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Chapter 3
Information Systems, Organizations, Management, and Strategy
True-False Questions
1. The interaction between information technology and organizations is simple and is not
influenced by other mediating factors.
2. E-mail and instant messaging have become a dominant form of business communication.
3. An organization is less stable than an informal group in terms of longevity and routines.
6. Peter Drucker was the first person to describe the ideal-typical characteristics of an
organization.
7. Standard operating procedures are precise rules, procedures, and practices that have been
developed to cope with virtually all expected situations.
10. Organizations generally have more features in common with each other than they have
unique features.
11. It is the systems analysts job to translate business problems and requirements into
information requirements and systems.
12. The role of the CFO is a senior management position that oversees the use of information
technology in a firm.
13. By reducing overall management costs, information technology enables firms to increase
revenues while shrinking the number of middle managers and clerical workers.
15. Micromarketing can help companies pinpoint tiny target markets for finely customized
products and services.
16. Research on project implementation failures demonstrates that the most common reason for
failure of large projects to reach their objectives is organizational and political resistance to
change.
18. Managers do not behave as the classical model of management has led us to believe.
19. Mintzberg has defined the five modern attributes of managerial behavior.
20. Information systems provide only limited assistance for management decision making.
21. The rational model of human behavior is built on the idea that people engage in basically
consistent, rational, value-maximizing calculations.
22. People tend to choose the first available alternative that moves them toward the ultimate
goal, not necessarily the alternative that is best.
23. Understanding the environment in which an organization must function is not relevant when
building a new information system.
24. According to bureaucratic models of decision making an organizations most important goal
is the preservation of the organization.
25. If an information system is not built with a clear understanding of the organization and a
clear understanding of exactly what is expected of it, it will not be able to deliver genuine
benefits.
26. The value chain model classifies all company activities as either primary or support.
27. In the value chain model, primary activities are most directly related to the production and
distribution of the firms products and services that create value for the customer.
28. Digitally enabled networks can be used not only to purchase supplies but also to closely
coordinate production of many independent firms.
29. Many of information technology-based products and services were developed originally by
financial institutions.
30. One way an organization can increase profitability and market penetration is to mine existing
data.
32. Supply chain management and efficient customer response systems allow digital firms to
engage in business strategies not available to traditional firms.
33. The idea driving synergies is that when the output of some units can be used as inputs to
other units, the relationship can lower cost and generate profits.
34. The competitive forces model was created for todays digital firm.
35. In the age of the Internet, Porters traditional competitive forces model is still at work, but
competitive rivalry has become much more intense.
36. Customers are one of the competitive forces that affect an organizations ability to compete.
37. Business ecosystems typically have one or a few keystone firms that dominate the ecosystem
and create the platforms used by other niche firms.
38. The law of diminishing returns always applies to digital, as well as traditional companies.
39. The more people that use Microsoft Office software and related products, the greater its
value.
40. The competitive advantages strategic systems confer usually last long enough to ensure long-
term profitability.
Multiple-Choice Questions
41. The interaction between information technology and organizations is very complex and
is influenced by a great many mediating factors, including the organization structure,
business processes, politics, culture, management decisions and:
42. A stable, formal social structure that takes resources from the environment and processes
them to produce outputs is called a(n):
a. micro system.
b. organization.
c. bureaucracy.
d. value chain.
a. values
b. abstract rules and procedures
c. structures
d. Both a and c
a. Max Webber
b. Franz Kafka
c. Anne Frank
d. Paul Gerhardt
46. Virtually all information systems that bring about significant changes in goals,
procedures, productivity, and personnel are:
a. doomed to failure.
b. going to elicit serious political opposition.
c. going to require a CIO.
d. unnecessary.
47. Routines for producing goods and services are sometimes called:
a. bureaucratic structures.
b. standard operating procedures.
c. routine tasks.
d. formal structures.
48. Collections of routines for producing goods and services are referred to as:
a. business processes.
b. work with routine tasks.
c. standard reporting procedures.
d. mediating factors.
49. The greatest difficulty of bringing about organizational change especially the
development of new information systems is:
50. Fundamental assumptions about what products the organization should produce, how it
should produce them, where, and for whom is known as:
a. motivational factors.
b. organizational culture.
c. business processes.
d. standard operating procedures.
a. five
b. six
c. seven
d. eight
54. Only ______________________ percent of the Fortune 500 companies of 1919 still
exist today.
a. 10
b. 20
c. 30
d. 40
55. These information specialists constitute the principal liaisons between the information
systems groups and the rest of the organization:
a. systems analysts.
b. programmers.
c. end users.
d. Web-page developers.
56. The role of ______________________ is a senior management position that oversees the
use of information technology in the firm.
a. CTO
b. CFO
c. CIO
d. CEO
a. End users
b. Programmers
c. Analysts
d. IS managers
59. Although ____________________ theories try to explain how large numbers of firms act
in the marketplace, __________________________ theories are more useful in
describing the mechanics of actual firms.
a. behavioral; transaction
b. economic; behavioral
c. economic; agency
d. agency; behavioral
a. Hierarchical
b. Vertical
c. Virtual
d. Manufacturing
a. Mass customization
b. Size customization
c. Magnitude customization
d. Dimension customization
63. For the manager, no technological support systems exist for the managerial roles of:
a. liaison or negotiator.
b. spokesperson or resource allocator.
c. entrepreneur or nerve center.
d. figurehead or disturbance handler.
a. hierarchical
b. rational model
c. choice model
d. decisional model
67. At the business level the most common analytical tool for identifying opportunities for
strategic systems is:
a. DSS.
b. the value web.
c. ESS.
d. value chain analysis.
69. When a firm provides a specialized product or service for a narrow target market better
than competitors, they are using a:
a. product differentiation strategy.
b. focused differentiation strategy.
c. value web strategy.
d. customization strategy.
70. The cost of acquiring a new customer has been estimated to be _____________ times
that of retaining an existing customer.
a. three
b. six
c. five
d. seven
72. When the output of some units can be used as inputs to other units, or if two
organizations pool markets and expertise that result in lower costs and generate profits it
is often referred to as creating:
a. digital strategies.
b. switching costs.
c. synergies.
d. low-cost producer strategies.
a. network economics
b. competitive forces
c. strategic transitions
d. environmental conditions
76. ___________ is determined by the nature of the players in an industry and their relative
bargaining power.
a. Industry structure
b. Industry opportunities
c. Industry threats
d. Industry power
a. suppliers.
b. other competitors.
c. external environment
d. customers.
78. This traditional model assumes a relatively static industry environment, relatively clear-
cut industry boundaries, and a relatively stable set of suppliers, substitutes, and
customers, with a focus on industry players in a market environment:
79. Another term for loosely coupled but interdependent networks of suppliers, distributors,
outsourcing firms, transportation service firms, and technology manufacturers is:
a. Keystone firm.
b. Niche firm.
c. business portal.
d. business ecosystem.
80. The more any given resource is applied to production, the lower the marginal gain in
output, until a point is reached where the additional inputs produce no additional output
is referred to as:
82. A(n) bureaucracy is a formal organization with a clear-cut division of labor, abstract rules
and procedures, and impartial decision making that uses technical qualifications and
professionalism as a basis for promoting employees.
83. Max Weber was the first to describe the ideal-typical characteristics of organizations in
1911.
85. Routines are the precise rules, methods, and practices developed by organizations to cope
with virtually all expected situations.
86. The organizational culture is the set of fundamental assumptions about what products the
organization should produce, how and where it should produce them, and for whom they
should be produced.
87. The examination by management of the external changes that might require an organizational
response is called environmental scanning.
88. A(n) programmer is a highly trained technical specialist who writes computer software
instructions.
89. A(n) systems analyst is a specialist who translates business problems and requirements into
information requirements and systems, acting as a liaison between the information systems
department and the rest of the organization.
90. A(n) chief information officer is the senior manager in charge of the information systems
function in the firm.
91. A(n) end user is a representative of the department outside the information systems group for
whom applications are developed.
92. The transaction cost theory states that firms grow larger because they can conduct
marketplace transactions internally more cheaply than they can with external firms in the
marketplace.
93. Traditionally, firms have tried to reduce transactions costs through vertical integration, by
getting bigger, hiring more employees, and buying their own suppliers and distributors.
94. The agency theory views the firm as a nexus of contracts among self-interested individuals
who must be supervised and managed.
95. A(n) virtual organization uses networks to link people, assets, and ideas to create and
distribute products and services without being limited to traditional organizational
boundaries or physical locations.
96. Mass customization is the ability to offer individually tailored products and services using
the same production resources as mass production.
97. Information systems inevitably become bound up with organizational politics because they
influence access to information.
99. A(n) managerial role is the expectation of the activities that a manager will perform in an
organization.
100. A manager presenting employees with awards for high performance would be performing
a(n) interpersonal role. .
101. The rational model of human behavior is built on the idea that people engage in basically
consistent, rational, value-maximizing calculations.
102. Organizational models of decision making take into account the structure and political
characteristics of an organization.
103. In the bureaucratic model of decision making an organizations most important goal is the
preservation of the organization.
104. In political models of decision making, what an organization does is a result of bargains
struck among key leaders and interest groups.
105. The value chain model highlights the primary or support activities that add a margin of value
to a firms products or services where information systems can best be applied to achieve a
competitive advantage.
106. A(n) primary activity is one that is directly related to the production and distribution of a
firms products or services.
107. A(n) support activity is a part of the organizations infrastructure, human resources,
technology, and procurement that makes the delivery of the firms products or services
possible.
108. The value web is the customer-driven network of independent firms that use information
technology to coordinate their value chains to collectively produce a product or service for a
market.
109. Product differentiation is a competitive strategy for creating brand loyalty by developing
new and unique products and services that are not easily duplicated by competitors.
110. Focused differentiation is a competitive strategy for developing new market niches for
specialized products or services where a business can compete in the target area better than
its competitors.
111. Switching costs are the expenses incurred by a customer or company in lost time and
resources when changing from one supplier or system to a competing supplier or system.
112. A(n) core competency is an activity at which a firm excels as a world-class leader.
113. A(n) information partnership is a cooperative alliance formed between two or more
corporations for the purpose of sharing information to gain strategic advantage.
114. Porters competitive forces model illustrates that a firm faces a number of external threats
and opportunities.
116. American Airlines awarding a mile in its frequent flier program for every dollar a customer
spends on MCI long-distance telephone calls is an example of a(n) information partnership.
117. A(n) business ecosystem is a term used to describe loosely coupled but interdependent
networks of suppliers, distributors, outsourcing firms, transportation service firms, and
technology manufacturers.
118. According to the law of diminishing returns the more any given resource is applied to
production, the lower the marginal gain in output, until a point is reached where the
additional inputs produce no additional outputs.
119. The Internet can make competitive advantage disappear very quickly because virtually all
companies can use this technology.
120. Sociotechnical changes that affect both social and technical elements of an organization, can
be considered strategic transitions a movement between levels of sociotechnical systems.
Essay Questions
121. Distinguish between the behavioral definition of an organization and the technical definition.
The technical definition of an organization is that it is a stable, formal, social structure that
takes resources from the environment and processes them to produce outputs. The
behavioral definition of an organization is that it is a collection of rights, privileges,
obligations, and responsibilities delicately balanced over time through conflict and conflict
resolution.
122. List at
. least four of the six structural characteristics of all organizations. Which two of these
do you think are most important to the digital firm as opposed to the traditional firm? As
always, support your answer.
The six characteristics are: a clear division of labor, hierarchy, explicit rules and procedures,
impartial judgments, technical qualifications for positions, and maximum organizational
efficiency. Hierarchy and efficiency are probably the most affected by the digital firm.
123. From an economic standpoint, information system technology can be viewed as a factor
production that can be freely substituted for capital and labor." What is the meaning of this
sentence, and how does it change the traditional managerial perspective?
There are, of course, several possible answers. One of them could be:
Traditionally, labor has been a rising cost. Information technology, by providing better data,
reporting, and speed of dissemination of information, makes it possible for individual middle
managers to have a wider span of control. This means that fewer middle managers and fewer
clerical workers are needed, which reduces costs. This in turn results in a flatter, more open,
organization. Information technology also provides more precise and accurate information
for running the organization, with the potential of reducing unnecessary work and increasing
efficiency.
Chapter 3 Information Systems, Organizations, Management, and Strategy 3-19
124. Distinguish between the transaction cost theory of the impact of information technology on
the organization and the agency cost theory of the impact of information technology on the
organization. Are these theories contradictory or complementary? Support your answer.
The transaction costs theory says the firms traditionally grew in size in order to reduce
transaction costs. Information technology potentially reduces the cost for growing size,
shifting the transaction costs that occur inward, opening up the possibility of revenue growth
without increasing size, where even revenue growth is accompanied by shrinking size. The
agency cost theory says that as firms grow in size and complexity, traditionally they
experience rising agency costs. Information technology shifts the agency costs curve down to
the right, allowing firms to increase size while lowering agency costs.
One answer might be that the two theories are complementary in that each is concerned with
the relationship between company size and cost, and each one makes the point that the use of
information technology allows the company (through its managers) to do more with less
expenditure. However, the success of the transaction cost theory is measured in the need for
fewer employees, while the agency cost theory measures success in that the company can
increase its size at the same time it lowers costs.
125. Discuss the impact of the Internet on the competitive forces model
.
The traditional competitive forces are still at work, but the Internet has made
competitive rivalry much more intense. Internet technology is based on universal
standards that any company can use, making it easy for rivals to compete on price
alone and for new competitors to enter the market. Easy access to information on the
Internet raises the bargaining power of customers, who can quickly find the lowest-
cost provider on the Web, lowering profits. At the same time, the Internet creates
new opportunities for building brands and building very large and loyal customer
bases that are willing to pay a premium for the brand. The traditional Porter model
assumes a relatively static industry environment; relatively clear-cut industry
boundaries; and a relatively stable set of suppliers, substitutes, and customers, with
the focus on industry players in a market environment. Instead of participating in a
single industry, some of todays firms participate in industry sets and business
ecosystems that collections of industries that provide related services and products.
3-20 Information Systems, Organizations, Management, and Strategy Chapter 3
126. Your text lists five attributes of managerial behavior that differ greatly from the classical
description. What are these five attributes, and how do they differ from the classical
description?
127. Managerial roles are expectations of the activities that managers should perform in an
organization. Mintzberg found that these managerial roles fell into three categories. List
and discuss these three categories.
128. Value chain analysis is useful at the business level to highlight specific activities in the
business where information systems are most likely to have a strategic impact. Discuss this
model, identify the activities, and how the model can be applied to the concept of information
technology.
The value chain model identifies specific, critical leverage points where a firm can use
information technology most effectively to enhance its competitive positions. Exactly where
can it obtain the greatest benefit from strategic information systems what specific activities
can be used to create new products and services, enhance market penetration, lock in
customers and suppliers, and lower operational costs? This model views the firm as a series
or chain of basic activities that add a margin of value to a firms products or services. These
activities can be categorized as either primary activities or support activities.
Primary activities are most directly related to the production and
distribution of the firms products and services that create value for the
customer. Primary activities include inbound logistics, operations, outbound
logistics, sales and marketing, and service.
Support activities make the delivery of the primary activities possible and
consist of organization infrastructure (administration and management),
human resources (employee recruiting, hiring, and training, technology
(improving products and the production process), and procurement
(purchasing input).
129. List at least four of the six central organizational factors to consider when planning a new
information system.
130. At the business level, what are the three most common competitive strategies? What new
capabilities for supporting business level strategy do digital firms provide?