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Chapter 3

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Simon Fraser University
Business Administration
BUS 237

BUS 237 Chapter 3 Notes Strategy, Information systems, and comparative advantages Productive paradox  Productive paradox: no evidence of an increase in worker productivity associated with the increase in investment o Productivity: how business value are created using IT  Business value: real benefit for organizations by increase in efficient use of resources or effectively delivering services to customers  Many businesses invest large amount into IT without taking into account the measure of productivity o But how can you measure productivity? o There are other intangible benefits derived from IT but we don’t see it  3 ways to measure the value of IT 1. Productivity: same input  more output, produce output faster, make better output 2. Structure of competition: alter the way corporation compete due to IT 3. Benefits to the end customer: reduction of cost, cheaper and better products  “Technology for technology’s sake”  Organizations must understand the what business value will IT add to their business instead of blindly following the trend  Value people who understand both technology and business IS improving productivity  Productivity can be increased through efficiency or effective business processes  Efficiency: business process can be done quicker or with fewer resources (or both) o Easy to measure; job can be complete using just enough of the right resources o “Doing things right”  Effectiveness: new improved goods/services that the consumer value o “Doing the right thing”  Balance between efficiency and effectiveness is important to gain competitive advantage for the long-term  Business processes and value chains o Value chain: network of activities that improve effectiveness (consist of many business processes) – adding value in the chain o Example: there are no value in raw material for each step of the chain but throughout the business process we add value to the raw material o Forward integration: moving downstream on the value chain o Backward integration: moving upstream on the value chain (close to consumers) o The more value added = more price companies can sell it for o Difference between revenue and cost of good sold is margin, more margin = profit increases o Primary activities: value added directly to the product  Adds value for the consumers o Support activities: support primary activities o Do not add any value directly but instead indirectly  Example: pay workers, payroll system BUS 237 Chapter 3 Notes o We can develop more efficient and effective IS to improve productivity through supporting activity systems  Increase in both primary activities and support activities increase margin  IS provide new technology to increase margin and ability to compete o Example: online shopping, 24/7 customer support service Organizational strategy and industry structure related  Organization’s strategy reflect its goals and competition, so it’s IS must be aligned  Five forces model: determine industry profitability o Bargaining power of the consumers – consumer are vulnerable to switch brands  The most important force is consumer’s tastes and desires o Treat of substitutes – other brands that are competitors o Bargaining power of suppliers – to get lowest-priced ingredients  But firms don’t compete on price, they compete on marking strategy o Threat of new entrants – better technol
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