Chapter 3: Productivity, Innovation, and Strategy

Question 1

What is the productivity paradox?

Answer 1

Created by Nobel Prize-winning economist Robert Solow

It is the 30 year old question that is still relevant, of how IT adds productivity, creating business value.

Question 2

What are the three ways IT create business value?

Answer 2

1. Productivity:
   Allows company to create more outputs
   better outputs
   faster with the same amount of inputs
2. Structure of competition:
   Alters the way corporations compete.
   Ex: Video rental industry crushed by Netflix
3. Benefits to the end customer: Increased competition due to IT results in companies lowering prices.

Question 3

What is BTM? Why is it important?

Answer 3

Business Technology Management (BTM) is a new program designed to incorporate both technology and business training

As the ICT sector is undoubtedly the most important industry to help grow Canada’s productivity, the requirements of being successful in ICT has broadened. Now you must be able to combine business and technology and be innovative

Question 4

Efficiency vs Effectiveness (How does efficient/effective business process increase productivity?)

Answer 4

As business processes use resources, facilities, and info to accomplish business activities, a more efficient/effective way of doing things will increase productivity.

Efficiency: Completed more quickly and/or with fewer resources and facilities. “Doing things right”.

Effectiveness: Often requires changing the existing business process to deliver something new and improved.
“Doing the right things”

Question 5

What is a value chain? (example: blob of rubber)

Answer 5

Network of activities that improve the effectiveness (or value) of a good or service, often made up of at least one or more business processes.

1. Blob of rubber: worthless
2. Designed into all-season radial tire: Gains some value
3. Shipped to tire store near customer: Gains more value
4. Mechanic installs tire: Even more value

These business processes constantly add value. Thus these chain of events = value chain

Question 6

Upstream vs Downstream value chains

Answer 6

Upstream (backward integration): Organization expands into activities related to basic raw materials
Ex: Tire company decides to manufacture its own rubber

Downstream (forward integration): Organization expands into activities related to the customer end
Ex: Mining company begins to cut and finish its own diamonds

Question 7

What are the two types of activities that support value chains? (tire example)

Answer 7

Primary activity: Activities in which value is added directly to the product
ex: shipping raw materials, designing the tires, etc

Support activities: Activities that support the primary activities, adding value indirectly
ex: paying workers, buying machines, etc

Question 8

Porter’s five forces model

Answer 8

Model that depicts how competitive an industry is, how profitable the industry is, and how sustainable the profitability will be.

1. Bargaining power of customers
2. Bargaining power of suppliers
3. Threat of substitutions
4. Threat of new entrants
5. Rivalry among existing firms

Question 9

Porter’s four competitive strategies

Answer 9

Cost leader across the industry
Cost leader within a particular industry segment
Differentiating (better) product across the industry
Differentiating (better) product within an industry segment

Question 10

Two general types of technological innovations

Answer 10

Sustaining technologies: Changes in tech that doesn’t affect the rate at which customer value is being improved in.
ex: Vulcanization of rubber that resulted in faster and more comfortable rides. Improved driving experience while sustaining the original innovation

Disruptive technologies: Introduction of a whole new package of attributes to mainstream products.
ex: MP3 absolutely destroying CDs and tapes to the ground

Question 11

Diffusion of innovation (definition, steps)

Answer 11

The process by which an innovation is communicated through certain channels over time among the members of a social system

1. Knowledge: You hear about a innovation but lack specific info about it
2. Persuasion: You become interested in the innovation and find out more about it
3. Decision: You consider the pros and cons of adopting the innovation, and decide to adopt or reject it.
4. Implementation: You use the innovation and figure out whether to continue using it or look for a better way
5. Confirmation: You use the innovation to its full potential

You can decide to drop the innovation at any step

Question 12

How can you respond to Porter’s five forces? (two types of implementations to gain competitive advantage)

Answer 12

Product implementations:

1. Create a new product or service
2. Enhance products or services
3. Differentiate products or services

System implementations:

1. Lock in customers and buyers (switching costs)
2. Lock in suppliers (make it difficult them to switch to another organization, or make it easier for them to work with the organization)
3. Raise barriers to market entry (make it difficult and expensive for new competition to enter the market)
4. Establish alliances
5. Reduce costs

Question 13

How can you achieve sustained competitive advantage in the current market?

Answer 13

As the hardware/software/data component of IS can easily be adopted and used by competing companies, it is hard to sustain an advantage with IT alone.

It is important to integrate the IT with the people and procedure component of IS, to truly develop a competitive system within the organization.

Competitors may be able to buy and use the technology, but it will take time for them to come up with the same effective system.