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Chapter 2: Strategy, Technology, and Competitive Advantage

Vocabulary

Barriers to Entry
Factors that make it difficult or costly for new competitors to enter a market, such as high startup costs, regulation, strong brand loyalty, or economies of scale.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Brand
A symbolic embodiment of all the information connected with a product or service, including reputation, image, and consumer perceptions.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Business Process
A set of ordered tasks or activities performed to achieve a specific organizational goal, such as fulfilling a customer order.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Capital Intensity
The degree to which a business requires large amounts of investment in equipment, facilities, or infrastructure to operate.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Commodity
A product that is largely indistinguishable from competing products and therefore competes primarily on price.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Competitive Advantage (CA)
A strategic benefit that allows a company to outperform its competitors by offering greater value or lower cost.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Differentiation
A strategy where a firm seeks to offer unique features, quality, or brand image that distinguishes its products from competitors.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Distribution Channels
The pathways through which products or services travel from producers to customers, such as wholesalers, retailers, or direct sales.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Economies of Scale
Cost advantages that occur when increased production allows fixed costs to be spread across more units, lowering the average cost per unit.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Fast Follower Problem
The challenge innovators face when competitors quickly imitate their innovations and capture market share without bearing the original development costs.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Human Resource Management (HRM)
The organizational function responsible for recruiting, training, managing, and developing employees.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Inbound Logistics
Activities related to receiving, storing, and distributing inputs such as raw materials from suppliers.
Citation: Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
Incumbent
An established company currently operating within a market that new competitors may attempt to challenge.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Metrics
Quantifiable measures used to evaluate performance, efficiency, or success within an organization.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Network Effects
A phenomenon where the value of a product or service increases as more people use it.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Operational Effectiveness
Performing the same activities as competitors but more efficiently or effectively.
Citation: Porter, M. (1996). What Is Strategy? Harvard Business Review.
Operations
Activities involved in transforming inputs into finished products or services.
Citation: Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
Outbound Logistics
Activities required to store, distribute, and deliver finished products to customers.
Citation: Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
Price Transparency
The degree to which buyers can easily compare prices across different sellers, often increased through online technologies.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Procurement
The process of sourcing and purchasing the inputs needed for a firm’s operations.
Citation: Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
Regulation
Government rules or laws that control how businesses operate within an industry.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Strategic Positioning
Performing different activities from competitors or performing similar activities in different ways to deliver unique value.
Citation: Porter, M. (1996). What Is Strategy? Harvard Business Review.
Substitute
A different product or service that can satisfy the same customer need as another offering.
Citation: Porter, M. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review.
Switching Costs
The costs—financial, time, or effort—that customers incur when changing from one product or provider to another.
Citation: Gallaugher, J. (2025). Information Systems: A Manager's Guide to Harnessing Technology (10.1.4). FlatWorld.
Value Chain
A framework that breaks a business into activities that create value for customers, helping identify where competitive advantages can be developed.
Citation: Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.

Practice Quiz

1. A new ride-sharing app, "WheelsUp," launches exclusively in Austin. The app's value for a student depends entirely on how many drivers are available, while drivers only want to sign up if there are enough students requesting rides. Early on, the app struggles because students delete it when they see no cars nearby, and drivers quit when they don't get enough pings. Which concept represents the primary challenge WheelsUp is facing?
Answer: C ~ This is a classic example of network effects, where the value of a service increases as its number of users (both riders and drivers) grows. Without a critical mass of users on both sides, the "network" provides little value to anyone. It is not capital intensity because the primary hurdle described is user participation, not the initial monetary cost of building the app.
2. The "Genius Bar" at the Apple Store provides technical support, repairs, and troubleshooting for customers who have already purchased Apple products. According to Michael Porter’s Value Chain model, these employees perform tasks that are essential to maintaining the product's value after the sale. In which part of the Value Chain are the Genius Bar employees located?
Answer: D ~ According to the course materials and Porter's Value Chain, the Service primary function involves activities that enhance or maintain the value of the product after it has been sold. The Genius Bar fits this definition as they provide post-purchase support and repair. Operations would involve the actual assembly of the iPhones or Macs
3. A high-end sneaker boutique on South Congress Avenue sells rare, limited-edition shoes that cannot be found at Foot Locker or online at Amazon. They target a very small group of "sneakerheads" willing to pay $1,000+ per pair. They do not attempt to compete on price or serve the general public. Using Porter’s Model of Competitive Strategy, which strategy is this boutique following?
Answer: B ~ The boutique is using a Narrow Scope Differentiation strategy. It targets a specific, small segment (sneakerheads) rather than the broad market, and it competes by offering a unique, "differentiated" product rather than the lowest price. A cost leadership strategy would involve trying to be the "Walmart" of sneakers.
4. A student starts a professional cleaning business for West Campus apartments. To enter the market, she only needs to buy $200 worth of supplies and print some flyers. However, she finds it nearly impossible to compete because a larger company, "Maid in Austin," has a 10-year contract with all the major apartment complexes, and no other cleaning service is allowed on those properties. Which barrier to entry is most significantly preventing the student from competing?
Answer: B ~ Distribution channels refer to how a product or service reaches the customer. In this case, the established competitor has "locked up" the channel (the apartment complexes) via exclusive contracts, making it impossible for the new entrant to reach the customers regardless of how much money she has or how cheap her service is.
5. A student wants to open a new social media app called "LonghornLink." Even though his app has better features than Instagram, none of his friends will join because "everyone is already on Instagram." Which concept is the primary barrier for LonghornLink?
Answer: C ~ Network effects exist when the value of a product increases as more people use it. A social media app is of little value if your friends aren't on it, creating a massive barrier for new entrants regardless of their technical features. While switching costs are related, the specific reason given (everyone is already there) is the definition of a network effect.