Chapter 2

Question 1

What is the importance of industry structure? What is the importance of organizational strategy? What is the difference between these? Provide an example, starting with a specific industry, on how this then impacts information systems structure. Include examples of IS that might be pursued.

Answer 1

• Organizational structure Determines organization’s goal and objectives, developed from organizational structure, Creates the value chain for organization, Establishes the structure, features, and functions of information systems
• Organizational strategy examines the structure of their industry and from that, develop a competitive strategy. That strategy determines value chain which in turn determine business processes. The nature of this process determines the requirements and functions of IS.
• IS (refer to PORTER)

Question 2

• Explain Porter’s five competitive forces that determine industry structure. Provide a clear example of each.

Answer 2

• Porter assesses the 5 factors to determine the characteristics of an industry, how profitable it is and how sustainable that profitability will be.
  1. Bargaining power of customers- Bargaining leverage, Buyer volume, Buyer information, Brand identity, Price sensitivity, Threat of backward integration, Product differentiation, Buyer concentration vs. industry, Substitutes available, Buyers’ incentives

2. Threat of substitution- Switching costs, Buyer inclination to substitute, Price-performance trade-off of substitutes
   ex. Coke and Pepsi
3. Bargaining power of supplier- Supplier concentration - Importance of volume to supplier
   - Differentiation of inputs - Impact of inputs on cost or differentiation - Switching costs of firms in the industry - Presence of substitute inputs - Threat of forward integration - Cost relative to total purchases in industry
   Ex. Monopoly
4. Threats of new entrants- Barriers to entry are obstacles on the way of potential new entrant to enter the market and compete with the incumbents
   -Absolute cost advantages - Proprietary learning curve - Access to inputs
   - Government policy - Economies of scale - Capital requirements - Brand identity
   - Switching costs - Access to distribution - Expected retaliation - Proprietary products
   Ex. Car making: high upfront capital investment in manufacturing equipment; compliance with safety and emission rules and regulation, access to parts suppliers, development of a network of car dealerships,
5. Rivalry- Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth
   -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals
   ex. If it is difficult or expensive to exit an industry, firms will remain thus adding to the intensity of competition

Question 3

• To gain an advantage over your competitors we might change prices or improve product differentiation.

Answer 3

1. Creatively using channels of distribution- using vertical integration or using a distribution channel that is novel to the industry.
2. Exploiting relationships with suppliers
3. establish alliances- alliances can establish standards, promote product awareness and needs, develop market size, reduce purchasing costs, and provide other benefits.
   - you partner with someone or joint venture to get more customers and target a higher market size.

Question 4

• What is the difference between the primary and the support activities in the value chain? Be very clear and provide examples of each.

Answer 4

PRIMARY ACT- are business functions that relate directly to the production of the organization’s products or services
-Each stage of this generic chain accumulates costs and adds value to the product.

SECONDARY ACT- are business functions that assist and facilitate the primary activities and contribute only indirectly to the production, sale, and service of the product
-adds value indirectly