webs allow organizations to make quick decision on who can deliver the required products or
services at the right price and location.
Next, list and describe reasons how the value web identifies opportunities for businesses in regards to
strategic information systems. Ways that value webs help a business identify opportunities in strategic
information systems:
• Information systems allow participants to use information technology to develop industry-with
standards for exchanging information electronically.
• These value webs are flexible and adaptive to changes in supply and demand.
• If market conditions change, relationships can be bundled or unbundled
• Also, firms will accelerate time to both market and customers by raising their value web relationships.
• This leads to an increase in a firm's efficiency.
Lastly, list and describe ways that the Internet has changed competitive forces and competitive
advantage. Start by listing the competitive forces and competitive advantages and give explanations
for each.
Competitive forces:
• Substitute products or services
• Customers' bargaining power
• Suppliers' bargaining power
• Threat of new entrants
• Positioning and rivalry among existing competitors
Impact of Internet on competitive forces:
• The Internet enables new substitute products or services to emerge with new approaches to meeting
needs and performing functions.
• The wide-range availability of global price and information about a product causes the bargaining
power to shift to the customer. Companies have to tailor their product to better fit the desires of a
customer.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• The obtaining of initial input over the Internet causes the bargaining power of the suppliers to
increase. Suppliers are able to benefit from the elimination of distributors that come between them and
their customers.
• The Internet provides a technology for driving business processes that makes things easier to do. It
reduces the need for a sales force, access to channels, and physical assets.
• Lastly, the Internet widens the geographic market by reaching out to all parts of the globe. The
number of competitors and the similarities among competitors increases. This forces companies to
compete on price.
Competitive strategies that give competitive advantages:
• Low-cost leadership • Product differentiation
• Focus on market niche
• Customer and supplier intimacy
Impact of Internet on competitive advantages:
• The Internet allows information systems to produce products and services at a lower price than
competitors. At the same time quality and level of service is enhanced.
• Information systems can differentiate products and enables new services and products.
• Information systems enable a focused strategy on a single market niche. It allows for a more
specialized strategy that targets a specific market.
• The Internet also allows information systems to develop trust and loyalty with customers and
suppliers.
Other changes:
• The Internet caused competition between rival companies to intensify.
• There is a universal standard that allows new competitors to enter the marketplace and for companies
to be able to survive and compete on price alone.
• Some industries had trouble adapting to the Internet which is why they were nearly destroyed or
severely threatened.
• On a positive note, the Internet has allowed for the creation of new markets that introduce new
products or services such as Amazon eBay, iTunes, and YouTube.

4. How do information systems help businesses use synergies, core competences, and network based
strategies to achieve competitive advantage?
• Explain how information systems promote synergies and core competencies.
• Describe how promoting synergies and core competencies enhances competitive advantage.
• Explain how businesses benefit by using network economics.
• Define and describe a virtual company and the benefits of pursuing a virtual company strategy.
Answer:
First, give definitions for synergies and core competencies. Then; list and describe reasons as to how
information systems promote them.
Synergies:
• The idea is that the output of some units can be used as inputs to other units.
• This leads to lower costs and a generated profit.
Core Competencies:
• Defined as activities for which a firm is a world-class leader.
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• Core competencies are usually obtained from knowledge that is gained over many years of practical
experience with a technology.
How information systems promote them:
• Information systems can help improve the overall performance of an organization.
• Corporations are usually a collection of businesses that are organized financially as a collection of
strategic business units.
• The returns of the corporation are directly influenced by the performance of all the strategic business
units.
• Corporations can increase productivity by promoting synergies and core competencies.
Next, list and describe ways that promoting synergies and core competencies enhances competitive
advantages.
How synergies and core competencies enhance competitive advantages:
• Information systems tie together the operations of disparate business units so they can act as a whole.
• This increases productivity, consolidates operations, and saves both time and money.
• Core competencies are enhanced because information systems encourage the sharing of knowledge
across business units.
• Employees within an organization become more knowledgeable about a certain technology.
• This is good for an organization because it produces innovation amongst employees, which is good
when competing with rival companies for customers.
Next, define network economics then give reasoning as to how businesses can benefit from it.
Network economics:
• In a network, the marginal costs of adding another participant are nearly zero.
• The marginal gain however, is much larger.
• The more participants in a network leads to a greater value to all the participants because there are
more people that a user can interact with.
How businesses can benefit from network economics:
• Network economics helps businesses gain a strategic advantage when using information technology.
• Internet sites can be used by a business to form large communities of users.
• This inspires collaboration and innovation within an organization.
• Also, an organization can build customer loyalty by interacting with their customers through these
online communities.
Lastly, define the term virtual company. Then list and describe the benefits of pursuing a virtual
company.
Virtual company:
• Defined as an organization that uses networks to link people, assets, and ideas, enabling it to ally with
other companies to create and distribute products and services.
• Virtual companies do not have to worry about traditional organizational boundaries or physical
locations.
Benefits of pursuing a virtual company:
• A virtual company doesn't have any geographical limitations. • It can be partnered with companies
from all over the globe. • A company can use the capabilities of another company without being
physically tied to that company.
• Incorporates a useful model that allows a company to find cheaper products, services, or capabilities
from an external vendor.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

5. What are the challenges posed by strategic information systems and how should they be
addressed? • List and describe the management challenges posed by strategic information systems.
• Explain how to perform a strategic systems analysis.
Answer:
First, identify the challenges created by strategic information systems and then find ways that
management can address these issues.
Challenges:
• Changes in business goals
• Changes in relationships with customers and suppliers
• Changes in business processes In order to implement strategic information systems, changes must be
made that affect the social and technical elements of an organization, otherwise known as strategic
transitions.
Problems with strategic transitions:
• Strategic transitions are not easy because they require spending money from one system to another
which, in turn, could lead to poor company performance.
• Also, not all employees are willing to transition from a system that they are comfortable with using.
• Implementing a new system will take time and patience from all aspects of the company.
Ways to address the challenges:
• Suppliers and customers have to cooperate more and share overlapping responsibilities.
• Managers have to come up with new and effective business processes for organizing their company's
activities with the activities of the customers, suppliers, and other organizations.
• Another feasible solution is to implement another company's system to ensure that there is no
sustainable strategic advantage.
The next part of this question will address how to perform a strategic systems analysis by highlighting
the three questions managers should ask Three questions:
• What is the structure of the industry in which the firm is located?
• What are the business, firm, and industry value chains for this particular firm?
• Have we aligned IT with our business strategy and goals?
1. What is the structure of the industry in which the firm is located?
• An analysis of the competitive forces at work in the industry should be made
• Also, a manager must determine and analyse the basis of competition along with the direction and
nature of change within the industry.
• Lastly, an analysis should be made of the industry and how it is using current information technology.
2. What are the business, firm, and industry value chains for this particular firm?
• The manager has to decide on how the firm is creating value for the customer and if there is a way for
the business to create more value for the customer.
• Also, the manager must determine if the firm understands and manages its business processes using
the best practices available.
• Furthermore, an analysis should be math of whether or not a firm can benefit from strategic
partnerships with other firms.
• Lastly, a manager has to distinguish where information systems provide the greatest value to the
firm's value chain.
3. Have we aligned IT with our business strategy and goals?
• This is where the manager must articulate the firm's business strategy and goals.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• He or she must also evaluate if IT is improving the right business processes and activities to promote
the firm's strategy.
• Lastly, the manager has to decide on the right metrics to measure the amount of progress toward the
firm's goals.
Discussion Questions
1. It has been said that there is no such thing as a sustainable strategic advantage. Do you agree? Why
or why not?
2. It has been said that the advantage that leadingedge retailers such as Dell and Walmart have over
their competition isn’t technology; it’s their management. Do you agree? Why or why not?
3. What are some of the issues to consider in determining whether the Internet would provide your
business with a competitive advantage?
1. It has been said that there is no such thing as a sustainable strategic advantage. Do you agree? Why
or why not?
Answer
The idea of sustainable strategic advantage must first be understood. Then, ways in which sustainable
strategic advantage exists and doesn't exist must be examined.
Explanation of sustainable strategic advantage:
A sustainable strategic advantage is an idea or system that a company uses in order to gain a long-
lasting upper edge on the competition.
Why there is sustainable strategic advantage:
• Company A implements a system or idea that gives it an upper edge on its rivals.
• This original system allows the company to gain a loyal base of consumers.
• Over time, when rival Company B implements a similar system, it will have a consumer base of
its own.
• If consumers are loyal to what they are already used to and don't want change, they will stick to
Company A's system.
• This means that Company B has to formulate an advantage of its own that is original and unique.
Why there isn't sustainable strategic advantage:
• Company A, at first, may gain a temporary advantage through the implementation of a certain idea or
system.
• Ultimately, a rival Company B will simply copy Company A's strategic system.
• Over time, Company A's once strategic advantage is no longer sustainable rather it has become a
necessity in order to keep up with the competition from other companies.

2. It has been said that the advantage that leading-edge retailers such as Dell and Walmart have over
their competition isn’t technology; it’s their management. Do you agree? Why or why not?
Answer:
First, identify ways in which Dell and Walmart have an advantage in terms of management rather than
technology.
Advantage is management:
• A case can be made against technology because any system implemented by Dell and Walmart can be
copied by their competitors.
• The same management that came up with these strategic systems is fully capable of changing their
current systems to gain an upper edge on the competition.
 Lauden Chapter 3 Information Systems, Organizations, and Strategy

• This involves analyzing what information systems are right for the company and will generate the most
profit.
• Management is able to see what changes need to be made in the information system and come up
with solutions that keep their business goals consistent.
Then identify ways in which Dell and Walmart's advantage over competition is technology.
Advantage is technology:
• Walmart masters the strategy of low-cost leadership through its inventory replenishment system.
• This system automatically notifies suppliers whenever a product is purchased by a customer.
• The system enables Walmart to adjust purchases of store items to meet customer demands instead of
spending unnecessary funds on items that have low customer demand.
• Dell uses product differentiation as its advantage over its competitors.
• Dell products offer unique goods and services that appeal to certain customer preferences.
• Both companies have effectively used technology to generate profit.

3. What are some of the issues to consider in determining whether the Internet would provide your
business with a competitive advantage?
Answer:
Determine and list the important issues and then explain how each can provide a business with a
competitive advantage.
Issues:
• Growth of the Internet
• Maintenance of company website
• Budget
Growth of the Internet:
• The Internet is growing bigger every single day.
• Millions of people are online at any given moment so this provides a large platform for a business to
advertise.
• Many businesses are turning to the Internet for an advantage.
• Using the Internet is practically a necessity in order for a business to survive.
Maintenance of company website:
• The appearance of the website has to appeal to clients.
• If the appearance is desirable then many people will view the website.
• Heavy traffic on the website will raise attention for the business and draw more clients.
• Heavy traffic will also allow the website to more likely appear on search engines.
Budget:
• The business has to determine whether or not it has the sufficient funds to support the demands of
the Internet.
• The IT department has to be trained in maintaining the website and other possible uses of the
Internet.
• If the business's money is spent wisely, the Internet can provide profit and growth.
Lauden Chapter 3 Information Systems, Organizations, and Strategy