CIS1
CIS1
CIS1
Active Review
Use this Active Review to verify that you understand the ideas and concepts that answer the chapters
study questions.
Diagram and explain the relationship among industry structure, competitive strategy, value chains,
business processes, and information systems. Working from the bottom up, explain how the knowledge
youve gained in these first three chapters pertains to that diagram.
Describe the original purpose of the five forces model and the different purpose for which it is used in
this chapter. Name two types of forces and describe the strength factors for each. Name three competitive
forces and describe the strength factors for each. Name two bargaining power forces. Summarize the five
forces operating on Falcon Security.
Describe four different strategies, as defined by Porter. For each strategy, offer an example of a company
that uses that strategy. Describe Falcon Securitys competitive strategy and justify it.
Define the terms value, margin, and value chain. Explain why organizations that choose a differentiation
strategy can use value to determine a limit on the amount of extra cost to pay for differentiation. Name
the primary and support activities in the value chain and explain the purpose of each. Explain the concept
of linkages.
Q3-5 How Do Value Chains Determine Business Processes and Information Systems?
What is the relationship between a value chain and a business process? How do business processes relate
to competitive strategy? How do information systems relate to competitive strategy? Justify the comments
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List and briefly describe eight principles of competitive advantage. Consider your college bookstore, and
list one application of each of the eight principles. Strive to include examples that involve information
systems.
large industrial accounts. Describe Falcon Securitys planned response and summarize the problems Cam
perceives with that response. Recommend a course of action for Falcon Security. Use Cams idea of
diversifying the type of work the company does to illustrate your answer.
Switching costs
Value
Value chain
To complete the problems with the in your MyLab, go the EOC Discussion Questions .
match available students with available jobs. You need to learn what positions are available
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and which students are available for filling those positions. In starting your business, you know
you will be competing with local newspapers, Craigslist (www.craigslist.org), and your college.
You will probably have other local competitors as well.
a. Analyze the structure of this industry according to Porters five forces model.
b. Given your analysis in part a, recommend a competitive strategy.
c. Describe the primary value chain activities as they apply to this business.
e. Describe information systems that could be used to support the business process in
part d.
f. Explain how the process you described in part d and the system you described in part e
3-2. Consider the two different bike rental companies in Q3-4 . Think about the bikes that they
rent. Clearly, the student bikes will be just about anything that can be ridden out of the shop.
The bikes for the business executives, however, must be new, shiny, clean, and in tip-top
shape.
a. Compare and contrast the operations value chains of these two businesses as they
pertain to the management of bicycles.
3-3. Samantha Green owns and operates Twigs Tree Trimming Service. Samantha graduated
from the forestry program of a nearby university and worked for a large landscape design firm,
performing tree trimming and removal. After several years of experience, she bought her own
truck, stump grinder, and other equipment and opened her own business in St. Louis, Missouri.
Although many of her jobs are one-time operations to remove a tree or stump, others are
recurring, such as trimming a tree or groups of trees every year or every other year. When
business is slow, she calls former clients to remind them of her services and of the need to trim
a. Explain how an analysis of the five competitive forces could help Samantha.
b. Do you think Samantha has a competitive strategy? What competitive strategy would
seem to make sense for her?
c. How would knowledge of her competitive strategy help her sales and marketing
efforts?
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d. Describe, in general terms, the kind of information system that she needs to support
Collaboration Exercise 3
Read Chapter Extensions 1 and 2 if you have not already done so. Meet with your team and
build a collaboration IS that uses tools like Google Docs, SharePoint, or other collaboration
tools. Do not forget the need for procedures and team training. Now, using that IS, answer the
questions below.
Figure 3-15 shows the business process and related information systems for the high-value
bike rental company described in Figure 3-8 . The small cylinders ( ) represent a computer
In terms of Porters value chain model, this process involves both the sales and operations
activities. The bike rental company uses information systems to maintain customer data in the
Customer database and bike inventory data in the Bike Inventory database and to transmit
hotel charge data to the Hotel Billing system.
Each information system consists of all five IS components. Consider, for example, the
information system for processing the Bike Inventory database. With regard to hardware, the
database itself will be stored on a computer, and it will be accessed from other computers or
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computing devices, such as cash registers or handheld scanning devices (possibly used to
check bikes in). Computer programs will provide forms for the system users to query and
update the database. Other computer programs will be used to manage the database. (You
will learn about such programs in Chapter 5 .) Data, the third component of an information
system, will be stored in the database. Each employee will be trained on procedures for using
the system. For example, the sales clerk will learn how to query the database to determine
what bikes are available and how to determine promising up-sell candidates. Finally, the
people component will consist of the clerks in the rental shop as well as any support
personnel for maintaining the inventory system.
Information systems that support the Customer database and those that interface with the
Hotel Billing system will also have the five IS components. (By the way, whenever you consider
the development or use of an information system, it is good practice to think about these five
components.)
As stated in this chapter, business processes must generate more value than their cost. If
they do notif the margin of a business process is negativethen either costs must be
reduced or the value increased. Considering the business process in Figure 3-15 , one
possibility for reducing costs is to eliminate rental personnel. Bicycles could be placed on
racks having locks that customers can open with their hotel room keys; the bike would be
rented until the customer places the bike back on the rack. Another possibility is to increase
the value of the process. The rental agency could decide to rent additional types of equipment
or perhaps to sell clothing or food and beverages.
Using your collaboration IS, work with your team to answer the following questions.
3-4. Explain the relationship between value and cost according to the Porter model.
When does it make sense to add cost to a business process?
3-5. Suppose you are told that the business process in Figure 3-15 has a negative
margin. Explain what that means. Suppose the margin of some business process is
a negative $1 million. If costs are reduced by $1.2 million, will the margin necessarily
3-6. Consider the alternative of replacing the rental personnel from the business process
in Figure 3-15 .
Figure 3-15 . You can download a copy of this Visio diagram from this texts
Web site at www.pearsonhighered.com/kroenke.
b. Would eliminating the rental personnel change the competitive strategy of this
company? Is it possible to be a high-value company with no rental personnel?
Explain why or why not.
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c. Would eliminating the rental personnel necessarily reduce costs? What costs
3-7. Consider the alternative of increasing the value delivered by existing rental
personnel. The text suggests possibly renting more kinds of equipment or selling
items of use to guests who are renting bicycles, but consider other options as well.
a. Describe five ways that you think the existing personnel could increase the
b. For the five alternatives you developed in part a, name and describe criteria
c. Using your criteria in part b, evaluate the alternatives you identified in part a
Case Study 3
On Cyber Monday, December 1, 2014, Amazon.com customers ordered more than 18 toys per
second. And almost 60 percent of Amazons holiday shoppers bought gifts using a mobile
device. This contributed to a 20 percent increase in Amazons total annual sales of $89B.
Amazons last order for the holiday season was placed on December 24 at 10:24 PM and was
delivered at 11:06 PM just in time for Christmas.
You may think of Amazon as simply an online retailer, and that is indeed where the company
has achieved most of its success. To do this, Amazon had to build an enormous supporting
infrastructurejust imagine the information systems and fulfillment facilities needed to ship
36.8 million items on a single day. That infrastructure, however, is needed only during the busy
holiday season. Most of the year, Amazon is left with excess infrastructure capacity. Starting
in 2000, Amazon began to lease some of that capacity to other companies. In the process, it
played a key role in the creation of what are termed cloud services, which you will learn about
in Chapter 6 . For now, just think of cloud services as computer resources somewhere out in
the Internet that are leased on flexible terms.
Today, Amazons business lines can be grouped into three major categories:
Online retailing
Order fulfillment
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Cloud services
Consider each.
Amazon created the business model for online retailing. It began as an online bookstore, but
every year since 1998 it has added new product categories. The company is involved in all
aspects of online retailing. It sells its own inventory. It incentivizes you, via the Associates
program, to sell its inventory as well. Or it will help you sell your inventory within its product
pages or via one of its consignment venues. Online auctions are the major aspect of online
sales in which Amazon does not participate. It tried auctions in 1999, but it could never make
Today, its hard to remember how much of what we take for granted was pioneered by
Amazon. Customers who bought this, also bought that; online customer reviews; customer
ranking of customer reviews; books lists; Look Inside the Book; automatic free shipping for
certain orders or frequent customers; and Kindle books and devices were all novel concepts
when Amazon introduced them (Figure 3-16 ).
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Amazons retailing business operates on very thin margins. Products are usually sold at a
discount from the stated retail price, and 2-day shipping is free for Amazon Prime members
(who pay an annual fee of $99). How does it do it? For one, Amazon drives its employees
incredibly hard. Former employees claim the hours are long, the pressure is severe, and the
workload is heavy. But what else? It comes down to Moores Law and the innovative use of
In addition to online retailing, Amazon also sells order fulfillment services. You can ship your
inventory to an Amazon warehouse and access Amazons information systems just as if they
were yours. Using technology known as Web services, your order processing information
systems can directly integrate, over the Web, with Amazons inventory, fulfillment, and
shipping applications. Your customers need not know that Amazon played any role at all. You
can also sell that same inventory using Amazons retail sales applications.
Amazon Web Services (AWS) allow organizations to lease time on computer equipment in very
flexible ways. Amazons Elastic Cloud 2 (EC2) enables organizations to expand and contract
the computer resources they need within minutes. Amazon has a variety of payment plans,
and it is possible to buy computer time for less than a penny an hour. Key to this capability is
the ability for the leasing organizations computer programs to interface with Amazons to
automatically scale up and scale down the resources leased. For example, if a news site
publishes a story that causes a rapid ramp-up of traffic, that news site can, programmatically,
request, configure, and use more computing resources for an hour, a day, a month, whatever.
With its Kindle devices, Amazon has become both a vendor of tablets and, even more
importantly in the long term, a vendor of online music and video. And to induce customers to
buy Kindle apps, in 2013 Amazon introduced its own currency, Amazon Coins. In 2014,
Amazon opened a 3D printing store from which customers can customize their own toys,
jewelry, dog bones, and dozens of other products. It also made a push to provide video
services by introducing Fire TV.7
Exchange. It also introduced Amazon Home Services (local professional services), Amazon
Destinations (travel site), and Amazon Dash (a one-button reordering device).8
Finally, Jeff Bezos announced in 2014 that Amazon was experimenting with package delivery
using drones, a service called Prime Air.9 In March 2015, the U.S. Federal Aviation
Administration gave Amazon permission to start testing its drones in the United States.10 But
drone delivery is something that will happen in the future; consider a business service that
Amazon warehouses for stocking, order packaging, and shipment. FBA customers pay a fee
for the service as well as for inventory space. Amazon uses its own inventory management
and order fulfillment business processes and information systems to fulfill the FBA customers
orders.
FBA customers can sell their goods on Amazon.com, sell them via their own sales channels, or
both. If the FBA customer sells on Amazon.com, Amazon will provide customer service for
order processing (handling returns, fixing erroneously packed orders, answering customer
order queries, and the like).
The costs for Fulfillment by Amazon depend on the type and size of the goods to be
processed. The FBA fees for standard-size products as of February 2015 are shown in the
table.
If goods are sold via Amazon.com, Amazon uses its own information systems to drive the
order fulfillment process. However, if the goods are sold via an FBA customers sales channel,
then the FBA customer must connect its own information systems with those at Amazon.
Amazon provides a standardized interface by which this is done called Amazon Marketplace
Web Service (MWS). Using Web-standard technology (see Chapter6 ), FBA customers order
FBA enables companies to outsource order fulfillment to Amazon, thus avoiding the cost of
developing their own processes, facilities, and information systems for this purpose.
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Questions
3-8. Based on the facts presented in this case, what do you think is Amazon.coms
Amazon does. What do you suppose is the likely reaction to an employee who says
to his or her boss, But, I dont know how to do that!?
3-11. Using your own words and your own experience, what skills and abilities do you
think you need to have to thrive at an organization like Amazon?
3-12. What should UPS and FedEx be doing in response to Amazon.coms interest in drone
delivery?
3-13. Summarize the advantages and disadvantages for brick-and-mortar retailers to sell
items via Amazon.com. Would you recommend that they do so?
3-14. If a brick-and-mortar retailer were to use FBA, what business processes would it not
need to develop? What costs would it save?
3-15. If a brick-and-mortar retailer were to use FBA, what information systems would it not
need to develop? What costs would it save?
3-16. If a brick-and-mortar retailer were to use FBA, how would it integrate its information
systems with Amazons? (To add depth to your answer, Google the term Amazon
MWS.)
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3-17. YourFire, Inc., is a small business owned by Curt and Julie Robards. Based in
invented and patented a burning nozzle that enables the stove to stay lit in very
high windsup to 90 miles per hour. Julie, an industrial designer by training,
developed an elegant folding design that is small, lightweight, easy to set up, and
very stable. Curt and Julie manufacture the stove in their garage, and they sell it
a. Explain how an analysis of the five competitive forces could help YourFire.
b. What does YourFires competitive strategy seem to be?
YourFire. How should the company design these value chains to conform
to its competitive strategy?
3-18. A friend of yours from college, who you havent talked to in three years, sends you
an email asking you to meet him for lunch. He says hes got a great idea for a
business and wants to run it by you. At first youre hesitant because your friend,
while obviously intelligent, doesnt always think things though. You agree to meet
for lunch and talk about the idea. At lunch he explains that hes been developing
new flexible screens for his employer that are incredibly tough, waterproof, and
use very little energy. His idea is to use these new flexible screens to create
wearable computing clothing that can connect directly to smartphones and push
ads, promotions, and video. His only problem is that he knows nothing about
a. Explain how you could use the five forces model to help your friend
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Endnotes
1. Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).
3. Chris Welch, Mercedes Built a Self-Driving Truck That Could Save Thousands of Lives Every Year, The Verge, October 7, 2014, accessed
4. Lee Matthews, Amazon Files Patent for 3D Printing Delivery Trucks, Geek.com, February 25, 2015, accessed April 10, 2015,
www.geek.com/news/amazon-files-patent-for-3d-printing-delivery-trucks-1616525.
5. Maxwell Wessel, Making Sense of Ubers $40 Billion Valuation, HBR.org, December 10, 2014, accessed April 10, 2015,
September 9,https://hbr.org/2014/12/making-sense-of-ubers-40-billion-valuation.
2017 2:40 pm
6. For a fascinating glimpse of this story from someone inside the company, see Early Amazon: Auctions at
7. www.amazon.com/b?ie=UTF8&node=8323871011
8. Andy Meek, Amazons Roadmap for 2015: Move Fast, Launch as Much as Possible, BGR Media, April 24, 2015, accessed May 16, 2015,
https://bgr.com/2015/04/24/amazon-earnings-q1-2015-analysis-roadmap.
9. Marcus Wholsen, Jeff Bezos Says Amazon Is Seriously Serious About Drone Deliveries, Wired, accessed May 22, 2014,
www.wired.com/2014/04/amazon-delivery-drones.
10. Bart Jansen, FAA Approves Amazon Drone Research Again, USA Today, accessed April 30, 2015,
www.usatoday.com/story/money/2015/04/09/faa-amazon-drone-approval-prime-air/25534485.
11. Fulfillment by Amazon Fee Changes 2015, Amazon.com, accessed April 30, 2015, www.amazon.com/gp/help/customer/display.html/?
nodeId=201119410.
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