File: ch02, Chapter 2: The Modern Organization in the Digital Economy
True/False
1. Toronto International Airport is using information technology only to cut costs.
Ans: False
Response: See page 28
2. Information technology is providing Toronto International Airport with a competitive advantage over the
airlines.
Ans: True
Response: See page 28
3. The common-use airport saves money for the airport and for the airlines that use the airport.
Ans: True
Response: See page 29
4. The common-use airport saves money for the airport but costs more for the airlines that use the airport.
Ans: False
Response: See page 29
5. Internet-based applications can be used to provide superb customer service.
Ans: True
Response: See page 29
6. Internet-based applications are of little use with regard to providing superb customer service.
Ans: False
Response: See page 29
7. Corporations in mature industries do not develop Internet-based systems, as they have extensive
information systems already operating.
Ans: False
Response: See page 29
8. Corporations in mature industries must develop Internet-based systems to reduce costs, increase
productivity, and improve customer service.
Ans: True
Response: See page 29
9. Information technology typically requires a small investment, but a rather long period of time.
Ans: False
Response: See page 29
10. The infrastructure for e-business is networked computing.
Ans: True
Response: See page 29
11. The infrastructure for e-business consists only of mainframe computers.
Ans: False
Response: See page 29
12. Electronic commerce occurs when organizations perform their basic functions electronically.
Ans: True
Response: See page 30
13. The global networked environment is known as the Internet.
Ans: True
Response: See page 30
14. The global networked environment is known as the intranet.
Ans: False
Response: See page 30
15. The use of Internet technologies inside the organization is known as an intranet.
Ans: True
Response: See page 30
16. The use of Internet technologies inside the organization is known as an extranet.
Ans: False
Response: See page 30
17. Companies that have linked their intranets to those of their business partners over networks have
formed extranets.
Ans: True
Response: See page 30
18. Companies that have linked their intranets to those of their business partners over networks have
formed conglomerates.
Ans: False
Response: See page 30
19. The Internet is not having much of an impact on the real estate industry.
Ans: False
Response: See page 32 (IT’s About Business 2.1)
20. The Internet is having a dramatic impact on the real estate industry.
Ans: True
Response: See page 32 (IT’s About Business 2.1)
21. Today’s marketplace is unpredictable, complex, hypercompetitive, and customer-focused.
Ans: True
Response: See page 33
22. The information technology environment is the combination of social, legal, economic, physical, and
political factors that affect business activities.
Ans: False
Response: See page 33
23. In general, labor costs are higher in developed countries than in developing countries.
Ans: True
Response: See page 33-34
24. Developed countries usually pay higher fringe benefits than developing countries.
Ans: True
Response: See page 34
25. Developing countries usually pay higher fringe benefits than developed countries.
Ans: False
Response: See page 34
26. The workforce, particularly in developed countries, is becoming more diversified.
Ans: True
Response: See page 34
27. The workforce, particularly in developed countries, is becoming less diversified.
Ans: False
Response: See page 34
28. Information technology is facilitating the entry of a wide variety of employees into the workforce.
Ans: True
Response: See page 34
29. A problem that managers have is too much information.
Ans: True
Response: See page 34
30. A problem that managers have is too little information.
Ans: False
Response: See page 34
31. The digital divide means that between different groups of people, there is a wide division between those
who have access to information and communications technology and are using it effectively, and those who
do not.
Ans: True
Response: See page 34
32. Internet access in the United States is directly correlated with household income.
Ans: True
Response: See page 35
33. Internet access in the United States is not correlated with household income.
Ans: False
Response: See page 35
34. Cybercafes are public places in which Internet terminals are available.
Ans: True
Response: See page 35
35. In general, government deregulation intensifies competition.
Ans: True
Response: See page 36
36. In general, government deregulation decreases competition.
Ans: False
Response: See page 36
37. Ethical issues are important because, if handled poorly, they can damage the image of an organization.
Ans: True
Response: See page 36
38. Strategic information systems are designed to give the organization a competitive advantage in the
marketplace.
Ans: True
Response: See page 37
39. Make-to-order is a strategy of producing customized products and services.
Ans: True
Response: See page 38
40. Build-to-stock is a strategy of producing customized products and services.
Ans: False
Response: See page 38
41. In mass production, a company produces a large quantity of identical items.
Ans: True
Response: See page 38
42. In mass customization, companies produce items in large quantity, with each item tailored to fit the
desires of each customer.
Ans: True
Response: See page 38
43. In mass production, companies produce items in large quantity, with each item tailored to fit the desires
of each customer.
Ans: False
Response: See page 38
44. Competitive advantage helps a company control a market and generate larger-than-average profits.
Ans: True
Response: See page 39
45. Any information system that helps an organization gain a competitive advantage or reduce a
competitive disadvantage is a strategic information system.
Ans: True
Response: See page 39
46. Michael Porter concludes that the overall impact of the Internet is to increase competition, which
positively impacts profitability.
Ans: False
Response: See page 39-40
47. Michael Porter concludes that the overall impact of the Internet is to decrease competition, which
negatively impacts profitability.
Ans: False
Response: See page 39-40
48. Michael Porter concludes that the overall impact of the Internet is to decrease competition, which
positively impacts profitability.
Ans: False
Response: See page 39-40
49. For most firms, the Internet increases the threat of new competitors.
Ans: True
Response: See page 40
50. The Internet increases traditional barriers to entry into a market.
Ans: False
Response: See page 40
51. The Internet increases customers’ bargaining power.
Ans: True
Response: See page 40
52. The Internet decreases customers’ bargaining power.
Ans: False
Response: See page 40
53. Information-based industries are in the least danger from substitutes.
Ans: False
Response: See page 40
54. Old Economy manufacturing companies are in the greatest danger from substitutes.
Ans: False
Response: See page 40
55. The Internet makes proprietary systems more difficult to keep secret, reducing differences among
competitors.
Ans: True
Response: See page 40
56. The Internet makes proprietary systems more difficult to keep secret, increasing differences among
competitors.
Ans: False
Response: See page 40
57. Digital products have extremely low variable costs.
Ans: True
Response: See page 40
58. The music industry is a good example of the extremely low variable costs of digital products.
Ans: True
Response: See page 40
59. Produce products and/or services at the lowest cost in the industry is the cost leadership strategy.
Ans: True
Response: See page 41
60. Produce products and/or services at the lowest cost in the industry is the differentiation strategy.
Ans: False
Response: See page 41
61. Offer different products, services, or product features is the differentiation strategy.
Ans: True
Response: See page 41
62. Introduce new products and services, add new features to existing products and services, or develop
new ways to produce products is the innovation strategy.
Ans: True
Response: See page 41
63. Work with business partners is the customer-orientation strategy.
Ans: False
Response: See page 41
64. Improve the manner in which internal business processes are executed is the innovation strategy.
Ans: False
Response: See page 41
65. The introduction of the ATM in the banking industry is an example of the innovation strategy.
Ans: True
Response: See page 41
66. Information technology makes managers more productive.
Ans: True
Response: See page 44
67. Information technology increases the number of employees who can report to a single manager.
Ans: True
Response: See page 44
68. As computers gain in intelligence and capabilities, the competitive advantage of replacing people with
machines is decreasing rapidly.
Ans: False
Response: See page 45
69. Television, computers, and now the Internet have had, and are having, an isolating influence on people.
Ans: True
Response: See page 45
70. Ergonomics is the science of adapting machines and work environments to people.
Ans: True
Response: See page 46
Multiple Choice
1. Information technology provides Toronto International Airport with which of the following?
a) reduced costs
b) competitive advantage over its rivals
c) enhanced operations
d) enhanced customer experience
e) all of the above
Ans: e
Response: See page 28
2. Large corporations in mature industries use Internet-based systems to do which of the following?
a) reduce costs
b) improve customer service
c) increase productivity
d) enhance operations
e) all of the above
Ans: e
Response: See page 29
3. The infrastructure for e-business is:
a) paper-based systems
b) networked computing
c) mainframe computing
d) local-area networks
e) desktop computing
Ans: b
Response: See page 30
4. The global networked environment is called:
a) international networking
b) intranet
c) internet
d) extranet
e) supernet
Ans: c
Response: See page 30
5. The Internet’s counterpart within organizations is called:
a) hypernet
b) intranet
c) internet
d) extranet
e) supernet
Ans: b
Response: See page 30
6. When companies link portions of their intranets together with those of their business partners, they are
creating:
a) extended intranet
b) extranet
c) internet
d) wide-area network
e) local-area network
Ans: b
Response: See page 30
7. In general, labor costs are _____ in developed countries than in developing countries.
a) lower
b) higher
c) about the same
d) decreasing faster
e) decreasing slower
Ans: b
Response: See page 33
8. The workforce in developed countries has which of the following characteristics?
a) more diversified
b) increased numbers of women
c) increased number of single parents
d) increased number of minorities
e) all of the above
Ans: e
Response: See page 34
9. The workforce in developed countries has all of the following characteristics except :
a) more diversified
b) more women
c) more single parents
d) fewer persons with disabilities
e) more minorities
Ans: d
Response: See page 34
10. Today’s customers have which of the following characteristics?
a) less knowledge about products
b) less sophistication
c) difficulty in finding information about products
d) higher expectations
e) difficulty in comparing prices
Ans: d
Response: See page 34
11. Market pressures include which of the following?
a) global economy
b) moderately strong competition
c) homogeneous workforce
d) weak customers
e) high-cost labor offshore
Ans: a
Response: See page 33-34
12. Market pressures include which of the following?
a) local economy
b) strong competition
c) homogeneous workforce
d) weak customers
e) high-cost labor offshore
Ans: b
Response: See page 33-34
13. Market pressures include which of the following?
a) local economy
b) weak competition
c) diversified workforce
d) weak customers
e) high-cost labor offshore
Ans: c
Response: See page 33-34
14. Market pressures include which of the following?
a) local economy
b) weak competition
c) homogeneous workforce
d) powerful customers
e) high-cost labor offshore
Ans: d
Response: See page 33-34
15. The digital divide is an example of which type of societal pressure?
a) social responsibility
b) government regulations
c) protection against terrorism
d) ethics
e) information overload
Ans: a
Response: See page 34
16. The “motomen” of Cambodia are an example of which type of societal pressure?
a) social responsibility
b) government regulations
c) protection against terrorism
d) ethics
e) information overload
Ans: a
Response: See page 34
17. Cybercafes are an example of which type of societal pressure?
a) social responsibility
b) government regulations
c) protection against terrorism
d) ethics
e) information overload
Ans: a
Response: See page 35
18. In general, government deregulation _____ competition.
a) does not affect
b) decreases
c) intensifies
d) obsoletes
e) ends
Ans: c
Response: See page 36
19. Societal pressures on businesses include which of the following?
a) social responsibility
b) government regulations
c) protection against terrorism
d) ethics
e) all of the above
Ans: e
Response: See page 34-36
20. _____ provide organizations with advantages that enable them to increase their market share and/or
profits, to better negotiate with suppliers, or to prevent competitors from entering their markets.
a) strategic systems
b) management information systems
c) computer-based information systems
d) decision support systems
e) executive information systems
Ans: a
Response: See page 37
21. When items are produced in a large quantity but are tailored to fit the desires of each customer, this is
called?
a) strategic systems
b) customer focus
c) continuous improvement
d) mass production
e) mass customization
Ans: e
Response: See page 38
22. When identical items are produced in large quantities, this is called:
a) strategic systems
b) customer focus
c) continuous improvement
d) mass production
e) mass customization
Ans: d
Response: See page 38
23. Information-based industries are best included in which one of Porter’s five forces?
a) threat of entry of new competitors
b) bargaining power of suppliers
c) bargaining power of customers
d) threat of substitute products
e) rivalry among existing firms in an industry
Ans: d
Response: See page 40
24. The Internet increasing customers’ access to information is best included in which one of Porter’s five
forces?
a) threat of entry of new competitors
b) bargaining power of suppliers
c) bargaining power of customers
d) threat of substitute products
e) rivalry among existing firms in an industry
Ans: c
Response: See page 40
25. The geographical reach of the Internet is an example of which of Porter’s five forces?
a) threat of entry of new competitors
b) bargaining power of suppliers
c) bargaining power of customers
d) threat of substitute products
e) rivalry among existing firms in an industry
Ans: a
Response: See page 40
26. The visibility of Internet applications on the Web makes proprietary systems more difficult to keep
secret. This is an example of which of Porter’s five forces?
a) threat of entry of new competitors
b) bargaining power of suppliers
c) bargaining power of customers
d) threat of substitute products
e) rivalry among existing firms in an industry
Ans: e
Response: See page 40
27. The variable cost of digital products is _____.
a) increasing
b) decreasing
c) staying about the same
d) almost zero
e) high
Ans: d
Response: See page 40
28. Wal-Mart’s automatic replenishment system, which enables the company to reduce inventory storage
requirements, is an example of which strategy for competitive advantage?
a) cost leadership
b) differentiation
c) innovation
d) operational effectiveness
e) customer-orientation
Ans: a
Response: See page 41
29. Southwest Airlines’ low-cost, short-haul strategy is an example of which strategy for competitive
advantage?
a) cost leadership
b) differentiation
c) innovation
d) operational effectiveness
e) customer-orientation
Ans: b
Response: See page 41
30. Offering different products, services, or product features is which strategy for competitive advantage?
a) cost leadership
b) differentiation
c) innovation
d) operational effectiveness
e) customer-orientation
Ans: b
Response: See page 41
31. Introducing new products and putting new features in existing products is which strategy for
competitive advantage?
a) cost leadership
b) differentiation
c) innovation
d) operational effectiveness
e) customer-orientation
Ans: c
Response: See page 41
32. The introduction of ATM machines by Citibank was a classic example of which strategy for
competitive advantage?
a) cost leadership
b) innovation
c) differentiation
d) operational effectiveness
e) customer-orientation
Ans: b
Response: See page 41
33. Improving the manner in which internal business processes are executed is which strategy for
competitive advantage?
a) cost leadership
b) differentiation
c) innovation
d) operational effectiveness
e) customer orientation
Ans: d
Response: See page 41
34. When Amazon welcomes you by name back to its Web site on your second visit, this is an example of
which strategy for competitive advantage?
a) cost leadership
b) differentiation
c) innovation
d) operational effectiveness
e) customer orientation
Ans: e
Response: See page 41
35. The impact of IT on the number of middle managers is:
a) increase
b) decrease
c) stay the same
d) increase greatly
e) none of the above
Ans: b
Response: See page 44
36. The impact of IT on managers’ jobs is which of the following:
a) gives managers time to get into the field
b) managers can spend more time planning
c) managers can spend less time “putting out fires”
d) managers can gather information more quickly
e) all of the above
Ans: e
Response: See page 44
37. The impact of IT on managers’ jobs is all of the following except:
a) gives managers time to get into the field
b) managers can spend more time planning
c) managers can spend more time “putting out fires”
d) managers can gather information more quickly
e) none of the above
Ans: c
Response: See page 44
38. The impact of IT on managers’ jobs is all of the following except:
a) gives managers less time to get into the field
b) managers can spend more time planning
c) managers can spend less time “putting out fires”
d) managers can gather information more quickly
e) none of the above
Ans: a
Response: See page 44
39. The impact of IT on managers’ jobs is all of the following except:
a) gives managers time to get into the field
b) managers can spend less time planning
c) managers can spend less time “putting out fires”
d) managers can gather information more quickly
e) none of the above
Ans: b
Response: See page 45
40. In the face of difficult economic times, increased global competition, and increased consumer
sophistication, many companies have _____ their investments in IT.
a) increased
b) decreased
c) leveled
d) stopped
e) completed
Ans: a
Response: See page 45
41. IT impacts employees at work in which of the following ways?
a) causes loss of identity
b) has isolating influence
c) can cause depression
d) can cause physical difficulties
e) all of the above
Ans: e
Response: See pages 45-46
Short Answer
1. How does information technology create a strategic advantage for the Toronto International Airport?
Response: See pages 28-29
2. Describe the digital infrastructure for e-business.
Response: See page 30
3. Discuss the business pressures that face organizations today.
Response: See pages 33-36
4. Discuss organizational responses to today’s business pressures.
Response: See pages 36-38
5. Differentiate between mass customization and mass production.
Response: See page 38
6. What is competitive advantage?
Response: See page 38
7. What five forces in Porter’s competitive forces model impact organizations and how does the Internet
affect each force?
Response: See pages 38-40
8. Discuss the five strategies for competitive advantage and give an example of each.
Response: See pages 40-44
9. Describe why it is important to know about information technology.
Response: See pages 44-53
10. Describe the impacts of IT on society (e.g., healthcare, crime fighting, etc.)
Response: See pages 49-50