Unit 1 Study Guide

Vocabulary

Mental Model: A model of the world, a set of rules, or a way of thinking and belief learned from one's background, education, and community. Succeeding in business requires understanding how these models influence information systems.
Curse of Knowledge: A phenomenon where, once we know something, it becomes difficult to imagine not knowing it, often leading to poor communication. This makes it hard for experts (like a professor) to explain concepts to beginners (like students) as effectively as someone closer to the learning process (like a TA).
Technology Hype Cycle: A framework developed by Gartner that tracks market expectations of a technology over time through five distinct stages.
Innovation Trigger (Emerging Innovation): The arrival of a new technology where early proofs-of-concept show promise.
Peak of Inflated Expectations: Media hype reaches its height, but there is still very little evidence of actual payoff.
Trough of Disillusionment: A period of cratering interest and investment due to a lack of proven return on investment (ROI).
Slope of Enlightenment: Use cases with clear payoffs emerge as the technology matures.
Plateau of Productivity: The technology enters regular, mainstream use.
Trillion-Dollar Tech Firms: The six firms that have surpassed $1 trillion in market value: Apple, Microsoft, Alphabet (Google), Meta, Amazon, and Nvidia.
AI "Arms Merchant": A term for Nvidia, which dominates the market (80% to 95% share) for the specialized microprocessors required to power generative AI.
Moore's Law: A principle (often cited alongside the Hype Cycle) that predicts the rapid advancement and decreasing cost of computing power over time.
Inherent Processes: Standardized business processes that are pre-designed into software.
Pivot: A significant redefinition of a startup's market, business model, or product offering based on customer feedback.
Term Sheet: A legal document that defines the agreement between a founding firm and its investors, including ownership stakes and board membership.
Startup Accelerator: A competitive residency program (typically three months) where startups receive mentorship and seed capital in exchange for a small ownership stake.

Quiz

Question: 1. A group of UT students runs a custom t-shirt business. When they see a small, 5% increase in orders for "Beat OU" shirts, they get nervous about running out of stock and order 25% more fabric from their supplier. The fabric supplier, seeing this jump, orders 100% more cotton from the mill to ensure they aren't caught short during the rush. Which concept best explains this increasing variability in order size as it moves further from the customer and up the supply chain?

Answer choices: A. Disintermediation B. The Bullwhip Effect C. Vertical Integration D. Economies of Scale

Correct answer: B

Explanation: The Bullwhip Effect is a phenomenon where variability in order size and timing increases at each stage as you move up the supply chain. This occurs because small changes in consumer demand lead to distorted and exaggerated orders by participants further up the network. Disintermediation is the act of "cutting out the middleman" to sell directly to consumers, and Vertical Integration involves owning multiple layers of the value chain [Source definition].

Question: 2. Sarah launches "StudyBud," a mobile app designed specifically for McCombs students to find peer tutors. Even though StudyBud has a much better user interface and more features than LinkedIn, most students refuse to switch because all the established tutors and recruiters they know are already active on the LinkedIn network. Sarah realizes that her app’s value is struggling because it lacks the massive user base of the incumbent. Which phenomenon is Sarah’s startup primarily struggling to overcome?

Answer choices: A. The Osborne Effect B. Switching Costs C. Network Effects D. Disintermediation

Correct answer: C

Explanation: Network effects (Metcalfe's Law) occur when a product or service becomes more valuable as its user base expands. In this scenario, the primary value for students is not the app's technical features, but the presence of other users (tutors and recruiters) on the platform. While switching costs are a related factor that keeps users "locked in," the core issue described is the lack of cross-side exchange benefits found in a large network [Source definition, 55].

Question: 3. A venture capital firm in Austin invested millions into a "Generative AI for pets" startup during a period of massive media hype. By late 2025, the firm is considering cutting all funding because the startup hasn't shown any real return on investment (ROI), and public interest in pet-related AI has cratered. The founders are struggling to find a sustainable use case that actually generates profit now that the initial excitement has faded. According to the Gartner Hype Cycle, which stage is this technology likely entering?

Answer choices: A. Trough of Disillusionment B. Peak of Inflated Expectations C. Slope of Enlightenment D. Plateau of Productivity

Correct answer: A

Explanation: The Trough of Disillusionment is the stage where a lack of proven ROI leads to diminishing interest and investment after initial hype fails to deliver on hoped-for benefits. This follows the Peak of Inflated Expectations, where media hype is at its highest but payoff is still low. If the technology eventually matures and finds specific, benefits-generating results, it would then move into the Slope of Enlightenment.

Question: 4. A local pizza shop near campus invests in a high-end Point-of-Sale (POS) system (hardware), installs the latest inventory tracking code (software), and stores all customer preferences in a secure cloud (data). However, the system fails to improve efficiency because the kitchen staff was never trained on the new digital ticket flow and continues to use handwritten notes on the wall. The owner realizes that the technical components are working perfectly, but the system as a whole is failing. Which component of the five-component Information Systems model is the root cause of this system failure?

Answer choices: A. Hardware B. Data C. Software D. People

Correct answer: D

Explanation: Information systems are defined by the five-component model: hardware, software, data, processes, and people. In this scenario, the failure is not technical (hardware, software, data) but human, as the staff (People) are not following the necessary business processes to make the system function. Business processes come from people, and without their proper integration and training, the technology alone cannot deliver value.

Question: 5. A startup at the Longhorn Startup Lab wants to ensure its unique organic energy drink is always in stock and maintained at the highest quality. Instead of hiring a separate bottling plant and a third-party distributor, the founders decide to buy their own bottling equipment and deliver the drinks themselves to Austin-area gyms. By owning these additional stages of their supply chain, they can react more quickly to changes in customer demand. Which strategic move is this company utilizing?

Answer choices: A. Disintermediation B. Vertical Integration C. Outsourcing D. Horizontal Integration

Correct answer: B

Explanation: Vertical integration exists when a single firm owns several different layers in its own value chain or supply chain [Source definition, 18]. By owning the bottling and distribution, the startup has integrated functions that are typically outsourced to third parties [Source definition]. Disintermediation specifically refers to "cutting out the middleman" to ship directly to the consumer, which is a component of this move but does not describe the ownership of the manufacturing layer [Source definition].