CH 3

1) The interaction between information technology and organizations is influenced:

1. A) solely by the decision making of middle and senior managers.
2. B) by the development of new information technologies.
3. C) by many factors, including structure, politics, culture, and environment.
4. D) by two main macroeconomic forces: capital and labor.
5. E) by the rate of growth of the organization.
Answer: B

2) Which of the following statements about organizations is not true?

1. A) An organization is a stable, formal social structure that takes resources from the environment and
processes them to produce outputs.
2. B) An organization is a formal, legal entity with internal rules and procedures that must abide by laws.
3. C) An organization is a collection of people and other social elements.
4. D) An informal group can be considered to be an organization.
5. E) An organization is a collection of rights, privileges, obligations, and responsibilities delicately
balanced over a period of time through conflict and conflict resolution.
Answer: D

3) According to the __________ definition of organizations, an organization is seen as a means by which

capital and labor are transformed by the organization into outputs consumed by the environment.
1. A) microeconomic
2. B) macroeconomic
3. C) sociotechnical
4. D) behavioral
5. E) psychological
Answer: A

4) Which of the following statements about the technical view of organizations is not true?
1. A) It sees information systems as a way to rearrange the inputs and outputs of the organization.
2. B) It sees capital and labor as primary production factors.
3. C) It emphasizes group relationships, values and structures.
4. D) It sees the organization as a social structure similar to a machine.
5. E) It sees the inputs and outputs, labor and capital, as being infinitely malleable.
Answer: E

5) Which of the following is not a major feature of organizations that impacts the use of information systems?
1. A) Business processes
2. B) Environments
3. C) Goals
4. D) Agency costs
5. E) Leadership styles
Answer: D

6) Which of the following statements about business processes is not true?

1. A) Business processes influence the relationship between an organization and information technology.
2. B) Business processes are a collection of standard operating procedures.
3. C) A business firm is a collection of business processes.
4. D) Business processes are usually ensconced in an organizations culture.
5. E) Business processes are typically unaffected by changes in information systems.
Answer: E
7) Which of the following technologies disrupted the traditional publishing industry?
1. A) instant messaging
2. B) e-mail
3. C) Internet telephony.
4. D) PCs.
5. E) World Wide Web
Answer: E

8) Under Mintzberg's classification of organizational structure, knowledge-based organizations fall under the
category of:
1. A) entrepreneurial structures.
2. B) divisionalized bureaucracies.
3. C) professional bureaucracies.
4. D) adhocracies.
5. E) machine bureaucracies.
Answer: C

9) Mintzberg classifies a large bureaucracy existing in a slowly changing environment that produces standard
products and is dominated by centralized management as a ________ bureaucracy.
1. A) machine
2. B) professional
3. C) divisionalized
4. D) multidivisional
5. E) ad hoc
Answer: A

10) Which of the following is an example of a divisionalized bureaucracy?

1. A) Startup firm
2. B) University
3. C) Fortune 500 firm
4. D) Midsize manufacturer
5. E) Consulting firm
Answer: C

11) Along with capital, ________ is the primary production input that the organization uses to create products
and services.
1. A) structure
2. B) culture
3. C) politics
4. D) feedback
5. E) labor
Answer: E

12) The divergent viewpoints about how resources, rewards, and punishments should be distributed, and the
struggles resulting from these differences are known as organizational:
1. A) culture.
2. B) politics.
3. C) structure.
4. D) environments.
5. E) routines.
Answer: B
13) Which of the following statements about disruptive technologies is not true?
1. A) Disruptive technologies radically change the business landscape and environment.
2. B) Disruptive technologies may be substitute products that perform better than other products currently
being produced.
3. C) Disruptive technologies may sometimes simply extend the marketplace.
4. D) Disruptive technologies may put entire industries out of business.
5. E) Firms that invent disruptive technologies as first movers always become market leaders.
Answer: E

14) All organizations have bedrock, unquestioned assumptions that define their goals and products.
Answer: TRUE

15) A professional bureaucracy is a knowledge-based organization where goods and services depend on the
expertise and knowledge of professionals.
Answer: TRUE

16) Routines are also called standard operating procedures.

Answer: TRUE

18) When a firm buys on the marketplace what it cannot make itself, the costs incurred are referred to as:
1. A) switching costs.
2. B) network costs.
3. C) procurement.
4. D) agency costs.
5. E) transaction costs.
Answer: E

19) All of the following statements are true about information technology's impact on business firms except:
1. A) it helps firms expand in size.
2. B) it helps firms lower the cost of market participation.
3. C) it helps reduce internal management costs.
4. D) it helps reduce transaction costs.
5. E) it helps reduce agency costs.
Answer: A

20) According to agency theory, the firm is viewed as a(n):

1. A) unified, profit-maximizing entity.
2. B) task force organization that must respond to rapidly changing environments.
3. C) entrepreneurial endeavor.
4. D) "nexus of contracts" among self-interested individuals.
5. E) entrepreneurial structure.
Answer: D

21) According to research on organizational resistance, the four components that must be changed in an
organization in order to successfully implement a new information system are:
1. A) environment, organization, structure, and tasks.
2. B) technology, people, culture, and structure.
3. C) organization, culture, management, and environment.
4. D) tasks, technology, people, and structure.
5. E) costs, tasks, structure, and management.
Answer: D

22) Smart products are an example of the Internet of Things.

Answer: TRUE
24) As discussed in the chapter opening case, which of the following statements about Verizon is not true?
1. A) Verizon is focusing on satellite-based television in its competition with AT&T.
2. B) Verizon claims that its wireless network is the largest and most reliable in the United States.
3. C) AT&T is investing in upgrading its high-speed networks.
4. D) Verizon sees mobile ads and video as an investment for the future.
5. E) Verizon offers a standalone video service.
Answer: A

25) Which model is used to describe the interaction of external forces that affect an organization's strategy and
ability to compete?
1. A) Network economics model
2. B) Competitive forces model
3. C) Competitive advantage model
4. D) Demand control model
5. E) Agency costs model
Answer: B

26) Which of the following industries has the lowest barrier to entry?
1. A) Automotive
2. B) Computer chip
3. C) Solar energy
4. D) Airline
5. E) Small retailer
Answer: E

27) All of the following are competitive forces in Porters model except:
1. A) suppliers.
2. B) new market entrants.
3. C) external environment.
4. D) customers.
5. E) substitute products.
Answer: C

28) Which of the following marketplaces forces would be of least concern to a manufacturer of deep-sea oil
rigs?
1. A) Product differentiation
2. B) Traditional competitors
3. C) Low number of suppliers
4. D) New market entrants
5. E) Low number of customers
Answer: D

29) Which of the following substitute products would be of most concern for a cable TV distributor?
1. A) Satellite TV
2. B) Broadcast TV
3. C) Satellite radio
4. D) The Internet
5. E) Terrestrial radio
Answer: A
30) Walmart's attempt to increase its online presence is an example of a firm using information systems to:
1. A) strengthen ties to its customers.
2. B) simplify the industry value chain.
3. C) develop synergies.
4. D) focus on market niche.
5. E) achieve low-cost leadership.
Answer: E
31) A firm can exercise greater control over its suppliers by having:
1. A) more suppliers.
2. B) fewer suppliers.
3. C) global suppliers.
4. D) local suppliers.
5. E) only a single supplier.
Answer: A

32) Amazon's use of the Internet as a platform to sell books more efficiently than traditional bookstores
illustrates which of the following strategies?
1. A) Low-cost leadership
2. B) Marketing effectiveness
3. C) Focusing on market niche
4. D) Strengthening supplier intimacy
5. E) Developing synergies
Answer: A

33) The four major competitive strategies are:

1. A) low-cost leadership, substitute products and services, customers; and suppliers.
2. B) low-cost leadership, product differentiation, focus on market niche, and customer and supplier
intimacy.
3. C) new market entrants, substitute products and services, customers, and suppliers.
4. D) low-cost leadership, new market entrants, product differentiation, and focus on market niche.
5. E) customers, suppliers, new market entrants, and substitute products.
Answer: B

34) Walmart's continuous replenishment system allows it to do all of the following except:
1. A) provide mass customization.
2. B) transmit orders to restock directly to its suppliers.
3. C) keep costs low.
4. D) better meet customer demands.
5. E) fine-tune merchandise availability
Answer: A

35) Firms use a ________ strategy to provide a specialized product or service for a narrow target market better
than competitors.
1. A) product differentiation
2. B) market niche
3. C) mass customization
4. D) process efficiency
5. E) low-cost leadership
Answer: B

36) The ability to offer individually tailored products or services using the same production resources as bulk
production is known as:
1. A) mass marketing.
2. B) micromarketing.
3. C) micro customization.
4. D) niche customization.
5. E) mass customization.
Answer: E
37) In environmental scanning, a firm may use information systems to:
1. A) transform inputs into products and services.
2. B) analyze the performance of its intranet.
3. C) identify external events that may affect it.
4. D) keep track of the temperature within its data centers.
5. E) develop a unified organizational culture.
Answer: C

38) Which of the following is not a true statement about value webs?
1. A) Value webs involve a collection of independent firms that use information technology to coordinate
their value chains.
2. B) Value webs are more customer-driven than traditional value chains.
3. C) Value webs operate in a less linear fashion than traditional value chains.
4. D) Value webs are inflexible and cannot adapt quickly to changes in supply and demand.
5. E) Value webs involve highly synchronized industry value chains.
Answer: D

39) Which of the following best illustrates the use of information systems to focus on market niche?
1. A) A car manufacturer's Web site that lets you customize the features on the car you are purchasing.
2. B) A restaurant chain analyzing local sales figures to determine which menu items to serve.
3. C) A bookseller selling an e-book reader that reads only the bookseller's books.
4. D) A department store creating specialized products for preferred customers.
5. E) A clothes manufacturer expanding its offerings to new styles.
Answer: D

40) All of the following are IT-enabled products and services providing competitive advantage except:
1. A) Amazon's one-click shopping.
2. B) Apple's iPod and iTunes.
3. C) Ping's golf club customization.
4. D) PayPal's online person-to-person payment system.
5. E) Nikes use of celebrities to market their products.
Answer: E

41) The Internet increases the bargaining power of customers by:

1. A) creating new opportunities for building loyal customer bases.
2. B) making more products available.
3. C) making information available to everyone.
4. D) lowering transaction costs.
5. E) enabling the development of new services.
Answer: C
42) Procter and Gamble uses InnovationNet for which of the following?
1. A) To enhance its core competencies
2. B) To benchmark its progress against competitors
3. C) To create synergies with its suppliers
4. D) To take advantage of network economics
5. E) To establish a virtual company
Answer: A
43) Which of the following is a competitive force challenging the publishing industry?
1. A) Positioning and rivalry among competitors
2. B) Low cost of entry
3. C) Substitute products or services
4. D) Customers' bargaining power
5. E) Suppliers' bargaining power
Answer: C
44) The value chain model:
1. A) categorizes five related advantages for adding value to a firm's products or services.
2. B) sees the supply chain as the primary activity for adding value.
3. C) categorizes four basic strategies a firm can use to enhance its value chain.
4. D) highlights specific activities in the business where competitive strategies can best be applied.
5. E) enables more effective product differentiation.
Answer: D

45) Which of the following represent the primary activities of a firm?

1. A) Inbound logistics, operations, outbound logistics, sales and marketing, and service
2. B) Inbound logistics, operations, outbound logistics, technology, and service
3. C) Procurement, inbound logistics, operations, technology, and outbound logistics
4. D) Procurement, operations, technology, sales and marketing, and services
5. E) Organization infrastructure, human resources, technology, and procurement
Answer: A

46) Which of the following is a support activity in a firm's value chain?

1. A) Inbound logistics
2. B) Operations
3. C) Sales and marketing
4. D) Service
5. E) Technology
Answer: E

47) Which of the following would a company employ to measure and compare its business processes to similar
processes of other companies within their industry?
1. A) Benchmarking
2. B) Best practices
3. C) Value chain analysis
4. D) Strategic systems analysis
5. E) Secondary activities
Answer: A

48) The most successful solutions or methods for achieving a business objective are called:
1. A) value activities.
2. B) best processes.
3. C) core competencies.
4. D) best practices.
5. E) benchmarks.
Answer: D
49) Information systems can be used at the industry level to achieve strategic advantage by:
1. A) building industry-wide, IT-supported consortia and symposia.
2. B) raising the bargaining power of suppliers.
3. C) encouraging the entry of new competitors.
4. D) enforcing standards that reduce the differences between competitors.
5. E) decreasing switching costs.
Answer: A

50) In network economics, the value of a commercial software vendor's software products:
1. A) increases as more people use them.
2. B) decreases as more people use them.
3. C) increases due to higher marginal gain in output.
4. D) decreases according to the law of diminishing returns.
5. E) is unrelated to the number of people that use them.
Answer: A
51) When two organizations pool markets and expertise that result in lower costs and generate profits, they are
creating:
1. A) a value web.
2. B) a value chain.
3. C) net marketplaces.
4. D) core competencies.
5. E) synergies.
Answer: E

52) Which of the following is an example of synergy in business?

1. A) Amazon's use of the Internet to sell books
2. B) Bank of America acquiring Countrywide Financial to reach a large pool of new customers
3. C) Blockbuster combining traditional video rental with online video rental
4. D) Walmart's order entry and inventory management system to coordinate with suppliers
5. E) Nike's use of technology to improve its product offerings
Answer: B

53) Information systems enhance core competencies by:

1. A) providing better reporting facilities.
2. B) creating educational opportunities for management.
3. C) allowing operational employees to interact with management.
4. D) encouraging the sharing of knowledge across business units.
5. E) fostering synergies among departments.
Answer: D

54) The idea that 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:
1. A) the point of no return.
2. B) the law of diminishing returns.
3. C) supply and demand.
4. D) network inelasticity.
5. E) virtual economics.
Answer: B
55) Which of the following statements about network economics is not true?
1. A) Uber is an example of a business model that is based on the principle of network economics.
2. B) The law of diminishing returns does not always apply to every situation.
3. C) From a network economics perspective, the value of a community of people grows as the number of
participants in the community increases.
4. D) Information technology can be strategically useful from a network economics perspective.
5. E) In network economics, the marginal cost of adding new members to the network is higher than the
marginal gain.
Answer: E
56) A virtual company:
1. A) uses networks to link people, assets, and ideas.
2. B) uses Internet technology to maintain a virtual storefront.
3. C) uses Internet technology to maintain a networked community of users.
4. D) provides entirely Internet-driven services or virtual products.
5. E) is limited by traditional organizational boundaries.
Answer: A
57) Which of the following is an example of a keystone firm within a business ecosystem?
1. A) Apple in the mobile platform ecosystem
2. B) GUESS and the fashion ecosystem
3. C) Citibank and the ATM ecosystem
4. D) American Airlines and the computerized reservation ecosystem
5. E) Nike and the athletic apparel ecosystem
Answer: A
58) ________ is a competitive strategy for creating brand loyalty by developing new and unique products and
services that are not easily duplicated by competitors.
1. A) Product differentiation
2. B) Low-cost leadership
3. C) Focusing on market niche
4. D) Strengthening customer intimacy
5. E) Strengthening supplier intimacy
Answer: A

59) 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 are known as:
1. A) retention costs.
2. B) preservation costs.
3. C) differentiation costs.
4. D) switching costs.
5. E) variation costs.
Answer: D

60) The ________ model highlights the primary or support activities that add a margin of value to a firm's
products or services where information systems can best be applied to achieve a competitive advantage.
1. A) competitive forces
2. B) value chain
3. C) bargaining power
4. D) new entrant
5. E) rivalry
Answer: B

61) The parts of an organization's infrastructure, human resources, technology, and procurement that make
the delivery of the firm's products or services possible are known as ________ activities.
1. A) primary
2. B) auxiliary
3. C) secondary
4. D) service
5. E) support
Answer: E

62) A(n) ________ is a collection of independent firms that use information technology to coordinate their value
chains to collectively produce a product or service for a market.
1. A) value chain
2. B) support web
3. C) value web
4. D) consortium
5. E) net marketplace
Answer: C

63) A(n) ________ is an activity at which a firm excels as a world-class leader.

1. A) expertise area
2. B) competitive advantage
3. C) growth driver
4. D) efficiency
5. E) core competency
Answer: E
64) A company's competitive advantages ultimately translate into higher stock market valuations than its
competitors.
Answer: TRUE

65) The competitive forces model cannot be used to analyze modern digital firms which face new competitive
forces that are not true of traditional firms.
Answer: FALSE

66) Customers are one of the competitive forces that affect an organization's ability to compete.
Answer: TRUE

67) High product differentiation is a sign of a transparent marketplace.

Answer: FALSE

68) The effect of the Internet has been to decrease the bargaining power of customers.
Answer: FALSE

69) An efficient customer response system directly links consumer behavior to distribution and production and
supply chains.
Answer: TRUE

70) Information systems are used to enable new products and services via product differentiation.
Answer: TRUE

71) Mass customization offers individually tailored products or services using the same resources as mass
production.
Answer: TRUE

72) Switching costs decrease when customers are strongly linked to products and platforms.
Answer: FALSE

73) The value chain model classifies all company activities as either primary or support activities.
Answer: TRUE

74) In the value chain model, support activities are most directly related to the production and distribution of the
firm's products and services, which create value for the customer.
Answer: FALSE

75) When the output of some units in a firm can be used as inputs to other units, synergies develop, which can
lower costs and generate profits.
Answer: TRUE

76) According to the network economics perspective, the more people offering products on eBay's site, the
greater the value of the site to all who use it.
Answer: TRUE

77) The term business ecosystem describes the loosely coupled but interdependent networks of suppliers,
distributors, outsourcing firms, transportation service firms, and technology manufacturers.
Answer: TRUE
85) Why does Amazon need to worry about competitors in online shopping?
1. A) E-commerce is affected by the law of diminishing returns.
2. B) Internet technologies are universal, and therefore usable by all companies.
3. C) Internet shopping produces cost transparency.
4. D) The Internet enables the production or sales of substitute products or services.
5. E) The Internet increases switching costs.
Answer: B

86) You are consulting for a natural food products distributor who is interested in determining the benefits it
could achieve from implementing new information systems. What will you advise as the first step?
1. A) Identify the business ecosystem the distributor is in.
2. B) Implement a strategic transition to the new system.
3. C) Perform a strategic systems analysis.
4. D) Benchmark existing systems.
5. E) Set up a strategic transition.
Answer: C

87) Sociotechnical changes affecting a firm adopting new information systems requiring organizational change
can be considered:
1. A) organizational adjustments.
2. B) strategic transitions.
3. C) systems alterations.
4. D) business goal transitions.
5. E) sociotechnical transitions.
Answer: B

88) Research has shown that a majority of firms are able to align their information technology with their
business goals.
Answer: FALSE

89) The use of Internet technologies allows companies to more easily sustain competitive advantage.
Answer: FALSE
96) A firm can be said to have competitive advantage when it has access to resources that others do not.
Answer: TRUE
97) The law of diminishing returns only applies to digital products.
Answer: FALSE

98) The inventors of a disruptive technology typically benefit the most from the technology; it is rare that fast
followers catch up quickly.
Answer: FALSE

99) Smart products generally raise switching costs.

Answer: TRUE

100) Mintzbergs classification identifies five forces in an industrys environment that affect the strategic
position of a firm.
Answer: FALSE