TEST BANK for Strategic Management 6th Edition Rothaermel Frank (Complete 12 Chapters)

Chapter 1: What Is Strategy?

Student name: 1) A good strategy allows a firm to achieve superior performance and sustainable competitive

advantage without regard to the external environment. ⊚ true ⊚ false

2) The following statement by the chief executive of MegaFilms movie studio should not be

used as a strategy: “We will produce the greatest films of the 21st century.” ⊚ true ⊚ false

3) The three tasks of the AFI strategy framework are to Assemble a prototype, Find a buyer, and

Incorporate feedback. ⊚ true ⊚ false

4) Questions asked during the strategy analysis stage of the AFI framework should include

“What effects do forces in the external environment have on the firm’s potential to gain and sustain a competitive advantage?” ⊚ true ⊚ false

5) Once a strategy has been formulated and implemented, it is important that the firm sticks to it

no matter what happens. ⊚ true ⊚ false

6) Because they are a crucial component of a firm’s success, customers are considered internal

stakeholders. ⊚ true ⊚ false

7) A firm is required by society and its shareholders to meet its ethical and philanthropic

responsibilities. ⊚ true ⊚ false

8) Stakeholder impact analysis provides a decision tool that helps strategic leaders recognize the

needs of different stakeholders. ⊚ true ⊚ false

9) Juan wants to open his own hot dog restaurant but doesn’t know anything about business. He

needs help determining who his competition is, how he should craft his strategy to compete and how he’ll implement his strategy to achieve a competitive advantage. He’s hired you to help him get started. As a result, you will probably use which of the following?

A) AFI strategy framework B) Red Queen effect C) competitive benchmarking D) Stakeholder Impact analysis

10) Roberta is interested in the concept of strategy and decides to create her own. As a result,

Roberta says that her strategy is to focus on competitive benchmarking to achieve competitive advantage. Which is the best evaluation of Roberta’s statement?

A) Roberta’s strategy is clear, but she should provide more detail.

B) Roberta’s strategy reveals a clear strategic position and tradeoff, so she should proceed.

C) Roberta should reevaluate her statement because it fails to mention more than one strategy.

D) Roberta should reevaluate her statement because it fails to meet the principles of what a strategy should be.

11) Tony’s Pizza Shop is able to net $10,000 a week; this makes the shop profitable. Its number

one competitor, Leo’s Pies, is also profitable, netting $12,000 a week. Lil Anthony’s Pizza Palace nets $13,000 a week. Since Tony’s Pizza Shop is profitable, we can conclude that it has a competitive advantage in its industry.

A) True—competitive advantage is achieved through profitability alone.

B) True—competitive advantage is achieved since Tony has a positive net income.

C) False—competitive advantage is only achieved by generating above average returns, relative to competition.

D) False—Tony more than likely has a sustained competitive advantage since he’s been in business longer.

12) Bill’s Auto & Airplane Repair shop is able to generate a positive net income of $10,000 a

week, which is about the same as the income of a close competitor. As a result, we can conclude that the two businesses also have a competitive parity in the industry.

A) Correct—competitive advantage is achieved through profitability alone.

B) Correct—competitive advantage is achieved since Bill’s Auto & Airplane Repair shop has a positive net income.

C) Correct—competitive parity is a performance of two or more firms at the same level.

D) Incorrect—Bill’s Auto & Airplane Repair shop more than likely has a sustained competitive advantage because the business is diversified.

13) To better achieve a competitive advantage, firms must now adopt a holistic approach towards

satisfying multiple stakeholders opposed to focusing on the needs of their shareholders. What term is used for this approach?

A) stakeholder strategy B) internal shareholder strategy C) value creation strategy D) shareholder relationship strategy

14) All of the following are external stakeholders except which of the following?

A) customers B) creditors C) alliance partners D) competitors

15) John is a bit confused about the difference between stakeholders and stockholders. You meet

with John and inform him that the main difference is that A) stakeholders are both internal and external to the firm while stockholders are considered external to the firm.

B) stakeholders are considered internal to the firm while stockholders are external to the firm.

C) stakeholders can be both internal and external while stockholders own shares of a firm and are classified as internal to the firm.

D) stakeholders are external to the firm while stockholders are considered internal to the firm.

16) Which of the following three important stakeholder attributes should managers pay special

close attention to in order to better understand stakeholder impact analysis?

A) competitive advantage, economic value, and time B) power, legitimacy, and urgency C) grace under pressure, financial control, and reward power D) shareholder rights plan, board representation and CEO influence

17) Most consumers and investors today want the firms they do business with to look beyond just

the profit motive. In fact, they want firms that behave legally and ethically while also giving back to their communities via philanthropic activities. The framework that attempts to reconcile these wants is known as A) corporate social responsibility.

B) stakeholder impact analysis.

C) business model analysis.

D) value chain driven decision making.

18) Which of the following terms describes the guiding policy to address the competitive

challenge, and uses corporate- and business-level strategy?

A) analysis B) formulation C) implementation D) competitive advantage

19) In strategic management, strategists engage in three pillars. These three pillars include

the

of major goals and objectives.

A) implementation B) presentation C) objectification D) unification

20) Which of the following tasks in the AFI strategy framework involves evaluating the internal

and external environments in which a firm operates?

A) analysis B) formulation C) implementation D) competitive advantage

21) The goal of a good strategy is focused primarily on A) creating superior value while containing costs.

B) making as much money as possible.

C) employing lean manufacturing and Six Sigma.

D) encouraging investors to buy more shares of the firm.

22) For a corporate strategy, which question is often asked?

A) How do strategic leaders help shape a firm’s vision, mission, and values?

B) How should the firm compete: cost leadership, differentiation, or value innovation?

C) How do we create shared value?

D) Where should the firm compete in terms of industry, markets, and geography?

23) A successful strategy details a set of goal-directed actions that managers make to gain and

sustain a competitive advantage; in order to create this strategy, managers must focus on three pillars. Which of the following below is not one of these pillars?

A) formulation B) execution C) implementation D) analysis

24) The

effect involves studying and copying the competition, which results in unsuccessful efforts to gain a competitive advantage.

A) Mad Hatter B) Black Swan C) Red Queen D) Wizard of Oz

25) Lawrence decided to copy the competition to gain a competitive advantage for his company.

After a year, he realized his company failed to gain such an advantage. Lawrence most likely failed because of the effect.

A) Green Pawn B) grandiose C) globalization D) Red Queen

26) Hewlett-Packard was not able to address the competitive challenges of cloud and mobile

computing. The company therefore destroyed shareholder value by failing to create A) a strong infrastructure.

B) value for society.

C) a need for printers.

D) foreign contacts.

27) Sean, a retired CEO, invests capital in a start-up company that creates budgeting software.

He mentors the entrepreneur and the employees of the company because he wants the company to perform well and survive in the market. Thus, Sean is the start-up company’s A) headhunter.

B) category captain.

C) employee.

D) stakeholder.

28) Green and Good Inc., a multinational company, relies on its media partner OmniSignal to

regularly advertise its offers, sales, and new products. OmniSignal is invested in this relationship because it generates most of its revenue from advertising Green and Good’s products. In this scenario, OmniSignal is Green and Good Inc.’s A) stockholder.

B) workforce.

C) internal stakeholder.

D) external stakeholder.

29) Louise owns a large portion of Sturdy Appliance’s stock. However, she is not employed by

the company. In this scenario, Louise is the company’s A) external stakeholder.

B) internal stakeholder.

C) creditor.

D) customer.

30) Contour Inc., a vendor, regularly supplies capacitors to All Purpose Electronics for use in its

products. Therefore, Contour Inc. is All Purpose Electronics’ A) internal stakeholder.

B) director.

C) shareholder.

D) external stakeholder.

31)

Which of the following best qualifies as a firm’s internal stakeholder?

A) an auditor assigned to the firm by a federal government agency B) a labor union with whom the firm’s employees can affiliate C) a manager taking care of the firm’s operations in a foreign market D) a competitor manufacturing the same products as that of the firm

32) The best example of a firm’s external stakeholder is a(n) A) B) C) D)

government agency that regulates the prices of products manufactured by the firm. board member from a wholly-owned foreign subsidiary of the firm. shareholder who has invested money in the firm but is not employed by the firm. employee of the firm who is responsible for a contract project.

33) The interaction between a firm and its diverse internal and external stakeholders is best

described as a(n) A) ergonomic relationship.

B) cartel arrangement.

C) exchange relationship.

D) fiduciary responsibility.

34) Dimitre Corp. has been able to gain and sustain a competitive advantage due to its strong

relationship with its employees, customers, suppliers, and local communities. The company believes in lifetime employment and ensures that its employees grow along with the company. Investors are more than satisfied with the returns on their investments. Also, 3 percent of the company’s profit is spent on community development. With initiatives like these, customers feel privileged to associate themselves with Dimitre products. This scenario best illustrates the implementation of a A) strategic analysis.

B) stakeholder strategy.

C) wild card event.

D) black swan event.

35) Which of the following scenarios best illustrates a good stakeholder strategy?

A) ASI Inc. follows a strategy in which maximization of the shareholder’s wealth is the

primary concern of the managers.

B) Ben’s Buttons Inc. ensures that its employees are paid the least in the industry so that its external stakeholders can get the best price.

C) Nowadays Corp. distributes only 40 percent of its annual profit after taxes to shareholders, while the remaining is invested for further research and distributed among employees and the local community.

D) Knights for Lights Corp. ensures that it fully exploits free natural resources, so that most of its profits go to shareholders in the form of dividends.

36) Better Capsules is a highly successful vitamin manufacturer. At the close of its most recent

fiscal year, the company’s balance sheet showed cash holdings of $110 million. Which of the following actions will provide the most benefit for stakeholders?

A) Reinvest profits into expanding the company and creating more jobs.

B) Reward the CEO with a significant bonus payment.

C) Save the excess cash as a precaution against black swan events.

D) Buy out the leading competitor to reduce competition and maintain price stability.

37) The first step in stakeholder impact analysis involves which of the following?

A) identifying the social responsibilities to stakeholders B) identifying the opportunities that stakeholders present C) identifying the interests of the stakeholders D) identifying who the stakeholders are

38) After a firm has recognized its key stakeholders in stakeholder impact analysis, the

immediate next step is to A) recognize the opportunities and threats the stakeholders present.

B) identify stakeholders’ interests and claims.

C) formulate a stakeholder strategy.

D) address the stakeholders’ concerns.

39) As the legal owners, A) creditors B) employees C) shareholders D) board members

have the most legitimate claim on a company’s profits.

40) Which of the following is typically an economic responsibility of a firm?

A) sourcing raw materials from highly developed countries B) paying adequate returns to the firm’s stockholders on the capital invested by them C) donating resources, in terms of money and time, toward community development D) helping a nation increase its import of goods and services

41) The minimum wage in the country of Hanns is $8 an hour. Delish, a restaurant in Hanns’

capital city, pays its servers $8 per hour. However, the management of the restaurant feels that this amount is excessive for workers whose only job is to clear tables. By continuing to adhere to the rules set by the government of Hanns, which of the following responsibilities is Delish satisfying?

A) legal responsibilities B) philanthropic responsibilities C) ethical responsibilities D) demographic responsibilities

42) The amount of polyethanal that can be used in household paint is legally limited to 0.03

percent. Anything beyond this amount is hazardous to health and the environment and is considered a legal offense. Consequently, PrismPaints Corp. has vouched to make its products as safe as possible. Therefore, it manufactures polyethanal-free paints even though this increases its costs and reduces the dividends paid to its shareholders in the long run.

Which of the following responsibilities is Prism Paints Corp. primarily compromising in this scenario?

A) legal responsibilities toward the government B) economic responsibilities toward its shareholders C) philanthropic responsibilities toward the local community D) ethical responsibilities toward the society

43) Industrial Drills, a company that manufactures industrial tools, incurs higher costs because of

its refusal to outsource its manufacturing to countries where labor costs are lower. This reflects Industrial Drills’ responsibility.

A) economic B) legal C) ethical D) demographic

44) Batt Packs recently came under criticism when a newspaper article revealed that the

company’s production plant had leaked a chemical compound into a sensitive wetland ecosystem. Although use of the chemical was not technically prohibited by law, the local government levied a small fine for cleaning up the spill. Environmental groups, however, argued that continued use of the chemical was damaging to the local wildlife and threatened to organize a boycott against Batt Packs. What should Batt Packs do to ensure that it meets its ethical responsibilities?

A) move its production facilities to an area that is less concerned with environmental issues B) take out an advertisement arguing that use of the chemical is perfectly legal C) design batteries without the chemical and market them as environmentally friendly D) pay the fine levied by the local government and resume operations

45) Which of following practices of a firm satisfies its ethical responsibilities?

A) using plastic as the packaging material, even though it is harmful to the environment,

yet legal B) outsourcing production to a less developed country and paying wages that are below its own country’s accepted minimum wages C) using advertising and other forms of promotion to endorse luxurious lifestyles D) selling vaccines at a subsidized price in a less developed country even though this results in reduced shareholder returns

46)

responsibilities are the foundational building block in the pyramid of corporate social responsibility.

A) Economic B) Ethical C) Environmental D) Legal

47) Which of the following statements about the social responsibilities of a business is accurate?

A) A firm’s ethical responsibilities go beyond its legal responsibilities.

B) Shareholders mandatorily require a firm to perform its ethical, but not its

philanthropic responsibilities.

C) Legal responsibilities are the foundational building block of a firm’s social responsibility.

D) Economic responsibilities are often subsumed under the idea of corporate citizenship, reflecting the notion of voluntarily giving back to society.

48) Ayesha, the founder of Solid Foundation Construction, strongly believes in the notion of

corporate social responsibility, so she proposed several philanthropic activities that she expects the company to pursue. In order to accomplish this vision, the managers should first A) review all legal codes in the areas in which Solid Foundation operates and ensure all permits are up-to-date.

B) ensure that the company is profitable and has a sustainable competitive advantage.

C) make sure it is paying employees’ wages that allow them to live comfortably.

D) ask for public input on issues that the company can help address.

49) In the final step of the stakeholder impact analysis, a firm A) identifies its stakeholders’ interests and claims.

B) differentiates its internal stakeholders from its external stakeholders.

C) recognizes the opportunities and threats stakeholders present.

D) decides a course of action to address the stakeholders’ concerns.

50) Superior performance allows a company to benefit society by implementing which of the

following strategies?

A) imitate the features of the most popular products of competitors on the market B) reinvest some of its profits and grow, providing more employment and career opportunities C) sell more advertising space D) substitute less-expensive components to keep costs low

51)

is best described as an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.

A) Supply chain management B) Integrated technology management C) Strategic management D) Inventory management

52)

is best described as a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.

A) Behavior modification B) Strategy C) Credo D) Competency management

53) Which of the following stages of the strategic management process involves an evaluation of

a firm’s external and internal environments?

A) strategy analysis B) strategy implementation C) strategy formulation D) strategy control

54) In

, a firm frames a guiding policy to address the competitive challenge.

A) strategy control B) strategy implementation C) strategy formulation D) strategy analysis

55) Through a strategy’s

of coherent actions.

A) control B) implementation C) formulation D) analysis

, a firm puts its guiding policy into practice by employing a set

56) Which of the following is an element of good strategy?

A) a summary of the firm’s history within its industry B) a guiding policy to address employee satisfaction C) a set of coherent actions to implement the firm’s guiding policy D) an approach that underestimates the competition

57) Earth Mother Leisure Wear had a mission to become the leading producer of

environmentally friendly leggings, an emerging and in-demand category in the apparel industry. Its strategy involved leveraging a network of organic cotton farmers and suppliers of environmentally responsible synthetic materials to create a product that is durable, attractive, affordable, and 100% recyclable. However, because it did not upgrade its outdated production facilities, Earth Mother Leisure Wear could not assemble its products at a lowenough cost to offer the leggings at a price that was attractive to customers. Earth Mother Leisure Wear's strategy failed because A) it failed to consider the competitive challenge.

B) it was not backed up with strategic commitments.

C) managers did not live by the company’s core values.

D) the company did not stake out a unique strategy position.

58) Which of the following is an example of competitive parity?

A) A firm manufactures higher-quality wall clocks than its competitors.

B) A firm provides wall clocks that its consumers value more than other wall clocks.

C) A firm sells wall clocks at a lower price than its competitors.

D) A firm produces a similar number of wall clocks at a similar cost as its competitors.

59) A firm that achieves superior performance relative to other firms in the same industry or the

industry average has a(n) A) competitive advantage.

B) balanced scorecard.

C) power position.

D) equity leverage.

60) Dazzle Lighting was the first company to start selling LED light bulbs in its country—a

product that gained popularity among diverse groups. Soon, other companies started to sell their own brands of LED bulbs, thereby giving Dazzle Lighting ample competition. In response, Dazzle Lighting decided to limit its LED light bulbs to outdoor models. However, it ensured that these models were the longest-lasting and lowest-priced on the market. With this innovation, Dazzle Lighting consistently outperformed its competitors for ten years. In this scenario, Dazzle Lighting maintained a through its innovative strategy.

A) balanced scorecard B) fiduciary responsibility C) consistent power position D) sustainable competitive advantage

61) Which of the following scenarios illustrates a firm that has a sustainable competitive

advantage?

A) Samson LLC generated revenue of $300,000 this financial year, which is close to the industrial revenue average of $320,000.

B) GoNow Inc. almost doubled its sales to 9,000 units this year compared to its previous year’s sales of 5,000 units, though the industry average is 10,000 units.

C) Bill and Ted Corp. was able to hold its market share of 68 percent in the social networking industry for more than three years.

D) Johnson Inc. was able to outperform its competitors with its new production system, in terms of revenue, for a brief period of four months.

62) If French Provincial Decor LLC obtains an 18 percent return on invested capital, which of

the following will help determine if it has a competitive advantage over other furniture companies?

A) comparing the return to the return on invested capital obtained by other firms in the industry B) assessing the value based on the shareholders’ expectations of return on their capital C) evaluating the liquidity ratios for other pharmaceutical companies D) comparing the value to the history of the firm’s return of investment over a number of years

63) Underperformance relative to other firms in the same industry or the industry average results

in a(n)

for a firm.

A) sustainable competitive advantage B) increased power distance C) diseconomies of scope D) competitive disadvantage

64) DuraLine Ltd. is a landline telephone manufacturer whose average return on invested capital

is approximately 2 percent. Because demand for landline telephones has declined significantly, the industry average return on invested capital has been negative (–5 percent) for the last few years. In this scenario, DuraLine Ltd. has a A) competitive advantage.

B) balanced scorecard.

C) competitive disadvantage.

D) power position.

65) Writer Button Inc. and Horner Inc. are two companies that have been manufacturing

typewriters for almost 30 years. Due to the reduced demand for typewriters today, both companies’ average return on invested capital is approximately –5 percent. The current industry average is 2 percent. In this scenario, Writer Button Inc. and Horner Inc. most likely have A) competitive advantage over other firms in their industry.

B) competitive parity with each other.

C) strategic alliance with each other.

D) economies of scope instead of economies of scale.

66) The average cost of production for a bottle of mineral water in the industry is $5 while its

average price is $8. Forever Spring Inc. manufactures the same product for $3 per bottle and sells it for $8 per bottle. Which of the following statements is most likely true of ForeverSpring Inc. in this scenario?

A) It has a competitive advantage in the industry.

B) It has a competitive disadvantage in the industry.

C) It has competitive parity with other firms in the industry.

D) It has formed a strategic alliance with other firms in the industry.

67) A firm is said to gain a competitive advantage when it accomplishes which of the following?

A) matches its highest previous performances B) provides products similar to its competitors, but at lower prices C) performs at the same level as that of its competitors D) provides goods or services similar to the competitors’ at a higher price

68) BuyNow Inc. is an e-commerce retail firm that sells a variety of merchandise online.

Through services like cash on delivery, easy return, and online tracking, the company has created more customer value than its competitors (brick-and-mortar businesses) at the same price. Also, the company’s costs are substantially lower than its competitors because of minimal investments in operation and administration. In this scenario, BuyNow Inc. has most likely been able to provide superior value and cost control through A) strategic parity.

B) strategic profiling.

C) strategic liquidation.

D) strategic positioning.

69) As the strategic manager of AlwaysSharp art knives, you are tasked with producing a

strategy for introducing a new line of premium knives. Your competitor produces a line of similar art knives at a cost of $1 and sells them for $5. Because your company has inferior production capabilities, your knives will cost $2 each to produce. However, your handle is proven to be more comfortable than your competitors’. Assuming you are guaranteed to sell the same number of units as your competitor, which of the following strategies is most likely to achieve a competitive advantage?

A) Reduce the quality of materials used in AlwaysSharp art knives to bring unit costs down to $1, then sell the knives for $5.

B) Continue to produce AlwaysSharp art knives for $2 but set the price at $4.

C) Offer a buy-one-get-one-free sale on AlwaysSharp art knives.

D) Market AlwaysSharp art knives as a higher-quality alternative and sell them for $7.

70) A firm always has a competitive disadvantage when its return on invested capital is A) below the industry average.

B) 2 percent or lower in a declining industry.

C) about the same as its closest competitor.

D) declining steadily over two or more years.

71) Golden Age Cinemas Inc. and HiDef Inc. are two companies that own and run movie theaters

in malls and other commercial areas. Both are trying to coax consumers back into movie theaters after the COVID-19 pandemic shutdowns. While Golden Age Cinemas Inc. pursues a cost-leadership strategy, HiDef Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario?

A) Golden Age Cinemas will charge a premium price for its customers, while HiDef will implement everyday low pricing.

B) HiDef and Golden Age Cinemas will not be direct competitors to each other, and their customer segments will overlap very little.

C) HiDef will keep its customer service at an acceptable level, while Golden Age Cinemas will provide superior customer service.

D) Golden Age Cinemas and HiDef will use a similar approach to create value for customers by attempting to offer everything to everybody.

72) For a firm that operates in an industry where competition is high, which of the following

practices will result in inferior performance?

A) choosing a distinct but different strategic position in the industry B) working toward increasing the difference between value creation and cost C) trying to be everything to everybody by combining different competitive strategies D) focusing on creating value for customers rather than destroying rivals

73) If a company wants to gain a competitive advantage in a highly competitive industry, it

should ideally A) execute an integrated cost-leadership and differentiation position.

B) copy the strategies of other firms through competitive benchmarking.

C) provide goods or services similar to its competitors at higher prices.

D) stake out a unique position within the industry.

74) Yellow Ride Service is a new entrant to the taxi industry. It has achieved success by staking

out a unique position in the industry. How did Yellow Ride Service mostly likely achieve this position?

A) providing long-distance cab fares at a higher rate than competitors; servicing a larger area than competitors B) providing long-distance cab fares at a lower rate than competitors; servicing a smaller area than competitors C) providing long-distance cab fares at a higher rate than competitors; servicing the same area as competitors D) providing long-distance cab fares at a lower rate than competitors; servicing the same area as competitors

75) Giorgia’s and Florentine’s are two restaurants serving Italian cuisine. While Giorgia’s focuses

on providing quick, affordable pasta dishes for the lunch crowd, Florentine’s focuses on serving home-style dishes in an upscale, romantic setting. Why have both companies been able to gain a competitive advantage?

A) They benefited from economies of scale.

B) They entered into a cartel arrangement.

C) They each pursued distinct strategic positions.

D) They each engaged in direct imitation and substitution.

76) If all firms in an industry pursued a low-cost position through application of competitive

benchmarking, which of the following would happen?

A) No firm would face direct competition from others in the industry; hence, profit potential would be high.

B) Each firm would have high value creation.

C) The firms would eventually have no resources to invest in product and process improvements.

D) Each firm would have different cost structures.

77) Toy sales have declined by 10 percent each year, forcing many retailers to exit the industry.

To eliminate its remaining competition, Terrific Toys sells all of its product at a loss and relies on its significant cash holdings to cover costs until its competition is forced to exit the industry. Is this an example of a successful strategy? Why or why not?

A) Yes. Any strategy that forces competition from the market is by definition successful.

B) Yes. Bargain has achieved a sustainable competitive advantage by selling its toys at a lower price than competitors.

C) No. Bargain has failed to create value for its customers.

D) No. Bargain’s strategy and competitive advantage are unsustainable.

78) Which of the following statements should ideally reflect a firm’s strategy for competitive

advantage?

A) Our strategy is to win at any cost.

B) We will be number one in the industry.

C) Our aim is to create superior customer value while controlling costs.

D) We want to be the market leader by replicating our competitor’s strategy.

79) Sugar & Sweet Sodas has seen its market share erode in recent years, as consumers

increasingly turn toward healthier beverage choices such as unsweetened sparkling water.

Hoping to rekindle interest in sugary sodas, Sugar & Sweet decides to produce a limited run of “throwback” cans using labeling first introduced in the 1980s. What is wrong with this strategy?

A) It fails to face the competitive challenge.

B) It does not involve concrete actions.

C) It lacks strategic commitments.

D) It tries to be everything to everybody.

80) Which is a model that links strategy analysis, strategy formulation, and strategy

implementation, thereby helping managers plan and implement a good strategy?

A) the Four Ps B) AFI strategy framework C) corporate social responsibility D) stakeholder impact analysis

81) Managers use the AFI strategy framework to A) help their business achieve and sustain competitive parity.

B) minimize the wealth of their shareholders.

C) help reduce the economic contribution of their business.

D) explain and predict differences in firm performance.

82) According to AFI strategy framework, in which of the following tasks of strategic

management does a firm identify the roles strategic leaders play?

A) strategy management B) strategy analysis C) strategy design D) strategy implementation

83) In the AFI strategy framework, strategy analysis primarily involves A) evaluating the effects of internal resources and core competencies on a firm’s

potential to gain and sustain a competitive advantage.

B) designing a business, corporate, and global strategy to gain and sustain a competitive advantage.

C) organizing a firm in order to effectively put the formulated strategy into practice.

D) deciding the type of corporate governance that would be most effective in the implementation of a strategy.

84) You are the manager in charge of setting the strategy for a new fast-casual restaurant. Which

of the following questions would be appropriate for you to ask during the analysis phase of the AFI strategy framework?

A) Should we open our first location in Los Angeles or New York City?

B) How have consumer preferences in the fast-casual restaurant industry changed in the last five years?

C) Should we be competing nationally or internationally?

D) Can we secure relationships with enough organic farmers to meet our commitment to using the healthiest ingredients?

85) Which of the following stages in the AFI strategy framework involves designing a business,

corporate, and global strategy?

A) strategy control B) strategy implementation C) strategy analysis D) strategy formulation

86) Putting the formulated strategy into practice through organizational structure, culture, and

controls is accomplished in which stage in the AFI strategy framework?

A) strategy formulation B) strategy implementation C) strategy examination D) strategy appraisal

87) During strategy implementation, managers primarily focus on deciding the A) type of corporate governance that is most effective and ways in which it can put the

formulated strategy into practice.

B) industries and markets the firm should compete in to be able to gain and sustain a competitive advantage.

C) relationship between competitive advantage and firm performance.

D) role strategic leaders should play in gaining and sustaining a competitive advantage.

88) Which of the following provides an example of what AFI strategy framework is used for?

A) Using AFI, the Quest Auto firm was able to implement a strategy that produced high-

quality cars more efficiently and thereby reduced costs.

B) Using AFI, the Fine Dine Restaurant Group was able to improve employee benefits

and thereby increase employee loyalty.

C) Using AFI, the Mossimo Apparel Company was able to implement a strategy that allowed them to give more money to charities and thereby gain good press.

D) Using AFI, the Pure Tea Group was able to reduce the pollution it caused while processing tea and thereby receive an award.

89) Which question is asked during the implementation stage of the AFI strategy framework?

A) Where should the firm compete in terms of geography?

B) How does the firm anchor strategic decisions in business ethics?

C) Should the firm use cost leadership?

D) How do we create share value?

90) While creating its AFI strategy framework, Bethany Consultants decided what markets the

firm should compete in. By doing this, what type of strategy did the company devise?

A) business strategy B) corporate strategy C) global strategy D) ethical strategy

91) During an AFI planning session, the strategic leaders of the Buckaroo Trucks Corporation cut

overhead costs by placing various stages of production in different countries. By doing this, the firm addressed which of the following issues?

A) philanthropic strategy B) business ethics C) corporate governance D) organizational design

92) Which is an accurate statement about the tasks of the AFI strategy framework?

A) Formulation and implementation often overlap, but analysis is usually done

separately.

B) They are distinct phases of the strategy process that happen separately.

C) They are highly interdependent and frequently occur simultaneously.

D) Analysis and formulation often overlap, but implementation is usually done separately.

93) What are the elements of a good strategy? Briefly explain how they are accomplished.

94) Define and elaborate on competitive advantage.

95) How is competitive advantage different from competitive parity?

96) What is the relationship between economic contribution and competitive advantage?

97) Why should firms in the same industry choose distinct but different strategic positions?

98) What are the three broad tasks of the AFI strategy framework? Explain each task.

99) Briefly discuss how not to define strategy and the main mistakes that managers make when

creating their strategy.

100)

Discuss the importance of creating an overall stakeholder strategy opposed to just catering to stockholders.

101)

What are the three crucial stakeholder attributes? Briefly describe each one.

102)

Who are a firm’s stakeholders?

103)

A firm is embedded in a multifaceted exchange relationship with a number of diverse internal and external stakeholders. Elaborate on this statement and provide multiple examples of the exchange relationship between a firm and its stakeholders, including what each party contributes.

104)

What is meant by corporate social responsibility (CSR)?

105)

Discuss the pyramid of corporate social responsibility (CSR).

Answer Key Test name: Chapter 1 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) FALSE 8) TRUE 9) A 10) D 11) C 12) C 13) A 14) D 15) C 16) B 17) A 18) B 19) A 20) A 21) A 22) D 23) B 24) C 25) D 26) B 27) D 28) D 29) B 30) D 31) C 32) A 33) C 34) B 35) C 36) A 37) D

38) B 39) C 40) B 41) A 42) B 43) C 44) C 45) D 46) A 47) A 48) B 49) D 50) B 51) C 52) B 53) A 54) C 55) B 56) C 57) B 58) D 59) A 60) D 61) C 62) A 63) D 64) A 65) B 66) A 67) B 68) D 69) D 70) A 71) B 72) C 73) D 74) D 75) C 76) C 77) D

78) C 79) A 80) B 81) D 82) B 83) A 84) B 85) D 86) B 87) A 88) A 89) B 90) B 91) D 92) C 93) Short Answer 94) Short Answer 95) Short Answer 96) Short Answer 97) Short Answer 98) Short Answer 99) Short Answer 100) Short Answer 101) Short Answer 102) Short Answer 103) Short Answer 104) Short Answer 105) Short Answer

Chapter 2: Strategic Leadership: Managing the Strategy Process Student name: 1) Executives whose visions and decisions help their companies achieve competitive advantage

can be considered strategic leaders. ⊚ true ⊚ false

2) Strategic leaders spend the majority of their time working alone to devise new strategies. ⊚ true ⊚ false

3) The upper-echelons theory favors the idea that effective strategic leadership results from

innate abilities rather than learning. ⊚ true ⊚ false

4) It is helpful to break down strategy formulation and strategy implementation into five distinct

areas. ⊚ true ⊚ false

5) Because environments are always dynamic, all organizations will encounter a strategic

inflection point. ⊚ true ⊚ false

6) A surprise event that leads to a change in strategic initiatives, such as the accidental

discovery of a new use for an existing product, is known as serendipity. ⊚ true ⊚ false

7) A firm’s resource-allocation process (RAP) has very little effect on its realized strategy. ⊚ true ⊚ false

8) Core values provide ethical guidelines for how individual employees will behave. ⊚ true ⊚ false

9) Managers should create two sets of core values: one for employees and one for themselves. ⊚ true ⊚ false

10) System 2 thinking is fast, unconscious, and automatic; it is the brain’s default mode. ⊚ true ⊚ false

11) Strategy formulation concerns where and how to compete, whereas strategy implementation

concerns organizing, coordinating, and integrating how work gets done. ⊚ true ⊚ false

12) A vision describes in broad, inspirational terms what an organization hopes to accomplish in

the future. ⊚ true ⊚ false

13) A mission describes how a firm will accomplish the broad goals set out in a vision statement. ⊚ true ⊚ false

14) Customer-oriented vision statements are better suited than product-oriented vision statements

for helping companies to adapt to changing environments. ⊚ true ⊚ false

15) Gina is the founder and CEO of a successful technology firm. In a memo, she informs the

company’s employees that remote workers will be required to attend onsite teambuilding events at least once per quarter. In this example, Gina’s authority to institute a policy change is based on A) strategic leadership.

B) informal power.

C) position power.

D) strategic initiative.

16) Rayya is exploring multiple suppliers in order to find the best price. However, instead of

calling all seven potential suppliers, he only reaches out to the first four and bases his selection on those instead of contacting all suppliers. Rayya’s action best describes the concept of A) satisficing.

B) optimal decision making.

C) the illusion of control.

D) escalating commitment.

17) Hanna, the owner of GT Trading Inc., is engaged in the strategy formulation stage. She has

already allocated a significant sum of money to upgrade the company’s communication network (sunk costs) but has failed to see any positive outcomes. Given the money she has already spent, she feels she needs to recover those costs and moves forward with the communications upgrade even though the outcome does not seem promising. This best illustrates the concept of A) escalating commitment.

B) optimal decision making.

C) cognitive limitations.

D) the illusion of control.

18) Jennifer was just named the CEO of a pen company called National Pens Inc. She

immediately changed the name to “Jenn’s Pens.” When asked why she made this change by the board of directors, who showed research that there was no correlation between success and CEO names, she responded by saying, “my previous company had the name of their CEO in the title, and they were very successful.” This fallacy on Jenifer’s part reveals her A) confirmation bias.

B) optimal decision making.

C) escalation of commitment.

D) groupthink.

19) Which of the following strategy plans might work best in an industry that is considered a

fast-changing environment with new laws going into effect regularly?

A) scenario planning B) top-down planning C) bottom-up planning D) dominant planning

20) Which of the following statements best represents a customer-oriented vision?

A) “We provide solutions to streamline payroll and tax processing.”

B) “We are in the entertainment and hospitality typewriter business.”

C) “To be the top-rated dental practice in the state.”

D) “We aim to build the best child safety seats in the world.”

21) The process that describes the method by which managers conceive of and implement a

strategy that can lead to a sustainable competitive advantage is called A) strategic process.

B) strategic technology.

C) strategic management.

D) strategic planning.

22) Visionary companies differ from their competition in that A) employees in visionary organizations find meaning in their work and are motivated.

B) a visionary company focuses on scenario planning and future competitive threats.

C) in a visionary company it is the CEO’s managerial style that gives the company its

emergent strategy.

D) visionary companies typically emphasize measuring financial performance.

23) Organizational values help people make choices that are ethical and company-goal-oriented.

These values answer which strategic management question?

A) What do we want to accomplish as a company?

B) How do we accomplish our goals in the organization?

C) What are we about as a firm compared to our competitors?

D) What is the best way to compete in the industry?

24) Which of the following frameworks correctly identifies the three steps in the strategic

management process?

A) AFI: Analyze-Formulate-Implement B) AFE: Analyze-Formulate-Execute C) API: Analyze-Plan-Implement D) APE: Analyze-Plan-Execute

25) When start-up entrepreneurs make claims like, “We will be the Uber of X, where X is any

other category than ride hailing” or “We will be the Airbnb of Y, where Y is any other category than hospitality services” they are best illustrating which of the following cognitive biases?

A) groupthink B) escalation of commitment C) representativeness bias D) confirmation bias

26) Marta and Qing both serve as SBU managers of their divisions. They have both been asked

by the CEO to generate two different courses of action for a new product launch. This strategic decision-making technique can be described as A) dialectic inquiry.

B) group think.

C) strategic intent.

D) devil’s advocacy decision framework.

27) Do vision statements help firms gain and sustain competitive advantage?

A) It depends, because the effectiveness of vision statements differs by type.

B) Yes, but only if the vision statements are short, concise and are well written.

C) No, vision statements do not, but mission statements do.

D) They do only if the vision statement follows the strategic management process.

28) Which of the following examples reflects the most effective vision?

A) Most employees at Enterprise Flooring want to create better flooring products than

the firm's closest competitor.

B) Many employees at Enterprise Flooring get paid well but do not feel their work is important.

C) Some employees at Enterprise Flooring do not understand the main goal of the company.

D) All employees at Enterprise Flooring are motivated to make the best flooring products on the market.

29) The Founder of Teach for America, Wendy Kopp, wants to make teaching an attractive

option for promising young professionals. Identify the phrase that represents the vision she developed for Teach for America.

A) to improve standardized test scores across the board B) to cut wasteful spending from education budgets C) to encourage parents to take a more active role in their children’s education D) to give all children in the United States the opportunity to attain an excellent education

30) The first step to gain and sustain a competitive advantage is to A) define an organization’s vision, mission, and values.

B) understand the strategies of the competitors.

C) put the guiding policies of an organization into practice.

D) develop functional and business-level strategies.

31) Agro Ecology Inc. is a company that manufactures mechanical and biological products to

support sustainable farming methods. The company envisions that sustainable farming will replace industrial agricultural practices in the near future. Which of the following statements would make an accurate vision for Agro Ecology?

A) Agro Ecology aims to make working fun and pleasurable for its employees.

B) We provide environmentally safe agricultural products by investing in research and innovation.

C) All people should have access to food and fibers produced using sustainable farming methods.

D) We make products that support environmentally conscious agriculture.

32) Home for Good is a nonprofit organization that works to place shelter animals in safe, loving

homes. The credo of the organization is “help us help vulnerable animals.” For an organization like Home for Good, which of the following statements would make an appropriate mission?

A) We help place vulnerable animals in safe, loving homes by connecting shelter and rescue agencies with vetted adopters.

B) Help us place vulnerable animals in secure and loving homes.

C) Our mission is to turn this not-for-profit organization into a for-profit organization so that the stakeholders benefit.

D) One day, all animals will have the protection of a safe and loving home.

33) Visionary companies are able to outperform their competitors because A) their vision statements are more product-oriented.

B) they provide more aspirational visions.

C) their visions are primarily financial.

D) they isolate internal stakeholders in defining their visions.

34) To be effective, firms need to A) back up their visions with strategic commitments that are costly and difficult to

reverse.

B) increase their strategic flexibility by developing product-oriented vision statements.

C) isolate top managers from the organizational values.

D) pursue visions that are exclusively financial and not aspirational.

35) Strategic commitments are actions that are A) inexpensive, long-term-oriented, and difficult to reverse.

B) inexpensive, short-term-oriented, and easy to reverse.

C) costly, long-term-oriented, and difficult to reverse.

D) costly, short-term-oriented, and easy to reverse.

36) Nuke It is a major manufacturer of microwave ovens. Which of the following statements will

best inspire the organization with a shared vision for Nuke It? A) At Nuke It, employees know that they will make a competitive wage.

B) At Nuke It, employees at all levels are motivated to make the best microwave ovens on the market.

C) At Nuke It, employees want to create a cheaper microwave oven than our closest competitor does.

D) At Nuke It, employees can trust our managers to steer the company.

37) Which of the following summarizes the difference between a firm’s vision and mission?

A) A vision states what a firm wants to accomplish; a mission states how a firm plans to

accomplish this vision.

B) A vision states the ethical values of a firm; a mission states the monetary goals of a firm.

C) A vision states how much a firm wants to earn; a mission states how these earnings will be accomplished.

D) A vision states the management values of a firm; a mission states the values of the other workers.

38) Deep Earth Gardening has a vision of helping every American learn how to grow their own

food. Its management team recently unveiled the mission statement “A garden at every home.” What is wrong with this mission statement?

A) It does not indicate how the company will accomplish its goals.

B) It does not include a stretch goal.

C) It is not inspirational and motivating for employees.

D) It is too specific.

39) Upper management at ComfyShoe Inc., a manufacturer of insoles for shoes, wants to work

on improving the product lines it already has without taking on other challenges at this time.

Which of the following vision statements reflects that goal?

A) ComfyShoe Inc. wants to adapt their insoles to the changing demands of consumers.

B) ComfyShoe Inc. wants to always satisfy the consumers who purchase insoles.

C) ComfyShoe Inc. wants to provide the best benefits for employees in the insole industry.

D) ComfyShoe Inc. wants to be the best manufacturer of insoles in the industry.

40) A customer-oriented vision statement focuses employees to think about how best to A) make a product easier to use.

B) increase their efficiency to benefit consumers.

C) improve a popular product.

D) solve a problem for a consumer.

41) Why is it better for firms to keep their vision statements customer-oriented rather than

product-oriented?

A) Customer-oriented visions tend to have a more short-range view of changing environments.

B) Customer-oriented visions tend to have a more myopic view of changing environments.

C) Customer-oriented visions tend to be more flexible when adapting to changing environments.

D) Customer-oriented visions tend to be more stable when dealing with changing environments.

42) Which of the following statements about product-oriented visions is true?

A) They tend to force managers to take a myopic view of the competitive landscape.

B) They allow companies to effectively adapt to changing environments.

C) They define a business in terms of providing solutions to customers.

D) They allow firms to set goals that focus primarily on filling the organization’s needs.

43) First Pharma Inc. and GeoVax Inc. are two competing firms in the pharmaceutical industry.

While First Pharma Inc.’s vision is “to be a preeminent drug manufacturer in the industry,” GeoVax Inc.’s vision is “to make good health a reality for everyone around the world.”

Which of the following is an implication of these different visions?

A) GeoVax Inc.’s vision is more product-oriented than the vision of First Pharma Inc. B) First Pharma Inc. is more likely to have a positive relationship between its vision and firm performance than GeoVax Inc. C) First Pharma Inc.’s vision is more long-term and futuristic than GeoVax Inc.’s vision.

D) GeoVax Inc. will be more flexible than First Pharma Inc. when adapting to changing environments.

44) Which of the following vision statements is most likely to produce a sustainable competitive

advantage for a boat dealership?

A) to generate the highest revenues of any dealership in the region B) to sell only the highest-rated luxury boats C) to open dealerships across the country D) to help our customers find the perfect boat for their individual needs

45) A positive relationship between vision statements and firm performance is more likely to

exist when A) visions are product-oriented.

B) internal stakeholders are isolated from defining and revising the visions.

C) organizational structures are aligned with the firm’s vision statement.

D) vision statements are equivalent to listening to the customers.

46) Total Coverage, an insurance brokerage firm, has experienced a 6 percent decline in revenues

in consecutive quarters. To lower operating costs, managers reduced the customer service staff from 20 employees to 13. Management also enlisted the remaining employees to help produce a new company vision: to give customers of all budgets a customized package of policies to meet all their insurance needs. What is wrong with this scenario?

A) Total Coverage’s vision is not customer-oriented.

B) Internal stakeholders were not invested in defining the vision.

C) Total Coverage’s organizational structures do not align with the vision.

D) Total Coverage’s vision is not aspirational.

47) Which of the following is an example of a business acting upon an organizational core value?

A) Emerald Autos reduces engine emissions below federal guidelines to reduce

pollution.

B) Emerald Autos lowers its retail prices to gain an advantage over its closest competitor.

C) Emerald Autos finances research for developing more powerful engines.

D) Emerald Autos launches an ad campaign that promotes the company as being environmentally friendly.

48) How do strong ethical values benefit a firm?

A) They lay the groundwork for a quick increase of profits and short-term success.

B) They serve as the guardrails put in place to keep the company on track when pursuing

its mission.

C) They provide strong public relations, which can either benefit or hinder competitive advantage.

D) They emphasize benefiting stakeholders by significantly increasing profit.

49) Progress Apparel’s core value statement reads we will ensure our clothing is made with the

highest respect toward human rights and environmental protection. Which of the following actions exemplifies how Progress’s core values drive its strategic decision making?

A) demanding that textile suppliers pay livable wages and maintain safe production facilities B) introducing an online customer service unit to keep customers happy C) investing in more efficient machinery to reduce costs and lower prices for consumers D) purchasing a full-page advertisement in a major newspaper touting the company’s values

50) The management of Venture Manufacturing showed a commitment to

by increasing the salary of many female employees to meet its goal of having equal pay for comparable work regardless of gender.

A) scenario planning B) upper-echelons theory C) product-oriented vision D) organizational core values

51)

are best described as the ethical standards and norms that govern the behavior of individuals within a firm.

A) Job descriptions B) Customs duties C) Corrective controls D) Organizational core values

52) When are employees likely to fail to adopt the organizational values of a firm?

A) when the internal stakeholders of the firm are involved in designing the values B) when the top managers in the firm are merely paying lip service to the firm’s stated

values C) when the strategic leaders in the firm propagate and exhibit the same values D) when the organizational structure, such as its strategic decision making, is aligned with its values

53) Organizational values help individuals make choices that are A) legal but unethical.

B) both illegal and effective.

C) both ethical and effective in advancing a company’s goals.

D) ethical but ineffective in achieving long-term success.

54) As the CEO of a conglomerate, Sarah exhibited her strong commitment toward the

company’s core value that customers’ well-being is more important than profit when she convinced the board of directors to liquidate the company’s pesticide subsidiary. The pesticide brand sold by her company was a major revenue earner in lesser-developed nations, but studies indicate that it is a carcinogen. Sarah persuaded the board that the company had to be responsible toward society. In this scenario, Sarah has demonstrated A) strategic leadership.

B) intrapreneurship.

C) Machiavellianism.

D) individualism.

55) Strategic leadership refers to the use of power and influence by

activities of others when pursuing an organization’s goals.

A) production workers B) lower-level managers C) external stakeholders D) corporate executives

to direct the

56) Maria is the chief operating officer of the start-up Apps4U. In which of the following

scenarios does Maria exhibit strategic leadership?

A) Maria directs the company to produce an app for reptile enthusiasts, a community she happens to be a part of. Even though the app ends up losing significant amounts of money, Maria is proud of the product and uses it every day.

B) Citing budget concerns, Maria ignores the directions from Apps4U’s CEO to double the size of the customer support staff. As a result, the company misses its third quarter customer satisfaction target but exceeds its net profit expectations by 5 percent.

C) Maria schedules a meeting with the manager of the marketing department and overcomes his skepticism about a new campaign aimed at customers in the 55+ age group. Over the next three months, Apps4U gains 250,000 new users in that group.

D) With a major pitch to potential investors coming up, Maria works alone for 10 hours a day until she writes the perfect sales pitch. Even though the rest of her team doubts that they can meet the performance goals Maria has set, she makes the presentation anyway.

57) The CEO of EveryCar was the child of parents who had difficulty making enough money to

support their family. As a result, he and his siblings did not have access to many advantages that children from wealthier families had. This CEO, therefore, emphasized making affordable, low-maintenance vehicles that could be bought by low-income households.

Which of the following does this example demonstrate?

A) dominant strategic planning B) Level-5 leadership pyramid C) upper-echelons theory D) scenario planning

58) Pablo is part of a sales team. He effectively coordinates his tasks with others in the team and

willingly contributes to their efforts in achieving the team’s objectives. Thus, Pablo is in of the Level-5 leadership pyramid.

A) Level 5 B) Level 4 C) Level 3 D) Level 2

59) Malik has been an employee with Terrific Tools for 17 years. He started with an entry-level

job, and today he is a manager of an entire product division. Over the years, Malik has acquired a reputation for doing the right things in the company. Hence, as an efficient leader, he is capable of effectively communicating and motivating his subordinates to work toward the company’s vision and mission. According to the Level-5 leadership pyramid, which is the highest level of leadership Malik has reached so far?

A) Level 5 B) Level 4 C) Level 3 D) Level 2

60) Which of the following best describes a Level 5 manager in the Level-5 leadership pyramid?

A) Parvati is an employee who just started her career at TechnoApp Inc.; she has already

been appreciated in the company for her knowledge and skills.

B) Desiree is the CEO of Pelletier LLC.; she has helped her company gain and sustain a competitive advantage through ethical decision making.

C) Jory is an employee at Futuro Inc.; they have helped their team achieve its targets by contributing to the team’s efforts.

D) Billie is part of the marketing team at Beacon & Perez.; she has been given the charge of managing a team of five, so she will be promoted to a manager’s position next month.

61) MoreCash Inc. is a major financial services corporation. With the CEO of MoreCash Inc.

preparing to retire, several top managers are vying for the position. Jared considers himself to be a leading candidate. He not only has advanced degrees from business schools and more than a decade of experience working for MoreCash Inc., but he also has personally ensured that his division has exceeded its performance benchmarks over the past three years, even though many of his employees are dissatisfied because they feel they are stagnating in their jobs. According to the Level-5 leadership pyramid, why has Jared failed to exhibit the qualities of a Level-5 leader?

A) His individual skills are not well developed.

B) His actions do not match the organization’s strategy.

C) He lacks the organizational ability to accomplish the organization’s goals.

D) He is not able to help others reach their full potential.

62) Which of the following summarizes the difference between corporate strategy and business

strategy?

A) Corporate strategy deals with how to compete; business strategy deals with where to compete.

B) Corporate strategy deals with when to compete; business strategy deals with how to compete.

C) Corporate strategy deals with how to compete; business strategy deals with when to compete.

D) Corporate strategy deals with where to compete; business strategy deals with how to compete.

63) Corporate executives at OverFlight Inc. decide to compete in the remote-control drone

industry by equipping their drones with the best video cameras available. By doing this, they completed part of their strategy.

A) corporate B) functional C) business D) implementation

64) The former CEO of Sam’s Club, a division with its own profit-and-loss responsibility,

Rosalind Brewer, reported to Walmart’s CEO, C. Douglas McMillon, who as corporate executive oversees Walmart’s entire operations. Sam’s Club, therefore, is a of Walmart.

A) corporate partner B) strategic business unit C) branch office D) house brand manufacturer

65) The CEO of All Star Corp. has decided to enter the markets of emerging nations like China

and Brazil. This means that the books, magazines, and websites published under the Chyron Media banner would be made available in these nations. Which of the following strategies does this scenario best illustrate?

A) corporate strategy B) functional strategy C) business strategy D) divisional strategy

66) As a part of strategy formulation, a firm’s functional strategy primarily concerns questions

relating to A) where to compete.

B) when to compete.

C) how to implement business strategy.

D) how to enter target markets.

67) In a large company, who is most responsible for devising the corporate strategy?

A) the CEO of the company B) the lower-level employees in the company C) the head of the production department in the company D) the human resource manager in the company

68) Which of the following statements is true of business strategy?

A) Its objective is to increase the overall company value to make it higher than the sum

of the individual business units’ value.

B) It must be able to create synergies across business units that are quite different.

C) It is implemented within the standalone business units of a larger conglomerate.

D) Corporate executives at headquarters formulate it.

69) All Foods is the parent company of several chain restaurants offering a variety of cuisines.

The top management at All Foods has decided to enter the frozen foods industry based on its assessment of the profit potential in that industry. Which of the following strategies does this best illustrate?

A) corporate strategy B) business strategy C) functional strategy D) divisional strategy

70) Due to political instability in the country of Bajukistan, the strategic leaders at the

headquarters of Maxim Industries have decided to close all production facilities in the country until stability returns. Maxim’s managers have formulated a strategy.

A) business-level B) divisional-level C) functional-level D) corporate-level

71) Who among the following is responsible for making business strategies in a large

conglomerate?

A) the board of directors at the headquarters B) the shareholder of the company C) the lower-level employees in the company D) the general managers of strategic business units

72) Meiko has been tasked with formulating the business strategy for LaFrance Beauty’s new line

of skin rejuvenating cream. Which of the following ideas would Meiko be likely to include in her proposal?

A) Open kiosks in shopping centers located in developing countries with rising disposable incomes.

B) Promote the cream as the only one on the market with a new miracle enzyme.

C) Invest in increasing social media posts about LaFrance products.

D) Reorganize the manufacturing division to gain efficiency.

73) EverMart Inc. is a large company that sells a variety of products such as cosmetics, jewelry,

frozen foods, navigation electronics, and airplanes. Apart from this, the company also has a strong presence in the service industry through its chain of dance studios, casinos, and nightclubs. Each of its product divisions operates as an individual business and is responsible for its own profits and losses. Thus, these product divisions under EverMart can be referred to as A) limited liability companies.

B) functional departments.

C) strategic business units.

D) corporations.

74) Which of the following strategies best illustrates a generic business strategy?

A) a cost-cutting strategy that corporate executives in the headquarters want all business

units of a large conglomerate to implement B) a strategy to use monetary incentives to motivate employees working on a project C) a decision to computerize a firm’s database in order to improve customer service D) a decision to niche market the jewelry sold by a company while the apparel division under the same company sells its products through mass marketing

75) TransNational Inc. is a large conglomerate that operates in 17 different countries. The

corporate executives at the headquarters have decided that the company’s objective for the next two years will be to increase its customer equity, or the value of potential future revenues generated by all its customers in a lifetime. Based on this guideline received from the top management team, the product leader of the home audio division has decided to adopt a cost-leadership strategy in all of his 17 units. Thus, the decision made by the product leader best illustrates a strategy.

A) corporate B) functional C) grand D) business

76) To implement specific business strategies, general managers of strategic business units rely

on A) B) C) D)

external stakeholders. corporate executives. strategic leaders. functional managers.

77) Strategies developed at the departmental level, such as the customer service, human

resources, procurement, and sales departments, within a strategic business unit are referred to as strategies.

A) professional B) functional C) corporate D) business

78) The distribution department at Wheat, Barley and Whey Corp. has decided to adopt the FIFO

(first in, first out) method of inventory to dispatch its bags of wheat. Which of the following strategies does this scenario best illustrate?

A) functional strategy B) corporate strategy C) master strategy D) business strategy

79) What is the strategic management process?

A) The CEO decides who the product managers will be for a company.

B) The CEO defines the main problems facing a company.

C) Strategic leaders design a method to formulate and implement strategy.

D) Strategic leaders focus on creating a vision that reflects the company’s strategy.

80) In the top-down strategic planning approach, all strategic intelligence and decision-making

responsibilities rest primarily on the A) functional managers.

B) chief executive officer.

C) external stakeholders.

D) general manager.

81) A traditional top-down strategic planning process typically begins with A) employees at the operational level identifying problems within an organization.

B) functional managers formulating functional strategies for their respective

departments.

C) strategic leaders adjusting a company’s vision and mission based on environmental analysis.

D) employees who have close contact with customers taking autonomous actions.

82) Which of the following is an assumption that top-down strategic planning rests on?

A) We can predict the future from the past.

B) Time cannot be compressed at will.

C) Decisions made in the past do not affect our future.

D) Change is constant.

83) Chandani is the founder of a firm producing self-driving vehicles. Because the industry is so

new and chaotic, Chandani favors a top-down strategic planning approach in which she exerts strong control over all aspects of the business, from product development and design to manufacturing and marketing. What is wrong with this scenario?

A) The self-driving vehicle industry is changing too much for the top-down approach to be effective.

B) The top-down approach can only be applied to specific business functions.

C) The top-down approach leaves other employees uncertain about their roles in the company.

D) The top-down approach is expensive to maintain, leaving the company at a competitive disadvantage.

84) The executives at Dizzy Corp. are developing strategic plans to address plausible future

situations like an increase in the prices of cotton and synthetic fabrics by 20 percent, appreciation in the value of the dollar, increase in the cost of labor by 30 percent, and increase in demand for the company’s products. By doing so, the company will be well prepared with its planned responses if any of these situations occurs in the future. Thus, Dizzy Corp. is employing as the approach to the development of strategy.

A) scenario planning B) top-down strategic planning C) reverse engineering D) pattern recognition

85) A(n)

is best described as the strategic option that top managers decide most closely matches the current reality and which is then executed.

A) bottom-up emergent strategy B) executive summary C) realized strategy D) dominant strategic plan

86) Strategic thinking is different from strategic planning in that A) strategic thinking relies more on hard data and statistical analysis than strategic

planning.

B) strategic thinking includes all types of information sources while strategic planning does not.

C) strategic thinking is regimented and confining, whereas strategic planning is more flexible.

D) strategic thinking can create an illusion of control, whereas strategic planning avoids this.

87) After carefully assessing the market potential for solar-powered mobile devices, the top-level

executives of We Know Inc. decided that the company would be launching a line of solarpowered tablets within the next two years. This would mean that the tablet division would need to immediately begin research and development efforts. Which of the following strategies in the planned emergence model does this best illustrate?

A) intended strategy B) emergent strategy C) unrealized strategy D) tactical strategy

88) Suzi Lau Apparels Inc. (SLA) had been outsourcing its production to less-developed

countries in order to reduce its cost of production. With the emergence of its competitor, Linda Inc., SLA lost its competitive advantage. Linda had its production units in its home country that allowed the company to bring out the latest trends to the market earlier than SLA. Also, SLA frequently suffered due to political instability and lack of intellectual property laws in the outsourced countries. Thus, parts of SLA’s strategies became obsolete, and it had to relocate its production. What are such obsolete strategies referred to as in the planned emergence model?

A) intended strategy B) emergent strategy C) unrealized strategy D) tactical strategy

89) The production head at the All Paints Corp. would frequently stay back after office hours and

experiment with new color combinations even though this was part of the new product development team’s job. As a result of these experiments, he came up with two new interior paint colors, foggy morning and mint julep. The new colors proved popular among test groups, and quickly became some of All Paints best-selling products. Which of the following strategies does this scenario best illustrate?

A) intended strategy B) emergent strategy C) unrealized strategy D) tactical strategy

90) The CEO of an app company encourages the firm's employees to suggest possible apps that

could be useful in their favorite activities. One of the firm's software designers is inspired by her love of knitting to propose an app that will allow users to photograph an item of clothing, enter their measurements, and then receive a customized knitting pattern. The firm's policy of asking for employee product ideas is best described as a A) strategic initiative.

B) value chain.

C) supply chain.

D) corrective action.

91) Which of the following statements is true of strategic initiatives?

A) Strategic initiatives can be the result of a response to external trends or come from

internal sources.

B) When lower-level employees are less empowered, the possibility of strategic initiatives is higher.

C) Strategic initiatives result from top-down planning by executives and not through a bottom-up process.

D) Random events and accidental happenstances reduce the possibility of strategic initiatives in organizations.

92) Homestyle is a company that manufactures and sells home furniture. It sources its materials

from another country to keep costs low. An assembly line worker in one of its manufacturing centers noticed that there was increasing concern regarding the potential toxicity of the flame-resistant materials used in the furniture. In response, she compiled a list of nontoxic flame-resistant materials that the company could use. When her manager learned about this, he presented the prospect and got it approved from the top management team. This is an example of the A) top-down strategic planning approach.

B) planned emergence approach.

C) scenario planning process.

D) reverse engineering process.

93) To support the rise of emergent strategies, an organization should A) centralize decision making and all other activities.

B) empower lower-level employees to take up autonomous actions.

C) limit serendipity that is in the form of random events and accidental happenstances.

D) rely solely on hard data to formulate strategies.

94) Chris is the manager of a graphic design firm, and he relies on a top-down strategic

management approach to maintain tight control over the activities of his employees. The company has recently started to lose market share to its more innovative competitors, and Chris wants to encourage his employees to start contributing to the strategy formulation process to make the company more competitive. Which of the following steps should Chris take?

A) Designate Friday afternoons as time for employees to pursue outside interests loosely related to the business.

B) Schedule individual meetings with employees and demand that they come prepared with five ideas.

C) Take an extended vacation and see how the business naturally reorganizes itself in his absence.

D) Allow employees to take whatever approach they feel is appropriate when dealing with customers.

95) Understanding the Resource Allocation Process (RAP) will have large effects on shaping a

firm’s realized strategy. Which of the following is an example of such an allocation of resources?

A) Starbucks’ launch of iced drinks B) Teach for America’s mission statement C) 3M's discovery that led to Post-it Notes D) Intel’s rule to “maximize margin-per-wafer-start”

96) Top-down strategic planning as an approach to the strategic management process will be

most effective when the A) environment is constantly changing.

B) size of the firm is large.

C) probability of black swan events is high.

D) top management wants to decentralize decision making.

97) The COVID-19 pandemic, the BP oil spill, and the 9/11 terrorist attacks are examples of A) black swan events.

B) boiling frog scenarios.

C) camel’s nose opportunities.

D) purple squirrel discoveries.

98) Leary’s Shoes has sold and repaired shoes and leather goods in a shop in the mall since 1963.

For decades, the shop flourished, particularly during holiday shopping seasons when the mall was crowded with shoppers. Ros Leary, the founder’s daughter, assumed management of the store when her father retired in the late 1990s. Unphased by the introduction of online shopping and shoe services, Ros believed her customers preferred personal service and would continue buying their shoes in person. However, year by year, the store’s sales and profits fell, even when Ros lowered prices, expanded her offerings, and held special sales promotions. What situation describes the contradiction between Ros’s beliefs about the shoe business and the evidence she is experiencing?

A) dialectic inquiry B) devil’s advocacy C) strategic dissonance D) serendipity

99) What happens when a firm fails to successfully navigate a strategic inflection point?

A) self-reinforcing failure B) illusion of control C) dialectic inquiry D) planned emergence

100)

What is the importance of the dissonance gap when a firm encounters a strategic inflection point?

A) The smaller the dissonance gap, the more likely the firm will experience selfreinforcing failure.

B) The greater the dissonance gap, the more difficult it is for the organization to change course.

C) It measures the length of time organizational leaders have to respond to the strategic inflection point.

D) It measures the lag between the strategic inflection point and its negative financial impact.

101)

102)

What is a strategic inflection point?

A) the step at which two alternate plans of action are synthesized and a new plan adopted B) the recognition that a firm’s current strategy no longer provides the expected outcomes C) the moment when the fundamentals of a business and its industry are about to change D) a random event or pleasant surprise that has a profound impact on a firm’s strategic plan

Which of the following answers best explains why addressing strategic inflection points is a difficult leadership challenge?

A) Top-management opinions have coalesced around a leader without individuals critically evaluating and challenging the leader’s opinions and assumptions.

B) It calls for a blended strategy in which organizational structure and systems allow both top-down and bottom-up strategic initiatives to emerge for evaluation and coordination.

C) It requires fundamental changes to the firm’s strategy, and leaders are often late in comprehending that their belief system is no longer a good fit with the new circumstances.

D) It requires an approach derived from military strategy in which all strategic intelligence and decision-making responsibilities are concentrated in the office of the CEO.

103)

At a strategic inflection point, the more the convictions of strategic leaders deviate from reality, A) the more difficult it is to change course.

B) the more likely it is the firm will be successful.

C) the easier it is to capitalize on the opportunity.

D) the smaller the dissonance gap.

104)

Colton is exploring multiple suppliers in order to find the best price. However, instead of calling all eight potential suppliers, he only reaches out to the first three and bases his selection on those instead of contacting all suppliers. Colton's action best describes the concept of A) satisficing.

B) optimal decision making.

C) the illusion of control.

D) escalating commitment.

105)

Constraints such as time or the brain’s inability to process large amounts of data that prevent us from appropriately processing and evaluating each piece of information we encounter are known as A) strategic limitations.

B) confirmation biases.

C) cognitive limitations.

D) cognitive biases.

106)

Friendly’s was a popular restaurant chain that served breakfast all day and specialized in classic, homestyle meals. This menu attracted customers of all ages, from retirees to families with young children. Greta Friend, the CEO of the company, wanted to increase profits, so she instructed her executive team to update the menu, refashion the décor, and appeal to upscale professionals. Knowing her success at building the Friendly’s brand, the team trusted her ability to define Friendly’s strategy and praised her innovative concepts for updating the brand. Among the changes, the new menu replaced the all-day breakfast with alcoholic drink specials, and metal bistro tables replaced the cozy, high-backed booths. Sales decreased dramatically after the innovations were introduced, and many longtime customers stopped coming to the restaurant. What cognitive bias led the management team into making these decision-making errors?

A) confirmation bias B) reason by analogy C) escalation of commitment D) groupthink

107)

Two product development teams at NextTech Inc. are using a devil’s advocacy decision framework to make strategic decisions regarding rollout of the company’s new products.

Team 1 favors introducing new products only in the spring and fall. Team 2 questions the assumptions behind the timing of product rollout and points out things that might go wrong.

What will happen in the final step of the process?

A) The teams will agree on a course of action.

B) Each team will pursue one of the options.

C) A synthesis of the two plans will be adopted.

D) The teams will critique each other’s plans.

108)

The two detailed courses of action generated in Step 1 of the dialectic inquiry decision framework are known as A) System 1 and System 2.

B) thesis and antithesis.

C) assonance and dissonance.

D) point and counterpoint

109)

Which of the following is a decision framework in which two teams each generate a detailed but alternate plan of action, with a goal, if feasible, of achieving a synthesis between the two plans?

A) decision tree B) DACI model C) dialectic inquiry D) devil’s advocacy

110)

Define strategic leadership.

111)

Explain the role of power in the strategic leadership process.

112)

What does the upper-echelons theory propagate?

113)

Briefly describe the Level-5 leadership pyramid.

114)

Who formulates a company’s corporate strategy? What is the objective of this strategy?

115)

What is a strategic business unit (SBU)? Explain with an example.

116)

What is the drawback in top-down strategic planning?

117)

What makes scenario planning more flexible than top-down strategic planning?

118)

What are the arguments against top-down strategic planning and scenario planning?

119)

Differentiate between a firm’s intended, realized, and emergent strategies.

120)

Why is it important for a business to have a vision?

121)

How does a mission statement differ from a firm’s vision?

122)

What are customer-oriented vision statements? Explain with the help of an example.

123)

Why is it better for firms to keep their vision statements customer-oriented rather than product-oriented?

124)

Define organizational core values with the help of an example.

125)

What functions do strong ethical values serve?

126)

Why is it important for top management of a company to show commitment and involvement toward organizational values?

127)

Why is addressing strategic inflection points a difficult leadership challenge? Describe two difficulties faced by leaders confronted with this challenge.

128)

Define cognitive biases, and then give an example of a cognitive bias and how it can affect decision making.

129)

Describe the key characteristics of System 1 and System 2 thinking and briefly discuss how these two systems affect decision making.

130)

Describe devil’s advocacy and dialectic inquiry as frameworks for strategic decision making.

Answer Key Test name: Chapter 2 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) C 16) A 17) A 18) A 19) A 20) A 21) C 22) A 23) B 24) A 25) C 26) A 27) A 28) D 29) D 30) A 31) C 32) A 33) B 34) A 35) C 36) B 37) A

38) A 39) D 40) D 41) C 42) A 43) D 44) D 45) C 46) C 47) A 48) B 49) A 50) D 51) D 52) B 53) C 54) A 55) D 56) C 57) C 58) D 59) B 60) B 61) D 62) D 63) C 64) B 65) A 66) C 67) A 68) C 69) A 70) D 71) A 72) B 73) C 74) D 75) D 76) D 77) B

78) A 79) C 80) B 81) C 82) A 83) A 84) A 85) D 86) B 87) A 88) C 89) B 90) A 91) A 92) B 93) B 94) A 95) D 96) B 97) A 98) C 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B C C A A C D A B C Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130)

Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

Chapter 3: External Analysis: Industry Structure, Competitive Forces, and Strategic Groups Student name: 1) The stronger the five forces, the lower the industry’s ability to earn above-average profits and

gain and sustain a competitive advantage. ⊚ true ⊚ false

2) A key feature of an oligopoly is that competing firms are interdependent. ⊚ true ⊚ false

3) For-profit businesses operating in long-standing fields such as energy and transportation

usually operate in an environment of price stability. ⊚ true ⊚ false

4) Office Homie Inc. wants to become the largest and most profitable office chair supplier in a

three-state area. To do this, Office Homie should try to create the largest possible difference between the value that its office chairs create and the expense that the company must spend to produce the chairs. ⊚ true ⊚ false

5) A small used tire shop faces significant potential competition because of the low capital

requirements compared with business environments such as universities and laboratories. ⊚ true ⊚ false

6) Federal and regional laws prevent incumbent firms from dramatically lowering prices or

otherwise retaliating when a new entrant joins an industry. ⊚ true ⊚ false

7) Because competitors in oligopolistic industries are so independent, it is not very important

for strategic leaders in those firms to monitor and respond to changes their competitors make. ⊚ true ⊚ false

8) A video-streaming service provider such as Amazon Prime is a complement to a

manufacturer of streaming video devices such as Roku and the Amazon Firestick. ⊚ true ⊚ false

9) A company that owns failing movie theaters could leverage existing assets by turning the

buildings into private schools. ⊚ true ⊚ false

10) When smartphone manufacturers began including cameras and voice recorders in their

products, that was an example of switching costs. ⊚ true ⊚ false

11) A local manufacturer that wants to be a global manufacturer faces few mobility barriers

because it has not yet invested in supply chains, which can become outdated and expensive. ⊚ true ⊚ false

12) Firms within the same industry automatically belong to the same strategic group. ⊚ true ⊚ false

13) In recent years a growing number of U.S. consumers have become more health conscious

about what they eat. According to the PESTEL Framework this trend could best be classified as a trend.

A) sociocultural B) healthy eating C) political D) legal

14) Danish manufacturer Vestas is addressing environmental concerns regarding the burning of

fossil fuels to generate energy by building wind turbines. This best represents which of the following PESTEL categories?

A) ecological B) economic C) political D) technological

15) A firm’s is based on creating value for customers (V) while containing the cost (C).

A) strategic position B) growth strategy C) industry analysis D) co-operative strategy

16) According to Michael Porter’s five forces model,

must be viewed broadly to

encompass other forces in an industry.

A) competition B) revenue streams C) future volatility D) market share

17) According to the five forces model, the stronger the five forces, the lower the industry’s A) bargaining power.

B) profit potential.

C) economic risk.

D) monopolistic potential.

18) In nearly every case, which of the five forces is the most important in determining the

relative power structure in an industry?

A) No single force is dominant in most every case.

B) current competitors C) potential entrants D) past participants

19) Which of the five forces is Starbucks answering when it repeatedly upgrades and refreshes its

stores and offerings?

A) threat of entry B) power of supplier C) competitive rivalry D) threat of substitute products

20) WeBreak4Bikes Inc. has a new U.S.-based client in the bicycle industry. The client’s

company produces only bicycles for riding on the road. The bicycles are used for reliable general-purpose transportation. When asked to identify a potential substitute for the bicycle industry from the five forces perspective, you would select A) motorcycles.

B) hot air balloons.

C) tractors.

D) None of these are substitutes.

21) Which of the following is not captured when examining a competitive industry structure?

A) the ability to engage in forward vertical integration B) the number and size of an industry’s competitors C) the firm’s degree of pricing power D) the type of product or service (commodity or differentiated product)

22) A(n)

industry is one that is characterized by many small firms, a commodity product, and little or no ability for each firm to raise its prices.

A) monopolistically competitive B) oligopolistic C) naturally monopolistic D) perfectly competitive

23) Firms that are classified as operating in an oligopoly tend to have some pricing power if they

are able to differentiate their product or service offerings from those of their competitors, so the recommended mode of competition is A) non-price competition.

B) price-based competition.

C) hypercompetition.

D) service-based competition.

24) Which of the following would serve as a feasible option when deciding who are the players

in an established industry?

A) Focus on customers who can extract value.

B) Avoid industries with direct competitors.

C) Align the incentives of only internal stakeholders.

D) Find ways to take down a monopoly.

25)

Firms that compete within the same strategic group generally experience A) more competitive rivalry than firms outside their strategic group.

B) less competitive rivalry than firms outside their strategic group.

C) the same competitive rivalry than firms outside their strategic group.

D) no competitive rivalry because they are substitutes.

26) The PESTEL framework allows the scanning, monitoring, and evaluating of

firm’s macro environment.

A) manufacturing and distribution B) price setting and marketing C) internal and external forces D) changes and trends

in a

27) Which of the following external forces is a part of a firm’s task environment?

A) the composition of the strategic group to which the firm belongs B) the interest rates prevalent in the economy in which the firm operates C) the inflation level in the economy in which the firm operates D) the recent innovations in process technology, including lean manufacturing

28) The government of Monterro has mandated that all companies with 25 or more employees

must provide group health insurance. Which of the following factors in a firm’s general environment does this mandate best indicate?

A) ecological factors B) sociocultural factors C) technological factors D) legal factors

29) Khaled, a manager, is writing an analysis of his employer’s current and possible future

revenues. Which of the following could he identify as an economic factor in his firm’s external general environment?

A) the government regulations and laws in the country in which the firm exists B) the stage of the business cycle that the country is in C) the values and norms prevalent in the society in which the firm operates D) the bargaining power of the firm’s suppliers and buyers

30) Managers at SunTrustUs Properties are surprised to hear that interest rates are likely to

remain low for the next six months. Which of the following is an implication of low interest rates?

A) Cost of capital for firms will be high.

B) Firms will invest less in future growth.

C) Economic growth rate will fall.

D) Consumer demand will increase.

31) Roxana manages a chain of workout facilities in a tri-county area that has recently

experienced an economic boom because of the development of a new high-speed train line.

What is most likely to happen when there is too much money in the tri-county economy?

A) too many goods and services B) a drop in interest rates C) high economic growth D) an increase in prices

32) Lin manages the supply chain for a company that sells designer bags. She learns that

economists are predicting a moderate to severe recession in the next six to eight months.

Based on that information, what action should Lin recommend to the company’s owner?

A) Increase supply. During recessions, businesses that focus on low-cost solutions make significant profits.

B) Reduce supply. Customers generally reduce their purchases of luxury items when the economy falters.

C) Maintain the supply at its current rate. Economic forecasts are rarely accurate.

D) Wait six months and see what happens. Recessions rarely affect consumer spending.

33) In a firm’s external environment,

factors to consider are growth rates, interest rates, the employment level, price stability, and currency exchange rates.

A) political B) demographic C) ecological D) economic

34) Bill is researching sociocultural factors related to his employer, a sporting goods

manufacturer. Which of the following would be part of the sociocultural forces in a firm’s external environment?

A) the interest rates prevalent in an economy B) the laws protecting small enterprises in a nation C) the family size of the firm’s target market D) the rate of employee attrition within the firm

35) In 2008, BlackBerry’s market cap peaked at $75 billion. By 2017 this valuation had fallen

more than 90 percent, to $3.9 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry’s decline?

A) BlackBerry failed to offer strong security features for its device.

B) BlackBerry failed to change its device into one that could perform multiple tasks effectively.

C) BlackBerry failed to adapt to a groundswell that involved workers bringing mobile devices to work.

D) BlackBerry failed to produce an efficient emailing system using a keyboard.

36) How is a firm’s task environment different from its general environment?

A) Strategic leaders have some influence over external factors in the task environment;

they have little direct effect over external forces in the general environment.

B) Strategic leaders have no direct effect over external factors in the task environment; they have some influence over external forces in the general environment.

C) Strategic leaders have no direct effect over external factors in the task environment; they have influence over all external forces in the general environment.

D) Strategic leaders have influence over all external factors in the task environment; they have no direct effect over external forces in the general environment.

37) Which of the following is a macroeconomic factor that can affect a firm’s strategy?

A) power of buyers B) power of suppliers C) levels of employment D) threat of substitutes

38) How do high interest rates affect a business?

A) Firms tend to invest while the rates remain up.

B) Firms can easily borrow money to finance growth.

C) Consumer demand slows down.

D) Business credit is easier to obtain.

39)

factors capture a society’s cultures, norms, and values.

A) Political B) Sociocultural C) Economic D) Demographic

40) Food Shipp Inc. is a food supply company that wants to sell its products directly to

consumers through mail order instead of going through supermarkets and other stores.

However, supermarket chains want to make this transaction either illegal or more difficult for Food Shipp. To accomplish this, they are using to influence the political process.

A) ecological factors B) lobbying forces C) interest rates D) demographic research

41) A firm’s is based on creating value for customers (V) while containing the cost (C).

A) strategic position B) industry effects C) advantage of the marketplace D) industry analysis

42) The primary objective of the

industries.

A) PESTEL B) five forces C) strategic group D) structure-conduct-performance

model is to understand the profit potential of different

43) In the five forces model developed by Michael Porter,

is not defined narrowly as a firm’s closest competitors but rather more broadly to include other factors in an industry, such as buyers, suppliers, the potential new entry of other firms, and the threat of substitutes.

A) a stakeholder B) regulation C) competition D) a barrier to entry

44) Which of the following is a primary feature of the five forces model?

A) It is concerned exclusively about the intensity of rivalry among direct competitors.

B) It takes into account a firm’s internal resources, capabilities, and core competencies.

C) It helps managers determine the changing speed of an industry or the rate of

innovation.

D) It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.

45) A firm’s strategic position is likely to be strong when A) the entry barriers within the industry it operates in are low and the exit barriers are

high.

B) its suppliers and vendors can easily forward-integrate and buyers can backwardintegrate.

C) all the five forces in Porter’s model are strong.

D) the gap between the value the firm’s product generates and the cost to produce it is large.

46) During an interview for a chief executive officer position, Fatma’s potential employers ask

her, “If you get this job, will you focus more on industry effects or firm effects?” What should her answer be?

A) “Neither. I would focus on unexplained variances. They are the most mysterious effects and the most powerful.”

B) “Firm effects. I will be able to have the most impact on those.”

C) “Industry effects. They have the most substantial effect on superior firm performance.”

D) “Neither. I would focus on business cycle effects. These are the most predictable, so they are worth the most effort.”

47) Keeping in mind the five forces in the airline industry, which of the following best explains

the difficulty airlines have in generating a profit?

A) Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry.

B) Suppliers have weak bargaining power because they offer products that are not differentiated.

C) Entry barriers in the industry are high, resulting in hardly any new airlines popping up.

D) Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry.

48) Matteo is a management consultant. The leaders of Office Outfitters asks him to evaluate

their company, and he finds that the difference between the cost of producing the firm’s products and the value of those products is extremely narrow. What should Matteo suggest that Office Outfitters management do?

A) Find a way to widen the gap between cost and value.

B) Find a way to pass on as much profit as possible to suppliers and customers.

C) Shore up the company’s strong position by erecting entry barriers.

D) Encourage customers to buy complements to their products.

49) The internet service provider industry in the country of Wakanda is an industry characterized

by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the internet service provider industry, the A) threat of substitutes is most likely high.

B) threat of new entrants is most likely low.

C) bargaining power of buyers is most likely low.

D) entry barriers are most likely nonexistent.

50) A new company named ZipZip Inc. entered the motorized scooter retail business, which is a

fairly consolidated industry. In response, two large incumbent motorized scooter retailers, Vespa and Apollo, lowered the price of their scooters. Also, they spent more money to improve the features on their scooter and on additional marketing. By doing this Vespa and Apollo A) decreased industry exit barriers.

B) increased industry exit barriers.

C) decreased industry profit potential.

D) increased industry profit potential.

51) TicToc Corp. is a manufacturer of smart watches that track the wearer’s heart rate and sleep

patterns. Which of the following is most likely an implication of new firms entering this industry?

A) The bargaining power of buyers will reduce.

B) The industry’s overall profit potential and sales will increase.

C) The rivalry among existing competitors will reduce.

D) The incumbent firms will spend more to satisfy their existing customers.

52) Economies of scale are cost advantages that accrue for firms with A) high fixed costs.

B) low employee turnover.

C) larger output.

D) high capital risks.

53) Given the structure of the automobile industry, entering the auto manufacturing industry

seemed risky. Yet Tesla Motors joined the fray. Rather than attempting to compete head-on with internal combustion engines, Tesla Motors entered the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?

A) network effects B) economies of scale C) customer switching costs D) capital requirements

54) In which of the following situations is the power of suppliers high in an industry?

A) Suppliers offer products that are undifferentiated.

B) Suppliers can credibly threaten to backward integrate into the industry.

C) Suppliers depend heavily on the industry for their revenues.

D) The suppliers’ industry is more concentrated than the industry it sells to.

55) All Signal Inc., a telephone service provider, has a large user base mainly because phone

calls and messages between All Signal users are free. When people switch to an All Signals network, their entire network of family and friends is likely to switch to the same network to receive the benefit of free calls and messages. In addition, an existing user who gets a new user to register with All Signal Inc. is given a free wireless connection. This has helped to keep competition away from All Signal. In this scenario, which of the following factors is acting as an entry barrier for All Signal Inc.?

A) economies of scale B) high capital requirement C) network effects D) high fixed costs

56) Marketo Inc., a marketing firm, replaced its existing data analysis software with new

software from another supplier. Since the new software has different features and abilities, Marketo has had to spend $15,000 on training its employees to use it. In this scenario, $15,000 represents Marketo’s A) opportunity cost.

B) switching cost.

C) octroi charge.

D) excise duty.

57) In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus

are the only competitors. There is not a significant threat of entry because A) entering the aircraft manufacturing industry requires huge capital investments.

B) there is expected to be a huge return on investment within this industry.

C) there is no credible threat of retaliation from the incumbents.

D) entering the aircraft manufacturing industry means violating government policies.

58) In an industry, the threat of entry is high when A) capital requirements are low.

B) expected returns are low.

C) technological know-how is industry-specific.

D) switching costs are high.

59) How are cumulative learning and experience effects of a company most likely to affect

Michael Porter’s five forces?

A) Threat of new entrants will be low.

B) Bargaining power of suppliers will be high.

C) Availability of complements will be low.

D) Threat of substitute products and services will be high.

60) In which of the following situations is a company that exists in the telecommunications

industry most likely to face the highest threat of entry?

A) if the company is able to put up a credible threat of retaliation B) if the capital requirements in the industry are high C) if the customer switching costs in the industry are high D) if the industry has recently become deregulated

61) GoGadget Inc., a manufacturer of multiuse tools, supplies its products to Hardware Harry’s, a

home improvement retail chain. GoGadget demands that Hardware Harry’s create more shelf space in its stores for its products. However, Hardware Harry’s refuses to do this. Instead, it decides to produce its own range of multiuse tools with its own label “Harry’s Helpful Tools.” In this scenario, Harry’s Hardware has exercised its bargaining power as a buyer through A) price stability.

B) retroactive market share.

C) enhanced technology.

D) backward integration.

62) Which of the following features about a buyer indicates that the buyer has high bargaining

power?

A) B) C) D)

when the buyer cannot credibly threaten to backwardly integrate into the industry when the buyer cannot purchase specific products from other sellers when the buyer faces high switching costs when the buyer purchases inputs that are standardized or undifferentiated commodities

63) When automobile magazines face competition from automobile blogs on the web, which of

the following forces in Michael Porter’s five forces model primarily gets stronger?

A) the emergence of entry barriers B) the bargaining power of suppliers C) the availability of complements D) the threat of substitutes

64) Which of the following fundamental insights was provided by Porter’s five forces framework

from the completion of the Alta Velocidad Española (AVE)?

A) A strong threat of substitutes decreases the rivalry among existing competitors.

B) All of the five forces must work together to have a meaningful impact.

C) Any of the five forces on its own, if sufficiently strong, can extract industry profitability.

D) Competition must be defined more narrowly to remain confined to the industry’s closest competitors.

65) Which of the following factors most contributes to the U.S. automotive industry being

characterized by high entry barriers?

A) New auto companies create electric cars powered by simpler motors and gearboxes.

B) New entrants in the automotive industry expect that incumbents will not or cannot retaliate.

C) Car manufacturers require large-scale production in order to be cost-competitive.

D) Few industrial products are as easy to build as cars powered by internal combustion engines.

66) When companies that manufacture shipping containers want to buy iron ore, the purchase

decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate?

A) monopoly B) oligopoly C) perfect competition D) monopolistic competition

67) Fruit of the Sea is a company that sells lobster, shrimp, and scallops to seafood restaurants.

Because the company operates in an industry where many other suppliers sell standardized products, it can most likely A) easily achieve a temporary competitive advantage.

B) easily achieve a sustainable competitive advantage.

C) only achieve competitive parity.

D) maintain its absolute advantage for long time.

68) Lucas runs a company that manufactures satellites for commercial and government use. It has

few rivals. At the moment, the power of buyers, the power of suppliers, and the threat of substitutes are all low. Based on this information, what can Lucas conclude?

A) The manufacturer is likely to see little profit until the power of buyers improves.

B) In this scenario, suppliers are likely to create and sell effective substitutes.

C) This firm is an example of near-perfect competition.

D) The company is likely to be very profitable as long as the threat to entry is low.

69) Farm to Table Inc. is a supermarket chain. Due to strong competition from other stores in the

industry, Farm to Table has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate?

A) perfect competition B) monopolistic competition C) monopoly D) oligopoly

70) ABC Inc., It’s Electric Inc., and Wares Inc., the three largest firms in the consumer

electronics industry, hold close to 85 percent of the industry’s market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate?

A) monopolistic competition B) oligopoly C) monopoly D) perfect competition

71) Which of the following statements accurately illustrates the difference between monopolistic

competition and an oligopoly?

A) Sellers in an oligopoly provide highly differentiated products; in monopolistic competition, the products sold are undifferentiated or standardized.

B) In an oligopoly, the number of buyers is large; in monopolistic competition, the number of buyers is limited to three or four.

C) Firms in an oligopoly have no pricing power; firms in a monopolistically competitive industry have the ability to raise prices.

D) In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.

72) Three large firms dominate the telecommunication industry of CallsRUs: TeleFone Inc., Cell

Comm Corp., and Talk Now Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in?

A) monopoly B) perfect competition C) monopolistic competition D) oligopoly

73) Jatteland Jets Inc., a firm controlled and managed by the government of Jatteland, is the only

company that has the license to manufacture private jets in the country. Which of the following industry competitive structures does this best illustrate?

A) monopolistic competition B) monopoly C) oligopoly D) perfect competition

74) While Sesmic Inc. operates in a monopolistically competitive industry, Energy 4 All Inc.

operates in a monopoly. Keeping this information in mind, which of the following statements is most likely true?

A) The threat of new entrants will be higher for Sesmic than for Energy 4 All. B) Sesmic will have more pricing power than Energy 4 All does.

C) Sesmic will have more profit potential than Energy 4 All. D) The number of buyers will be limited for both Sesmic and Energy 4 All.

75) Nye Studios is a large production company that controls a major portion of the television

industry’s market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Nye Studios is most likely functioning in a(n) industry.

A) oligopolistic B) monopolistic C) perfectly competitive D) monopolistically competitive

76) Mindful Baking is a gourmet bakery chain that differentiates itself from a large number of

competitors by providing baked goods for people who have various food allergies. It has some pricing power because it provides differentiated products and, therefore, has some entry barriers in place. In this scenario, Mindful Baking is most likely operating in a(n) A) oligopoly.

B) monopoly.

C) perfectly competitive industry.

D) monopolistically competitive industry.

77) Demand for traditional fast-food providers such as McDonald’s, Burger King, and Wendy’s

has been on a decline in recent years. Consumers have become more health-conscious, and demand has shifted to alternative restaurants such as Subway, Chick-fil-A, and Chipotle.

Attempts by McDonald’s and Wendy’s to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of A) profitability increases.

B) perfect competition.

C) natural monopolies.

D) cutthroat competition.

78) Competitive rivalry based solely on

is destructive to firms, as it transfers most of the value created in the industry to the customers.

A) price cutting B) new product releases C) promotional campaigns D) product differentiation

79) Due to economic regression in Jabu, the profitability of the large corporation Honey Comb

Inc. was poor. An analysis of the company’s business showed that the company could become profitable if it divested a few strategic business units under its banner. From which of the following businesses would Honey Comb Inc. find it most easy to exit?

A) the automobile industry, where the company has contractual obligations with suppliers B) the airline business, where the company’s strategic commitments are long term C) the e-commerce retail business, where investments on assets are low D) the pharmaceutical business, where the company has a large number of fixed costs

80) Jalen Corp., a large conglomerate, wants to liquidate its business in certain industries to

improve its overall profitability. Which of the following industries would Jalen Corp. find it most difficult to exit?

A) the management consultancy industry, in which the company’s fixed costs are low B) the steel industry, in which the company has obligations such as severance pay toward employees C) the corporate training industry, in which the company’s commitments are mostly short-term D) the e-commerce industry, in which the company has no long-term contractual agreements with suppliers

81) Amelja manages product design and development at a toy company. The junior managers

who report to her tell her that new complementors for the firm’s products are available. What should Amelja’s reaction be?

A) She should consult lawyers about the possibility of suing for copyright infringement.

B) If the industry barriers to entry are low, she doesn’t need to do anything.

C) She needs to find out if her company and other companies can provide the complements.

D) If the industry barriers to entry are high, she doesn’t need to do anything.

82) Samsung and Google cooperate as complementors to compete against Apple’s strong position

in the mobile device industry, while at the same time Samsung and Google are becoming increasingly competitive with one another. This scenario best illustrates the process of A) co-opetition.

B) perfect competition.

C) monopolization.

D) conglomeration.

83) Lucia is a management consultant for a snack manufacturer that wants to expand into healthy

snacks such as whole-grain cookies and quinoa-based crackers. Which of the following is sensible advice for Lucia to offer her client?

A) “Pinpoint the best time to enter this new market, and then make a yes-or-no decision quickly.”

B) “Carefully consider the entry choices over time before making a decision.”

C) “Your best bet is to undercut competitors’ prices and lure them into a price war.”

D) “Focus on what your company does well rather than trying to expand into untried areas.”

84) Silvio is a manager at a software firm. The chief executive officer tells him that the industry

as a whole has become increasingly profitable over the past five years. Based on this information, Silvio is most likely to expect A) increased competition in the future, and therefore he should recommend that the company upgrade its products to slow the entry of rival companies.

B) increased profitability in the future, and therefore he should recommend that the company remain on its current course.

C) a leveling off of profitability in the next few years, and therefore he should recommend that the company cooperate with its rivals to stimulate the industry.

D) decreased competition in the next few years, and therefore he should recommend that the company take advantage of its pricing power.

85) Syed owns Discount Auto Zone, a company that got its start making auto parts for hybrid

vehicles, but her firm has had difficulty establishing itself as a maker of parts for the more profitable internal combustion engine. What is most likely contributing to Discount Auto Zone’s problem in this area?

A) Newcomers cannot use existing assets or reconfigure their value chains.

B) New competitors usually ignore stakeholders who are not stockholders.

C) It is difficult for outsiders to gauge which stage of the “life cycle” that industry is in.

D) Entry barriers usually protect the incumbent players in a profitable industry.

86) Siham is a chef who owns three moderately successful restaurants with innovative menus.

Based on what you have read, which of these approaches could help her improve her profits?

A) Change her menus and décor to appeal to economy-minded consumers.

B) Carefully time the opening of her business and focus on underserved niches.

C) Use her existing knowledge, equipment, and staff to launch a catering business.

D) Expand to new locations in economically struggling areas.

87) Which of the following is a drawback of Porter’s five forces model?

A) The model describes competition narrowly as a firm’s closest competitors.

B) Strategic leaders cannot determine the changing speed of an industry or the rate of

innovation.

C) It fails to provide a basis for deriving implications for a firm’s strategic position within an industry.

D) The model fails to consider that threat of substitutes can come from outside a given industry.

88) Which of the following statements with regard to industry structures is true?

A) Industry structures are not static but can change over time.

B) Having a large number of competitors generally equates to higher industry

profitability.

C) A consolidated industry tends to be less profitable than a fragmented one.

D) Having few but large competitors increases the threat of strong competitive forces such as supplier or buyer power.

89) Which of the following is likely to happen due to horizontal mergers between competitors

such as Delta and Northwest airlines?

A) The overall industry profitability will increase.

B) The threat of strong competitive forces such as supplier power will increase.

C) The industry will face excess capacity in the future.

D) The structure of the industry will change from consolidated to one that is fragmented.

90) Years ago, the travel industry was controlled by a few large travel companies that booked

holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information?

A) The travel industry changed from a consolidated structure to a fragmented one.

B) The pricing power of the incumbent firms in the travel industry has increased.

C) The bargaining power of buyers in the travel industry has decreased.

D) The structure of the travel industry changed from monopolistic competition to an oligopolistic one.

91) Todd is a manager in an industry that has a few large players and that has remained relatively

stable over the past few years. He finds out that legislators are proposing new laws to deregulate the industry. If the laws pass, which of these scenarios will Todd most likely face?

A) many new competitors B) technological innovation C) the end of globalization D) across-the-board price increases

92) With the emergence of smartphones, users no longer have to carry a separate music player, a

video game, a laptop, or a magazine to keep themselves entertained when traveling. A smartphone is loaded with a variety of applications to satisfy all the customer needs that different industries or products individually satisfied earlier. As a result, the smartphone industry has been posing a threat to a lot of other unrelated industries. What is this phenomenon best known as?

A) industry convergence B) backward integration C) product differentiation D) customer myopia

93)

A strategic group will typically include A) firms within the same industry.

B) customers belonging to a particular socioeconomic class.

C) firms employing similar number of employees, irrespective of their industries.

D) employees within a firm earning the same amount in salary.

94) Companies in the same strategic group are A) strategic allies B) direct competitors C) merger partners D) stakeholders or shareholders

to each other.

95) Makita, DuPont, Builder’s Square, and Nut’s & Bolts are all hardware stores that compete

against each other through everyday low pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together these stores form a group.

A) focus B) command C) strategic D) cross-functional

96) Limozine Inc. is a car service firm that provides high-end transportation in a major

metropolitan area. It has several competitors that each offer similar services, and based on its current structure, it cannot match or beat those competitors on price. Because of long-term contracts and an increase in the cost of gasoline, it is not possible to reduce expenditures at this time. Which of these strategies should Limozine pursue instead?

A) Create a strategic group through mergers.

B) Compete based on inter-group rivalry, not intra-group rivalry.

C) Pursue a differentiated strategy.

D) Close the business until the cost of gas decreases.

97) Wheat and Steak is a restaurant located inside a five-star hotel. It caters mainly to customers

who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Wheat and Steak’s strategic group?

A) a nearby fast-food restaurant B) a food kiosk in an adjacent subway station C) a premium rooftop restaurant in the same city D) a mobile food cart parked opposite to the five-star hotel

98) Which of the following statements is true about strategic groups?

A) It is not possible to have two different strategic groups within the same industry.

B) Rivalry within the same strategic group tends to be lower than rivalry between

different strategic groups.

C) Profitability varies between different strategic groups.

D) Companies within the same strategic group are complementors to each other.

99) Breeze Car Rental follows a cost-leadership strategy. Which of the following firms will most

likely be its direct competitor?

A) Auto Rent Inc., which follows a cost-increase strategy B) Samson Truck Rentals, which follows a differentiation strategy C) Quicker Rental Cars, which follows a low-cost strategy D) Rent and Buy Corp., which follows a standardization strategy

100)

While implementing strategic group mapping for the U.S. domestic airline industry, two strategic groups become apparent: low-cost, point-to-point airlines (Virgin Atlantic, Alaska Airlines, JetBlue, and Southwest Airlines) versus differentiated airlines using a hub-andspoke system (American, Delta, and United). Which of the following statements is true about these two strategic groups?

A) Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines.

B) American, United, and Delta Airlines will be affected differently by Porter’s five competitive forces.

C) Alaska Airlines and Delta Airlines will be affected by the external environment in very similar ways.

D) Competitive rivalry between Virgin Atlantic and Delta Airlines is likely to be higher than that between American, Delta, and United.

101)

OpenUrToys Inc. is a consulting firm that opens your toys for you and then films your emotional response. They have many clients and are able to generate above average returns relative to their competitors. In this scenario, we would conclude that OpenUrToys Inc. probably has a A) competitive advantage.

B) sustainable competitive advantage.

C) a competitive parity.

D) a competitive disadvantage.

102)

LuxWear Inc., an apparel company, recently moved locations to be closer to their main manufacturer in South Carolina. The move required the firm to upgrade its legacy ordering system with its manufactures ordering system, which should facilitate its supply chain to gain future efficiencies and reap future savings. However, the new system costs $75,000 and will require a significant amount of time to train employees. This best represents a significant increase in the company’s A) switching cost.

B) strategic positioning.

C) arbitrage.

D) power of buyers.

103)

Describe the relationship between growth rates and the employment level.

104)

How is a firm’s task environment different from its general environment? Provide examples of both types of environments.

105)

How do real interest rates affect a business?

106)

What are the two key insights that form the basis of Michael Porter’s seminal five forces model?

107)

Explain how the availability of substitutes affects business strategy. Include an example of a company or an industry in which many substitutes are available and one in which few or none are available.

108)

In regard to any of the five forces that shape competition, it is important to note that their relative strengths are context-dependent. Elaborate on this statement with the help of a realworld example.

109)

What is a natural monopoly? Provide a real-world example.

110)

Why are entry barriers in the U.S. airline industry relatively low?

111)

Discuss the sixth force in Porter’s five forces model. Give a real-life example of this sixth force.

112)

What are the five stages of the industry life cycle? Name them and provide a real-life example of a company or an industry that has gone through all five stages.

113)

What does it mean when a company leverages existing assets? Include a real-life example in your answer. Your example can be from the reading or from your own experience.

114)

What is the drawback of the five forces model? Provide an example that shows this drawback. The example can be from your reading or from your own experience.

115)

What is meant by switching costs? Explain with the help of a real-world example.

116)

How do scholars explain differences in firm performance within the same industry?

Defend or refute the statement: “Strategic groups do not impact competitive rivalry within an industry.”

117)

118)

Explain brand loyalty and how it helps incumbent firms maintain their position in the industry. Provide a real-world example.

119)

Describe the PESTEL framework as a strategic tool and categorize it as either external or internal to the firm.

120)

Describe in detail Porters five forces model and categorize this tool as external or internal to the firm.

121)

Compare and contrast the roles of industry effects versus firm effects when determining firm performance.

Answer Key Test name: Chapter 3 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) A 14) A 15) A 16) A 17) B 18) A 19) A 20) A 21) A 22) D 23) A 24) A 25) A 26) D 27) A 28) D 29) B 30) D 31) D 32) B 33) D 34) C 35) B 36) A 37) C

38) C 39) B 40) B 41) A 42) B 43) C 44) D 45) D 46) B 47) A 48) A 49) B 50) C 51) D 52) C 53) B 54) D 55) C 56) B 57) A 58) A 59) A 60) D 61) D 62) D 63) D 64) C 65) C 66) C 67) C 68) D 69) B 70) B 71) D 72) D 73) B 74) A 75) A 76) D 77) D

78) A 79) C 80) B 81) C 82) A 83) B 84) A 85) D 86) C 87) B 88) A 89) A 90) A 91) A 92) A 93) A 94) B 95) C 96) C 97) C 98) C 99) C 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A A A Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121)

Short Answer Short Answer Short Answer Short Answer

Chapter 4: Internal Analysis: Resources, Capabilities, and Core Competencies Student name: 1) One of Apple’s core competencies is establishing and maintaining a digital ecosystem. ⊚ true ⊚ false

2) The core competencies of a firm are determined by the interplay of its tangible resources and

intangible capabilities. ⊚ true ⊚ false

3) One of holding company Alphabet’s tangible resources is Google, its most prominent

subsidiary. ⊚ true ⊚ false

4) According to the resource immobility assumption, resources tend to be “sticky” and don’t

move easily from firm to firm. ⊚ true ⊚ false

5) Intellectual property (IP) protections such as trademarks or patents are proven methods of

establishing permanent barriers to imitation. ⊚ true ⊚ false

6) A music distributor that decides to launch a proprietary music streaming service to respond to

changes in music consumption trends exhibits dynamic capabilities. ⊚ true ⊚ false

7) Amazon’s tendency to reinvest a large share of its profits into new services and capabilities

exemplifies a low level of resource flows. ⊚ true ⊚ false

8) Accounting, human resources, and research and development (R&D) are examples of

primary activities that add value directly to the value chain. ⊚ true ⊚ false

9) Dynamic strategic activity systems help a firm to maintain a competitive advantage for

extended periods of time. ⊚ true ⊚ false

10) A SWOT analysis would provide a definitive answer as to whether a firm’s growing footprint

in overseas markets is a strength or weakness. ⊚ true ⊚ false

11) Support activities, according to the value chain, are the actions a firm takes to directly

provide a product or service to the end user. ⊚ true ⊚ false

12) One key aspect of strategy is choosing not to do certain things at all. ⊚ true ⊚ false

13) When performing internal analysis of firms, how would you answer the question, “Why do

companies exist?”

A) Companies exist because they create value for customers in ways that customers are unable to replicate on their own.

B) Companies exist because they provide a means of investment income for shareholders, who otherwise would be able to invest only in government securities.

C) Companies exist because they provide a tax base for government to draw upon in creating and maintaining public works projects.

D) Companies exist because they give college professors something to teach about.

14) Capabilities are the

and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically.

A) financial B) strategic C) organizational D) competitive

15)

allow(s) a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.

A) Core competencies B) Strengths C) A value chain D) Competition

16) When a firm does not continually upgrade or improve core competencies, its competitors are

likely to A) grow their company at any cost.

B) across the board.

C) develop equivalent or superior skills.

D) expand their product line.

17) According to the resource-based view, a firm’s competitive advantage often stems from its A) intangible resources.

B) tangible resources.

C) dynamic strengths.

D) external environment.

18) A value chain analysis consists of systematically analyzing a firm’s key activities that for

analysis purposes are categorized into two groups: A) primary activities and support activities.

B) products and service activities.

C) customers and suppliers.

D) profits and losses.

19) Southwest Airlines (SWA) and Alaska Airlines (ASA) both compete in the same strategic

group as low-cost, point-to-point airlines, but they draw upon different resource bundles.

SWA’s employee productivity tends to be higher than ASA’s because the two companies differ in their human and organizational resources. This example best illustrates which of the following assumptions regarding the resource-based view?

A) resource immobility B) resource allocation C) resource homogeneity D) resource heterogeneity

20) Managing a supply chain, running the computer system, and providing customer support are

examples of which of the following?

A) marketing and sales B) operations C) activities D) value chain

21) Firms that can employ and establish

are more likely to protect their competitive advantage from being copied and/or eroding away.

A) isolating mechanisms B) key human capital C) cash equivalents D) a strong competitor response

22) Business managers are often concerned that just one of their company’s activities will make

or break their company’s competitive advantage. However, you know that A) their company’s success depends on an array of many key activities, not just one activity.

B) they are right; it is usually just one single activity that makes or breaks their competitive advantage.

C) it depends on the industry—sometimes this is true, sometimes it is not true.

D) they should worry more about their competitor’s activities than their own company’s activities.

23) One of the reasons that Circuit City filed for bankruptcy was due to its inability to reinvest,

hone, and upgrade its once-impressive resource base. Ultimately, Circuit City’s core competences became A) core rigidities.

B) value chain activities.

C) strategic resources.

D) costly to imitate.

24) The

suggest(s) that because the external environment changes, strategic leaders must choose their current and future investments carefully over time in order to best maintain their firm’s competitive advantage.

A) dynamic capabilities perspective B) VRIO framework C) SWOT analysis framework D) law of diminishing returns

25) When conducting a

it’s best to examine both PESTEL and Porter’s five forces analyses because these tools focus on the external environment.

A) SWOT analysis B) value chain analysis C) VRIO framework D) resource-based analysis

26) Which of the following will most likely be considered as an airline’s core competency?

A) the airline’s ability to navigate federal laws just like its competitors B) the airline’s ability to partner at the same airports as its competitors C) the airline’s ability to make its fleet more fuel efficient than its competitors D) the airline’s ability to manufacture planes at a cost that is average in the industry

27) Crocs, inventor of the iconic plastic clog, was unable to sustain its competitive advantage

over its rivals because its key strategic resource was A) overly sophisticated marketing.

B) not patented in a timely manner.

C) simple to imitate.

D) valuable in the eyes of the consumer.

28) Suppose that several senior managers leave Home Depot and go to work at rival Lowe’s.

What aspect of resource stocks and resource flows does this represent for Home Depot?

A) dynamic capabilities B) intangible resources C) human capital D) resource leakage

29) CarTsar Inc. is a manufacturer of automobile parts, which it sells to retail auto supply stores.

Its core competencies include superior design and engineering capabilities, as well as a highly integrated and efficient supply chain. To sustain its competitive advantage, CarTsar should first A) seek to replicate its nearest competitor’s competency in innovative marketing.

B) attempt to cut costs by replacing assembly line workers with robots.

C) upgrade its engineering department and improve its supply chain.

D) diversify its product offerings by developing parts for construction equipment.

30) Five Guys has become successful in a highly competitive industry dominated by fast-food

giants like McDonald’s and Burger King, as well as direct competitors claiming to be “better burger” joints such as Smashburger, Burgerfi, and Shake Shack. Which of the following statements accurately explains the main reason for the success of Five Guys?

A) It created customized, made-to-order food using the highest-quality ingredients.

B) It created a perception that eating its products was cool.

C) It emphasized marketing over core competency.

D) It focused keeping prices as low as possible.

31) Frozen Gold is a fast-growing chain of ice cream shops. It has developed an edge over its

competitors by providing customers with a wide array of unique flavors and fostering a hip atmosphere in its stores. This advantage of Frozen Gold best exemplifies a A) markup.

B) resource flow.

C) capital gain.

D) core competency.

32) Organizational and managerial skills that find their expression in a company’s structure,

routines, and culture are referred to as A) tangible resources.

B) reserves.

C) capital gains.

D) capabilities.

33) Amazon’s network of distribution centers allows it to drastically reduce its delivery times

compared with most other online retailers. These distribution centers are examples of Amazon’s A) core competency.

B) intangible resources.

C) tangible resources.

D) capabilities.

34) The management of a company is assessing the value of all the tangible resources the

company owns. Which of the following will be included in this assessment?

A) its reputation for fast customer service B) its culture of proactive communication C) the patents for electronic components D) the punch presses that produce parts

35) As the manager of a relatively new company assessing what could give your business a

competitive advantage, you are analyzing company resources to identify core competencies.

Which of the following resources is most likely to generate a competitive advantage?

A) new production facilities B) large cash holdings C) stockpile of supplies D) enthusiastic company culture

36) STRIKEBYTE is a software company that has created and acquired numerous assets over the

years. According to the resource-based view of a firm, which of the following assets of STRIKEBYTE will best enable it to gain and sustain a competitive advantage?

A) the cloud computing service that it uses B) the capital the company raised from its shareholders C) the expertise acquired by the employees in the company D) the impressive headquarters owned by the company

37) Which of the following statements accurately brings out the difference between tangible and

intangible resources?

A) Tangible resources contribute to a company’s competitive advantage, whereas intangible resources have little effect on competitive advantage.

B) Tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased.

C) Tangible resources take a longer time to build, whereas intangible assets can be built comparatively easily.

D) Tangible assets are difficult for competitors to imitate, whereas intangible assets can be easily replicated.

38) Shippity and ShipING are two competing firms in the same industry. Shippity’s tangible

assets are valued at $15 billion and its intangible assets are valued at $35 billion. ShipING’s tangible assets are valued at $5 billion and its intangible assets are valued at $45 billion.

What can be concluded from this information?

A) ShipING will be less competitive than Shippity because of its smaller investment in tangible assets.

B) It is likely that ShipING is better enabled than Shippity to gain and sustain a competitive advantage.

C) Judging from the assets listed, ShipING has probably been in the industry a much shorter time than Shippity.

D) There is no resource heterogeneity between the two firms as they operate in the same industry.

39) OpenBook is a new online bookseller’s market that has raised capital from multiple sources.

It is planning to use its capital to acquire certain assets. Which of the following assets will be the most difficult for OpenBook to acquire using its capital?

A) labor B) computer equipment C) brand equity D) physical headquarters

40) Cartzy, Cartific, and Clustercart, are three consumer-product retailing companies. Their

products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true?

A) Resource immobility of the firms will be low.

B) The industry structure will be far from perfect competition.

C) Barriers to entry within the industry will be high.

D) Any advantage that one firm has will be short-lived.

41) Although eHook and eFury operate in the same consumer electronic industry, eHook has

better sales and brand equity. This is attributed to eHook’s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which eFury lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated?

A) resource value B) resource heterogeneity C) resource immobility D) resource imitation

42) Greener Cleener is a leading maker of environmentally friendly household cleaning products.

Competitors across the globe have failed to imitate Greener Cleener’s production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Greener Cleener for a long time. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate?

A) resource homogeneity B) resource cost C) resource substitution D) resource immobility

43) In the context of the resource-based model of competitive advantage, if a successful firm

exhibits resource immobility it means that the A) rival firms have better accessibility to quality resources, which they will be able to acquire and deploy to their benefit.

B) firm will have a sustained competitive advantage because of unique resources that are difficult for others to replicate.

C) competitors can easily replicate or copy the firm’s resource bundles and capabilities.

D) resources of the firm cannot be effectively deployed within its own organization.

44) Due to resource immobility, a critical assumption in the resource-based model of a firm, the A) competitive advantage of a firm exists for a short period of time.

B) resource bundles of a firm can be easily imitated by competitors.

C) resource differences between firms last for a long time.

D) competencies and capabilities of all firms in an industry are similar.

45) In the context of the resource-based model of competitive advantage, which of the following

scenarios best exemplifies resource immobility?

A) Tuffy Gaskets Inc has earned a good reputation among its shareholders by investing heavily inup-to-date production equipment that increases productivity.

B) Havermill Communications has lost market share because it was slow to change to digital publishing.

C) Rev-Em Motorcycles has been able to gain a competitive advantage because of its ability to efficiently move its resources from one manufacturing unit to another.

D) Avenir Inc. has been able to outperform its competitors because its method of training cross-department teams is difficult for competitors to replicate.

46) How are the critical assumptions of the resource-based model of a firm fundamentally

different from the way in which a firm is viewed in the perfectly competitive industry structure?

A) In the resource-based model, resources are freely available and mobile, whereas in the perfectly competitive industry structure, resources are highly immobile.

B) In perfect competition, it is extremely difficult to replicate the resource bundles of a firm, whereas in the resource-based model, it is extremely easy to imitate them.

C) In perfect competition, all firms have access to the same capabilities, whereas in the resource-based model, resource differences exist between firms in the same industry.

D) In the resource-based model, only physical assets of a firm are considered as resources, whereas in perfect competition, a firm’s capabilities and competencies are also considered as resources.

47) The competitive advantage that one firm has will be short-lived in an industry in which A) resource immobility is high.

B) perfect competition exists.

C) resource heterogeneity is high.

D) capabilities of a firm are not easily replicable.

48) You are the manager of Value Printing, a leading print shop. Value’s resources include a

highly experienced staff and state-of-the-art printing presses. However, your closest competition has started to cut into your market share by offering same-day turnaround on most orders. Although your staffing and equipment is not optimized for rapid production, you decide to start offering a same-day guarantee to your customers. According to the resource-based view, what is wrong with this decision?

A) You have failed to take into account resource immobility.

B) Customers tend to have negative opinions of firms that imitate other firms.

C) Employees are often resistant to changes in strategy.

D) Your business is not organized to capture value.

49) NovaNote's competency in designing and manufacturing efficient, long-lasting batteries has

made its tablets the fastest-growing brand of computers in the market. This competency, along with highly responsive tech support, has enabled NovaNote to increase its customer base and strengthen customer loyalty. Thus, NovaNote's competency in designing and manufacturing batteries will be considered a(n) resource in the VRIO framework.

A) valuable B) substitute C) imitable D) organized

50) Viral Apparel is the market leader in the sportswear industry. Though most of its resources

are common to those of its competitors, a few rare resources have helped the company gain and sustain a competitive advantage. Which of the following assets of Viral Apparel is most likely to be considered a rare resource that is contributing to its competitive advantage?

A) the company’s land and buildings B) the company’s plant and machinery C) the company’s raw material supplies D) the company’s design patents

51) Facing stiff competition in the e-reader market, SmartReads wants to protect its competitive

advantage by increasing the perceived value of its reader. SmartReads’s best strategy to accomplish this would be to A) increase the cost of production to add innovative new features.

B) highlight the number of celebrities who use SmartReads e-readers.

C) lower the retail price of its e-reader to attract new customers.

D) try to imitate some of the features found in competing products.

52) Mejor Maíz tortilla chips, manufactured by Tampico Alimentos, have been the top-selling

tortilla chips in the market. Though the market for chips is flooded with competitors, Tampico Alimentos has been able to maintain its market position for a long time. This is mainly attributed to the fact that its chips have all the flavor of competing brands but only half the fat, the result of a proprietary cooking method used by the company. This competency of Tampico Alimentos will be considered as a(n) resource in the VRIO framework.

A) imitable B) rare C) intangible D) organizational

53) Pharmacat Pharmaceuticals invested $3.4 billion dollars to develop a new drug for

individuals with diabetes. After Pharmacat receives FDA approval of the drug, its marginal cost to produce the drug for market will be A) low.

B) high.

C) moderate.

D) unpredictable.

54) The diagonal assembly system was a production system pioneered by the automobile

company Gogo. Recently, Gogo was able to sue a competitor and won the suit, receiving $100 million in damages. Which of the following would most likely enable Gogo to win such a lawsuit?

A) The competitor ran advertising that criticized Gogo’s assembly system.

B) The competitor failed to apply for a patent of its own assembly system.

C) The competitor infringed on Gogo’s patent of the diagonal assembly system.

D) The competitor developed an assembly system that worked on a newer theory than Gogo’s system.

55) According to an evaluation using the VRIO framework, Crocs, inventor of the iconic plastic

clog, was unable to sustain its competitive advantage primarily because its products were A) invaluable and common.

B) easy to imitate.

C) extremely rare.

D) non-substitutable.

56) TechTime is a market leader in smartwatches. If Horloge and Tempo, companies that

manufacture digital watches, develop the same customer knowledge base and create products with the same customer appeal as TechTime, then A) Horloge and Tempo will have a VRIO resource.

B) TechTime will have a resource that is valuable but no longer rare.

C) TechTime will have a sustainable competitive advantage in the industry.

D) TechTime will have a resource that is rare but no longer valuable.

57) Amelia has recently started a restaurant in a commercial area that already has many other

established restaurants and popular fast-food chains. Amelia owns the building in which her restaurant is located, rather than leasing premises as her competitors do. This factor allows her to offer her products at a more competitive price. Amelia has also invested a huge amount in designing the restaurant’s interior and in equipping the kitchen with the appliances that are most widely used in her industry. In this scenario, which of the following is the most valuable resource for Amelia’s business?

A) the investments made by Amelia on the restaurant’s interior B) the type of kitchen equipment widely used in her industry C) the restaurant’s late entry into the market D) the building owned by Amelia, which reduces cost of operations

58) LightningDrive is a leading automobile company. The company has been able to sustain its

competitive advantage primarily due to its high-quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped LightningDrive sustain its competitive advantage?

A) resource mobility B) inexhaustible nature C) intangibility of the company’s resource D) high costs involved in imitation

59) During market testing, Rembrandt Cosmetics realized that the cosmetics industry was

dominated by multiple, well-established brands. These brands mostly sold their products in exclusive outlets and department stores. Rembrandt Cosmetics management realized that a new entrant would require a different business model to be successful. Thus, Rembrandt Cosmetics started selling its products through direct marketing. In this scenario, Rembrandt Cosmetics accomplished substitution primarily through A) path dependence.

B) technology transfer.

C) knowledge diffusion.

D) strategic equivalence.

60) TalkaLot is a cell phone manufacturing company. Its latest range of smartphones are visually

similar to the Y-series range of smartphones from Talkie Gen, in terms of shape, look, and feel. Which of the following strategies has TalkaLot used to replicate the valuable and rare resource of Talkie Gen? A) direct imitation B) strategic equivalence C) substitution D) innovation

61)

are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.

A) Embargoes B) Cartel arrangements C) Isolating mechanisms D) Market niches

62) Chocolicious, a leading gourmet chocolate producer, anticipated that the prices of cocoa

beans from Ghana, where its main suppliers were located, would double in less than three years. This would significantly affect Chocolicious’s profit margins. Thus, Chocolicious decided to develop a new partnership with a supplier in Colombia. As predicted, the price of Ghanaian cocoa beans increased twofold. Because the price of Colombian cocoa beans was much lower, Chocolicious was able to maintain its profit margins in turbulent times. Which of the following isolating mechanisms does this scenario best illustrate?

A) intellectual property protection B) causal ambiguity C) time compression diseconomies D) better expectations of future resource value

63) Leading guitar string producer Highly Strung has enjoyed a competitive advantage based on

its proprietary coating that gives its strings a clearer sound and longer life span than uncoated strings. One of Highly Strung’s competitors, however, has recently developed a similar coating using less expensive ingredients; this allows it to charge a lower price than Highly Strung for similar-quality strings. Highly Strung’s competitive advantage is in danger due to A) a lack of perceived value.

B) a lack of organization.

C) direct imitation and substitution.

D) resource immobility.

64)

describes a process in which the options one faces in a current situation are limited by decisions made in the past.

A) Social complexity B) Path dependence C) Cannibalization D) Causal ambiguity

65) Chips & Motherboards, a leading hard drive manufacturer, recently filed for bankruptcy.

While most of Chips & Motherboards’ competitors were shifting away from physical data storage devices toward online cloud storage services, Chips & Motherboards invested most of its retained earnings in the effort to improve its hard drives. Once the hard-drive market drastically declined, Chips & Motherboards was unable to capitalize on the new technology.

Which of the following does this scenario best illustrate?

A) causal ambiguity B) knowledge diffusion C) social complexity D) path dependence

66) The Marauders professional football team, which has a long history of emphasizing the run,

has been doing poorly in the current quarterback-dominated league, so its sales of tickets and ancillary products such as jerseys have declined. Fan discontent finally caused the team's general manager to draft a highly rated quarterback in the first round of the draft. However, the team still lacked competent receivers, so the quarterback was unsuccessful at turning the team around. The general manager's decision to move to a pass-oriented offence was hampered by A) path dependence.

B) dependence complexity.

C) causal dependence.

D) path immobility.

67) Assume a firm’s resources and capabilities are costly to imitate. This is because rival

companies do not clearly understand the relationship between the resources and capabilities controlled by the firm. In this case, the firm’s competitive advantage is protected against imitation by A) path dependence.

B) dependence complexity.

C) causal ambiguity.

D) social complexity.

68) When the laptop market overtook the desktop market, Blue Tech, a leader in desktop

technology, was left at a competitive disadvantage. Later, Blue Tech’s management channeled all of the company’s efforts and revenue to develop an efficient laptop from scratch in less than a year. However, the company failed because Blue Tech’s models were inferior to the third- and fourth-generation models its competitors were selling. In this scenario, Blue Tech’s failure can be best attributed to A) causal ambiguity.

B) diseconomies of scope and scale.

C) time compression diseconomies.

D) social complexity.

69) How does causal ambiguity act as an isolating mechanism for organizations?

A) It makes it difficult for the competitors to understand why a company has been so

successful.

B) It creates a situation in which different social and business systems interact with one another.

C) It makes it difficult for competitors to deploy their resources by creating ambiguity within their organizational structures.

D) It makes it difficult for competitors to imitate core competencies quickly due to time compression diseconomies.

70) Competitors have found it extremely difficult to imitate Gene Electronics’ valuable

resources, capabilities, or competencies. This is primarily because the source for the company’s success has been unclear. The competitors are uncertain if Gene Electronics’ success is due to its strong leadership, the skills of its research and development team, or the timing of the company’s product introductions. Gene Electronics has been protected from losing its competitive advantage as a result of A) time compression diseconomies.

B) resource homogeneity.

C) causal ambiguity.

D) path dependence.

71) Mama Mia’s’ Pizza & Calzone has been trying to directly copy the strategies of

Fuhgeddaboudit Pies. Even though it is evident that the success of Fuhgeddaboudit Pies comes from the freshness and variety of ingredients it uses, Mama Mia’s has not been able to introduce the same types of produce into its recipes. This is because Fuhgeddaboudit’s network of relationships with local growers, as well as its efficient supply chain, are very difficult to emulate. Which of the following barriers to imitation does this scenario best illustrate?

A) path dependence B) social complexity C) resource mobility D) resource homogeneity

72) An observer may conclude that the organizational culture of Zappos, an online retailer for

shoes and clothing, might be the basis for its competitive advantage. However, reverse social engineering to crack Zappos’ code of success might be much more difficult for a company trying to exactly imitate its strategy. Thus, the source of Zappos’ competitive advantage is A) path dependence.

B) isolating mechanisms.

C) causal ambiguity.

D) social complexity.

73) The owners of Always Baked bakery want to open a second retail outlet. Which of the

following scenarios is most likely to yield a competitive advantage?

A) Open a shop on an inexpensive piece of land near a new mixed-use residential and business district currently under construction.

B) Purchase an existing bakery from a business that closed due to declining sales and try to revive it.

C) Build a shop in a sparsely populated rural area where the land is inexpensive and few other bakeries exist.

D) Open a shop in a crowded downtown location where several other bakeries have been successful over the years.

74) A firm will fail to create a sustained competitive advantage when the A) fit between its internal strengths and the external environment is static.

B) source of its competitive advantage is causally ambiguous.

C) source of its competitive advantage is socially complex.

D) resource bundles exhibit heterogeneity and immobility.

75) Given the accelerated pace of technological change, in combination with deregulation,

globalization, and demographic shifts, a firm will be successful today only if its A) competitive advantage is derived from static resource or market advantages.

B) resource advantage is not causally ambiguous or socially complex.

C) resource advantage is maintained for a short period of time.

D) internal strengths change with its external environment in a dynamic fashion.

76) ezTV, a consumer electronics company, is the leading manufacturer of high-definition (HD)

LED televisions. HD technology has been its core competency and the company holds 60 percent shares in that market. However, ezTV’s competitors have now begun to produce more-advanced technologies like 4K Ultra HD and Internet-enabled Smart televisions.

According to the dynamic capabilities perspective, what should ezTV do?

A) ezTV should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment.

B) ezTV should stick to its existing core competency, that is HD LED technology, as it is the best in that segment.

C) ezTV should take steps to reduce the causal ambiguity and socially complexity of its core competency.

D) ezTV should work on enhancing the mobility of its core competency.

77) Which of the following statements accurately describes a firm’s resource stock?

A) Resource stocks are a firm’s level of resources that are common to competitors.

B) Resource stocks are a firm’s future estimate of both tangible and intangible resources.

C) Resource stocks are a firm’s current level of intangible resources.

D) Resource stocks are a firm’s level of investments to maintain or build a resource.

78) Flectronics has used $700,000 from its total annual earnings of $1,650,000 to invest in

upgrading its manufacturing facilities. Its accounts receivable from customers is estimated to be $130,000 and accounts payable $75,000. In monetary terms, what would Flectronics’s resource flows be?

A) $1,650,000 B) $130,000 C) $75,000 D) $700,000

79) SJobs’s Computer Repair has maintained a competitive advantage based on its thorough and

professional service, reasonable pricing, and money-back guarantee. Management at the company is so committed to doing repairs well that they often have rejected employee suggestions to expedite their processes. Recently, the company has begun to lose customers to a new local service offering same day in-home repairs and 24/7 online customer support.

According to the dynamic capabilities perspective, SJobs’s Computer Repair has lost its competitive advantage due to A) value chain disruption.

B) core rigidity.

C) resource flows.

D) resource stocks.

80) Which of the following is an implication of high employee turnover in a company?

A) It results in a reduction in the company’s intangible-resource stocks.

B) It makes the source of the company’s competitive advantage causally ambiguous.

C) It makes the source of the company’s competitive advantage socially complex.

D) It results in greater immobility and heterogeneity of the company’s resources.

81) Several senior managers recently left Fred’s Autos and went to work at Better Autos, a rival

company. What does this imply?

A) The resource stock of Fred’s Autos increased.

B) Fred’s Autos faced resource leakage.

C) The resource flow into Better Autos was reduced.

D) Fred’s Autos’ tangible assets decreased.

82) According to the value chain analysis, which of the following is a primary activity?

A) research and development B) human resources management C) accounting and finance D) marketing and sales

83) Your company, a small software development firm, has attracted many top young

programmers in your area. As a result, the apps you produce have been praised for their innovative features and intuitive user experience. According to the bathtub metaphor in the dynamic capabilities perspective, what is the best way for you to protect against resource leakage?

A) Invest in an online marketing campaign for existing products to retain customers.

B) Open a satellite office overseas to support the company culture of taking chances.

C) Attempt to undercut the competition by imitating their top-selling product.

D) Improve the benefits package to retain key employees and reduce turnover.

84) Online retailer eBuy had been drastically losing market share to its competitors, so

management hired a consulting firm to help figure out the reasons why sales were dipping.

The consultants found that the company primarily lost its competitive advantage because of its poor customer service, which included slow response times to customer inquiries and unclear return policies. These ineffective policies and procedures led to many disgruntled customers and a steady migration to more customer-friendly retailers. eBuy can best solve its problem by working on its A) immobile assets.

B) support activities.

C) resource flows.

D) resource stocks.

85) To help a firm achieve a competitive advantage, each distinct activity performed in the value

chain needs to A) contribute to the firm’s strategic position as either a low-cost leader or differentiator.

B) reduce the immobility and the heterogeneity of the firm’s resources.

C) create a static fit between the company’s internal resources and the external environment.

D) reduce the causal ambiguity and the social complexity of the firm’s source of success.

86) Simply Furniture has seen its profit margins shrink over the past few years as increased

competition has driven down furniture prices. You have been tasked with improving the company’s margins. Which of the following approaches makes the most sense within the context of strategic activity systems?

A) Focus efforts on imitating competitors’ most successful products.

B) Boost spending on marketing.

C) Install modern manufacturing equipment to improve efficiency.

D) Go against current trends and raise prices.

87) Juana, a manager at a multinational organization, is trying to carefully scan and link the

firm’s internal environment to its external environment. The insights from this analysis will allow her to effectively leverage the company’s internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats. In this scenario, which of the following managerial tools is Juana employing?

A) Blake Mouton managerial grid B) Ansoff’s matrix C) BCG analysis D) SWOT analysis

88) In the context of the SWOT matrix, which of the following best exemplifies a firm’s internal

strength?

A) increase in a firm’s customer loyalty B) growth in the size of the market in which a firm operates C) rise in the income of the demographic segment to which a firm caters D) loss of a competitor’s reputation

89) In the context of SWOT analysis, which of the following best exemplifies a firm’s internal

weakness?

A) fall in the purchasing power of the firm’s customers B) increased competition in the industry where the firm operates C) irregularity in the raw materials supply throughout the industry D) decline in the firm’s market share

90) In the context of SWOT analysis, which of the following best exemplifies a firm’s external

opportunity?

A) an increase in its financial resources B) an increase in its brand equity C) an increase in its customers’ disposable income D) an increase in its employee productivity

91) Which of the following is a drawback of the SWOT analysis?

A) The SWOT analysis takes into account only the internal environment of a firm,

ignoring the equally important external environment.

B) This framework is only applicable to the manufacturing industries; it is ineffective when applied to the service firms.

C) With this framework, a strength can also be a weakness and an opportunity can also be a threat.

D) This framework allows managers to evaluate only a firm’s current situation and not its future prospects.

92) Which of the following applies to the Strength-Threats quadrant of the SWOT matrix?

A) A local coffee shop expanded its limited menu to maintain its competitive advantage

against its competition.

B) A local coffee shop added a salad bar to maintain its competitive advantage against its competition.

C) A local coffee shop took advantage of having loyal, hardworking, and enthusiastic employees to maintain its competitive advantage against its competition.

D) A local coffee shop had to reduce its hours of operation to maintain its competitive advantage against its competition.

93) A resource-based view of a firm provides a model that systematically aids in identifying A) core rigidities.

B) core competencies.

C) competitive disadvantage.

D) competitive parity.

94) Essex Pictures spent $5 million to buy the rights to a best-selling novel. During

preproduction, the film company hired an experienced screenwriter to adapt the novel for the screen; engaged a director, cinematographer, and crew; cast both the starring and supporting roles; rented cameras and other equipment; and scouted houses and other locations in New Orleans. Which of the following pairs of resources are both intangible?

A) cameras and other equipment; screenwriter’s experience adapting novels B) money spent to buy rights to the novel; houses and other locations in New Orleans C) rights to the best-selling novel; screenwriter’s experience adapting novels for the screen D) rights to the best-selling novel; houses and other locations in New Orleans

95) Southwest Airlines (SWA) has enjoyed a sustained competitive advantage, allowing it to

outperform its competitors over several decades. Continental and Delta attempted to copy SWA with their offerings of Continental Lite and Song airlines, respectively. Neither Continental nor Delta, however, was able to successfully imitate the resource bundles and firm capabilities that make SWA unique. Which of the following is this case an example of?

A) resource immobility B) resource heterogeneity C) resource imitation D) resource substitution

96) Which of the following provides an example of how a firm’s valuable resource can be

imitated?

A) To compete with Build Your Own’s model of the Eiffel Tower, Best Replica came out with a model of a generic medieval cathedral.

B) To compete with Build Your Own’s model of the Eiffel Tower, Best Replica came out with a model of the Leaning Tower of Pisa.

C) To compete with Build Your Own’s model of the Eiffel Tower, Best Replica came out with a model of the U.S.S. Enterprise aircraft carrier.

D) To compete with Build Your Own’s model of the Eiffel Tower, Best Replica came out with a model of a castle from a fantasy movie.

97) Which of the following describes a situation in which firms acquire resources at a low cost,

laying the foundation for a competitive advantage later?

A) better expectations of future resource value B) path dependence affecting current decisions C) causal ambiguity D) social complexity

98) Which of the following best exemplifies social complexity as an isolating mechanism?

A) Amanda’s Cosmetics attempted to imitate how Michele’s Makeup combined its

management and product development systems, with little success.

B) Amanda’s Cosmetics failed to acquire the resources for its eyeliner at a low cost and thereby lost its competitive advantage over Michele’s Makeup.

C) Amanda’s Cosmetics had difficulty competing with Michele’s Makeup because it could not access the many makeup factories in Ohio as easily as its competitor.

D) Amanda’s Cosmetics did not fully understand the reasons for the success of Michele’s Makeup and therefore had difficulty competing with the firm.

99) Dynamic capabilities are especially important for surviving and competing in markets that A) shift quickly and constantly.

B) shift slowly and intermittently.

C) remain constant.

D) remain unpredictable.

100)

Bright-White has been the leader in denture-cleaning products for almost 40 years.

However, the company has relied too long on its competency of cleaning dentures without refining or upgrading other aspects of its product. As a result, other denture-cleaning companies began to offer denture-cleaning products with all-natural whitening agents and anti-bacterial agents, which helped them gained a competitive advantage over Bright-White.

This case is an example of A) core rigidity.

B) dynamic capabilities.

C) resource flow.

D) core competency.

101)

To reduce the amount of time it takes to apply packaging to its finished products, North Star Foods is implementing new equipment at its production plants. By doing this, North Star is addressing a in the value chain analysis.

A) primary activity B) secondary activity C) support activity D) premier activity

102)

Leo’s Magic Rails maintains a manufacturing plant overseas. The local government has just been overthrown by a military group that opposes foreign influence in the country.

According to the SWOT analysis, the political situation in this location is considered to be an A) external opportunity.

B) external threat.

C) internal strength.

D) internal weakness.

103)

After conducting a SWOT analysis, your firm has decided to focus on addressing issues located in the Weaknesses–Opportunities quadrant. Which of the following steps are you most likely to take?

A) Devote more resources to an extremely popular advertising campaign to promote an exciting new product.

B) Shut down struggling retail outlets in an economically depressed region.

C) Deploy top sales personnel to prevent buyers from migrating towards lower-priced competition.

D) Reorganize the inefficient research and development department to bring innovative products to market more quickly.

104)

Differentiate between a firm’s resources and capabilities.

105)

Describe the core competencies of any three successful companies in today’s business environment and give an example of one core competency for each company.

106)

Elaborate on the resource-based view of competitive advantage.

107)

Compare and contrast tangible and intangible resources, and give examples for each..

108)

Discuss resource immobility as a critical assumption in the resource-based model of a firm.

109)

Briefly describe the VRIO framework.

110)

In the context of the VRIO framework, what is a valuable resource, and how does it allow a firm to increase its economic value creation??

In the context of the VRIO framework, what is meant by “organized to capture value,” and how can a firm fully exploit the competitive potential of its resources, capabilities, and competencies?

111)

112)

Elaborate on time compression diseconomiesand how this affects strategic decisions.

113)

Describe causal ambiguity and provide an example of how it can act as a barrier against imitation of a firm’s valuable resources.

114)

Explain dynamic capabilities and how these capabilities can help a firm sustain its competitive advantage.

115)

Provide a concrete example of how dynamic capabilities can benefit firms.

116)

Define resource stocks and resource flows, and differentiate them with the help of the bathtub metaphor.

117)

Define the value chain.

118)

Explain how the distinct activities of a firm help in achieving a competitive advantage.

119)

Explain the value chain perspective of a firm’s competitive advantage.

120)

Provide examples of the primary activities in a firm’s value chain.

121)

Provide examples of the support activities in a firm’s value chain.

122)

How do strategic leaders benefit from conducting a SWOT analysis?

123)

Elaborate on a drawback of SWOT analysis with the help of an example.

124)

Explain what a strategic activity system is and how it can lead to a competitive advantage.

125)

Define isolating mechanisms and explain how they work to help firms strengthen their competitive advantage.

126)

Describe the two critical assumptions of the resource-based view.

Answer Key Test name: Chapter 4 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) A 14) C 15) A 16) C 17) A 18) A 19) D 20) C 21) A 22) A 23) A 24) A 25) A 26) C 27) C 28) D 29) C 30) A 31) D 32) D 33) C 34) D 35) D 36) C 37) B

38) B 39) C 40) D 41) B 42) D 43) B 44) C 45) D 46) C 47) B 48) A 49) A 50) D 51) B 52) B 53) A 54) C 55) B 56) B 57) D 58) D 59) D 60) A 61) C 62) D 63) C 64) B 65) D 66) A 67) C 68) C 69) A 70) C 71) B 72) A 73) A 74) A 75) D 76) A 77) C

78) D 79) B 80) A 81) B 82) D 83) D 84) B 85) A 86) C 87) D 88) A 89) D 90) C 91) C 92) C 93) B 94) C 95) A 96) B 97) A 98) A 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A A B D Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121) 122) 123) 124) 125) 126)

Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

Chapter 5: Shared Value and Competitive Advantage Student name: 1) One aspect of ESG criteria focuses on areas such as diversity, equity, inclusion, health and

safety, and human rights. ⊚ true ⊚ false

2) A detergent manufacturer decides to clean up the waterways it uses even though no federal,

state, or local laws require the firm to do this. The firm’s managers believe that the cleanup will improve the company’s image and benefit the environment. This scenario is an example of shareholder capitalism. ⊚ true ⊚ false

3) The term “tragedy of the commons” refers to a problem that affects a company’s shareholders

but not its management or board of directors. ⊚ true ⊚ false

4) Creating shared value (CSV) differs markedly from corporate social responsibility (CSR). ⊚ true ⊚ false

5) A CSV perspective leads to tinkering with isolated components as needed; in contrast, the

CSR approach is an integral part of a firm’s competitive strategy from the beginning. ⊚ true ⊚ false

6) When the value that a customer attaches to a good or service exceeds the price paid for the

good or service, this is a consumer surplus. ⊚ true ⊚ false

7) A strategic leader’s only responsibility is to monitor and assess the performance of their firm. ⊚ true ⊚ false

8) The efficient-market hypothesis suggests that the market price of a firm’s stock is an

objective indicator of a firm’s past, current, and expected future performance. ⊚ true ⊚ false

9) A firm will always see its stock price appreciate when it demonstrates measurable growth. ⊚ true ⊚ false

10) Competitive advantage goes to the firm that maximizes the difference between the cost of

producing a good and the retail price that consumers pay. ⊚ true ⊚ false

11) Managers must first develop a strategy that is likely to produce a competitive advantage

before implementing a balanced-scorecard approach. ⊚ true ⊚ false

12) Competitive advantage is assessed relative to a benchmark, either competitors or the industry

average. ⊚ true ⊚ false

13) A sustainable strategy is one that produces a competitive advantage that can be maintained

over time. ⊚ true ⊚ false

14) A strategy that has provided competitive advantages in the past will most likely do so in the

future. ⊚ true ⊚ false

15) What does ESG stand for in corporate strategy?

A) ethical, sustainable, global B) environmental, social, governance C) environmental sustainability goals D) economic and societal goals

16) Which of the following goals relates to the E dimension of ESG criteria for evaluating

company performance?

A) We will oppose all forms of racial, gender, and sexual discrimination.

B) We will reduce our carbon footprint by 50 percent or more in five years.

C) We will adhere to universally accepted and accurate accounting principles.

D) We will guarantee fair wages and human rights throughout out supply chain.

17) Which of the following goals relates to the G dimension of ESG criteria for evaluating

company performance?

A) We will oppose all forms of racial, gender, and sexual discrimination.

B) We will reduce our carbon footprint by 50 percent or more in five years.

C) We will adhere to universally accepted and accurate accounting principles.

D) We will guarantee fair wages and human rights throughout out supply chain.

18) Lourdes owns Benefice Corporation and wants to maintain a dual focus on creating

shareholder value while at the same time increasing value for society as a whole. Lourdes is following the A) balanced scorecard framework.

B) shared value creation framework.

C) shareholder capitalism framework.

D) philosophy of Milton Friedman.

19) Josie wants to invest in the stock market but is afraid of losing more money than what she

invests. Josie need not worry because of A) limited liability for investors.

B) transferability of investor ownership.

C) legal personality.

D) separation of legal ownership and management control.

20) Which of the following statements is true of shareholders in a public stock company?

A) They directly supervise and coordinate the manufacture of products and delivery of

services.

B) They are granted a charter of incorporation by the state and legally own company stock.

C) They are the centerpiece of corporate governance.

D) They are appointed by a board of directors to oversee the company’s management.

21) Stark Industries is a public stock company. Which of the following statements about the

company best illustrates the fact that its investors have limited liability?

A) Employees of Stark Industries are legally permitted to invest their capital in the company’s stock.

B) Employees of Stark Industries are also the owners of the company.

C) Shareholders of Stark Industries are responsible to the company only to the capital they have invested.

D) Shareholders of Stark Industries are not permitted to trade their company stock at the New York Stock Exchange (NYSE).

22) Joaquin owns shares in a company called Maxapro Inc. The company’s financial

performance has been declining over the past few months, and the value of its stock has been decreasing. Joaquin wants to proactively cut his losses and therefore sells his shares. Miriam, a trading enthusiast, buys shares in Maxapro Inc. because she believes that the share prices cannot go anywhere but up. Which of the following characteristics of a public stock company does this scenario best exemplify?

A) separation of legal ownership and management control B) legal personality C) limited liability for investors D) transferability of investor ownership

23) Axe Capital is a public stock company. Which of the following best exemplifies the legal

personality of the company?

A) Luis, a shareholder, can legally sell shares of Axe Capital in the stock market.

B) Jennifer is a shareholder of Axe Capital but does not have any managerial duties.

C) Will, an employee at Axe Capital, is not responsible for any losses that Axe Capital incurs.

D) Axel, the company’s founder, died a few years ago, yet the company is doing well.

24) Grace founded First Plainfield Bank in 2003. Ten years later, the company went public.

Despite Grace’s death in 2021, the company reported a 75 percent increase in revenue in 2022. Which of the following characteristics of a publicly traded company does this scenario best exemplify?

A) transferability of investor ownership B) legal personality C) limited liability for investors D) separation of legal ownership and management control

25) A problem that arises when individuals, companies, or nations pursue their own self-interest

without considering the well-being of society or the global community is known as a A) competitive disadvantage.

B) Nash equilibrium.

C) black swan event.

D) tragedy of the commons.

26) An example of a classic tragedy of the commons problem is A) Hurricane Katrina.

B) climate change.

C) the 9/11 terror attacks.

D) the Enron accounting scandal.

27) PolyCon Inc. is a public stock company that provides natural gas for businesses. Although

this company generates a large profit, management’s focus on reducing costs caused the maintenance budget to be trimmed. Its pipelines have at times leaked, which created significant environmental problems. As a result, the company’s value creation has suffered.

This scenario supports strategy scholars’ warning that public companies A) often do not keep economic needs and societal needs separate from each other, thereby contributing to low value creation.

B) have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events.

C) do not focus enough on increasing firm profits, thereby contributing to low value creation.

D) have defined value creation too narrowly and as a result have ignored political lobbying, thereby contributing to black swan events.

28) According to Michael Porter and Mark Kramer, which of the following is a problem with

many publicly traded companies?

A) Shareholders of publicly traded companies do not have a legitimate claim on profits.

B) They have defined value creation too narrowly in terms of financial performance.

C) There is no transferability of stock ownership in publicly traded companies.

D) Publicly traded companies have no legal standing and are not responsible for their debts.

29) Which of the following characteristics of a public stock company deals with principals and

agents?

A) B) C) D)

limited liability of investors transferability of investor ownership separation of legal ownership and management control legal personality

30) What do strategy scholars believe is the result of executives’ pursuit of strategies that define

value creation too narrowly in public stock companies?

A) It gives the managers greater control of the performance of the organization in the long term.

B) It reduces the trust of shareholders in the organization as a vehicle for value creation and societal welfare.

C) It helps companies increase firm profits by creating shared value while benefitting society.

D) It enables companies to create social value by addressing society’s needs but prevents them from creating economic value for shareholders.

31) Which one of the following statements below can best be linked to the Nobel laureate Milton

Friedman?

A) Corporate social responsibility is absolutely vital to a firm’s long-term success.

B) The social responsibility of a business is to increase its profits.

C) Corporate social responsibility is a universally accepted and practiced principle.

D) Corporate social responsibility should be incorporate in MNEs.

32) Ari is a firm believer in Milton Friedman’s view of a firm’s social obligations. With which of

the following statements is Ari most likely to agree?

A) Businesses can use their resources to create profit as long as they do so within the rules of the game.

B) Firms must go beyond their economic responsibility and act in socially responsible ways.

C) Firms should define value creation broadly in terms of environmental impact.

D) Businesses should engage in open and free competition without deception or fraud, only as long as their competitors do so.

33) According to the perspective of shareholder capitalism, shareholders in public stock

companies A) are restricted from buying shares of two competing companies.

B) have the most legitimate claim on profits.

C) have significant decision-making power.

D) have unlimited financial liability.

34) Which of the following perspectives best supports the shared value creation framework?

A) Markets are more often than not defined by societal needs rather than economic

needs.

B) Failing to create value for society almost always reflects on the bottom line.

C) A firm’s competitive advantage depends on pitting economic and societal needs in a trade-off.

D) Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.

35) Great Sound Inc. is a publicly traded company that specializes in manufacturing consumer

electronics. Which of the following best exemplifies the implementation of a shared value creation framework at Great Sound Inc.?

A) Great Sound’s employees work in shifts to adhere to the eight-hour workday rule.

B) Great Sound’s products are developed in a high-tech R&D facility based in Florida.

C) Great Sound uses recycled materials to create its commercially successful products.

D) Great Sound has a customer reward program for its most loyal customers.

36) Which of the following statements best supports the view that GE’s Ecomagination strategy

is in line with the shared value creation framework?

A) The Ecomagination strategy is the brainchild of the founder of the company.

B) The Ecomagination strategy helps GE spend more on research and development than other similar companies.

C) The Ecomagination strategy generated $16 billion in revenues for GE during 2020.

D) The Ecomagination strategy allows GE to produce “green” products while increasing revenue and competitive advantage.

37) Why does Michael Porter recommend expanding the customer base of an organization in

terms of the shared value creation framework?

A) Doing so could yield significant business opportunities that could improve the living standard of people living below the poverty line around the world.

B) Doing so is the best way to ensure that shareholders have the most legitimate claim on profits made by the organization.

C) Doing so could be the only way to meet stockholder expectations in a highly competitive market.

D) Doing so will help to prevent the inclusion of more nontraditional partners into internal firm value chains.

38) Grameen Bank in Bangladesh was founded to provide microcredit to impoverished farmers

who wanted to start their own entrepreneurial ventures that would help them climb out of poverty. This best exemplifies Michael Porter’s suggestion that A) managers need to keep economic needs and societal needs disconnected from each other.

B) a firm should expand its internal value chain to include nontraditional partners.

C) businesses should focus on creating regional clusters such as Silicon Valley in the United States.

D) the largest but lowest income socioeconomic group can provide significant business opportunities.

39) A company employing a CSV perspective focuses on A) citizenship, philanthropy, and fair-trade purchasing.

B) joint company, community, and societal value creation.

C) creating value through its competitive advantage.

D) the external public relations benefits of “doing good.”

40) Which of the following statements correctly describes the actions of a company applying a

CSV perspective?

A) The company is externally focused to address pressures that arise.

B) The company maintains focus on its citizenship and philanthropic activities.

C) The company maintains a competitive advantage that allows it to “do good.”

D) The company is internally focused, and its actions derive from deeply held beliefs.

41) Wellness Data Corp. focuses on its competitive advantage as its fundamental and top

priority; it uses some of its profits to do good in its community. This demonstrates A) a balanced scorecard.

B) creating shared value.

C) corporate social responsibility.

D) a sustained competitive advantage.

42) In the CSV framework, value creation is A) determined using a balanced scorecard.

B) an afterthought to citizenship and philanthropy.

C) focused on both economic benefits and societal benefits.

D) secondary to maintaining a competitive advantage.

43) Which of the following descriptions correctly characterizes a CSV perspective?

A) The company identity and budget are entirely aligned around creating shared value.

B) The company’s budget can easily be modified in response to shifting preferences.

C) The company commitment to social responsibility is subject to external pressures.

D) The company’s budget includes philanthropic contributions designed to “do good.”

44) Which of the following strategies represents a CSR perspective?

A) Northern Lights Industries uses only locally sourced, recycled materials to

manufacture its products.

B) Dream Co. financed a water-purification plant that helped its suppliers increase output for a lower cost while providing clean water to a rural community.

C) Westminster Law Associates donates professional services to an organization providing legal aid to recent immigrants.

D) Crane’s considers its technical support of organic soybean farmers in its supply chain to be an investment rather an expense.

45) The strategic decision to design a supply chain to provide higher quality products at a lower

cost while also reducing environmental impact represents A) a CSV approach.

B) shareholder capitalism.

C) fair-trade purchasing.

D) a competitive advantage.

46)

is the benefit that is missed or given up when an investor, individual or business chooses one alternative over another.

A) Value creation B) Opportunity cost C) Accounting profitability D) Reservation price

47) Abdul and Laticia both love hot coffee. Abdul likes to keep his coffee hot during the day,

while Laetitia doesn’t mind drinking room temperature coffee. Abdul is willing to spend more money on a thermos than Laticia is willing to spend. This example illustrates the following major limitation of employing the economic value creation framework because A) overall macroeconomic factors such as the unemployment rate, and interest and exchange rates all have a direct bearing on stock prices.

B) determining the value of a good/service through the perspective of consumers is not a simple task because consumers have different spending habits.

C) accounting data focus mainly on tangible assets, which are no longer the most important.

D) accounting data are historical and thus backward-looking.

48) Under the

framework, producer surplus is important in the quest for competitive advantage because this is the profit that a firm captures when producing and selling a good or service.

A) economic value creation B) accounting profitability C) shareholder value creation D) PESTEL

49) The types of assets that are the primary focus of accounting data but are no longer most

important to competitive advantage are A) market brand value.

B) organizational culture.

C) intangible.

D) tangible.

framework, the question “How do we create value?” is relevant when trying to improve innovation and organizational learning.

A) triple-bottom-line B) economic value creation C) balanced scorecard D) operational effectiveness

50) Under the

51) Yoon-gi is attempting to measure how his customers view his firm. To do this, he uses the

balanced-scorecard framework because he knows that A) customer surveys will help him determine future industry attractiveness.

B) this will guarantee his company a sustainable competitive advantage.

C) the framework will help him increase his stock price.

D) the customer perspective is directly linked to firm revenues and profits.

52) Which of the following is considered a limitation of employing the balance-scorecard

framework?

A) providing guidance about the right metrics to use B) accommodating both short- and long-term metrics C) designing and planning business processes D) translating the company vision into measurable goals

53) FMC Corp., a chemical manufacturer, has over 5,000 employees spread across several SBUs

that collectively generate more than $3 billion in annual revenues. FMC’s strategic leaders initially focused solely on financial metrics as their key performance measure, but the company is failing to achieve competitive advantage in its industry. Which of the following questions should FMC’s senior leadership consider while implementing the balancedscorecard framework?

A) How do we become the customer’s most valued supplier, and how can we create this value for the customer?

B) What corporate strategy will enhance our firm’s chances of gaining and sustaining a competitive advantage?

C) Where should we compete in terms of industry, markets, and geography?

D) When should we decide to divest assets and prepare for an exit strategy?

54) Which of the following answers is one of the three dimensions that make up the triple-

bottom-line framework?

A) principles B) producer C) profits D) price

55) Denise is the CEO of a profitable business called 4-Ever-Sun Inc. which harnesses solar

power, a renewable energy source that is sustainable over time. Instead of pursuing a sustainable competitive advantage, Denise decides to focus on minimizing detrimental effects on society and the planet. This strategy is known as A) sustainable strategy.

B) the balanced scorecard.

C) corporate diversification strategy.

D) cost leadership strategy.

56) Managers can justify using the balanced-scorecard framework because research shows that

both performance dimensions are important when examining the effectiveness of a firm’s strategy.

A) economic and stock market B) quantitative and qualitative C) customer survey and peer evaluation D) financial and accounting

57) The balanced-scorecard framework is a tool for strategy A) implementation, not formulation.

B) analysis, not sustainability.

C) formulation, not implementation.

D) sustainability, not economic value creation.

58) Nalani is trying to determine if her company has a competitive advantage. She must be able

to accomplish two critical tasks before she can substantiate this claim. First, she must assess the performance of her company accurately; second, she must A) assess her capital and liquid position to ensure funding for future projects.

B) focus on creating value by utilizing operational effectiveness such as Six Sigma and lean manufacturing.

C) compare and benchmark her firm’s performance to other competitors in the same industry.

D) ensure the right strategic leaders are in place that can execute her strategy.

59) Which of the following statements is true of accounting data?

A) Accounting data focus mainly on intangible assets, rather than tangible assets.

B) Accounting data are historical data and thus backward-looking.

C) Accounting data do not have to be adjusted to compare companies with different

capital structures.

D) Accounting data consider off-balance-sheet items, such as pension obligations of a firm.

60) Which of the following competitively important assets is typically excluded from a firm’s

balance sheet?

A) land and building B) accounts payable C) patents D) customer experience

61) Which of the following reports is a publicly traded firm required to file each year with the

U.S. Securities and Exchange Commission?

A) Form 10-K B) Form 40-F C) Form 990-N D) Form 1120-S

62) What is captured in a firm’s book value?

A) intangible assets B) future expectations C) tangible assets D) competitive advantage

63) Intangible assets that have become much more important to a firm’s competitive advantage

include A) B) C) D)

64)

real estate holdings. return on equity. return on revenue. intellectual property.

are the legal owners of public companies.

A) Employees B) Shareholders C) Category captains D) Creditors

65) Which of the following is an external performance metric?

A) return on revenue B) fixed assets turnover C) inventory turnover D) total return to shareholders

66) From a shareholder’s perspective, the measure of competitive advantage that matters most is

the A) B) C) D)

return on risk capital. economic value created. consumer surplus. inventory turnover.

67) Return on risk capital primarily includes A) stock price appreciation plus dividends received over a specific period.

B) consumer surplus plus firm profit.

C) account receivables plus account payables.

D) economic value created by a firm plus reservation price.

68)

, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.

A) Total return to shareholders B) Earnings per share C) Receivables turnover D) Dividend yield

69) A firm has 10 million shares outstanding, and each share is traded at $100. Also, each

shareholder gets a dividend of $2,000 annually. In this case, the market capitalization is A) 10,000 shares; that is,10 million shares/$100.

B) $200,000; that is, $2,000 × $100.

C) $1 billion; that is, 10 million shares × $100.

D) 20:1; that is, $2,000/$100.

70) The market capitalization of a public company is $5 billion. Each share of the company is

traded at $200. What do you infer from this financial data?

A) The firm’s number of outstanding shares is 25 million.

B) The firm pays an annual dividend of 10 percent.

C) The firm’s total return to shareholder is $5 billion.

D) The firm’s economic value created is $5 billion.

71) Which of the following expressions accurately describes market cap?

A) It is the product of the number of outstanding shares and the share price.

B) It is the difference between the book value and the market value of a firm’s assets.

C) It is the ratio of a firm’s equity finance and its debt finance.

D) It is the difference between a firm’s account receivables and account payables.

72) Unlike the financial ratios based on accounting data, total return to shareholders is A) backward-looking and historic in nature.

B) an external and forward-looking performance metric.

C) an absolute measure of competitive advantage.

D) unaffected by market volatility or macroeconomic factors.

73) You are the CEO of a tech company and have recently undertaken a review of your

company’s strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?

A) Consider this evidence of a sustainable competitive advantage and maintain your current strategy.

B) Compare the current valuations with past valuations to determine a trend.

C) Assume your current strategy has failed and begin to formulate a new one.

D) Compare your valuation to firms in another industry.

74) Which of the following is a disadvantage of measuring firm performance through total return

to shareholders and firm market capitalization?

A) Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.

B) These tools fail to indicate how the stock market views all available public information about a firm’s expected future performance.

C) These tools measure competitive advantage in absolute terms rather than relative terms.

D) Only the book value of the share prices is taken into account when applying these measures, and not the market value.

75) In determining the competitive advantage of a firm, the NASDAQ Computer Index and the

S&P 500 are examples of A) valuations.

B) benchmarks.

C) reporting standards.

D) accounting metrics.

76)

is best described as the difference between a buyer’s willingness to pay for a product or service and a firm’s total cost to produce it.

A) Economic value created B) Break-even point C) Consumer surplus D) Cost of capital

77) A firm incurs $600 to manufacture a computer. In the market, customers are willing to pay a

maximum of $800 for the computer priced at $700. The difference of $200 ($800 – $600) is the A) consumer surplus.

B) total return to shareholders.

C) customer lifetime value.

D) economic value created.

78) Both Watchdog Inc. and Device Corp. incur a cost of $200 to manufacture a single unit of a

smart home pet monitor. However, Watchdog Inc. charges a higher price than Device Corp. does, but it still sells a higher number of monitors. What does this imply?

A) Watchdog and Device Corp. have achieved a competitive parity.

B) Device Corp. has a competitive advantage over Watchdog Inc. C) Watchdog creates more economic value than Device Corp. does.

D) Device Corp. is not charging enough for its product.

79) A wearable technology company has priced one of its wristwatches at $210. Most of its

competitors sell similar watches at $180. Selling at any price less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch?

A) $150 B) $180 C) $170 D) $210

80) A firm incurs $100 to manufacture an office table. It fixes the market price of the table as

$250 and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?

A) $250 B) $200 C) $180 D) $100

81) The difference between the price charged for a product and the cost to manufacture it is

referred to as the A) consumer surplus.

B) break-even price.

C) producer surplus.

D) reservation price.

82)

denotes the dollar amount a consumer would attach to a good or service.

A) Utility B) Value C) Consumer surplus D) Economic contribution

83) The value a consumer attaches to a product or service is captured in the A) least price a consumer is willing to pay for it.

B) consumer’s maximum willingness to pay for it.

C) expenses incurred by the firm in manufacturing it.

D) difference between the price charged for it and the cost to produce it.

84) After trying on a jacket, a consumer assesses it to be worth a maximum of $100 and is

willing to pay that amount to buy it. However, the jacket is priced at $80. What is the amount, $100, referred to as?

A) the producer surplus B) the firm’s cost ( C) in manufacturing the jacket C) the consumer surplus D) the value ( V) the consumer attaches to the jacket

85) How does a firm capture its producer surplus for a good or service?

A) as cost per unit sold B) as profit per unit sold C) as earnings per share D) as market price per share

86) Sarah paid $900 for a camera that she thought was worth $1,100 for all the features included

in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. What is the consumer surplus in this scenario?

A) $200 B) $550 C) $900 D) $1,100

87) Economic value creation is best expressed as A) producer surplus minus consumer surplus.

B) consumer surplus minus cost of production.

C) consumer surplus plus firm profit.

D) producer surplus plus firm profit.

88) Superior Screen Corp. incurs a cost of $750 to produce one unit of an OLED television. The

company’s management has priced the product at $1,000 in the market. Considering the technological advancement of the television, customers perceive its value to be around $1,200. What is the economic value created in this scenario?

A) $250 B) $350 C) $450 D) $550

89) By selling a tablet at $1,000 for which consumers are willing to pay up to $1,200, a consumer

electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1,200 – $1000) + $400, is the A) opportunity cost.

B) economic value created.

C) reservation price.

D) consumer surplus.

90) In an economic context, strategy for producers is primarily about A) distributing the economic value created equally between consumers and themselves.

B) reducing the difference between consumer’s willingness to pay for a product and the

cost to produce it.

C) capturing the economic value created as much as possible.

D) lowering producer surplus and increasing consumer surplus.

91) Competitive advantage goes to the firm that achieves the A) largest economic value created.

B) lowest producer surplus.

C) highest payable turnover.

D) highest Cost of goods sold/Revenue ratio.

92) Good Grains Inc. and Village Bread Co. both produce similar whole grain loaves of bread.

For both companies, the cost of producing a loaf of bread is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?

A) Increase total perceived consumer benefits through differentiation.

B) Raise prices above the current reservation price.

C) Lower prices to the break-even price.

D) Increase the number of stock market shares available to investors.

93) The cost of capital to create a product is a fixed cost because it is A) directly proportional to the output level.

B) uniform throughout all firms and industries.

C) not a part of the profit calculations.

D) unaffected by consumer demand.

94)

are best described as the value of the best forgone alternative use of the resources employed.

A) Variable costs B) Opportunity costs C) Social costs D) Switching costs

95) Dante is a recent fashion graduate. He started his own apparel store with an investment of

$300,000. In the first year he made a profit of $60,000. If he had taken up a job as a fashion editor for a magazine, he would have earned $50,000 as salary per year. Also, he could have invested his capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Dante’s A) social cost.

B) break-even price.

C) reservation price.

D) opportunity cost.

96) When ASI Inc. declared a dividend of $20,000,000, its market value increased from $8

billion to $8.5 billion. However, it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million. Thus, this $200 million is referred to as ASI Inc.’s A) producer surplus.

B) consumer surplus.

C) opportunity cost.

D) social cost.

97) Which of the following is an advantage of applying the economic value creation perspective

to assess a firm’s performance?

A) When the need for “hard numbers” arises, managers and analysts rely on economic value creation perspective to measure competitive advantage.

B) In the economic value creation perspective, analysts not only consider historical costs, but also opportunity costs.

C) Arriving at the economic value created is easy because determining the value of a good in the eyes of consumers is a simple task.

D) It is the most efficient tool for assessing corporate-level competitive advantage of highly diversified companies with large product portfolios.

98) Skyward Robotics produces electronic components used in drones. In fiscal year 2022,

Skyward Robotics earned an accounting profit of $3 million. However, Skyward’s production facilities might have also been used to produce components for smartphones, which would have generated $2 million in revenues and saved the company $500,000 in production costs.

Which of the following statements is true?

A) Skyward Robotics earned an economic profit of $5.5 million.

B) Skyward Robotics earned an economic profit of $500,000.

C) Skyward Robotics suffered an economic loss of $500,000.

D) Skyward Robotics suffered an economic loss of $2.5 million.

99) Which of the following frameworks used to measure competitive advantage relies on both an

internal and an external view of a firm?

A) the economic value creation model B) the accounting profitability model C) the shareholder value creation model D) the balanced-scorecard model

100)

Which of the following statements is true of the balanced scorecard?

A) It is a more or less a one-dimensional metric of measuring competitive advantages of a firm.

B) It is one of the traditional approaches of measuring firm performance.

C) Its primary focus is to base a firm’s strategic goals entirely on external performance dimensions.

D) It attempts to provide a holistic perspective on firm performance.

101)

Which of the following is an advantage of the balanced scorecard?

A) It is a tool for both strategic formulation and strategic implementation.

B) It allows managers to translate a firm’s vision into measurable operational goals.

C) The balanced scorecard is independent of the skills of the managers responsible for its implementation.

D) Its implementation is a one-time effort and does not require continuous tracking of metrics or updating of strategic objectives.

102)

The balanced scorecard can accommodate A) only short-term performance metrics.

B) only long-term performance metrics.

C) both short- and long-term performance metrics.

D) neither short- or long-term performance metrics.

103)

Amber is the manager of gardening supplies wholesaler DigIt Inc. The company’s vision is to become the leading supplier of gardening materials in the New England. In assessing the firm’s current state, Amber has determined that the firm could differentiate itself from competitors with an easy-to-use online ordering system and a two-day delivery guarantee. To accomplish this, Amber has determined that DigIt must spend the next two quarters honing its capabilities for sourcing materials quickly and improving its web development competencies. According to the balanced-scorecard approach, what is wrong with Amber’s thinking?

A) She has not considered the opportunity costs associated with launching an online ordering system.

B) She has not addressed the question of which core competencies the firm needs.

C) She has failed to account for external factors such as customer perceptions and shareholder perceptions.

D) She has not addressed the question of how DigIt will create value.

104)

Which of the following is a disadvantage of the balanced-scorecard approach?

A) It fails to link the strategic vision to responsible parties within the organization.

B) It fails to translate the vision into measurable operational goals.

C) It provides limited guidance for designing and planning business processes.

D) It provides limited guidance about which metrics to choose.

105)

Which of the following statements about competitive advantage is true?

A) Superior firm performance is unrelated to competitive advantage.

B) Competitive advantage cannot be assessed relative to a benchmark.

C) Competitive advantage has been linked to a firm’s triple bottom line.

D) Shareholder value is the best measure of competitive advantage.

106)

Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm’s financial performance?

A) the triple-bottom-line approach B) the economic value creation framework C) the accounting profitability approach D) the balanced-scorecard approach

107)

The tenet behind the triple-bottom-line is that A) a firm should solely focus on increasing the economic value created to/for its customers.

B) a firm’s primary objective should be increasing the total returns to its shareholders.

C) a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

D) a firm’s return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue.

108)

The management team for Forever Power came up with the following vision statement: “Forever Power will conscientiously track its financial performance to ensure profits for its investors, enhance its community through employment and supporting charities, and dispose of waste in a manner that will not harm the environment.” This vision statement is most likely based on the A) accounting profitability approach.

B) economic value creation approach.

C) triple-bottom-line approach.

D) balanced-scorecard approach.

109)

How does a sustainable strategy typically help a firm?

A) It helps the firm focus solely on its financial goals.

B) It reduces the need for corporate social responsibility within the firm.

C) It facilitates the firm in effectively isolating its external stakeholders.

D) It helps the firm achieve positive results along the social and ecological dimensions.

110)

Which of the following scenarios exemplifies a sustainable strategy under the triplebottom-line approach?

A) Rather than complying with restrictive recycling laws in the United States, Chemicor outsourced its manufacturing to a country with fewer environmental restrictions.

B) Chemicor developed an additive that doubled the life of its plastics. The chemical was legal, but environmental groups argued that it harmed the environment.

C) Chemicor reformulated its products to eliminate chemicals that were widely used in the industry but were being investigated for their potential negative effects on the environment.

D) Chemicor’s nearest competitor increased the salaries of its production workers by 30 percent, but Chemicor kept its wages the same to gain a cost advantage over its competitor.

111)

112)

Which of the following is an advantage of a triple-bottom-line approach?

A) The approach takes an integrative and holistic view in assessing a company’s performance.

B) The approach does not rely on an external view of a firm to assess its performance.

C) The approach is more of a quantitative performance metric rather than a mere conceptual framework.

D) The framework can help managers assess a firm’s competitive advantage without taking into account the firm’s performance along noneconomic dimensions.

The top management at Konex Vitamins, through rigorous testing, ensures that the company develops and sells vitamins that are free of harmful side effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Konex Vitamins are applying the approach to measure firm performance.

A) economic value creation B) shareholder value creation C) triple-bottom-line D) accounting profitability

113)

Describe a challenge facing capitalism and how it has affected our shifting understanding of the firm from a primary focus on profit maximization to a focus on creating shared value.

114)

How does Nobel laureate Milton Friedman’s view of the firm’s social obligations tie in with shareholder capitalism?

115)

How does GE exemplify the creation of a shared value creation framework?

116)

Define the CSV and CSR perspectives, and give an example of how each may affect a company’s actions.

117)

Discuss the limitations associated with using accounting data to measure competitive performance.

118)

Accounting data focus mainly on tangible assets, which are no longer a company’s most important assets. Elaborate on this statement.

119)

What is risk capital?

120)

What does “total return to shareholders” mean?

121)

What are the drawbacks of using total return to shareholders and firm market capitalization to measure firm performance?

122)

What is the relationship between producer surplus and consumer surplus?

123)

List the dimensions on which a firm can create greater economic value.

124)

What pricing options does a firm have when the difference between V, the consumer’s willingness to pay, and C, the cost to produce the good or service, is large?

125)

How does consumer demand affect fixed costs and variable costs?

126)

What are opportunity costs in general? What are the opportunity costs for entrepreneurs?

127)

What are the advantages of the balanced scorecard?

128)

Discuss the four key questions managers need to answer when using the balanced scorecard to develop strategic objectives.

129)

How does the triple-bottom line approach help managers? Explain with the help of an example.

The term “competitive advantage” is difficult to measure. However, you recall that strategists use a multidimensional perspective when measuring competitive advantage. Label and describe the three standard dimensions used when measuring a firm’s competitive advantage.

130)

Answer Key Test name: Chapter 5 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) B 16) B 17) C 18) B 19) A 20) B 21) C 22) D 23) D 24) B 25) D 26) B 27) B 28) B 29) C 30) B 31) B 32) A 33) B 34) D 35) C 36) D 37) A

38) D 39) B 40) D 41) C 42) C 43) A 44) C 45) A 46) B 47) B 48) A 49) D 50) C 51) D 52) A 53) A 54) C 55) A 56) B 57) A 58) C 59) B 60) D 61) A 62) C 63) D 64) B 65) D 66) A 67) A 68) A 69) C 70) A 71) A 72) B 73) B 74) A 75) B 76) A 77) D

78) C 79) C 80) C 81) C 82) B 83) B 84) D 85) B 86) A 87) C 88) C 89) B 90) C 91) A 92) A 93) D 94) B 95) D 96) C 97) B 98) B 99) D 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D B C C D C A C C D C A C Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130)

Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

Chapter 6: Business Strategy: Differentiation, Cost Leadership, and Blue Oceans Student name: 1) Applying the five forces model to business-level strategy allows managers to assess the

benefits and risks of both cost-leadership and differentiation strategies. ⊚ true ⊚ false

2) Due to the dynamic nature of business competition, firms must constantly evaluate and adjust

their strategic position over time. ⊚ true ⊚ false

3) Differentiation and cost-leadership strategies are only effective in manufacturing industries. ⊚ true ⊚ false

4) The goal of the differentiator is to have a smaller value gap than competitors. ⊚ true ⊚ false

5) The major value drivers that managers have at their disposal include product features,

customer service, and complements. ⊚ true ⊚ false

6) When a firm operates at the minimum efficient scale, there is still opportunity for it to further

reduce its cost per unit through economies of scale. ⊚ true ⊚ false

7) A firm operating on an 80 percent learning curve will achieve lower per-unit costs after

doubling its output than a firm operating on a 70 percent learning curve will. ⊚ true ⊚ false

8) A differentiator will always benefit when products have become commoditized. ⊚ true ⊚ false

9) A cost leader is the firm least likely to survive a price war. ⊚ true ⊚ false

10) When pursuing a blue ocean strategy, a firm in a crowded marketplace attempts to out-

compete rivals by providing a leap in value creation, thereby opening new and uncontested market spaces. ⊚ true ⊚ false

11) Differentiators tend to score highly on most competitive elements on a strategy canvas, while

cost leaders tend to hover near the bottom of the strategy canvas. ⊚ true ⊚ false

12) A value curve that zig zags across the strategy canvas indicates a lack of effectiveness in a

firm’s strategic profile, suggesting the firm has experienced inferior performance and a sustained competitive disadvantage. ⊚ true ⊚ false

13) Which of the following questions should strategic leaders ask while formulating a business-

level strategy?

A) When should we introduce our product/service in the market?

B) What customer needs, wishes, and desires will we satisfy?

C) How do the employees, shareholders, and customers view us?

D) Which corporate governance mechanisms should we use?

14) In order for a firm to formulate an effective business-level strategy, it is important to

remember that competitive advantage is determined by A) the characteristics of both the industry and the firm.

B) the characteristics of the firm alone.

C) the characteristics of the industry in which a firm competes.

D) the amount of market share a firm can gain.

15) The broad question that business-level strategy answers is A) when B) where C) who D) how

the firm will compete.

16) Differentiation, focused differentiation, cost leadership, and focused cost leadership are A) competitive advantages.

B) value innovations.

C) business strategies.

D) performance metrics.

17) The fact that both Whole Foods (a high-end grocery store) and Aldi (an inexpensive grocery

store) have a competitive advantage in the grocery store industry is an indication that A) following a different generic business strategy within the same industry can lead to a competitive advantage for more than one organization.

B) following the same generic business strategy can allow for two firms competing in the same industry to have a competitive advantage at the same time.

C) in order to evaluate whether Whole Foods has a sustained competitive advantage it is useful to compare it to Aldi from a cost perspective.

D) in order to evaluate whether Aldi has a sustained competitive advantage, it is useful to compare it to Whole Foods from a differentiation perspective.

18) Whole Foods focuses on a small market segment, affluent consumers who want to buy high-

end, organic groceries. What is the appropriate name for Whole Foods’s scope of competition?

A) focused B) broad C) specific D) general

19) Mohawk is a leader in sustainable and innovative carpeting and floorings, as evidenced by its

signature product, the world’s first organic cotton carpet. Its product is unique and has appealing customer attributes. If Mohawk’s raw material costs increased by 12 percent this year, what would be the likely outcome?

A) Mohawk would lower profit margins to absorb this cost increase.

B) The company would launch an all-out effort to reduce other costs by 12 percent.

C) Mohawk would pass a major portion of this increase along as a price increase to its customers.

D) Mohawk would seek lower-cost materials, even if it meant losing the carbon-neutral label on the product.

20) Customer service and

are two of the value drivers that managers can utilize when trying to improve a firm’s differentiation strategic position.

A) product uniqueness B) experience curve C) cost of input factors D) economies of scale

21) When pursuing a cost-leadership strategy, a business must remember that A) buyers will be reluctant to pay for a product unless the quality is acceptable.

B) buyers will be reluctant to pay for a product unless the quality is superior.

C) buyers will be reluctant to pay for the product unless it is customized.

D) product quality is more important in a broad market than in a narrow one.

22) One of the reasons that big box retailers like Home Depot are able to achieve economies of

scale is that A) they have both broad and narrow economies of scope.

B) they maximize their scale efficiencies by stocking more inventory and handling it more efficiently.

C) they are able to take advantage of market size and spread investment losses over many locations.

D) they have been able to protect themselves from the threat of buyer power by increasing input prices.

23) When a firm is able to successfully employ a blue ocean strategy, it will create a competitive

advantage by A) combining high quality and product features to provide service that customers truly value.

B) using a first-mover advantage to be the lowest price in the market.

C) winning market share with a highly differentiated product.

D) beating rivals on product attributes while offering a better price.

24) One of the risks of pursuing a blue ocean strategy is that a firm can find itself A) losing sight of its mission and vision.

B) competing with only a differentiation strategy.

C) stuck in the middle without a clear strategic position.

D) ineffective when competing on an international scale.

25) Bigger & Better Inc. is a big-box retailer in direct competition with Walmart and Target.

Bigger & Better Inc. initially tried to respond to Walmart by cutting its prices and reducing costs. Walmart has greater buying power and a more efficient supply chain; therefore, Bigger & Better Inc. was not able to compete on costs. The company then tried to differentiate itself by signing a celebrity to create an in-house line of clothing. However, Target has a celebrity clothing line that has a more differentiated appeal. The economic value created by Bigger & Better Inc. is currently less than Target and Walmart. It can be said that A) Bigger & Better Inc. is successful in creating an integration strategy positioned between Walmart and Target.

B) Bigger & Better Inc. is “stuck in the middle” and has a competitive disadvantage.

C) Bigger & Better Inc. is still creating an integration strategy positioned between Walmart and Target and is on the right track. It should continue this business strategy.

D) Bigger & Better Inc. is “stuck in the middle” and has a competitive advantage.

26) Activate Equipment Inc. has been successful at differentiating itself from competitors by

claiming a premium price for its treadmills based on integrated HD displays, workout tracking capabilities, and advanced technology. In this scenario, which of the following is the key value driver?

A) product features B) economies of scale C) low-cost input factors D) customer service

27) Marriott is able to create greater economic value than its competitors due to its ability to take

advantage of , which describe the savings that come from producing two (or more) outputs at less cost than producing one output individually, while utilizing the same amount of resources and technology.

A) diseconomies of scale B) economies of scope C) economies of scale D) cost of input factors

28) The goal of a strategic position is to create the largest gap possible between the

a firm creates through its offerings and the A) value; cost B) marketing; innovation process C) market share; defensive strategy D) gap; ROIC

that

required to create these offerings.

29) Evaluate the following statement: Strategic leaders should always try to pursue a blue ocean

strategy because it is the most complex, coveted, and most desirable strategy that exists.

A) I agree; firms should always pursue a blue ocean strategy because the benefits outweigh the cost.

B) I agree; firms should pursue a blue ocean strategy because it’s harder for competitors to replicate.

C) I disagree; firms should never pursue a blue ocean strategy because it’s much too complex.

D) I disagree; firms should only pursue this strategy if they are able to reconcile the tradeoffs of each generic strategy.

30) Which of the following statements about business-level strategies is true?

A) After choosing a strategy, firms must define the scope of competition.

B) Manufacturing firms should pursue a cost-leadership strategy.

C) A focused differentiation strategy offers broader market opportunities.

D) None of the business-level strategies is inherently superior.

31) A

primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

A) business-level strategy B) code of ethics C) mission statement D) functional-level strategy

32) Which of the following is a firm effect that has an impact on the competitive advantage of a

firm?

A) the exit barriers within the industry in which the firm operates B) the number of companies operating in the industry in which the firm operates C) the intensity of rivalry among existing companies in the firm’s chosen industry D) the value and the cost position of the firm relative to its competitors

33) A firm’s business strategy can lead to a competitive advantage if it allows the firm to A) execute the same activities performed by the rivals in a similar manner.

B) reduce the value gap.

C) perform different activities than its rivals.

D) position itself below the productivity frontier.

34) When a firm makes choices between a cost or value position to achieve competitive

advantage, it is primarily involved in A) collective bargaining.

B) strategic tradeoffs.

C) arbitration.

D) mediation.

35) Skin Science Inc. produces a line of skincare products that it sells at higher prices than its

competitors. The company has a large and loyal customer base due to its unique formulations, high-quality ingredients, and superior customer service. Which of the following generic business strategies has Skin Science adopted in this scenario?

A) cost-leadership B) differentiation C) market penetration D) product diversification

36) University Home Goods is a home furnishings company that caters to college students and

other highly price-conscious customers. Through its simple designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is University Home Goods applying?

A) cost-leadership B) differentiation C) niche marketing D) product diversification

37) Which of the following examples uses a focused differentiation strategy?

A) a tennis pro shop that sells high-quality, custom racquets priced at $350 dollars per

racquet B) a coffee shop that offers mediocre lattes and brewed coffee at a price of $5 per small cup C) a hotel chain that offers high-quality furnishings and service with room rates under $75 per night D) a clothing brand that offers gender-neutral hoodies and sweatpants priced at $20 per item

38) Fatima is the owner of a remodeling company that caters to a very wealthy clientele. Her

company has struggled to differentiate itself from the other high-end remodelers in the area, but because she has hired several expensive but highly qualified team members, Fatima is unable to shift to a cost-leadership strategy. Which strategy is most likely to achieve a competitive advantage?

A) Offer similar remodeling services as competitors but raise prices to increase profits.

B) Lower prices but continue employing high-paid expert designers and tradespeople.

C) Narrow the scope of competition and focus on unique features such as using premium materials.

D) Maintain prices but replace all the expert employees with less-skilled workers to control costs.

39) Sophie’s sandwich shop offers burgers and sandwiches similar to national competitors in the

fast-food market but at a much lower price. What strategy is Sophie’s using?

A) cost-leadership B) differentiation C) niche marketing D) product diversification

40) Which of the following best describes a strategic tradeoff?

A) the tension between innovation and keeping manufacturing costs down B) the tension between maintaining both high-quality products and service C) the tension between value creation and the pressure to keep costs in check D) the tension between raising prices and keeping a loyal clientele

41) Five Star Inc. is a knife manufacturer known for its high-quality steel chef’s knives, and it

follows a differentiation strategy. In this scenario, Five Star Inc. should ideally compare its strategic position with a A) knife company that sells refurbished steel knives.

B) knife retailer that sells high-end, premium knives.

C) knife maker that manufactures low-priced knives.

D) knife maker that produces high-end chef’s knives.

42) Tablette Corp. is a consumer electronics company known for its affordable mobile devices

that follows a cost-leadership strategy. In this scenario, Tablette Corp. should ideally compare its strategic position with A) a company that sells small kitchen appliances at affordable prices.

B) a consumer electronics company that sells high-end devices.

C) a consumer electronics company popular among price-conscious customers.

D) an online company that sells customized electronics accessories.

43) In a focused cost-leadership strategy, a firm A) caters to the segment of the market that is least cost sensitive.

B) provides high-priced products for many different segments of the mass market.

C) delivers low-cost products and services to a specific, narrow part of the market.

D) focuses on reducing the economic value created to drive down costs.

44) Bath & Chill is a spa that caters to the needs of a small percentage of highly health-conscious

consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Bath & Chill is following a A) product diversification strategy.

B) liquidation strategy.

C) broad differentiation strategy.

D) focused differentiation strategy.

45) Both Lorenzo’s Engines and Water King incur a cost of $5,000 to manufacture a boat engine.

However, the economic value created by Water King is more than that created by Lorenzo’s Engines. What does this indicate?

A) Lorenzo’s has a competitive advantage over Water King.

B) Both Lorenzo’s and Water King have achieved competitive parity.

C) Water King can charge a premium price on its boat engines.

D) Lorenzo’s has created a higher value gap than Water King.

46) When a differentiator charges a similar price as its competitors in the same strategic group

but offers more perceived value, it A) loses its competitive advantage.

B) gains market share from other firms.

C) lowers the economic value created.

D) results in diseconomies of scale.

47) Product features, customer service, and complements are all examples of important A) cost curves.

B) cost drivers.

C) value curves.

D) value drivers.

48) Which of the following is primarily a value driver?

A) cost of input factors B) economies of scope C) experience-curve effects D) product features

49) How does availability of complements act as a value driver?

A) Complements add value to a product by offering an inferior substitute to it.

B) Complements add value to a product by competing with it.

C) Complements add value to a product when they imitate it.

D) Complements add value to a product when they are consumed in tandem with it.

50) Greenfield Apparel differentiates itself from competitors by offering high-fashion clothing

items created using only certified sustainable fabrics and manufactured in environmentally friendly facilities. This business strategy implies that Greenfield Apparel focuses on A) decreasing the existing value gap by providing luxury goods to customers.

B) maintaining a less steeper learning curve as compared to its competitors.

C) increasing the perceived value created for customers, which allows it to charge a premium price.

D) lowering its costs compared to its competitors, while offering adequate value for its products.

51) Golden Soles has been successful at differentiating itself from competitors by claiming a

premium price for its athletic footwear based on superior design and high-quality materials.

In this scenario, which of the following is the key value driver?

A) economies of scale B) low-cost input factors C) product features D) premium prices

52) Power Juice is a firm that produces sports drinks. Because a number of firms in the industry

are competing on cost, Power Juice executives have decided to pursue a differentiation strategy. In this case, the company should A) focus on adding unique product or packaging features that customers will value.

B) concentrate on improving process technologies to achieve economies of scale.

C) enforce strict budget controls at all levels of the organization.

D) devote research-and-development resources to reducing the value gap.

53) When wireless service providers offer free or discounted mobile phones for subscribers to

their wireless voice and data service, the perceived value of the service offering increases. In this case, the value driver would be A) economies of scale.

B) learning-curve effects.

C) experience-curve effects.

D) availability of complements.

54) Finish Line Athletics Inc. is a chain of gyms. It offers a fitness package that allows its

members to use the gym facilities for 15 months by paying only for a year. Included in the package are two free yoga classes and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Finish Line’s primary value driver is A) economies of scale.

B) learning-curve effects.

C) availability of complements.

D) experience-curve effects.

55)

Value drivers contribute to a firm’s competitive advantage only if A) the increase in value creation exceeds the increase in costs.

B) they can shrink the firm’s value gap.

C) they can restrict the firm from claiming a premium price for its products.

D) the decrease in perceived value leads to an increase in costs.

56) While Eye Windows incurs a cost of $12 for a pair of eyeglasses, Dura Frames, its

competitor, manufactures a pair of glasses at $10. Both the companies are able to sell their glasses for a maximum of $30 per pair. Which of the following statements is true in this scenario?

A) Eye Windows and Dura Frames have achieved differentiation parity.

B) Eye Windows is a cost-leader when compared to Dura Frames.

C) Eye Windows has created a greater economic value than Dura Frames.

D) Dura Frames has a higher opportunity cost than Eye Windows.

57) Summit Technology Inc. manufactures soundbars for $100 per unit, and the maximum price

customers are willing to pay is $475 per unit. Sound Gold Inc. is a competitor of Summit Technology that produces soundbars for $150 per unit, and customers are willing to pay a maximum price of $500 per unit. What does this imply?

A) Summit Technology and Sound Gold share differentiation parity.

B) Sound Gold has a competitive advantage over Summit Technology in terms of perceived value.

C) Summit Technology creates a greater economic value than Sound Gold.

D) Sound Gold is a cost leader when compared to Summit Technology.

58) Spotless Inc. outsources its production to contract manufacturers located in underdeveloped

nations where unskilled labor is at very low wages is plentiful. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Spotless Inc.’s strategic position?

A) network effects B) superior customer service C) availability of complements D) low-cost input factors

59) What must a cost-leadership strategy accomplish to be successful?

A) It must increase the firm’s cost above that of its competitors while offering adequate

value.

B) It must reduce the firm’s cost below that of its competitors while offering adequate value.

C) It must increase the firm’s cost above that of its competitors while offering superior value.

D) It must reduce the firm’s cost below that of its competitors while offering superior value.

60) How is differentiation parity different from cost parity?

A) Differentiation parity deals with pricing not innovation.

B) Differentiation parity deals with innovation not value.

C) Differentiation parity deals with pricing not value.

D) Differentiation parity deals with value not cost.

61) Vita Nova Inc. has recently introduced a new production method that will make the

manufacture of its patient-monitoring devices more cost-effective. Which of the following will most likely be the result of this innovation?

A) jumps to a steeper learning curve B) destabilizes a steeper learning curve C) stabilizes the existing learning curve D) moves down the existing learning curve

62) Which of the following is an accurate statement about learning effects?

A) Learning effects are captured at one point in time.

B) Learning effects occur over time as output accumulates.

C) Learning effects are significant in all production processes.

D) Learning effects can produce diseconomies.

63) Both Medical Manufacturing and R&D Health Inc. have developed advanced hearing aid

technologies. R&D’s hearing aids sell at $4,000 per pair, whereas Medical Manufacturing sells its hearing aids at $3,500 per pair. This price differentiation has mainly been attributed to the companies’ capital decisions. While Medical Manufacturing used its retained earnings to develop its technology, R&D Health borrowed funds from banks to develop its hearing aids. Thus, R&D pays a higher interest on its capital, which makes it necessary to price its product higher. Therefore, the key driver for Medical Manufacturing’s competitive advantage is A) low-cost input factors.

B) economies of scale.

C) superior customer service.

D) availability of complements.

64) In order to achieve a competitive advantage, the Heavenly Hotels, a chain of luxury beach

resorts, wants to increase its market share. Which of the following strategies is most likely to do so?

A) Maintain prices but significantly increase spending on customer service and other amenities.

B) Lower prices but eliminate several of the features that have come to define Heavenly Hotels properties for consumers, such as complimentary meals and in-room massages.

C) Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Heavenly Hotels brand image.

D) Raise prices without increasing spending on customer service or resort features.

65) Firms with greater market share might be in a position to reap economies of scale, which are A) decreases in cost per unit as output increases.

B) increases in cost per unit as output decreases.

C) decreases in output in a generic cost-leadership strategy.

D) increases in price in a focused cost-leadership strategy.

66)

is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.

A) Minimum efficient scale B) Break-even output C) Maximum output capacity D) Optimum sustainable yield

67) When a firm manufactures 2,000–3,000 units of a product, it incurs an average cost of $10

per unit. When it manufactures 3,000–4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm’s minimum efficient scale?

A) 2,000–3,000 units B) 3,000–4,000 units C) below 2,000 units D) above 4,000 units

68) When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the

production is between 10,000–12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

A) 9,000 units B) 11,000 units C) 13,000 units D) 15,000 units

69) CSL Fixtures enjoys a competitive advantage as a cost leader in the faucet manufacturing

industry because high demand for its products has allowed it to operate at the minimum efficient scale. Which of the following scenarios would be most concerning to the managers of CSL Fixtures?

A) CSL’s leading competitor develops a new leak-resistant product.

B) CSL’s most reliable production worker takes a job in another industry.

C) A major winter storm shuts down CSL’s production for several days.

D) A stainless steel shortage raises input costs across the faucet industry.

70) Durk’s Depot is a large chain of home improvement stores. It has cost benefits due to its

extensive operation. The company’s marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores.

This makes it difficult for smaller hardware stores, flooring retailers, and specialty paint stores to compete against Durk’s low prices. Thus, Durk’s Depot has a competitive advantage due to its A) superior customer service.

B) time compression economies.

C) economies of scale.

D) learning-curve effects.

71) When Total Semiconductors was operating at the minimum efficient scale of 10,000–12,000

units per month, the firm’s cost per unit was $45. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?

A) minimum efficient scale B) diseconomies of scale C) experience-curve effect D) learning-curve effect

72) A firm that is producing at an output level beyond the minimum efficient scale experiences A) diseconomies of scale.

B) a constant return to scale.

C) decreases in cost per unit.

D) a steep learning curve.

73) Snow Beast Equipment initially spent 10 worker hours to assemble each snow blower.

However, as unit production doubled, the number of hours spent on assembling a snow blower decreased by 20 percent. This increase in productivity reduced the company’s cost per unit. What is this phenomenon referred to as?

A) learning-curve effect B) network effect C) black-swan event D) time compression diseconomies

74) What does it mean for a firm to have an 80 percent learning curve?

A) Every time the cumulative output increases by 80 percent, the cost per unit will

decline by 20 percent.

B) Every time the cumulative output is doubled, the cost per unit will decline by 80 percent.

C) Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent.

D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

75) At a certain output level, the per-unit cost incurred by a firm to manufacture a product was

$70. Once the cumulative output doubled, the cost per unit reduced to $63. All other factors remaining constant, the firm has been able to achieve a(n) A) 80 percent learning curve.

B) 90 percent learning curve.

C) 60 percent learning curve.

D) 54 percent learning curve.

76) Trail Ready Tents faces stiff competition from Appalachian Equipment, a rival firm with

which Trail Ready has achieved differentiation parity. Both firms have invested in state-ofthe art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Trail Ready achieve a competitive advantage as a cost-leader?

A) Reduce the manufacturing staff by half to save on labor costs.

B) Increase spending to develop additional product features.

C) Have a cumulative output that is greater than Appalachian’s.

D) Cut costs by eliminating several features that customers value.

77) Combining economies of learning with the existing production technology allows a firm to A) move up a given experience curve.

B) move down a given learning curve.

C) jump to a less steeper learning curve.

D) jump to a flatter experience curve.

78) The concept of a(n)

attempts to capture both learning effects and process

improvements at firms.

A) managerial grid B) growth matrix C) experience curve D) diminishing utility curve

79) When a firm combines experience-based learning and process innovation, the firm A) jumps to a steeper learning curve.

B) experiences an increase in per-unit cost.

C) loses its competitive advantage.

D) moves down the existing learning curve.

80) Wang Services competes on cost with Kinsler McCloskey in the estate planning industry.

Both firms operate on a 90 percent learning curve, and neither firm is capable of increasing its cumulative output any further. How might Wang Services achieve a cost-leadership position while maintaining customer satisfaction?

A) by increasing the time the company spends on each client plan by 25 percent without raising prices B) by eliminating customer service features such as quarterly client consultations and newsletters C) by reducing its client base and lowering output while keeping staff and service levels the same D) by incorporating specialized document software to take advantage of experiencecurve effects

81) According to the five forces model, which of the following is viewed as a major risk to a

business pursuing a cost-leadership strategy?

A) competition switching from non-price attributes to pricing B) innovation that allows competitors to emerge with more economical replacements C) new entrants with small production scale D) suppliers requesting a 2 percent price increase across the industry

82) Which of the following sources of differential appeal is most effective in helping a firm

sustain its advantage?

A) a cost-leadership strategy B) an updated package design C) superior customer experience D) observable product features

83) A differentiator is least likely to be threatened by increases in input prices due to powerful

suppliers when the A) differentiator is able to create a significant difference between perceived value and current market prices.

B) differentiator is able to significantly reduce the value gap.

C) source of a competitor’s differential appeal is tangible rather than intangible.

D) new product features added raise costs but not the perceived value in the minds of consumers.

84) Center Street Supply Co. has successfully achieved a competitive advantage in the detergent

and cleaning solution industry as a differentiator. Which of the following scenarios would undermine Center Street’s position?

A) Center Street improves the formula for its most popular cleaner without increasing the price.

B) Center Street introduces a new biodegradable bottle that raises cost and perceived value.

C) Center Street’s customers start to consider cleaning solutions a commodity.

D) Center Street’s product has not established an acceptable standard of quality.

85) How is a cost leader protected from threats from powerful suppliers?

A) It is more able to absorb price increases through accepting lower profit margins.

B) It is more able to absorb price increases through generating higher profit margins.

C) It is able to create a significant difference between perceived value and current

market prices.

D) It is able to create a significant difference between actual value and future market prices.

86) Due to its large sales volume and low-cost structure, Bunny’s Lo-Cost enjoys a cost-

leadership position. Which of the following scenarios might threaten Bunny’s competitive advantage?

A) Existing competitors in the same industry lower their prices to match those of Bunny’s.

B) Industry suppliers raise their prices.

C) Competitors engage in an all-out price war.

D) A new competitor is perceived to provide similar value while offering better service than Bunny’s.

87) A differentiation strategy works best when a A) firm has tangible resources, its focus of competition shifts to price, and equivalent

substitutes are readily available.

B) firm’s focus of competition shifts to price, and when increasing differentiation of product features do not create additional value.

C) firm’s differentiated products are commoditized, and costs of providing uniqueness do not rise above the customer’s willingness to pay.

D) firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

88) In a successful

strategy, the trade-offs between differentiation and low cost are

reconciled.

A) blue ocean B) focused differentiation C) liquidation D) divestment

89) The primary goal of a firm pursuing a blue ocean strategy should be to A) create the highest perceived value in its respective industry.

B) build a reputation of being the lowest-cost producer in its chosen industry.

C) offer a differentiated product or service at a low cost.

D) achieve a less steep learning curve.

90) In the multiplex industry, Home Again Movies Inc. is an upscale multiplex that focuses on

superior customer experience. The firm charges premium prices for its movie tickets and services. Movies-for-Less Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is Just Right Films Inc., which offers a customer experience comparable to that of Home Again Movies at a price almost as low as that of Movies-for-Less. What strategy is Just Right Films pursuing in this scenario?

A) liquidation strategy B) product diversification strategy C) market penetration strategy D) blue ocean strategy

91) Antonia’s is a chain of casual restaurants that promises affordable Italian meals using top-

quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?

A) lowering the quality of ingredients below what customers expect to control costs B) eliminating brick-and-mortar locations and offering delivery from a central kitchen C) raising prices without improving on the quality of its food or customer service D) marketing itself as an upscale eatery to compete with more refined restaurants

92) How did Marriott use economies of scope to achieve greater economic value than its

competitors?

A) Marriott sees increases in cost per hotel unit as number of customers increases.

B) Marriott sees decreases in cost per hotel unit as number of customers increases.

C) Marriott lowered its cost structure by focusing its production assets on one type of hotel, which increased the diversity of its hotel line and thus its differentiated appeal.

D) Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.

93) Which of the following best explains why a blue ocean strategy is difficult to implement?

A) It combines the benefits of similar strategic positions—differentiation and low cost.

B) It requires the reconciliation of fundamentally different strategic positions—

differentiation and low cost.

C) It requires the combination of fundamentally similar strategic positions— differentiation and strategic innovation.

D) It requires the reconciliation of fundamentally different strategic positions— differentiation and strategic innovation.

94) Which of the following provides an example of a firm in a red ocean?

A) Foley Office Supply offered printers at a low price but failed to differentiate its

product as being exclusive.

B) Blue Desk Company matched the price of its closest competitors and had lower profit margins as a result.

C) Printers Inc. offered printers at a mid-range price but failed to differentiate its product as being of decent quality.

D) Village Electronics offered printers at a higher price than competitors and, as a result, failed to make a profit.

95) Open Window, a brand well known for producing vinyl and aluminum window blinds,

introduced a new range of faux-wood shutters and vertical blinds a few years ago. Because most of its products could be produced using the same resources and technology, the company’s cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is Open Window applying?

A) mass customization B) economies of scope C) learning-curve effect D) network effect

96) Which of the following drivers simultaneously increases value while lowering cost?

A) economies of scale B) superior customer service C) availability of complements D) innovation

97) When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear

cost-leadership profile. This situation is referred to as A) stuck in the middle.

B) buried at the bottom.

C) burned at the top.

D) caught in the transition.

98) A blue ocean strategy differs from a low-cost strategy in that A) the intent of a blue ocean strategy is not to be the absolute lowest-cost provider

because a blue ocean must also increase perceived value.

B) the focus of a blue ocean strategy is on lowering the economic value created, whereas a cost-leader focuses on increasing the economic value created.

C) economies of scale are more important to a blue ocean strategy, while economies of scope are more important to a cost-leader.

D) a blue ocean’s research and development focus is on process technologies, and a costleader’s focus is on product technologies.

99) A value curve indicates a lack of effectiveness in a firm’s strategic profile when it A) stays level.

B) zig zags.

C) trends downward.

D) trends upward.

100)

The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?

A) high price, high comfort, high customer service, high concessions variety, low hours of operation B) low price, high comfort, high customer service, high concessions variety, low hours of operation C) high price, low comfort, low customer service, high concessions variety, low hours of operation D) low price, low comfort, low customer service, low concessions variety, low hours of operation

101)

Which of the following describes an airline that is most likely stuck in the middle?

A) Stratosphere offers complimentary drinks and meals, coast-to-coast coverage via connecting hubs, plush airport lounges, and high prices.

B) Cloud Rider offers international routes and global coverage, high customer service, high reliability, and high prices.

C) Skypath offers high-quality beverages and meals, plush airport lounges, only a few connections via domestic hubs, poor customer service, and low prices.

D) Wingspan offers no assigned seating, no in-flight amenities, no drinks or meals, no airport lounges, and low prices.

102)

Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?

A) It failed to drive up the perceived customer value.

B) It failed to refine its strategic position over time.

C) It failed to move into a contested market space.

D) It failed to offer enough strategic trade-offs.

103)

To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on A) increasing cost and maintaining perceived customer benefits.

B) lowering cost and maintaining perceived customer benefits.

C) lowering cost and increasing perceived customer benefits.

D) increasing cost and increasing perceived customer benefits.

104)

The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called A) cost driving.

B) cost innovation.

C) value driving.

D) value innovation.

105)

Trader Joe’s successfully used a blue ocean strategy by offering lower-cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe’s was able to A) gain a market share and make up the loss in margin through increased sales.

B) create higher value creation and thus generate greater profit margins.

C) gain a market share and make up the loss in margin through increased pricing.

D) create higher value creation and thus generate greater sales.

106)

What are the key questions managers must answer to formulate an appropriate businesslevel strategy?

107)

What are the two different generic business strategies available to firms?

108)

Define scope of competition and its importance to business strategy in the context of the automobile industry.

109)

Describe complements as value drivers and give an example.

110)

When a firm pursues differentiation strategy, what does it focus on?

111)

What is higher value associated with?

112)

What is a value gap?

113)

What are the pricing options available to a firm following a differentiation strategy?

114)

What does a firm that pursues a cost-leadership strategy primarily focus on?

115)

List how economies of scale contribute to a firm.

116)

Discuss the important differences between economies of scale and learning effects.

117)

How do experience-curve and learning-curve effects help a business gain competitive advantage?

118)

119)

How does process innovation benefit a firm?

Why is keeping its costs the lowest in the industry not the only focus of a firm pursuing cost-leadership strategy?

120)

Discuss the threats firms face when they pursue a differentiation strategy.

121)

What does the success of business-level strategies depend on?

122)

Explain blue ocean strategy with the help of an example.

123)

What is required for a blue ocean strategy to succeed?

124)

Explain two ways to accomplish value innovation through either lowering costs or increasing perceived consumer benefits. Give an example of each of the two ways.

125)

Briefly explain the difficulties in pursuing a blue ocean strategy.

126)

Addell recently started a specialty baking business and proudly boasts that none of her competitors can replicate her unique flavor combinations and complicated, original cake designs. Her cakes are in high demand for weddings, birthdays, and other large events. As a result of her success, she’s considering expanding her operations and increasing production by 50 percent, but her accountant tells her that this expansion will substantially increase the per-unit cost of every cake. This news worries Addell because the price of her cakes is already very high, and she’s afraid of charging more. Addell asks you the following questions:

127)

Zeppelin has been working as a pizza maker for over ten years and has gained substantial knowledge of how the pizza business works. He wants to open up his own pizzeria and believes that he can drive his costs down lower than any competitor without sacrificing quality. What business-level strategy is he most likely to pursue and which key cost driver will most likely help him achieve success?

Answer Key Test name: Chapter 6 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) B 14) A 15) D 16) C 17) A 18) A 19) C 20) A 21) A 22) B 23) D 24) C 25) B 26) A 27) B 28) A 29) D 30) D 31) A 32) D 33) C 34) B 35) B 36) A 37) A

38) C 39) A 40) C 41) D 42) C 43) C 44) D 45) C 46) B 47) D 48) D 49) D 50) C 51) C 52) A 53) D 54) C 55) A 56) A 57) C 58) D 59) B 60) D 61) A 62) B 63) A 64) C 65) A 66) A 67) B 68) B 69) C 70) C 71) B 72) A 73) A 74) D 75) B 76) C 77) B

78) C 79) A 80) D 81) B 82) C 83) A 84) C 85) A 86) D 87) D 88) A 89) C 90) D 91) B 92) D 93) B 94) A 95) B 96) D 97) A 98) A 99) B 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A C B C D A Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121) 122) 123) 124) 125) 126) 127)

Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

Chapter 7: Business Strategy: Innovation, Entrepreneurship, and Platforms Student name: 1) Product innovation is more strategically important than process innovation while a firm is in

the growth stage of the industry life cycle. ⊚ true ⊚ false

2) Platform business models are not organized as traditional linear pipeline business models. ⊚ true ⊚ false

3) The pace of innovation has slowed in the 21st century. ⊚ true ⊚ false

4) The best way for a firm to keep its proprietary technologies, recipes, or formulas secret is to

obtain a patent. ⊚ true ⊚ false

5) For ideas and inventions to be innovative, they must avoid being commercialized. ⊚ true ⊚ false

6) Innovation and strategic entrepreneurship can only occur within new businesses. ⊚ true ⊚ false

7) Social entrepreneurs evaluate the performance of their ventures by ecological and social

contribution. ⊚ true ⊚ false

8) During the shakeout stage of the industry life cycle, the importance of process innovation

further increases while the importance of product innovation further declines. ⊚ true ⊚ false

9) According to the crossing-the-chasm framework, the biggest chasm between customer

segments is between early adopters and the mass market made up of the early majority and the late majority. ⊚ true ⊚ false

10) Innovation that targets new markets with existing technologies is known as disruptive

innovation. ⊚ true ⊚ false

11) Platform businesses are typically better than pipeline businesses at incorporating user

feedback and taking advantage of network effects. ⊚ true ⊚ false

12) Network effects always lead to a virtuous cycle in which an increasing number of customers

improves the quality of a product or service, thereby attracting more customers and continuing the cycle. ⊚ true ⊚ false

13) Mateo is the owner of Auto-Garage Opener Inc. and has recently modified his firm’s strategic

objective based on a shift in his industry. Mateo is responding to a(n) A) entrepreneurial B) economic C) growth D) industry

14) The type of customers vital to a firm introducing a new innovation are the

life cycle.

, who are

willing to buy early into new technology or product concept.

A) laggards B) early majority C) early adopters D) late majority

15) Which of the following is not an advantage when it comes to “first-mover advantages”?

A) First movers may be able to lock in key suppliers.

B) First movers may benefit from network effects.

C) First movers must educate potential customers about the product.

D) First movers may hold important intellectual property such as critical patents.

16) After social networking websites were introduced, their value increased exponentially as the

number of users increased. This is the positive effect of a(n) A) network effect.

B) confirmation effect.

C) impression management effect.

D) user effect.

17) Which of the following describes the group of customers referred to as the early majority?

A) They come into the market during the shakeout stage.

B) They are the last to come into the market.

C) They enter the market during the maturity stage.

D) They enter the market during the growth stage.

18) Generally, as the level of

innovation declines, the level of

innovation

increases.

A) process; product B) product; process C) process; incremental D) product; radical

19) Which of the following is true about the decline stage of an industry life cycle?

A) Product and process innovation efforts end.

B) Market growth is at its highest.

C) Market size is at its smallest.

D) Product innovation ends, but process innovation continues.

20) When a firm uses the tools and concepts learned from strategic management in order to

achieve competitive advantage by pursuing innovation, it is said to be engaging in A) a short-term strategy.

B) strategic invention.

C) a strategic venture.

D) strategic entrepreneurship.

21) The vast majority of innovations in an industry are

, because they build on a firm’s established knowledge base and steadily improve an existing product or service offering.

A) disruptive B) architectural C) radical D) incremental

22) A radical innovation leverages

on

markets.

A) new; existing B) existing; novel C) drastic; new D) required; established

markets, while incremental innovations are based

23) Digital photography replacing film photography is an example of which type of innovation?

A) incremental B) architectural C) radical D) disruptive

24) Lauren is the CEO of TimeEx Inc. and is competing in an industry that is shifting due to

disruptive innovation. Which of the following strategies should she consider to most appropriately respond to this disruptive innovation?

A) Lauren should guard against the disruptive innovation by protecting the low end of the market.

B) Lauren should stop allocating her firm’s resources toward continually trying to innovate.

C) Lauren should exit the industry before her firm files for bankruptcy.

D) Lauren should focus on procuring the “laggards” in her industry.

25) Incumbent firms prefer to focus on incremental innovations, which reinforce their established

organizational structure and power distribution and avoid radical innovation that could disrupt their existing balance of power. This is known as A) organizational inertia.

B) organization culture.

C) organizational design.

D) organization complexity.

26) Uber has become one of the largest transportation companies in the world, valued at more

than $100 billion in 2021, without owning a single car. Uber is an example of a A) pipeline business.

B) platform business.

C) strategic business unit.

D) a typical value chain driven business.

27) Which of the following below is considered an advantage of using a platform business

model?

A) B) C) D)

Platforms scale efficiently by implementing gatekeepers.

Platforms work within an existing industry based on physical assets.

Platforms benefit from a traditional system of horizontal business organization.

Platforms unlock new sources of value creation and supply.

28) Amina wants to create a networking site that would connect local artists to homeowners who

are looking for unique and original art. She knows that network effects will play a big role in her success and doesn’t want to build her business using a linear value chain. Amina would best be served by employing a(n) A) pipeline business model.

B) innovative social networking website.

C) razor-razor blade business model.

D) platform business model.

29) Which of the following accurately describes how Netflix used innovation to gain a

competitive advantage?

A) Netflix moved from content development to upgrading its data analytics to provide faster online streaming.

B) Netflix applied big data analytics to its user preferences to provide highly personalized viewing recommendations.

C) Netflix moved from online streaming to online DVD rentals via the Internet.

D) Netflix applied first-mover advantages to lock up talent needed to produce original content for DVD rentals and online streaming.

30) The typical four-step innovation process begins with A) the modification and recombination of an existing product or process.

B) the presentation of an idea as findings derived from basic research.

C) the commercialization of an invention by entrepreneurs.

D) a competitor’s attempt to imitate an innovation.

31) What is an invention?

A) the transformation of an idea into a new product or process B) a unique idea that has not been thought of before C) the transformation of an idea into a successful product D) a unique idea that has been patented

32) When Monopar Therapeutics released a new drug to treat insomnia, its chemical composition

was disclosed at the back of the drug’s cover. However, any attempts by competitors to copy the chemical composition would result in infringement of Monopar Therapeutics’ intellectual property rights. Thus, the drug is protected by a A) promissory bill.

B) patent.

C) franchise.

D) royalty.

33) In the United States, the time period for the right to exclude others from the use of a patented

technology is A) 20 years B) 25 months C) 15 months D) 25 years

from the filing date of a patent application.

34) As a research scholar, Danna researched and developed her idea of solar roof shingles.

Realizing the potential use of this product in both residential and commercial building development, she started a new venture where she could customize these shingles to fit the specific needs of the buyers and sell them. Danna can be best described as a(n) A) entrepreneur.

B) category captain.

C) franchisor.

D) early adopter.

35) Monopar Therapeutics at McKesson implemented an open-innovation model, which greatly

benefited the company. Knowing this information, we can conclude that Monopar Therapeutics is a(n) A) venture capitalist.

B) category captain.

C) intrapreneur.

D) early adopter.

36) How has Apple been able to sustain its competitive advantage in the smartphone industry?

A) by reducing its network effects B) by targeting its new products and services toward laggards C) by driving the price for the end user to zero D) by regularly introducing incremental improvements in its products

37) Which of the following is a competitive benefit experienced by the first-mover firm in an

industry?

A) The first mover will be able to achieve a less steep learning curve.

B) The first mover will be able to reduce the switching costs.

C) The first mover will not have to patent its products or technology.

D) The first mover will be able to reduce costs through economies of scale.

38) Imitation is the A) first B) second C) third D) fourth

step in the innovation process.

39) BellRing Brands is a manufacturer of educational toys for children. Six months ago, the

company’s research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should the managers of BellRing Brands prepare for next?

A) increased competition from imitators B) a prolonged period of uncontested success C) a sharp decline in demand for the product D) a difficult struggle to move from invention to innovation

40) As the inventor of hypertension medication, BioNTech SE Inc. was able to reap the benefits

of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of BioNTech SE’s patents, regular users did not want to switch because they were concerned about possible side effects. Which of the following benefits does this scenario best illustrate?

A) first-mover advantages B) social benefits C) network externalities D) fringe benefits

41) Prisha is the founder of the baby product manufacturer True Blue and Pink. She ensures that

the products offered by her company are manufactured with ethically and responsibly sourced materials. Most products are therefore 100 percent organic, and all packaging is manufactured from recycled material. Also, her company sources materials from other companies within 100 miles of her manufacturing plant. Prisha’s belief is that her company should be able to support the community at large. Which of the following terms best describes Prisha?

A) headhunter B) category captain C) social entrepreneur D) trade creditor

42) Which of the following scenarios would be characteristic of an entrepreneur?

A) John implemented a new and more efficient way to produce pottery.

B) Kaia imitated a new, more efficient method of producing pottery.

C) Hugo scaled back the production of pottery because it wasn’t cost effective.

D) Juana used a proven marketing method to advertise her pottery.

43) Which of the following is an example of social entrepreneurship? The committee approved

the new formula for an all-purpose cleaner because it A) cleaned better than other cleaners and used easy-to-obtain ingredients.

B) cleaned better than other cleaners and did not cost more to produce.

C) cleaned as well as other cleaners and could be produced more efficiently.

D) cleaned as well as other cleaners and used organic ingredients.

44) Feran is the founder of an innovative “impromptu catering” business that provides elegant,

healthy party food and decorations on less than 24 hours’ notice. The company has grown by over 150 percent in the past year. Feran credits some of the company’s success to studying the strategies of prominent social entrepreneurs, such as Wikipedia’s Jimmy Wales. What can Feran do to exemplify the social entrepreneurship model?

A) Launch a social media platform for food lovers.

B) Provide free weekly catered meals for the unhoused.

C) Seek investments from venture capitalists.

D) Buy out his closest competitors to ensure a competitive advantage.

45) The strategic objective of a first mover during the introduction stage of the industry life cycle

is to A) B) C) D)

pursue a harvest strategy. survive by drawing on deep pockets. achieve market acceptance. lower entry barriers.

46) Which of the following lists the stages of the industry life cycle in the correct order?

A) introduction, growth, shakeout, maturity, and decline B) introduction, shakeout, growth, maturity, and decline C) introduction, growth, maturity, shakeout, and decline D) introduction, shakeout, maturity, growth, and decline

47) A new product often has a high price when it is launched because of a A) large investment in designing a product while producing small quantities.

B) large investment in marketing a product while producing small quantities.

C) large investment in designing a product while producing large quantities.

D) large investment in marketing a product while producing large quantities.

48) UShredIt! has entered a stage in which the demand for their innovative document shredding

machines has declined. Now most customers are buying replacement parts or buying their second shredding machine from the firm. What stage in the industry life cycle does this scenario describe?

A) growth stage B) maturity stage C) shakeout stage D) decline stage

49) Which of the following describes a firm pursuing a harvest strategy?

A) The firm exits the industry by bankruptcy, liquidation, or divestments.

B) The firm reduces investments in product support and allocates only a minimum of

human and other resources.

C) The firm continues to support marketing efforts at a given level despite the fact that consumption for its product has been declining.

D) The firm buys out industry rivals to stake out a strong position.

50) Assume that the market for print book publishing has entered the maturity stage. Which of

the following would most likely exist during this stage?

A) a few start-up publishers B) many small to midsized publishers C) a few large publishers D) one large publisher

51) The leading producer of cell phone backup batteries, Progyny, has achieved great success

because it produces high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Progyny. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Progyny has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the stage.

A) introduction B) growth C) shakeout D) maturity

52) In the context of industrial growth, which of the following statements is true of standards?

A) Standards emerge exclusively from the bottom up through competition in the

marketplace.

B) As the size of a market expands, a standard signals the market’s agreement on a common set of engineering features and design choices.

C) Standards are exclusively imposed top down by government or other standard-setting agencies such as the Institute of Electrical and Electronics Engineers.

D) After a standard is established in an industry, the basis of competition tends to move away from process innovations toward product innovations.

53) In which of the following stages of the industry life cycle is a standard first established?

A) maturity stage B) growth stage C) shakeout stage D) introduction stage

54) Which of the following is a feature of the growth stage of the industry life cycle?

A) The consumer demand increases.

B) The prices of goods begin to rise.

C) The basis of competition moves away from process innovation.

D) The number of competitors decreases.

55) While cell phones with holographic keyboards are currently in the introduction stage of the

industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?

A) The industry for cell phones with holographic keyboards will face greater competition than the tablet industry.

B) While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.

C) While the industry for cell phones with holographic keyboards can reap the benefits of economies of scale, the tablet industry will experience no such benefits.

D) The industry for cell phones with holographic keyboards will face price competition, whereas, in the tablet industry, the mode of competition will be nonprice.

56) Which of the following statements accurately describes the distinction between the

introduction and growth stages of the industry life cycle?

A) There is more strategic variety in the growth stage when compared to the introduction stage.

B) The number of competitors is more in the introduction stage than the growth stage.

C) The market size for a new product or service is larger in the introduction stage when compared to the growth stage.

D) While achieving market acceptance is the strategic objective during the introduction stage, the objective in the growth stage is to pursue a harvest strategy.

57) The key objective for firms during the

phase is to stake out a strong strategic

position not easily imitated by rivals.

A) introduction B) growth C) shakeout D) maturity

58) Which of the following is a feature of the shakeout phase of the industry life cycle?

A) Standards begin to emerge in the industry.

B) Market demand in this stage primarily consists of first-time adopters.

C) Firms begin to compete directly against each other.

D) The mode of competition shifts from price to nonprice in this stage.

59) To be successful and to survive the shakeout stage of the industry life cycle, a firm should A) charge higher prices than its competitors.

B) focus on product innovation rather than process innovation.

C) gain economies of scale.

D) shift from price to nonprice competition.

60) In developed economies, the electric car industry is in the introduction stage, and the industry

for MP3 players is in the shakeout phase. What does this imply?

A) The mode of competition in the electric car industry will be based on price, whereas in the MP3 player industry, the mode of competition will be nonprice-based.

B) The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.

C) The electric car industry will move to the growth stage, whereas the industry for MP3 players will enter the growth stage next.

D) The industry for electric cars will primarily pursue an integration strategy, whereas in the MP3 players industry, the focus will be on differentiation.

61) Why is the phase after the growth stage of the industry life cycle referred to as the shakeout

stage?

A) B) C) D)

The barriers to entry increase during this stage.

The firms in the industry yield the highest profits during this phase.

Rivalry among competitors decreases in this stage.

The weaker firms are forced out of the industry in this stage.

62) Peloton Interactive is a manufacturer of high-definition televisions. The industry has gone

through a period of rapid growth and expansion and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Peloton Interactive a competitive advantage?

A) Implement process innovations that lower per-unit costs.

B) Introduce product innovations that differentiate Peloton televisions from the competition.

C) Imitate the features of the highest-selling television on the market.

D) Increase spending on marketing and attempt to acquire a high-profile celebrity spokesperson.

63) The market reaching its maximum size is a feature of the

stage of the industry life

cycle.

A) B) C) D)

growth shakeout maturity decline

64) While the domestic airline industry is in the maturity stage of the industry life cycle, the

internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?

A) The number of competitors will be greater in the domestic airline industry than the internet-enabled appliance industry.

B) The internet-enabled appliance industry is ahead of the domestic airline industry in the industry life cycle.

C) While the domestic airline industry is mostly free from excess capacity, the internetenabled appliance industry will have new entrants.

D) The mode of competition will be price based in the internet-enabled appliance industry and will be nonprice based in the domestic airline industry.

65) Which of the following conditions prevail when an industry is at the end of its life cycle?

A) Innovation efforts along both product and process dimensions cease.

B) The industry structure is perfectly competitive with a large number of buyers and

sellers.

C) The strategic objectives of businesses will involve gaining market acceptance.

D) The size of the market contracts further as demand increases.

66) The demand for flip phones has drastically reduced, and there are only a few consumer

electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?

A) growth stage B) maturity stage C) decline stage D) commercialization stage

67) Although Dynatrace Holdings still sells its DVD players, a product in its decline stage, the

investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department.

Which of the following strategies has Dynatrace Holdings adopted in this scenario?

A) harvest strategy B) maintain strategy C) consolidation strategy D) differentiation strategy

68) When the market for standalone Global Positioning System (GPS) devices declined with the

arrival of GPS-enabled mobile phones, InMode Ltd., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has InMode Ltd. adopted in this scenario?

A) harvest strategy B) maintain strategy C) consolidation strategy D) differentiation strategy

69) When a firm pursues a(n)

strategy, it continues to support marketing efforts even if the demand for the product is declining.

A) exit B) consolidate C) maintain D) harvest

70) On which of the following tenets is the crossing-the-chasm framework, suggested by

Geoffrey Moore, based?

A) The number and size of competitors remain constant throughout the industry life cycle.

B) Each stage of the industry life cycle is dominated by a different customer group.

C) Industries tend to follow an unpredictable industry life cycle.

D) The supply and demand sides of the market remain constant irrespective of the phase of the industry life cycle.

71) Which of the following customer segments as described in the chasm framework make up the

mass market?

A) the early and late majority together B) the early adopters alone C) the technology enthusiasts and laggards together D) the technology enthusiasts alone

72) Early adopters typically enter the market during the A) introduction B) growth C) shakeout D) maturity

stage.

73) Which of the following statements accurately brings out the difference between technology

enthusiasts and early adopters?

A) While the customer segment in the introduction stage consists of early adopters, the customers entering the market in the growth stage are technology enthusiasts.

B) Unlike technology enthusiasts, early adopters’ demand is fueled more by intuition and vision rather than technology concerns.

C) While early adopters make up the smallest market segment, technology enthusiasts make up the mass market.

D) Firms need to communicate products’ potential applications in a more direct way when attracting technology enthusiasts rather than early adopters.

74) Which of the following statements is true of the early majority section of consumers?

A) They come into the market during the introduction stage.

B) They are unaware that many hyped new product introductions will fade away.

C) They weigh the benefits and costs carefully when adopting a new product.

D) They make up the smallest market segment.

75) It is important for a firm to win over the early majority section of the market to ensure the

commercial success of an innovation because they A) are driven by technology concerns rather than the practicality of a new product.

B) influence the purchase decisions of early adopters.

C) enter into the market in large numbers, creating a herding effect.

D) have the highest purchasing power when compared to the other customer segments.

76) When does a firm fall into the large competitive chasm between early adopters and early

majority?

A) when it cannot attract technological enthusiasts to try the beta versions of its products B) when it creates strong network effects during the growth stage C) when it fails to successfully launch a mass-market version of its product D) when the early majority create herding effects for its products

77) At the time when Farrah decided to purchase a GPS system for her car, the product had just

become accessible to the mass market. She did not purchase the GPS until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and prominent magazines and websites such as Consumer Reports to endorse it. Which of the following customer segments does Farrah best represent?

A) laggards B) technology enthusiasts C) early adopters D) early majority

78) Jimmy prefers to buy from well-established brands rather than unknown new ventures.

Which customer segment does he fall under?

A) technology enthusiast B) early adopter C) early majority D) late majority

79) Afya Limited is a new firm that entered the smartwatch industry during the growth stage of

the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Afya Limited emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage?

A) advanced capabilities B) the company’s outsider status C) sleek and trendy design D) ease of use

80) While the personal computer industry is flooded and growing with laptops and tablets, Javier

recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Javier best represent?

A) early adopters B) category captains C) laggards D) early majority

81) Which of the following is a drawback of using the industry life cycle as a framework to guide

strategic choice?

A) The framework believes that the life cycle of industries is unpredictable.

B) The framework does not explain everything about changes in industries.

C) The framework is based on the tenet that industries can be rejuvenated even in the declining stage.

D) The framework believes that the number and size of competitors remain constant throughout the life cycle.

82) Bellissima Beauty is a cosmetics manufacturer. It has released an improved version of its

wrinkle-reducing night cream in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?

A) radical innovation B) incremental innovation C) architectural innovation D) disruptive innovation

83) In a radical innovation, a firm targets A) existing markets by using new technologies.

B) new markets by using existing technologies.

C) new markets by using new technologies.

D) existing markets by using existing technologies.

84) Which of the following describes organizational inertia?

A) when the market leader captures almost all of the market share B) a network of suppliers, buyers, and complementors C) a firm’s resistance to changes in the status quo D) an innovation that leverages new technologies to attack existing markets from the

bottom up

85) Incumbent firms favor incremental innovation over radical innovation because A) their business decisions are independent of the other parties in their innovation

ecosystem.

B) radical innovation will disturb the existing power distribution within the firms.

C) incumbent firms do not have formal organizational structures and processes like the way new entrants do.

D) incremental innovations help firms sustain a permanent competitive advantage, whereas radical innovations only help gain a temporary advantage.

86) Why is it easier for new entrants to get involved in radical innovations when compared to

incumbent firms?

A) Unlike incumbent firms, new entrants do not have to initially face the high entry barriers.

B) New entrants are embedded in an innovation ecosystem, while incumbent firms are not.

C) Unlike incumbent firms, new entrants do not have formal organizational structures and processes.

D) Incumbent firms do not have the advantages of network effects that new entrants have.

87) Which of the following describes an architectural innovation?

A) an innovation that leverages new technologies to attack existing markets from the

bottom up B) an innovation that was developed for emerging economies before being introduced in developed economies C) a new product in which known components, based on existing technologies, are reconfigured in a novel way to create new markets D) an innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base, comes from a recombination of existing knowledge bases with a new stream of knowledge

88) Adaptive Biotechnologies Inc. is a company that builds diagnostic devices. It was the first

company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?

A) disruptive innovation B) incremental innovation C) radical innovation D) architectural innovation

89) A(n) A) B) C) D)

leverages new technologies to attack existing markets. disruptive innovation incremental innovation radical innovation architectural innovation

90) As a startup company, Lumiere Industries entered the low end of the highly competitive

smart television industry with its low-cost televisions. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smart TVs in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?

A) radical innovation B) incremental innovation C) architectural innovation D) disruptive innovation

91) When Japanese carmakers entered the existing U.S. automobile market by first offering small

fuel-efficient cars and then leveraging their low-cost and high-quality advantages into highend luxury segments, they were engaging in A) regressive innovation.

B) radical innovation.

C) disruptive innovation.

D) architectural innovation.

92) Streaming video services replacing brick-and-mortar video rental stores would be an example

of a(n) A) B) C) D)

regressive innovation. radical innovation. architectural innovation. disruptive innovation.

93) Which of the following businesses is most likely to disrupt an existing industry?

A) Black Rock developed an earphone that receives emails and text messages and

converts them to voice messages. The first models had poor reception, but they rapidly improved over time.

B) Touch Tech Inc. reconfigured the components used in its touchscreen tablets to create a new type of wearable device for use in restaurants and other service industries.

C) Stark and Son’s developed a teleportation technology that can transport physical materials instantaneously across great distances.

D) GSX Techedu added advanced camera technology to its premium line of smartphones so that they would take the highest-quality photos of all phones on the market.

94) A factor favoring the success of disruptive innovation is that A) incumbent firms often are slow to change.

B) new entrants have highly formal organizational structures and processes.

C) the low end of the market is highly guarded.

D) incumbent firms focus on radical innovation rather than incremental innovation.

95) Which of the following is a strategy of incumbent firms to counter disruptive innovations?

A) Invest all of the firm’s time and resources into its top product or service.

B) Protect the low end of the market.

C) Stall its own disruption strategies and wait for its rivals to introduce disruptive forces.

D) Target a section of the market that is not particularly price sensitive.

96) Which of the following most accurately describes a difference between incremental

innovation and radical innovation?

A) Incremental innovation researches new materials; radical innovation researches new processes.

B) Incremental innovation targets new markets and technologies; radical innovation reinvents markets and technologies.

C) Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base.

D) Incremental innovation draws on novel methods; radical innovation draws on proven methods.

97) Xerox long dominated the high-end copier industry, but Canon captured the small and

medium-sized businesses by redesigning the copying machine so that it did not need professional service—reliability was built directly into the machine, and the user could replace parts, such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user friendly. This example describes A) architectural innovation.

B) incremental innovation.

C) radical innovation.

D) disruptive innovation.

98) Bright PAD introduced a tablet that could run completely on solar energy and was less

expensive than competitors’ tablets. On the downside, it required more frequent charging than the competition’s tablets. However, the technology of the Bright PAD tablet improved rapidly, thereby improving its recharge frequency. This example describes innovation.

A) architectural B) incremental C) radical D) disruptive

99) Which of the following scenarios best exemplifies a platform business?

A) Ayesha purchases electronic parts from a variety of vendors and assembles them into

inexpensive drones that she sells to consumers.

B) Samantha operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy.

C) Leo operates a consulting firm in which businesses hire him to assess deficiencies in their organizational culture.

D) Tereza founded a bike-based transportation company that offers environmentally friendly rides to customers within a 25-mile radius.

100)

Which of the following business models in the landscaping industry is likely to scale most efficiently?

A) a company that offers three different bundles of services at a low, medium, and high price point depending on the level of care required by the customer B) a company that deploys a team of both skilled and unskilled landscapers to each customer’s location regardless of their needs C) a company that charges the same hourly rate for landscaping services no matter what the situation requires D) a company that allows users of its website to schedule appointments with landscapers who specialize in the exact service required

101)

Revolve Group is a mobile platform that matches independent fashion designers with consumers who want a personalized wardrobe. Which of the following initiatives would best allow Revolve Group to fine-tune its offerings to better meet the needs of its consumers?

A) allowing users to provide feedback to producers on the style and fit of clothing B) conducting anonymous phone surveys about consumers’ fashion preferences C) hiring an outside consultant to evaluate the offerings of Revolve Group’s producers D) studying the financial records of various fashion design companies to determine trends

102)

Which of the following businesses is most susceptible to negative network effects?

A) Lite Shoes produces a line of lightweight running shoes that are endorsed by an Olympic gold medalist.

B) Chips & Boards Technologies produces computer processing chips and sells them to a variety of manufacturers for use in smartphones and other devices.

C) ECO Tools manufactures solar powered gardening implements and sells them online.

D) Rite Pics is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.

103)

Explain the reasons for increasingly rapid technological diffusion and adoption.

104)

What are the competitive benefits that first movers in an industry experience?

105)

Briefly discuss the steps in the innovation process.

106)

Define entrepreneurship. Provide one example of a successful entrepreneur and include the product or service for which they are known.

107)

Explain some of the features of the introduction stage of the industry life cycle.

108)

How is process innovation different from product innovation?

109)

In the decline stage, innovation efforts along both product and process dimensions cease.

Elaborate.

110)

Why do firms have more strategic variety in the growth stage of the industry life cycle?

111)

What happens during the shakeout stage of the industry life cycle?

112)

Briefly discuss the four strategic options firms have during the decline stage of the industry life cycle.

113)

Briefly discuss the strategic implications of the crossing-the-chasm framework.

114)

Discuss the drawbacks of the industry life cycle.

115)

Why do incumbent firms favor incremental innovation over radical innovation?

116)

Discuss the differences between pipeline businesses and platform businesses in terms of the value chain.

117)

Describe network effects and their potential to help or hurt a platform business.

118)

Identify the first stage in a typical industry life cycle and explain why early adopters are attracted to this stage.

119)

There are four types of innovation in the markets and technologies framework. Which of the four types is the most preferred? Why is it the most preferred?

120)

When a firm is in the decline phase of an industry life cycle, it has four strategic options.

Describe a harvest strategy and provide an example.

Answer Key Test name: Chapter 7 1) FALSE 2) TRUE 3) FALSE 4) FALSE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) D 14) C 15) C 16) A 17) A 18) B 19) A 20) D 21) D 22) A 23) D 24) A 25) A 26) B 27) D 28) D 29) B 30) B 31) A 32) B 33) A 34) A 35) C 36) D 37) D

38) D 39) A 40) A 41) C 42) A 43) D 44) B 45) C 46) A 47) A 48) B 49) B 50) C 51) B 52) B 53) B 54) A 55) B 56) A 57) B 58) C 59) C 60) B 61) D 62) A 63) C 64) C 65) A 66) C 67) A 68) C 69) C 70) B 71) A 72) B 73) B 74) C 75) C 76) C 77) D

78) D 79) D 80) C 81) B 82) B 83) C 84) C 85) B 86) C 87) C 88) D 89) A 90) D 91) C 92) D 93) A 94) A 95) B 96) C 97) A 98) D 99) B 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D A D Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120)

Short Answer Short Answer Short Answer

Chapter 8: Corporate Strategy: Vertical Integration and Diversification Student name: 1) Corporate strategy is focused solely on determining the geographic locations in which the

firm should compete. ⊚ true ⊚ false

2) All businesses are motivated by a need to grow. ⊚ true ⊚ false

3) The internal and external costs associated with an economic exchange are known as

interaction costs. ⊚ true ⊚ false

4) Firms are more capable than markets at coordinating highly complex tasks, while markets are

more capable of providing high-powered incentives for entrepreneurship. ⊚ true ⊚ false

5) Managers have exactly two choices when determining the boundaries of the firm: produce

goods and services in-house (“make”) or purchase them externally (“buy”). ⊚ true ⊚ false

6) A firm stops purchasing components from suppliers and starts producing them in-house. This

is known as forward vertical integration. ⊚ true ⊚ false

7) When outsourced activities take place outside the home country, it is known as offshoring. ⊚ true ⊚ false

8) A firm follows a related diversification strategy when it derives less than 25 percent of its

revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity. ⊚ true ⊚ false

9) The most challenging diversification strategy is likely to be one that combines new core

competencies with new and emerging markets. ⊚ true ⊚ false

10) Firms that pursue extremely high or extremely low levels of diversification perform better

than those that pursue moderate levels of diversification. ⊚ true ⊚ false

11) To gain and sustain competitive advantage, any corporate strategy must extend far beyond a

firm’s business strategy. ⊚ true ⊚ false

12) A firm that pursues unrelated diversification is often unable to create additional value. ⊚ true ⊚ false

13) Hector, owner of Hector’s Trucking, wants to figure out if his business should diversify its

range of services to gain an advantage over competitors. Business consultants have advised Hector to focus on the key question of where to compete. He would therefore be considering which of the following?

A) his functional strategy B) his transaction costs strategy C) his corporate strategy D) his external transaction costs strategy

14) Siobhan’s firm focuses only on design, marketing, and retailing, and it outsources all its other

value chain activities. This firm has A) a high degree of vertical integration.

B) fully integrated all aspects of its value chain.

C) a low degree of vertical integration.

D) achieved economies of scale.

15) Billy is the founder and CEO of Billy’s Kicks, a soccer ball retailer. He decides to purchase a

synthetic rubber manufacturing firm so he can create his own soccer balls and sell them nationally in his retail stores. Billy will engage in A) forward vertical integration.

B) backward vertical integration.

C) horizontal integration.

D) differentiation.

16) Jill is the CEO of Notes Etc., a stationery manufacturer. She decides to open up a retail store

to sell her products directly to consumers instead of just selling wholesale to retailers. To do this, Jill will need to engage in A) forward vertical integration.

B) backward vertical integration.

C) horizontal integration.

D) differentiation.

17) Sanjay, owner of WashTubs, a washing machine company, is looking for an alternative to

vertical integration. He decides to manufacture some of his own machine parts while keeping a few key suppliers in his industry value chain. This is known as A) a balanced scorecard.

B) forward vertical integration.

C) strategic offshoring.

D) taper integration.

18) A company that engages in strategic outsourcing reduces its level of A) vertical integration.

B) taper integration.

C) vertical market failure.

D) credible commitment.

19) Many financial service firms, IT firms, and health-care companies are among the most active

when it comes to , which occurs when value chain activities are taken care of outside the home country of the firm.

A) strategic outsourcing B) procurement C) offshore outsourcing D) diversification

20) Since Coca-Cola focuses on selling only non-alcoholic beverages, a low degree of product

diversification, we would conclude that it competes in a(n) competitor PepsiCo, which sells a wide variety of products.

A) single product B) multiple product C) related diversification D) unrelated diversification

market versus its main

21) Because Facebook receives almost all of its revenues from online advertising, we would

conclude that it would be characterized as a(n) corporate diversification.

A) single business B) dominate business C) related diversification D) unrelated diversification

firm, which has the lowest levels of

22) Jermaine’s Choppers sells Chandler Dogies, a special type of motorcycle. The business

generates roughly 80 percent of its revenues from selling these motorcycles and about 20 percent on motorcycle repair and service. Jermaine’s Choppers would be classified as a firm.

A) single business B) dominant business C) related diversification D) unrelated diversification

23) When examining the core competence–market matrix, the most challenging diversification

strategy occurs when firms attempt to combine with . If done successfully, the firm could have the potential for “mega-opportunities” that may lead to competitive advantage.

A) new core competencies; new markets B) new core competencies; existing markets C) existing core competencies; existing markets D) existing core competencies; new markets

24) Salesforce is one of the leading providers of platform as a service (PaaS) tools and services.

It developed a new competency in delivering software development that allows its customers to better customize their future needs. Viewing this through the lens of the core competence– market matrix, which of the following four options below does Salesforce best exemplify?

A) Salesforce leveraged existing core competencies to improve its current market position.

B) Salesforce built new core competencies to protect and extend its current market position.

C) Salesforce redeployed and recombined existing core competencies to compete in markets of the future.

D) Salesforce built new core competencies to create and compete in markets of the future.

25) Projecta is a publicly traded company and a highly diversified firm. But Projecta’s most

recent stock price is valued less than the sum of all its individual business units. Projecta is most likely experiencing a A) diversification discount.

B) diversification premium.

C) two for one split.

D) shareholder rights plan.

26) Danke is a diversified firm that creates more value than the cost that it incurs. As a result, it

is experiencing a diversification premium in its stock price. Danke is able to accomplish all of the following except A) provide economies of scale, which reduces Danke’s costs.

B) exploit economies of scope, which increases Danke’s value.

C) increase its costs but maintain its current stock price.

D) reduce Danke’s costs and increase value.

27) Anheuser-Busch InBev sold Busch Entertainment, its theme park unit that owns SeaWorld

and Busch Gardens, to a group of private investors. This strategic move allows InBev to focus more fully on its core business of brewing and distributing beer across the world. This is an example of A) restructuring.

B) corporate diversification.

C) a business level strategy.

D) the core competence–market matrix.

28) Haoyu plans to restructure the portfolio of all his firm’s strategic business units, similar to

how an investor might change a portfolio of stocks. To do this, Haoyu will more than likely employ which corporate planning tool?

A) value chain analysis B) Boston Consulting Group (BCG) growth-share matrix C) diversification premium D) VRIO

29) Amerie is the strategic business unit (SBU) leader in charge of manufacturing men’s bow

ties. While the market Amerie’s firm competes in is low growth, its SBU’s earnings and cash flow are both ranked high and stable. When examining Amerie’s SBU through the Boston Consulting Group (BCG) growth-share matrix lens, we can conclude that her SBU would be classified as a A) star.

B) dog.

C) question mark.

D) cash cow.

30) Rashad is the strategic business unit (SBU) CEO in charge of manufacturing stereo speakers

for computers and laptops. His SBU earnings and cash flow are both low and unstable.

Which of the following strategies should Rashad enact if examining his SBU through the Boston Consulting Group (BCG) growth-share matrix lens?

A) hold B) invest for growth C) harvest and/or divest D) allocate more resources for manufacturing

31) BookWizard, a large online and offline book-selling company, decides to enter the college

textbook market. Its goal is to create cobranded. university-specific websites that offer textbooks; clothing and accessories such as logo T-shirts and sweaters, baseball hats, and mugs; and a full range of peripheral items like notebooks, pens, art supplies, and the like.

This scenario shows BookWizard’s pursuit of A) geographic diversification.

B) product diversification.

C) vertical integration.

D) horizontal integration.

32) Decisions relating to the question of what stages of the industry value chain to participate in

determine a firm’s A) level of diversification.

B) geographic scope.

C) vertical integration.

D) competitive strategy.

33) Decisions relating to the range of products and services a firm will offer determine the firm’s A) level of diversification.

B) geographic scope.

C) vertical integration.

D) absorptive capacity.

34) Which of the following stakeholders of a company would most likely be responsible for

formulating a corporate strategy?

A) first-line employees B) creditors C) chief executive officer D) middle manager

35) Isaac has been named CEO of a start-up online educational company. Isaac and other

strategic leaders of the company will be setting the firm’s corporate strategy. Out of the following decisions, which will Isaac and his associates most likely make first?

A) whether to pursue a differentiation or cost-leadership strategy B) what range of products to offer C) how to achieve the highest levels of customer satisfaction D) which customer segments to target

36) The managers at Acme Corporation decided that their firm needed to diversify because of

overall falling sales and lower performance in one sector. How does diversifying compensate for the declining performance in this sector?

A) by having higher performance in another sector B) by sharing their market power C) by increasing the firm’s risk in another sector D) by motivating managers

37) There are many reasons why firms need to grow. Which of the following reasons is strongly

influenced by economies of scale?

A) increasing profits B) lowering costs C) reducing risk D) motivating managers

38) What is the name of the situation that can arise when strategic leaders pursue their own

interests in conflict with the firm’s goals?

A) opportunism B) principal-agent problem C) risk assessment D) enforcement of contracts

39) Soylent Corporation is a major nutritional supplement chain. Its managers are motivated to

grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth?

A) employing celebrity spokespeople B) implementing automated soy-making machinery C) purchasing competitors D) increasing executive salaries

40) Which of the following is an example of an external transaction cost?

A) the cost of setting up a production unit B) the cost of searching for a contract manufacturer C) the cost of recruiting and retaining employees D) the cost of maintaining plant and machinery

41) Which of the following is an example of an internal transaction cost?

A) the cost of searching for a contract manufacturer B) the cost of signing a contract with a supplier C) the cost of buying raw materials D) the cost of maintaining a production unit

42) Tree Corporation recently acquired a smaller competitor, Branch and Associates, which

specializes in issues not previously covered by Tree Corporation, such as intellectual property cases. Given the increase in the firm’s size and complexity, it is likely that its internal transaction costs will A) be eliminated.

B) decrease.

C) transition to external transaction costs.

D) increase.

43) A primary advantage of organizing economic activity within firms is the A) ability to coordinate highly complex tasks to allow for specialized division of labor.

B) low administrative costs because of reduced bureaucracy.

C) eradication of the principal-agent problem.

D) high-powered incentive to work as salaried employees for an existing firm.

44) Cumberland Computers will be buying processing chips needed for its laptops and tablets

from external suppliers instead of manufacturing them in its own facilities. How will this decision affect the firm?

A) The firm will have more flexibility in purchasing and comparing prices of goods and services.

B) The firm’s administrative costs will be low because of necessary bureaucracy.

C) The firm will be protected against the principal-agent problem.

D) The firm will have high-powered incentives, such as hourly wages and salaries.

45) Managers in a firm hired to improve the firm’s profitability and ultimately the shareholders’

value will add to the overall costs if they pursue their own self-interests. What does this best illustrate?

A) diseconomies of scale B) principal-agent problem C) experience-curve effects D) information asymmetries

46)

is best described as a situation in which one party possesses private information and is therefore better informed than another party.

A) Information governance B) Information asymmetry C) Information deregulation D) Information piracy

47) Real estate agent Jensen sold first-time homebuyer Mitch a house. On the surface, the house

appeared to be in good shape, but it turns out it has hidden structural issues that will cost a lot to fix. Mitch is angry that Jensen withheld this key information. Which of the following does this scenario best illustrate?

A) learning-curve effect B) principal-agent problem C) experience-curve effect D) information asymmetry

48) Massive Dynamic Computers sources the components for its laptops from various suppliers

on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Massive Dynamic has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Massive Dynamic should A) continue to outsource production.

B) vertically integrate.

C) exit the laptop industry.

D) diversify its activities.

49) A drawback of short-term contracting as an alternative to making a component in-house is

that A) it is the most-integrated alternative to performing an activity so the principal company

has no control over the agent.

B) the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

C) it fails to allow a long planning period that individual market transactions provide.

D) the buying firm cannot demand lower prices due to the lack of a competitive bidding process.

50)

are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

A) Embargos B) Cartel agreements C) Strategic alliances D) Corporate acquisitions

51) Initech developed a superior touch screen technology for tablet computers that enabled

multiple users to operate the screen at the same time. The technology was leased to Accent Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

A) licensing B) franchising C) crowdsourcing D) bootlegging

52) Fast-food chain Taco Trio operates through a business model in which individuals can buy

the rights to set up Taco Trio restaurants and sell the company’s food in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the individual restaurants have to offer a menu approved at Taco Trio headquarters, use the same interior color scheme and layout as the flagship restaurant, and maintain high-level customer service. Which of the following alternatives to integration does this best illustrate?

A) crowdsourcing B) franchising C) credit rationing D) bootstrapping

53) Wenonah Capital Partners asked one of its partners, a research and development (R&D) firm,

to concentrate on developing new medications for Parkinson’s disease. But the project requires a huge capital investment, and the R&D partner has some reservations about Wenonah’s long-term commitment to the project. To prove its commitment, Wenonah pledges an investment of $200 million over five years. This investment by Wenonah in the project will result in a A) cartel.

B) credible commitment.

C) corrective action.

D) parent–subsidiary relationship.

54) Openlane and Yearin Technologies have together invested and created a new organization,

Globex Corporation, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Openlane and Yearin Technologies. Which of the following alternatives to integration does this scenario best illustrate?

A) a joint venture B) a franchisee C) a licensing contract D) a corporate acquisition

55) How is an equity alliance different from a joint venture?

A) An equity alliance involves ownership that facilitates transaction-specific ventures; a

joint venture involves taking ownership by buying stock.

B) An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.

C) An equity alliance involves taking ownership in a partner; a joint venture involves taking ownership by buying stock.

D) An equity alliance involves partners contributing equity to a joint venture; a joint venture involves two or more entities owning a firm.

56) U.S.-based consumer electronics corporation DGM owns a smaller company in Taiwan

where most of DGM’s cell phone technology is made before being released worldwide.

Which of the following alternatives to integration does this best illustrate?

A) venture capitalism B) parent–subsidiary relationship C) joint venture D) franchising

57)

is best described as a firm’s ownership of its production of needed inputs or of the channels by which it distributes its outputs.

A) Venture capitalism B) Bootlegging C) Vertical integration D) Crowdsourcing

58) Each stage of the vertical value chain typically represents a distinct

number of different firms are competing.

A) industry B) functional department C) economy D) customer segment

_ in which a

59) Condax Electronics relied on a large chain of consumer electronics stores to sell its tablet

computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Condax products. In response, Condax Electronics set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate?

A) crowdsourcing B) new product development C) forward vertical integration D) conglomerate diversification

60) Which of the following best illustrates forward vertical integration?

A) A firm that manufactures and sells car engines to major automobile companies

launches its own line of cars.

B) A chain of ice cream parlors launches a brand of toys and accessories for children.

C) A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam.

D) A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

61) Nguyen Autos currently sources components such as airbags, upholstery, and brake pads

from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Nguyen should pursue A) product diversification.

B) forward integration.

C) backward integration.

D) geographic diversification.

62) Which of the following best illustrates physical-asset specificity?

A) a unique training program developed in an organization B) a ship container designed to carry more than the average load of iron ore C) a generic machine that can be used to churn different mixtures D) a machine solely designed to give a candy its trademarked shape

63) Which of the following best illustrates site specificity?

A) equipment necessary for mining bauxite and aluminum smelting B) bottling machinery to manufacture bottles with trademarked shapes C) investment made in human capital to master procedures of a specific organization D) investment made to train employees to operate computers

64)

Which of the following is a drawback of vertical integration?

A) It increases the difficulty of securing critical supplies.

B) It impedes scheduling and planning.

C) It increases the potential of legal repercussions.

D) It impedes investments in special assets.

65) VineRipe Tomato makes organic ketchup. To promote its products, this firm decided to make

bottles in the shape of tomatoes. To accomplish this, VineRipe worked with its bottle manufacturer to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate?

A) site specificity B) research specificity C) physical-asset specificity D) human-asset specificity

66) Firms that use taper integration also use

market firms for some of their supplies.

A) backward vertical B) forward vertical C) backward horizontal D) forward horizontal

integration when they rely on outside-

67) Doncon Guitars is interested in pursuing backward integration to take greater ownership of

the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?

A) Invest in vertical integration despite the cost of producing pickups.

B) Abandon the idea of vertical integration entirely.

C) Pursue taper integration.

D) Introduce a budget line of guitars to diversify the firm’s offerings.

68) Churchill-Perez International is a large conglomerate that procures a few component parts

from external suppliers; it also owns subsidiaries that manufacture key raw materials. The firm does not solely depend on outside distributors to reach its customers. In fact, it has retail stores in the United States, Canada, and the United Kingdom that feature its products. In this scenario, which of the following alternatives to vertical integration is Churchill-Perez applying?

A) concentric integration B) taper integration C) horizontal integration D) conglomerate integration

69) DreamHome operates in a number of countries and sells a wide variety of home goods, from

garden furniture to kitchenware, to achieve continuous growth. From this data, we can conclude that DreamHome has been involved in A) product-market diversification.

B) process diversification.

C) strategic outsourcing.

D) lean manufacturing.

70) While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the

domestic U.S. market. What is the reason behind this strategic difference?

A) KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.

B) Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC. C) KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy.

D) Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

71) J-Texon Manufacturing is a large conglomerate that operates only in its home country. The

company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?

A) process diversification B) product diversification C) geographic diversification D) market diversification

72) Spain-based Coche Azul, a high-end automaker, has recently started selling its cars through

company-owned outlets in major cities in Eastern Europe. Which of the following types of diversification strategies is Coche Azul pursuing?

A) product diversification strategy B) process diversification strategy C) product-market diversification strategy D) geographic diversification strategy

73) Singletechno Industries, a large U.S.-based conglomerate, competes in the hospitality,

education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Singletechno Industries pursuing?

A) zone pricing B) niche marketing C) product-market diversification strategy D) process diversification strategy

74) Sonron Corporation generates 85 percent of its annual revenues by manufacturing luxury

cars. The company derives 15 percent of its annual revenues by selling sports merchandise such as apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Sonron Corporation?

A) a conglomerate B) a subsidiary C) a dominant-business firm D) a single-business firm

75) When executives of a firm consider business opportunities only where they can leverage their

existing competencies and resources, we can conclude that the firm is using A) related-constrained diversification.

B) related-linked diversification.

C) strategic outsourcing.

D) offshore outsourcing.

76) Silis Autos is known for its affordable and reliable brand of consumer vehicles. Because its

shareholders expect to see an improved rate of growth in the coming years, Silis’s executives have decided to diversify the company’s range of products so that at least 40 percent of the firm’s revenue is generated by new business units. However, the company’s resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Silis pursue?

A) dominant business B) related-constrained C) related-linked D) unrelated

77) Plexzap Products started as a luxury brand for designer apparel. Soon, the company

expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Plexzap pursuing in this scenario?

A) taper integration strategy B) niche marketing strategy C) related-constrained strategy D) related-linked strategy

78) Finjob is following a related-linked diversification strategy, and Rangreen is following a

related-constrained diversification strategy. How do the two firms differ from each other?

A) Rangreen Inc. generates 70 percent of its revenues from its primary business, while Finjob generates only 10 percent of its revenues from its primary business.

B) Rangreen pursues a backward diversification strategy, while Finjob pursues a forward diversification strategy.

C) Finjob will share fewer common competencies and resources between its various businesses when compared with Rangreen D) Finjob pursues a differentiation strategy, and Rangreen pursues a cost-leadership strategy, to gain a competitive advantage.

79) A firm follows a(n)

when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.

A) related-constrained strategy B) unrelated diversification strategy C) differentiation strategy D) dominant-business strategy

80) Funholding is a large multinational company active in the petroleum, capital market,

chemicals, steel, beverages, hospitality, airlines, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner.

Which of the following terms would best describe this company?

A) a flagship brand B) a single-business firm C) a dominant-business firm D) a conglomerate

81) How does a conglomerate benefit from following an unrelated diversification strategy?

A) The conglomerate can solely depend on its primary business activity for a major

portion of its revenues.

B) The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses.

C) The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

D) The conglomerate can limit the learning- and experience-curve effects it faces.

82) The Tata group of India, Warren Buffet’s Berkshire Hathaway, and the Japanese Yamaha

group have several strategic business units under one corporate umbrella and are pursuing an unrelated diversification strategy. We would refer to these businesses as A) differentiators.

B) conglomerates.

C) internal competitors.

D) vertically integrated.

83) Why is following an unrelated diversification strategy especially advantageous in an

emerging economy?

A) It allows the conglomerate to overcome institutional weaknesses in emerging economies.

B) It allows the conglomerate to form a monopoly in emerging economies.

C) It allows the conglomerate to use well-defined legal systems in emerging economies.

D) It allows the conglomerate to take advantage of strong capital markets in emerging economies.

84) Plexzap Sodas has been a market leader in the soft drink industry for several decades.

However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Plexzap is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence– market matrix, which diversification strategy should Plexzap pursue?

A) Leverage existing core competencies to improve current market position.

B) Build new core competencies to protect and extend current market position.

C) Redeploy and recombine existing core competencies to compete in markets of the future.

D) Build new core competencies to create and compete in markets of the future.

85) The core competency of Newex Motors is the fuel-efficient engine found in its cars. These

engines are developed and built in-house. The company realizes that the growing demand for “green” vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, Newex Motors is A) leveraging existing core competencies to target the chasm between the early adopter and early majority market segment.

B) redeploying and recombining existing core competencies to compete in future markets.

C) building new core competencies to create and compete in future markets.

D) building new core competencies to protect and extend current market position.

86) Betasoloin Corp. is an automobile company whose core competency lies in manufacturing

petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity.

In this scenario, Betasoloin is primarily A) leveraging new core competencies to improve current market position.

B) redeploying existing core competencies to compete in future markets.

C) unlearning existing core competencies to create and compete in markets of the future.

D) building new core competencies to protect and extend current market position.

87) Coca-Cola was primarily known for its core competencies in marketing, bottling, and

distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?

A) It is leveraging existing core competencies to improve current market position.

B) It is building new core competencies to protect and extend its current market position.

C) It is redeploying and recombining existing core competencies to compete in markets of the future.

D) It is targeting the chasm between the early adopter and early majority market segment.

88) In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS)

offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing customer relationship management (CRM) offering or build completely new types of software. This is an example of A) leveraging existing core competencies to improve current market position.

B) building new core competencies to achieve vertical integration.

C) redeploying and recombining existing core competencies to compete in markets of the future.

D) building new core competencies to create and compete in markets of the future.

89) Which quadrant in the core competence–market matrix is the hardest to pursue?

A) building new core competencies to protect and extend current market position B) building new core competencies to create and compete in markets of the future C) leveraging core competencies to improve current market position D) redeploying and recombining core competencies to compete in markets of the future

90) HydraOne is a large multinational conglomerate. As a single business unit, the company’s

stock price is estimated to be $250. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $350. In this scenario, what is HydraOne experiencing?

A) experience curve effects B) learning-curve effects C) diversification discount D) economies of scale

91) Ganjaflex Industries is a major multinational conglomerate. Its business units compete in a

range of industries, including home appliances, pharmaceuticals, commercial real estate, and plastics manufacturing. Although its largest business unit, which produces kitchen appliances, is among the most profitable in the industry, it generates only 35 percent of the company’s revenues. Which of the following is most likely true of Ganjaflex’s stock price?

A) It is valued at less than the sum of its individual business units.

B) It is valued at greater than the sum of individual business units.

C) It is valued at the exact sum of individual business units.

D) It is consistently lower than the industry average.

92) Betatech Group is the parent company of many related businesses under its banner. Each

share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has Betatech Group created?

A) capital liquidity B) diversification premium C) diversification discount D) demand-pull inflation

93) Hottechi Inc., a large multinational conglomerate, had begun to experience declining

revenues. The top management decided it was important for the company to avoid deviating from its core competencies. Thus, a few of the company’s key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, Hottechi is involved in A) reverse engineering.

B) benchmarking.

C) restructuring.

D) crowdsourcing.

94) The Boston Consulting Group (BCG) growth-share matrix locates a firm’s individual

strategic business units (SBUs) in which two dimensions?

A) start-up capital required and stage of industry life cycle B) relative market share and speed of market growth C) economic value created and costs incurred D) amount of debt financing and equity financing

95) In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the

strategic business units of a conglomerate is categorized under “dog,” the management should consider A) infusing more capital into the strategic business unit.

B) providing more human resources to the business.

C) holding the business until it turns into a “star.”

D) divesting the strategic business unit.

96) Konmatfix Inc., a large consumer electronics company, has divided each product in its

portfolio into a separate strategic business unit (SBU). The desktop computer SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to low growth in the desktop market and the popularity of tablets and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop computer SBU will be categorized under A) star.

B) question mark.

C) dog.

D) cash cow.

97) Shapiro-Rennart is a large conglomerate. In the context of the Boston Consulting Group

(BCG) growth-share matrix, the company’s healthy-living strategic business unit (SBU) has been categorized as a “cash cow,” and its tobacco SBU has been categorized as a “dog.”

Which of the following can be inferred from this scenario?

A) While the tobacco SBU operates in a low-growth market, the healthy-living SBU operates in a high-growth market.

B) The management of the company should use the cash inflow from the healthy-living SBU and invest it in the tobacco SBU. C) While the market share of the company in the healthy-living industry will be high, the market share in the tobacco industry will be low.

D) The tobacco SBU should follow a backward integration strategy, and the healthyliving SBU should pursue a forward integration strategy.

98) The smartphone division of the large consumer electronics company Streethex has a

significant market share in the always-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the context of the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of Streethex will be categorized under A) question mark.

B) star.

C) cash cow.

D) dog.

99) Hatfan Inc. is a large automobile company. In the context of the Boston Consulting Group

(BCG) growth-share matrix, the company’s petrol cars strategic business unit (SBU) has been recognized as a “cash cow,” and its hybrid electric cars SBU has been categorized under “star.” Which of the following can be inferred from this scenario?

A) The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

B) The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry.

C) The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the petrol cars SBU, the company should just maintain it.

D) The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

100)

Using the Boston Consulting Group growth-share matrix, the managers of Fasehatice International determined that their business unit devoted to personal health monitoring devices was a “star.” Based on this finding, which of the following strategies is likely to produce the best results?

A) Increase investment in the personal health monitoring unit to encourage future growth.

B) Seek to lower costs in the personal health monitoring unit to increase market share.

C) Harvest as much cash flow as possible before shutting the business down.

D) Immediately divest from the personal health monitoring industry.

101)

A strategy of will be most beneficial for a firm to enhance its overall corporate performance.

A) unrelated level of diversification B) single-business level of diversification C) dominant-business level of diversification D) related-linked diversification

102)

are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.

A) Fixed costs B) Influence costs C) Coordination costs D) Opportunity costs

103)

, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.

A) Coordination costs B) Fixed costs C) Agency costs D) Network costs

104)

Thirty years ago, Raleigh Outdoors created a lightweight, easy-to-erect tent that became a runaway bestseller. Fifteen years later, the tent market reached the maturity stage and sales slowed down. However, by this time, Raleigh Outdoors had developed a strong brand name and continued to lead the market. In the context of the Boston Consulting Group (BCG) growth-share matrix, which of the following describes this scenario?

A) Raleigh was a star that developed into a cash cow.

B) Raleigh was a question mark that developed into a star.

C) Raleigh was a dog that developed into a question mark.

D) Raleigh was a cash cow that developed into a star.

105)

Blackzim entered the low-priced digital watch market several years ago. This firm’s earnings have been unsteady but might be growing. In the context of the Boston Consulting Group (BCG) growth-share matrix, Blackzim is a A) cash cow.

B) star.

C) dog.

D) question mark.

106)

What must executives decide when formulating a corporate strategy?

107)

List the five reasons why firms need to grow.

108)

Why are generic industry value chains called vertical value chains?

109)

Discuss the underlying concepts that help executives make corporate strategic decisions.

110)

What are the advantages and disadvantages of organizing economic activity within firms?

111)

How are information asymmetries created? What are the implications?

112)

Describe the two types of vertical integration along the industry value chain.

113)

What is one key risk of vertical integration?

114)

Discuss the benefits of taper integration.

115)

Discuss the various general diversification strategies available to a firm.

116)

What is a conglomerate? How does it benefit from a diversification strategy?

117)

Explain the two types of related diversification strategy with the help of examples.

118)

What options do strategic leaders have to formulate corporate strategy once they have a clear understanding of their firm’s core competencies?

119)

120)

Discuss the application of the core competence–market matrix.

Briefly discuss the application of the Boston Consulting Group (BCG) growth-share matrix.

121)

Describe the major differences between taper integration and strategic outsourcing.

122)

Which area of the core competence–market matrix is the most challenging diversification strategy, and why?

123)

What is a diversification-performance relationship, and how do different diversification levels affect firm performance?

Answer Key Test name: Chapter 8 1) FALSE 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) C 14) C 15) B 16) A 17) D 18) A 19) C 20) A 21) A 22) B 23) A 24) D 25) A 26) C 27) A 28) B 29) D 30) C 31) B 32) C 33) A 34) C 35) B 36) A 37) B

38) B 39) C 40) B 41) D 42) D 43) A 44) A 45) B 46) B 47) D 48) B 49) B 50) C 51) A 52) B 53) B 54) A 55) B 56) B 57) C 58) A 59) C 60) A 61) C 62) D 63) A 64) C 65) C 66) A 67) C 68) B 69) A 70) A 71) B 72) D 73) C 74) C 75) A 76) B 77) D

78) C 79) B 80) D 81) C 82) B 83) A 84) C 85) B 86) D 87) B 88) D 89) B 90) C 91) A 92) B 93) C 94) B 95) D 96) C 97) C 98) B 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

A D B A A D Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121) 122) 123)

Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

Chapter 9: Corporate Strategy: Strategic Alliances, Mergers, and Acquisitions Student name: 1) When deciding whether to build, borrow, or buy as a means of growth, firms no longer need

to consider the need for physical closeness to their resource partners. ⊚ true ⊚ false

2) In recent years strategic alliances have grown significantly due in part to the speed of

technological change and innovation. ⊚ true ⊚ false

3) A company that wants to enter a new geographic market within China or Saudi Arabia

should avoid joint ventures with companies that are based in that country. Partnering with a foreign entity props up that entity’s business rather than weakening it through competition. ⊚ true ⊚ false

4) Organizations seeking strategic alliances often pursue non-equity alliances because they are

the easiest to create and to sever. However, the short duration of these alliances often means there is little trust or commitment on either side. ⊚ true ⊚ false

5) Managers who are eager to forge business alliances often forget that the expected benefits of

the partnership must represent only a small percentage of its monetary and time-related costs. ⊚ true ⊚ false

6) Although Disney acquired Pixar through a hostile takeover, the merger has proven extremely

profitable for both entities. ⊚ true ⊚ false

7) If two large movie theater chains decide to merge, the result is likely a vertical integration

that creates a more favorable industry structure by decreasing competition. ⊚ true ⊚ false

8) Victoria’s Jewelry Inc. is considering a takeover of its competitor, Ace Diamond LLC. In

general, Victoria’s should go ahead with the acquisition as long as Ace Diamond is more valuable as a continued standalone company than it would be inside Victoria’s. ⊚ true ⊚ false

9) In general, it is short-sighted to acquire companies as a defensive move to prevent rival

organizations from gaining access to certain patents, technology, or customer bases. ⊚ true ⊚ false

10) Even if a merger may not increase shareholder value as planned, it is often a wise idea to

champion it so that managers will have the greater opportunities of working at an expanding company. ⊚ true ⊚ false

11) Firms tend to share only explicit knowledge in a non-equity alliance. ⊚ true ⊚ false

12) Horizontal integration through M&A can help firms strengthen their competitive position by

increasing the differentiation of their product and service offerings. ⊚ true ⊚ false

13) NoRu Inc. is a publicly traded firm that does not wish to be acquired by FRESHPoP

Corporation, a much larger publicly traded firm, who is planning an acquisition of NoRu Inc. This is an example of a A) hostile takeover.

B) friendly takeover.

C) joint venture.

D) strategic alliance.

14) Which of the following is one of the benefits of horizontal integration?

A) gain of a cheaper supplier B) increase in competitive intensity C) lower costs D) decreased differentiation

15) Which term describes the process of merging with a competitor at the same stage of industry

value chain?

A) hostile takeover B) merger C) acquisition D) horizontal integration

16) Tom is the CEO of Endless Possibilities Inc. and proudly boasts his firm’s slogan, We

Guarantee Success! However, Tom’s constituents presented him with data on their latest project that suggests they should not move forward. Tom, undeterred with this data, decides that he will still accept the project because he believes that he can’t lose. This is a classic example of A) CEO dedication.

B) managerial hubris.

C) strategic intent.

D) cost benefit analysis.

17) Mars Tennis Equipment, Inc. wishes to pursue international markets such as Spain and

France. In order to do this, it may wish to consider a possible A) government partnership that may lead to lobbying.

B) joint venture with another firm already established in those markets.

C) hostile takeover with a firm operating in the United States.

D) marketing strategy that strengthens the international value chain.

18) Grace wants to form a voluntary arrangement with another firm in order to gain more

flexibility in her supply chain, complement to a few of her support activities via her value chain, and strengthen her firm’s overall competitive position. Grace is looking for a simple and common type of strategic alliance such as A) a non-equity alliance.

B) an equity alliance.

C) a joint venture.

D) a merger.

19) Luca is the proud owner of American BBQ Eateries LLC. It currently operates in the

southeast and has recently entered into a non-equity alliance with Big Bills BBQ Grills Inc., with a promise of sharing codified information via a licensing agreement. Which of the following best represents this level of sharing knowledge?

A) core competency knowledge B) strategic alliance knowledge C) tacit knowledge D) explicit knowledge

20)

Which of the following statements about equity alliances is true?

A) Equity alliances allow for the sharing of tacit knowledge.

B) Equity alliances are based on contractual agreements.

C) Equity alliances are more common than non-equity alliances.

D) Equity alliances allow for the sharing of explicit knowledge.

21) Laia is the creator and owner of 60MinuteWorkout.com but wants a physical presence to

record workout videos and hold regular classes. To accomplish this, Laia formed a joint venture with a local real estate developer who has significant influence in the commercial property sector. This venture will require exchanging more than just codified information; as such, Laia should expect to share A) her knowledge of weight-loss techniques.

B) her email list of prospective customers.

C) both tacit and explicit knowledge.

D) only explicit knowledge.

22)

, which captures the cultural fit between different firms, is one key element needed when selecting an alliance partner.

A) Partner compatibility B) Partner commitment C) Joint ventures D) Partner competency

23) Several notable firms, including Eli Lilly, HP, Procter & Gamble, and IBM, each wish to

become the alliance “partner of choice” for small technology ventures, colleges, and inventors. They each know that is a necessary and critical element for an alliance to be a success.

A) sharing explicit knowledge B) building interorganizational trust C) a hostile takeover D) partner implementation

24) Lupita is the CEO of JustFixIt Inc., a firm that merges technology with commercial

hardware. She has been struggling with the decision to allocate her resources for the development of a new system or go to the market and search for an already established system. The board of directors for JustFixIt Inc. suggested that the firm enter a contractual agreement with a partner. This scenario best illustrates the concept of A) buy-sell-or-trade framework.

B) the Build-Borrow-Buy framework.

C) the horizontal and vertical integration frameworks.

D) the strategic alliance framework.

25) Which of the following is the best way for firms to assess whether their internal resources are

superior to those of competitors in the targeted area?

A) Firms can apply the VRIO framework.

B) Firms can implement various financial metrics, such as NPV and IRR. C) Firms can employ an external analysis tool such as PESTEL or Porter’s Five Forces.

D) Firms can use an international framework to determine global relevancy.

26) Daniela wishes to strengthen her firm’s marketing department by partnering with a large

marketing firm that can complement her existing value chain. However, she fears potential legal repercussions, including potential lawsuits filed by U.S. federal agencies such as the Federal Trade Commission. Which of the following strategic options should Daniela pursue?

A) Daniela should implement green field operations with the marketing firm to strengthen her international reach.

B) Daniela should consider forming a strategic alliance with the marketing firm.

C) Daniela should move forward with a hostile takeover of the marketing firm.

D) Daniela should purchase the marketing firm outright via an acquisition.

27) Geovax Inc., a biotechnology company, was established to develop an effective vaccine

against a deadly virus. As such, a large investment firm formed an equity alliance with Geovax that resulted in a significant financial investment that followed a string of smaller investments so long as Geovax continued to make headway toward its vaccine. This “wait and see approach” can best be described as A) a strategic bet.

B) a real-options perspective.

C) a quick way to generate revenues.

D) horizontal integration.

28) None of Your Beeswax dominates the beeswax candle market and wants to expand into

beeswax lip balm. How can the firm’s strategic leaders determine whether the company should develop a lip balm division internally, ally with a lip balm manufacturer, or acquire a lip balm manufacturer?

A) To protect themselves, the strategic leaders should choose the option that leads to the largest company with the most managerial positions.

B) The strategic leaders need to determine whether the skills needed to create candles and lip balm are similar and whether None of Your Beeswax creates better beeswax products than its competitors do.

C) The strategic leaders must determine whether candle making and lip balm making require substantially different skills. If so, the company should pursue internal development.

D) Unless the market for lip balm is booming, None of Your Beeswax should stick to what it knows and focus on creating the best beeswax candles in the industry.

29) The acquisition by Disney of such firms as Marvel, Pixar, and Lucasfilm strengthened its

competitive position by A) increasing the differentiation of its product and service offerings.

B) sharing only tacit knowledge about its existing products.

C) developing a nonbinding contract.

D) immediately selling its recent acquisitions to more suitable firms.

30) Dev is a strategist for the firm Stark Industries, which produces high-quality HD movie

cameras. His company needs a specific material for a new camera it is developing, which is manufactured in large quantities by a competitor called LENS Inc. However, the material is difficult to trade. Because of this, which of the following is most likely the best strategy for Dev to suggest?

A) Stark Industries should acquire LENS. B) Stark Industries should form a short-term agreement with LENS. C) Stark Industries should form a long-term agreement with LENS. D) Stark Industries should enter into co-opetition with LENS.

31) In terms of the Build-Borrow-Buy framework, a firm’s internal resources are considered to

be relevant when they are A) similar to those that need to be developed and superior to those of competitors in the targeted area.

B) similar to those that need to be developed and inferior to those of competitors in the targeted area.

C) different from those that need to be developed and superior to those of competitors in the targeted area.

D) different from those that need to be developed and inferior to those of competitors in the targeted area.

32) Which of the following best describes a strategic alliance?

A) a conceptual model that aids strategic leaders in deciding whether to pursue internal

development, enter a contractual arrangement or strategic alliance, or acquire new resources, capabilities, and competencies B) an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time C) a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services D) cooperation by competitors to achieve a strategic objective

33) A microchip company wants a computer company to produce more powerful tablets and

therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. Which approach could these companies take so that both can serve stockholders well?

A) Both companies should reduce prices to force out competitors and make entering the market less appealing to potential rivals.

B) Whichever company is larger should acquire the smaller one and impose its management system on the acquired company.

C) The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals’ power.

D) For data security reasons, both companies should remain separate and refrain from sharing information.

34) Tyrell Corporation, a manufacturer of smartphones, has entered into a 15-year partnership

with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Tyrell Corporation and the software company best referred to as in this scenario?

A) an acquisition B) a strategic alliance C) a leveraged buyout D) a proprietorship

35) Better Pill LLC is a small, new pharmaceutical company that is developing a valuable new

drug. Which of these strategies would it be wise for Better Pill’s owners or managers to take?

A) Quickly build downstream complementary assets.

B) Enter multiple learning races within strategic alliances.

C) Seek an alliance with a company or companies that will complete the value chain.

D) Pursue managerial hubris at all levels of development.

36) How did the strategic alliance between HP and DreamWorks Animation SKG affect HP? A) It helped HP pursue a taper integration strategy.

B) It enabled HP to compete head on with Cisco’s videoconferencing solution.

C) It resulted in depreciation of HP’s shareholder value.

D) It failed because HP lacked the expertise in selecting and integrating technology

acquisitions.

37) A drawback of using cross-border strategic alliances to enter new foreign markets is that A) the foreign firm will need to make larger investments when compared to entering the

new market on its own.

B) some of the firm’s proprietary know-how may be appropriated by the foreign partner.

C) all potential business risks in the new market will have to be faced alone by the foreign firm.

D) the shareholder value of the foreign partner will decline drastically.

38) Which of the following summarizes the benefit of the strategic alliance between HP and

DreamWorks?

A) HP and DreamWorks each strengthened their separate markets without impinging on each other’s markets.

B) Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.

C) HP was able to enter a new market, and DreamWorks was able to strengthen its old market.

D) DreamWorks was able to enter a new market, and HP was able to strengthen its old market.

39) Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with

biotech start ups?

A) to pursue an unrelated-options perspective without disrupting existing market economics B) to make small-scale investments in ventures poised to disrupt existing market economics C) to invest their excess cash flow in the superior technology of the biotech start-ups D) to share their continuously updated research technology with the biotech start-ups

40) Deluxe Yachts Inc., a large luxury yacht manufacturer, made an initial small investment in a

startup company that was developing an ecologically friendly waste-water recycling system.

This gave Deluxe Yachts controlling interests in the startup company. However, Deluxe Yachts had no obligations to make continued investments in the experiments of the startup company. It could invest small amounts depending on the new product’s success at each stage of its development. If the product proved to be successful, Deluxe Yachts would have the right to buy out the startup company. This approach to strategic alliance is referred to as A) a break-even analysis.

B) a real-options perspective.

C) credible commitment.

D) transaction cost economics.

41) In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase

a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech’s drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary.

In terms of strategic alliances, this scenario best indicates A) the real-options perspective.

B) co-opetition.

C) explicit knowledge.

D) the stakeholder strategy.

42) When Aviato Inc. wanted to sell its cars in the country of Serbia, it lacked access to

distribution channels and marketing expertise in the country. Thus, Aviato Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner’s well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?

A) increasing competitive intensity B) accessing critical complementary assets C) procuring additional capital investments D) reducing differentiation of product and service offerings

43) When entering a foreign market, it is advisable for a new venture that has a core competency

only in R&D to form a strategic alliance with a local partner because A) the local partner can better protect its proprietary know-how.

B) building downstream complementary assets can be expensive and time-consuming.

C) the strategic alliance will reduce the differentiation of its product and service offerings.

D) the value gap created by the firm can be easily lowered in an alliance.

44) Solaramus Inc., Sun Energy Inc., and SkyHigh Solar Inc. are three rival firms who have set

up an alliance to conduct research and find a way to run vehicles with solar power. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other solar products. What is this arrangement best referred to as?

A) takeover B) buyout C) co-opetition D) acquisition

45) Sterling Cooper Footwear and NERV Shoes Inc., two competing shoe brands, entered into a

strategic alliance to study and acquire each other’s competencies. Sterling Cooper Footwear entered the strategic alliance to acquire the production system pioneered by NERV Shoes.

Similarly, NERV Shoes agreed to the strategic alliance to study the design process of Sterling Cooper Footwear. However, Sterling Cooper Footwear was more successful and faster than NERV Shoes in accomplishing its alliance goal. What does this scenario best illustrate?

A) network effects B) economies of scope C) learning races D) time compression diseconomies

46) Lana Dubois Inc. is a large skincare company that made an initial small investment in a

startup company, Greener Tan, which was developing an organic sunscreen. This gave Lana Dubois controlling interests in the startup company. However, Greener Tan soon began to have financial difficulties because of principal-agent problems. As a result, Lana Dubois did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a A) break-even analysis.

B) partial joint venture.

C) credible commitment.

D) real-options perspective.

47) In a non-equity alliance, which of the following types of information would firms most likely

share?

A) a manager’s knowledge related to solving nonroutine problems B) a top-level manager’s experience related to making strategic decisions C) the documented information about the material composition of a product D) the employees’ entrepreneurial skills

48) Which of the following statements is true of explicit knowledge?

A) Explicit knowledge is about knowing how to do a certain task.

B) Explicit knowledge is knowledge that cannot be codified.

C) Explicit knowledge is shared in non-equity alliance firms.

D) Equity knowledge is acquired only through actively participating in a process.

49) Which of the following statements is true of an equity alliance?

A) An equity alliance is based on contractual agreements rather than partial ownership.

B) In an equity alliance, the partners frequently exchange personnel to make the

acquisition of tacit knowledge possible.

C) In an equity alliance, a standalone organization is created that is jointly owned by two or more parent companies.

D) An equity alliance creates weaker ties between the alliance partners when compared to a non-equity alliance.

50)

tend to produce stronger ties between partners.

A) Non-equity alliances B) Joint ventures C) Equity alliances D) Manufacturing alliances

51) The downside of equity alliances is A) the weaker ties and reduced trust between partners.

B) the amount of investment that can be involved.

C) that the alliances cannot be abandoned if not promising.

D) that they are not useful stepping stones toward full integration of the partner firms.

52) Rosa is a senior manager at Veridian Dynamics, a motorcycle manufacturer. Veridian

Dynamics has entered an equity alliance with Parker Industries, a moped manufacturer.

“Don’t worry, Rosa,” her counterpart at Parker Industries tells her. “I’m going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you’ll be all set.” What else should Rosa request from Parker Industries?

A) personnel exchanges to share tacit knowledge B) a gradual change from an equity alliance to a non-equity alliance to show greater commitment C) nothing, because the information transfer described is complete and appropriate D) a licensing agreement so that Veridian Dynamics can exchange codified knowledge with Supremo

53) Because strategic alliances rarely work as well as managers expect they will, why do

companies continue to go through with them?

A) Recent advances in management science have greatly improved the success rate of strategic alliances.

B) Many owners, managers, and business analysts believe they are essential to survive in an industry.

C) Government entities such as the Federal Trade Commission or the European Union sometimes force companies into strategic alliances.

D) These alliances have an excellent record of success if managers have enough confidence in the outcome.

54) Which type of strategic alliance enables the exchange of both tacit and explicit knowledge?

A) joint ventures B) equity alliances C) nonbinding contracts D) non-equity alliances

55) Which of the following is a common drawback of a non-equity alliance?

A) lack of trust between partners B) difficulty initiating the contract C) difficulty terminating the contract D) lack of flexibility for the partners

56) Which of the following is an example of explicit knowledge?

A) knowing how to create surveys B) a research skill C) knowing how to assemble semiconductors D) a research summary

57) Which of the following corresponds to the use of tacit knowledge?

A) Ema studies a fact sheet about the Amazon rainforest.

B) Ahmed reads a demographic report about religions in Canada.

C) Leyla reassembles a small engine from memory.

D) Antonio uses a book review to defend his thesis about female writers in eighteenth-

century England.

58) A video game company called Stratego Inc. forms an agreement with another video game

company called Affronted Inc. Through this agreement, Stratego owns 25 percent of Affronted. However, Affronted does not own any part of Stratego. This type of agreement is called a(n) A) non-equity alliance.

B) equity alliance.

C) joint venture.

D) capital venture.

59) The process of alliance management begins with A) selecting the best possible partner.

B) choosing an appropriate governance mechanism.

C) designing the alliance.

D) creating resource combinations that obey the VRIO criteria.

60) Which of the following statements about managing alliance-related tasks is true?

A) Forming an alliance with another firm prohibits that firm from forming other

alliances.

B) Alliance management capability is based on three alliance-related tasks.

C) A merger is one of the three options for alliance design and governance.

D) In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

61) American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a

French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien’s concern?

A) Require business units at American Snacks and Très Bien to sign loyalty pledges.

B) Encourage business units at American Snacks to act independently.

C) Arrange for the alliance to be managed at the corporate level.

D) Sever the relationship with Très Bien and find a more trusting corporate partner.

62) Which of the following examples describes the task of an alliance manager?

A) Reem oversaw the agreement between her company and a potential alliance partner

and offered support when needed.

B) Harry used his knowledge of drone technology to help him manage the day-to-day operations of his firm’s alliance.

C) Nargis reviewed the alliance portfolio to make sure it fit with the corporate strategy of her firm.

D) Omar trained the employees of his alliance partner in the skills needed to create a display for a wide-screen television.

63) The alliance

is responsible for making sure that an alliance fits within the firm’s existing alliance portfolio and corporate-level strategy.

A) champion B) leader C) liaison D) manager

64) Which of the following is an ineffective practice in alliance management?

A) coordinating a firm’s portfolio of alliances B) establishing knowledge-sharing routines between alliance partners C) developing relational capabilities to manage mergers and acquisitions D) focusing on developing an alliance management capability in isolation

65) Which of the following statements is true about managing alliance-related tasks?

A) Forming an alliance with another firm prohibits that firm from forming other

alliances.

B) Alliance management capability is based on three alliance-related tasks.

C) A merger is one of the three options for alliance design and governance.

D) In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

66) Which of the following best illustrates a hostile takeover between the two companies

Windfield Inc. and Zyco Inc.?

A) Windfield Inc. purchases Zyco Inc. for $95 billion despite Zyco Inc. being against the purchase.

B) Windfield Inc. and Zyco Inc. join together to form a third new entity, while they also operate separately.

C) Windfield Inc. outsources a few of its business activities to Zyco Inc. for competitive advantage.

D) Windfield Inc. and Zyco Inc. join together to form a single new company called WindfieldZyco Inc.

67) When does a merger between companies typically occur?

A) when two firms of comparable size join to form a combined entity B) when large, incumbent firms buy startup companies C) when a target firm does not want to be acquired D) when two or more firms enter a temporary vertical strategic alliance

68) Johnson is an executive vice president at Conecom Hardware. He researches a proposal by a

larger company, Openlane Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Openlane employees, Johnson concludes that Openlane has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Johnson and Conecom Hardware take?

A) Turn down the acquisition offer, and prepare to resist a hostile takeover.

B) Attempt a friendly merger, and use managerial hubris to improve results at Openlane.

C) Welcome the acquisition, and use knowledge transfer to impart Conecom Hardware’s management practices.

D) Do nothing; the two companies cannot combine without Conecom Hardware’s explicit consent.

69) The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion.

All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate?

A) a merger B) a joint venture C) an acquisition D) an equity alliance

70) Which of the following is true of acquisitions?

A) They can be friendly or hostile.

B) They occur only when the involved entities are of comparable size.

C) An acquisition occurs when two independent companies join to form a separate third

entity.

D) Acquisitions increase the competitive intensity in an industry.

71) When large, incumbent firms buy startup companies, the transaction is generally described as

a(n) A) B) C) D)

joint venture. partnership. acquisition. alliance.

72) Which of the following accurately describes a common difference between a merger and an

acquisition?

A) A merger tends to include mostly small firms; an acquisition can often involve large firms.

B) A merger involves the combination of three or more firms; an acquisition involved the combination of two firms.

C) A merger involves firms of different size; an acquisition involved firms of the same size.

D) A merger tends to be friendly; an acquisition can be friendly or hostile.

73) DalTech Inc., a publicly traded company, designs and manufactures wearable technology.

What approach should DalTech take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.

A) Compete based on price in order to drive out remaining competitors and create a monopoly.

B) Focus on research and development as a form of non-price competition.

C) Encourage new competitors to enter the market to improve competition.

D) Prepare to resist a hostile takeover by buying back as much stock as possible.

74) What is the term for the process of merging with a competitor at the same stage of the

industry value chain?

A) hierarchical integration B) horizontal integration C) cross integration D) vertical integration

75) Condax Autos Inc. merged with its competitor NOW Autos Inc. This allowed Condax Autos

to use its technological competencies along with NOW Autos’ marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate?

A) supply chain B) technological C) horizontal D) perfect

76) Which of the following scenarios best illustrates horizontal integration?

A) Silis Inc. enters into a licensing contract with a distributor in a new international

market.

B) Silis Inc. acquires a component parts manufacturer that previously supplied to Silis’ competitor.

C) Silis Inc. sets up its own distribution channel and retail stores.

D) Silis Inc. joins with Cancity Inc., one of its direct competitors.

77)

How does horizontal integration within an industry affect the surviving firms?

A) by increasing the threat the surviving firms will face from new entrants B) by strengthening the rivalry among existing firms C) by requiring the surviving firms to shift their focus from non-price to price competition D) by strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

78) Which of the following is a result of horizontal integration in terms of Porter’s five forces

model?

A) B) C) D)

The industry structure becomes less consolidated.

There is a reduction of excess capacity in the market.

The industry structure becomes potentially less profitable.

There is an increase in rivalry among existing firms.

79) How did the recent horizontal integration in the U.S. airline industry provide benefits to the

surviving carriers?

A) by facilitating excess capacity in the industry B) by preventing mergers from taking place C) by lowering competitive intensity in the industry overall D) by increasing the threat of entry in the industry

80) It is necessary for government authorities such as the Federal Trade Commission (FTC)

and/or the European Commission to approve any large horizontal integration activity because A) the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive.

B) the surviving firms will need to be protected against the increasing bargaining power of the suppliers.

C) the horizontal integration activity has the potential to reduce competitive intensity in an industry.

D) the surviving firms will need protection against the relaxed entry barriers.

81) Northeast Insurance Group is one of the largest property and casualty insurance firms in the

United States. It wants to acquire Sylvestri Mutual, a smaller rival. After the merger, Northeast Insurance Group will be one of the two largest property and casualty insurance firms in the U.S. market. What should Northeast Insurance Group include in its acquisition plans?

A) Northeast Insurance Group should refocus its attention from the national to the international market.

B) In addition to acquiring Sylvestri Mutual, Northeast Insurance Group should determine the best way to drive independent “mom and pop” tax preparers out of business.

C) Northeast Insurance Group will need to explain to the Federal Trade Commission (FTC) how the acquisition will not result in an increase in prices for consumers.

D) Northeast Insurance Group should enter a price-based competition with its other major competitor to force it out of business and become a monopoly.

82) Konmatfix Inc. recently acquired Finhigh Pharmaceuticals Inc. It now sells its own products

along with the products originally sold by Finhigh Pharmaceuticals. As a result, Konmatfix’s sales force will also be marketing the acquired company’s products. How will this horizontal integration most likely affect Konmatfix?

A) It will lower its costs through economies of scale.

B) It will diminish its economic value creation.

C) Konmatfix will increase its cost of distribution.

D) Konmatfix will reduce the size of its product line.

83) Horizontal integration through mergers and acquisitions can help firms strengthen their

competitive positions by increasing A) perfect competition.

B) differentiation.

C) oligarchy.

D) natural monopoly.

84) Which of the following is a disadvantage of a horizontal integration corporate strategy?

A) It increases competitive intensity within an industry.

B) It increases the potential for integration failure.

C) It increases the potential for flexibility.

D) It increases the threat of new entrants in an industry.

85) Codehow Inc. is a large firm involved in the highly competitive market of high-tech medical

equipment. In this market, promising startups that focus on research are constantly entering the market with new technological developments. Which of the following approaches would best serve the needs of Codehow?

A) mergers B) serial mergers C) acquisitions D) strategic preemption

86) How has Kraft Foods benefited from its hostile takeover of Cadbury PLC? A) Its main strategic focus is now on the domestic market.

B) It has opened a market that is growing slowly but has high profit margins.

C) It has access to convenience stores and a new distribution channel.

D) It gained a monopoly in the chocolate-manufacturing industry.

87) The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese

market because A) the U.S. population was growing slowly and becoming more health conscious.

B) its strategic position in the U.S. market was well protected through high entry barriers.

C) this would help the company gain access to large cocoa plantations in China.

D) Hershey’s main strategic focus was on product and market diversification and not on the domestic market.

88) Alphabet’s Google made a string of acquisitions of new ventures, such as DeepMind, in order

to A) B) C) D)

imitate the actions of its competitors such as Apple and Facebook. solve its principal-agent problems. preempt rivals. expand through unrelated diversification.

89) Iselectrics, a medium-sized medical technology company, has been successful in its research

and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Iselectrics’s European sales?

A) Alert the European Union that conditions in the European medical technology market are approaching oligopoly.

B) Initiate a hostile takeover of a European rival.

C) Acquire a company that has a successful medical technology sales force in Europe so that Iselectrics can gain access to new distribution channels.

D) Contact its congressional representative to request higher tariffs on European technology products.

90) Which of the following reasons motivated Meta Platforms to acquire Instagram, a photo and

video-sharing social media site, for $1 billion?

A) the desire to preempt rivals B) the need to enter a new geographical market C) the need to reduce its level of horizontal integration D) the desire to pursue an unrelated diversification strategy

91) The main reason behind Google’s decision to acquire the Israeli start-up company Waze for

$1 billion was probably to A) gain access to a new capability.

B) share its capabilities with Waze.

C) close down a major rival.

D) acquire it to immediately sell it to a competitor.

92) The managers at Statholdings Mobile Inc. want to diversify the business by acquiring a

consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Statholdings Mobile Inc. is most likely a result of A) time compression diseconomies.

B) experience-curve effects.

C) principal-agent problems.

D) resource ambiguity.

93) Warephase Airway’s decision to acquire Konex Fuels Inc. proved to be ill-fated because the

Warephase managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value.

However, the acquisition failed to create the anticipated synergies because the managers’ capabilities were restricted to the airline industry. What does this scenario best illustrate?

A) knowledge race B) competitive feasibility C) managerial hubris D) unfettered free market

94) Overall, was the Adidas acquisition of Reebok for $3.8 billion in 2006 a success?

A) No. Adidas sold Reebok to a private equity firm for a mere $100 million in 2017.

B) Yes. By acquiring Reebok, Adidas improved its market share and made sure that

Nike could not acquire it.

C) The acquisition was a success for Reebok but not for Adidas.

D) The acquisition was a success for Adidas but not for Reebok.

95) Adidas acquired Reebok primarily to A) overcome its competitive disadvantage against Nike.

B) get access to the superior technology of Reebok.

C) overcome its principal-agent problems.

D) pursue an unrelated diversification strategy.

96) What causes the winner’s curse?

A) B) C) D)

buying a firm with principal-agent problems overpaying for an acquisition buying a firm with a competitive disadvantage underpaying for an acquisition

97) A software firm is interested in acquiring an app development company that is small but

highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?

A) A rival software firm may imitate this approach by acquiring a similar app developer.

B) The software firm may overpay for the app developer, poorly serving the software firm’s shareholders.

C) Because most acquisitions are profitable, there is little to worry about in this scenario.

D) The software firm may underpay for the app developer, cheating the app developer’s shareholders of profit.

98) Donware Inc. is a leader in producing winter sports equipment, including skis and skates.

Recently, the firm decided to expand into the bobsled market and acquired Sleds by Gogozoom LLC This company produced bobsleds, but its sales had slowed. The managers of Donware convinced themselves that they were able to manage the business of Sleds by Gogozoom LLC more effectively even though they had no experience in the bobsled market.

However, this move backfired, and the sale of Sleds by Gogozoom LLC’s bobsleds plummeted. Which of the following terms is often used to describe this scenario?

A) winner’s curse B) managerial hubris C) winner’s disadvantage D) interdepartmental apathy

99) Judging from the Disney-Pixar merger, which of these is an effective way to create

shareholder value from a merger?

A) Integrate the acquired company as fully as possible, merging staffs and locations, so that all employees have as similar an on-the-job experience as possible.

B) If the acquired company creates high-quality products or services, don’t force it to mirror the management style of the acquiring company.

C) Cut prices at the acquired company but not the acquiring company so that the acquisition covers all consumer price points.

D) Raise consumer prices at the acquiring company and the acquired company to reflect the fact that the market is now less competitive.

100)

Which of the following best explains why Disney showed superior post-merger integration capabilities?

A) Disney pursued a combination of horizontal and vertical integration through its acquisitions.

B) Disney did a thorough job in eliminating principal-agent problems in the firms it acquired.

C) Disney managed its new subsidiaries more like alliances than attempting full integration.

D) Disney used a corporate strategy based on a Build-Borrow-Buy framework for its acquisitions.

101)

Why did Quaker Oats Company’s acquisition of Snapple fail?

A) intercompany competitiveness B) managerial hubris C) stockholder revolt D) unstable market conditions

102)

What is the main reason that most mergers and acquisitions negatively affect shareholder value?

A) The entire market becomes an oligopoly or a monopoly.

B) Promised synergies never take place.

C) Market conditions change too quickly.

D) Companies that resist acquisitions are subject to the “winner’s curse.”

103)

How can strategists decide between borrowing and buying the resource in question?

104)

What does the relational view of competitive advantage propose?

105)

How have strategic alliances helped big pharmaceutical firms hedge against uncertainty?

106)

Explain how firms use strategic alliances to change the industry structure in their favor.

107)

Elaborate on the real-options perspective.

108)

How do strategic alliances help firms gain access to complementary assets?

109)

Describe an equity alliance with the help of an example.

110)

What are the necessary conditions for selecting a partner for successful alliance formation?

111)

Describe the two dimensions that help explain the distinction between mergers and acquisitions. Then give a real-life example of one merger and one acquisition.

112)

Define horizontal integration and provide a successful or unsuccessful example.

113)

Provide a real-world example of how recent horizontal integration has brought about reduction in competitive intensity.

114)

How does horizontal integration favorably affect several of Porter’s five forces for the surviving firms??

115)

What are the three main reasons firms make acquisitions? Provide an example of how a successful acquisition increased or protected shareholder value.

116)

Despite the fact that mergers and acquisitions, on average, destroy rather than create shareholder value, why do we see so many mergers?

117)

What is meant by managerial hubris? In what forms does it appear?

118)

Explain and describe the distinctions between a merger and an acquisition.

119)

Define and describe what a strategic alliance is and provide two reasons why a firm would enter into one.

120)

What are the two necessary conditions for a successful alliance partner?

Answer Key Test name: Chapter 9 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) FALSE 8) FALSE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) A 14) C 15) D 16) B 17) B 18) A 19) D 20) A 21) C 22) A 23) B 24) B 25) A 26) B 27) B 28) B 29) A 30) A 31) A 32) C 33) C 34) B 35) C 36) B 37) B

38) B 39) B 40) B 41) A 42) B 43) B 44) C 45) C 46) D 47) C 48) C 49) B 50) C 51) B 52) A 53) B 54) A 55) A 56) D 57) C 58) B 59) A 60) B 61) C 62) D 63) A 64) D 65) B 66) A 67) A 68) A 69) C 70) A 71) C 72) D 73) B 74) B 75) C 76) D 77) D

78) B 79) C 80) C 81) C 82) A 83) B 84) B 85) D 86) C 87) A 88) C 89) C 90) A 91) A 92) C 93) C 94) A 95) A 96) B 97) B 98) B 99) B 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

C B B Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120)

Short Answer Short Answer Short Answer

Chapter 10: Global Strategy: Competing Around the World Student name: 1) Most businesses around the world are more than 50 percent globalized, meaning that more

than half of their revenues are from outside the home country. ⊚ true ⊚ false

2) In recent years as economic forces have changed, many governments and multinational

enterprises have been more interested in negotiating bilateral trade agreements between countries rather than multinational agreements through international agencies. ⊚ true ⊚ false

3) Businesses located in countries that have relatively weak domestic demand often make the

leap to multinational enterprises in order to achieve growth or to gain and sustain economic advantage. ⊚ true ⊚ false

4) Communities of learning are metropolitan areas that have large numbers of high school

graduates who are ready for a university education. ⊚ true ⊚ false

5) Administrative and political distances, such as the presence or absence of colonial ties, are

part of the cost-responsiveness framework. ⊚ true ⊚ false

6) The cultural distance between Australia and the United States is relatively high because of

the physical distance between the two nations. ⊚ true ⊚ false

7) Foreign-entry modes such as acquisitions and greenfield projects are usually disadvantageous

because they require a high level of capital and resource investment but allow for a low level of control. ⊚ true ⊚ false

8) Delos Inc. sells the same sparkplugs in more than 30 locations throughout Brazil. Delos is an

example of a firm that helps to support the globalization hypothesis. ⊚ true ⊚ false

9) When multinational enterprises (MNEs) enter host countries such as Saudi Arabia and Japan,

the most logical option is usually to pursue a multidomestic strategy even though that strategy rarely leads to significant cost reductions. ⊚ true ⊚ false

10) The term demand conditions refers to how high the volume of demand is for a particular

product in a particular country. ⊚ true ⊚ false

11) One of the major benefits gained by a firm entering the international market is the ability to

benefit from locating value chain activities in optimal geographies for a specific activity. ⊚ true ⊚ false

12) Porter’s diamond framework helps explain why some MNEs are able to promote a lower cost

structure for their specific industry. ⊚ true ⊚ false

13) Raul is the chief operating officer (COO) of Black Mesa Inc., a firm that produces

handcrafted kitchen tables for both the residential and commercial markets. Raul believes that his domestic market is saturated and now wishes to go global. Which of the following would serve as an advantage for Raul if he chose to pursue international markets?

A) Raul could gain access to cheaper raw materials in a foreign country, thus lowering the cost of his input factors.

B) Raul could share his intellectual properties with another firm that operates in a foreign country in hopes of achieving collaboration.

C) Raul’s brand might suffer a loss in reputation if he goes global but could increase his market share.

D) Raul may benefit from learning about Hofstede’s cultural dimensions that could be leveraged on his current employees in his domestic market.

14) Dolores is the CEO of Quantum Electronics LLC and wishes to develop additional

competencies for her business. She is mostly interested in taking advantage of the , which are clustered firms that have unique skill sets located in specific geographic regions.

A) CAGE distance framework B) communities of learning C) advantages of foreignness D) transnational strategies

15) Firms that consider international expansion will often examine absolute metrics on which

countries to pursue investments in but also consider relative distance. To help firms decide where to compete, was developed to help firms make this decision.

A) the MNE decision-making model B) the polycentric strategic framework C) the CAGE distance framework D) Porter’s diamond framework

16) Maria wants to pursue an international strategy but is concerned that foreign markets aren’t

ready for her products and services. You recommend that she engage in would be contract based and would limit risk and exposure of her investments.

A) exporting B) licensing C) equity alliance D) greenfield operations

, which

17) Hadiza wishes to have more control with her international strategy and is willing to increase

her firms’ investments in this foreign market. She considers creating a subsidiary but also wishes to build a manufacturing plant from the ground up. Hadiza is most likely interested in pursuing a(n) strategy.

A) red ocean B) greenfield operations C) exporting and importing D) black swan

18) Walmart sells live animals (snakes, eels, toads, etc.) for food preparation in China, whereas

IKEA sells kimchi refrigerators and metal chopsticks in South Korea. These examples illustrate the need for , which often requires the competing firm to tailor their products and services to meet the needs of the market in which they are competing.

A) cost-leadership B) international strategy C) local responsiveness D) globalization hypothesis

19) Vinny, the CEO of Rainholm Industries, is looking to employ a

strategy, which would take advantage of economies of scale and location economies. He wishes to pursue and establish a global division of labor based on wherever best-of-class capabilities reside at the lowest possible cost for Rainholm Industries.

A) global-standardization B) multidomestic C) international D) transnational

20) Macmillan Toys Inc. is looking to expand internationally and wishes to develop a new

product line that is highly localized while keeping their cost structure below that of their rivals. Macmillan Toys Inc. has been successful with implementing a blue ocean strategy in their main strategic business units and as such wishes to pursue a strategy for their international operations.

A) transnational B) international C) global-standardization D) multidomestic

21) Fruits de Mer Company, a seafood cannery, has established itself as a strong differentiator in

its respective strategic business units but now wishes to explore international strategies. It is prepared to fully customize its product offerings to meet the needs of the foreign country that it is entering; having conducted many surveys on local preferences, tastes, and requirements, the Fruits de Mer Company will more than likely pursue a strategy.

A) global-standardization B) cost-leadership C) transnational D) multidomestic

22) Michael Porter developed the diamond framework to explain why some nations outperform

others in specific industries. This is referred to as A) national competitive advantage.

B) death-of-distance hypothesis.

C) local responsiveness.

D) international competitive advantage.

23) Thomás works in a rare metals industry and wants to open a business in a foreign country

that is rich with natural resources. He believes that natural resources are the one and only mechanism that can help him achieve an international competitive advantage. After all, countries like Afghanistan, Iran, and Venezuela are home to the world’s richest natural recourses, so in theory they too should be able to leverage those resources in order to create a national competitive advantage. Which of the statements below best represents an appropriate response to Thomás and his theory?

A) Natural resources almost always help countries achieve a national competitive advantage.

B) Natural resources are often not needed to generate world-leading companies because competitive advantage is often based on other factor endowments such as human capital and know-how.

C) Natural resources can help create world-leading companies but only if they pursue a differentiation strategy.

D) Having access to natural resources never helps firms achieve a national competitive advantage.

24) When Amal, the CEO of Explore Complexity Simulation Systems, expanded her operations

to a different international market, she was surprised to see how little competition she faced.

In her home country, the competition for simulation systems is incredibly fierce. As a result of her international expansion, Explore Complexity has been able to easily position themselves as a major player. Which of the four categories of Porter’s diamond framework best explains this advantage?

A) factor conditions B) competitive intensity in the focal industry C) demand conditions D) related and supporting industries/complementors

25) Teresa wants to take her firm internationally but is concerned with the

, which refers to the possibility of higher costs of doing business in an unfamiliar cultural and economic environment.

A) geopolitical climate B) foreign direct investment C) liability of foreignness D) transactional strategy

26) When a firm is facing high pressure for local responsiveness and low pressure for cost

reductions, the firm is likely to adopt a(n) responsiveness framework.

A) transnational B) global-standardization C) multidomestic D) international

_ strategy, according to the cost-

27) When firms sell their products overseas with little or no change to the products, they may

increase the expropriation of intellectual property and increase the risk of piracy. This is considered a serious disadvantage when pursuing a(n) strategy.

A) international B) differentiation C) cost-leadership D) functional-level

28) Because keeping cost low is critical to IKEA’s value innovation, it switched from a(n) A) transnational strategy to a multidomestic strategy.

B) transnational strategy to a global-standardization strategy.

C) international strategy to a multidomestic strategy.

D) international strategy to a global-standardization strategy.

29) Mikhail is a strategist for a power tool manufacturer that has a large presence in the United

States and Germany. By checking economic and political reports, he knows that trade and investment barriers are falling among wealthy nations. He also knows that the price of oil has dropped 50 percent in the previous two years. Based on this information, what action should Mikhail and his company take?

A) Mikhail and his employer should wait out this period of uncertainty and act when market forces are more stable.

B) They should anticipate market corrections because investment barriers and the price of oil inevitably rise.

C) Mikhail and his employer need to prepare for the cost of doing business to increase.

D) They should seriously consider globalization because of the falling trade and investment barriers.

30) Livia is the CEO of a line of luxury bedding, Livia Let Lie Inc., which has an online presence

and production units in nine countries. In this scenario, Livia Let Lie Inc. is most likely a A) nonprofit organization.

B) nationalized firm.

C) sole proprietorship.

D) multinational enterprise.

31) European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners.

Which of the following statements best explains why it used this strategy?

A) to take advantage of the high labor costs in the southern United States B) to take advantage of the high cost of living in the southern United States C) to take advantage of the low impact of globalization in the United States D) to take advantage of lower taxes in the southern United States

32) During which period of globalization did the mode of entry into foreign markets primarily

involve exporting goods?

A) Globalization 1.0 B) Globalization 2.0 C) Globalization 3.0 D) Globalization 4.0

33) Which of the following is a feature of the Globalization 2.0 stage?

A) Huge investments in fiber-optic cable networks around the world enabled companies

to operate as global-collaboration networks.

B) Only sales and distribution operations took place overseas, while all the important business functions were located in the home country.

C) Two-way knowledge flowed between the local subsidiaries and their U.S. headquarters.

D) Multinational enterprises (MNEs) began to create smaller, self-contained replicas of themselves in a few key countries.

34) Which of the following is an observable feature in the Globalization 3.0 stage?

A) MNEs began to create smaller, self-contained copies of themselves, with all business

functions intact, in a few key countries.

B) While the U.S. corporate headquarters set overarching strategic goals and allocated resources through the capital budgeting process, local mini-MNE replicas had considerable leeway in day-to-day operations.

C) Based on an optimal mix of costs, skills, and PESTEL factors, companies now freely locate business functions anywhere in the world.

D) Strategy formulation and implementation, as well as knowledge flows, followed a one-way path—from domestic headquarters to international outposts.

35) A trend observed during the Globalization 3.0 stage involves A) countries around the globe becoming more self-sufficient and independent.

B) multinational enterprises (MNEs) organizing as global collaboration networks.

C) privately owned firms getting nationalized.

D) world’s market economies becoming less integrated.

36) Peter is a senior vice president at a textile manufacturer that wants to move from being 20

percent globalized to 70 percent globalized in the next 10 years. What are some possible drawbacks that Peter’s company must anticipate?

A) None. All political and economic factors point to the rise of globalization.

B) Rising wages may cancel out cost savings of access to low-cost input factors.

C) Governments may lower barriers to international trade.

D) Improved communication technology may lead to longer production cycles.

37) Which of the following defines the term globalization?

A) part of a firm’s corporate strategy to gain and sustain a competitive advantage when

competing against other foreign and domestic companies around the world B) the process of closer integration and exchange between different countries, businesses, and peoples worldwide C) a firm’s investments in value chain activities abroad D) the process of reaping benefits from locating value chain activities in the world’s optimal geographies for a specific activity

38) How will an increase in coordinated economic and political integration between countries

affect the world economy?

A) The world’s market economies will become self-sufficient and independent.

B) There will be gains in social welfare and living standards across the globe.

C) The cost of labor will further decline in emerging economies.

D) There will be a movement away from global collaboration networks among multinational enterprises.

39) How has China been affected by its one-child-per-family policy and appreciation of its

currency?

A) The purchasing power of its workforce has declined.

B) The government no longer cares about capturing more of the value added.

C) The standard of living within the economy has become lower.

D) The country’s advantage in low-cost manufacturing is now reduced.

40) Which of the following statements about multinational enterprises (MNEs) is true?

A) MNEs benefit from advances in telecommunications technology.

B) MNEs are hindered by falling investment barriers.

C) MNEs benefit from rising trade barriers.

D) MNEs are hindered by reduced transportation costs.

41) Which of the following describes a firm in the Globalization 1.0 stage?

A) Asha Inc. had a large office in New York, which was one cog in a global network.

B) Asha Inc. had a large office in New York, which functioned with other large offices

in Europe and Asia.

C) Asha Inc. had a base office in New York and a replica office in Amsterdam.

D) Asha Inc. had a base office in New York and distributed some of its products overseas.

42) Which of the following will most likely harm the reputation of a multinational enterprise

(MNE)?

A) Principal-agent problems cause an MNE to merge with another MNE. B) Increased competition causes an MNE to close a factory in a developing country.

C) Wages for workers in a factory owned by an MNE increase, causing profits to decline.

D) A sweatshop owned by an MNE has an explosion that kills hundreds of workers.

43) Which of the following contributed to the failure of Walmart in Germany?

A) Germans were suspicious of Walmart’s “always low” prices.

B) German customers were expecting cheerful Walmart greeters but instead experienced

gruff customer service.

C) The first Walmart boss in the country was German and failed to appropriately translate the U.S.-based company’s values.

D) Germany’s protective labor laws drove up costs.

44) Which of the following has been a key driver for firms to expand globally during the

Globalization 3.0 stage?

A) benefits from lower labor costs in manufacturing and services B) free use of formerly protected intellectual property C) increasing trade barriers that protect businesses D) exporting newly available raw materials, such as rubber and coal

45) Managers at Umbrella Corporation, a firm in East Asia, want to make their company a global

leader in business process outsourcing (BPO). What should the Umbrella managers look for as they decide where to locate their BPO facilities?

A) large, undeveloped plots of land for greenfield projects B) plentiful natural resources C) many uneducated workers who are highly trainable D) an abundance of well-educated English speakers

46) Unilever’s new-concept center is situated in downtown Shanghai, China, attracting hundreds

of eager volunteers to test the firm’s latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of A) location economies.

B) economies of scope.

C) learning races.

D) network effects.

47) Duke & Duke Autos Inc. has shifted its research and development unit from its home country

to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Duke & Duke Autos Inc. is reaping the benefits of A) economies of scope.

B) location economies.

C) resource immobility.

D) resource ambiguity.

48) A firm that draws on multiple, equally important innovation hubs throughout the world is

using A) B) C) D)

location economies. a polycentric innovation strategy. intellectual property exposure. the CAGE distance framework.

49) Which of the following statements accurately explains the primary reason behind Walmart’s

failure in Germany?

A) inability to implement its trademark focused differentiation strategy in the German market B) transfusion of American corporate values into a German location C) Germany’s unfamiliarity with retail discount powerhouses D) Metro’s hostile takeover of Walmart in Germany

50) Cyberdyne Systems Corp. manufactures cooking and baking equipment and has its base in

the country of Handled. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself in the country of Balalaika and uses its low-cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Cyberdyne Systems Corp. incurs huge financial losses in Balalaika. In this scenario, Cyberdyne Systems Corp.’s failure to establish itself successfully in Balalaika occurs most likely because A) it overestimated its need to protect its intellectual property.

B) it underestimated its liability of foreignness when entering the Balalaika market.

C) it underestimated its dwindling reputation before it enters the Balalaika market.

D) it overestimated the geographic and cultural distance between Handled and Balalaika.

51) Siobhan, the chief financial officer at an office furniture manufacturer in Canada, wants to

build new plants in Canada rather than overseas. Which of these points should she make as she argues her case to the board of directors?

A) “As the rest of the world globalizes, we will lead the way in strengthening our home nation.”

B) “Keeping our factories in Canada means facing up to the liability of foreignness.”

C) “Canada’s wages and benefits are so low compared with the rest of the world that it makes the most sense to build factories here.”

D) “It will be much more difficult to protect our intellectual property if we build factories overseas.”

52) Which of the following is part of Geert Hofstede’s cultural dimensions?

A) B) C) D)

short-term orientation groupthink risk taking power distance

53) Under the CAGE distance framework, the administrative and political distance between two

countries primarily increases with A) differences in consumer incomes.

B) the absence of colonial ties.

C) physical remoteness.

D) the lack of trust and mutual respect.

54) PolyCon Corp., a tool and die maker, is considering where to locate its new factories and

offices. According to the CAGE distance model, which of these countries is statistically most attractive to PolyCon? A) one that is much poorer than the country where PolyCon has its headquarters B) one that is in the same trading bloc as PolyCon’s home country C) a country that does not share the same currency as PolyCon’s home country D) the country that is the greatest physical distance from existing PolyCon’s facilities

55) Aldorria and Estoccia are neighboring countries with strong economic disparities. However,

both the countries share a common national language and the same political ideologies. The relationship between these two countries will most likely affect the trade of A) food processed in Estoccia.

B) movies and TV shows produced in Aldorria.

C) iron ore extracted in Estoccia.

D) luxury items manufactured in Aldorria.

56) When two neighboring democratic countries that are part of a trading bloc follow different

religions and social norms, they most likely have high A) political B) geographic C) administrative D) cultural

distance.

57) Pearson Specter Litt is a global internet company that offers country-specific variations of its

sites, keeping in mind the linguistic and religious differences between the countries it serves.

Pearson Specter Litt is most likely doing this to distance from the other countries.

A) reduce its geographical B) increase its administrative C) increase its economic D) reduce its cultural

58) A greater

distance between two trading countries increases the liability of

foreignness.

A) economic B) cultural C) political D) administrative

59) Dinotopia is a country of English-speaking people and has a very profitable economy. Which

of the following countries is most likely to be the closest to Dinotopia in terms of cultural distance?

A) Khemed, which has the same wealth and per capita income as Dinotopia B) Luftnarp, which has a very profitable economy and where people speak Luftnarpian C) Maldonia, where people speak English and have a low standard of living D) Moloni Republic, which is located close to Dinotopia and is easily accessible by road

60) How do Canada, Mexico, and the United States reduce the administrative and political

distance between them?

A) by adopting similar national cultures B) by lowering the disparities between their per capita incomes C) by partnering in the USMCA treaty D) by reducing their linguistic differences

61) A payroll company in the nation of Osterlich is seeking to expand beyond its borders while

limiting administrative and political distance in the new country. Which potential site is the best one for this type of expansion?

A) one that considers payroll companies essential to national security B) one that is outside of any trading blocs that Osterlich participates in C) one that used to have a colonizer or colonized relationship with Osterlich D) one that has extensive tariffs and trade quotas to protect businesses

62) The administrative and political distance between two trading countries decreases when A) there are Foreign Direct Investment restrictions in the host country.

B) the host country lacks an independent central bank.

C) tariffs and trade quotas exist in the host country.

D) there is a well-functioning capital market in the host country.

63) For which of the following companies will geographic distance be the most relevant factor in

deciding whether to trade with a target country?

A) a firm that manufactures cell phone batteries B) a firm that extracts and exports iron ore C) a firm that produces movies D) a firm that sells wristwatches

64) Which of the following factors are the most important determinants of economic distance?

A) the wealth and per capita income of consumers B) the ethnicity and religion of consumers C) the presence and influence of legal institutions in a country D) the topography and climate of a country

65) Which of the following statements is true with regard to international trade between

countries?

A) Greater cultural distance between the home and host countries decreases the liability of foreignness to multinational companies.

B) Colony–colonizer relationships have a strong negative effect on bilateral trade between countries.

C) Wealthy countries engage in relatively more cross-border trade than poorer ones.

D) Political integrations decrease the expected trade intensity between two countries.

66) Which of the following statements best explains why Walmart is finding it difficult to

replicate its existing business model in China?

A) because of the political differences between China and the United States B) because the USMCA treaty prohibits Walmart from investing in countries outside North America C) because of the large economic distance between the United States and China D) because Chinese consumers have not accepted Walmart’s low-cost strategy

67) Stratton Oakmont Inc., a well-established and reputed multinational enterprise, is

headquartered in a highly developed economy. It wants to start its operations in Old Hebrides, considered one of the less developed nations in the world. How will this strategic move most likely affect Stratton Oakmont Inc.?

A) It will benefit from economic arbitrage.

B) Stratton Oakmont will use its competitive advantage from economies of standardization.

C) Stratton Oakmont will replicate its existing business model easily.

D) It will be able to easily sell products for which demand varies by income.

68) Macmillan Toys Inc. is located in the nation of Ruffino near the nation of East Fenwick.

Macmillan Toys is considering expanding into Rusalka. Both countries have similar consumer incomes and knowledge bases and share a common language. Also, the transportation networks between the countries are strong. Even so, the two nations have a long-standing dispute concerning the control of an area of land along their common border.

Currently, Ruffino rules this land. Which of the following would most likely prevent Macmillan Toys from expanding into Rusalka?

A) geographic distance B) economic distance C) political distance D) cultural distance

69) Which of the following countries has a high geographic distance but a low cultural distance

from the United States?

A) Canada B) Mexico C) Ireland D) Portugal

70) Which of the following entry modes was used extensively in Globalization 1.0 stage?

A) strategic alliances B) acquisitions C) greenfield operations D) exports

71) Black Mesa Minerals Inc. wants to expand into the international market. It does not want to

spend a very large amount of money for this process. However, Black Mesa Minerals wants to maintain some control in the foreign market. Which of the following would be the best entry mode for this firm?

A) joint ventures B) acquisitions C) greenfield operations D) exports

72) Which of the following modes of entering a foreign market allows for the lowest level of

control?

A) greenfield ventures B) exporting C) joint ventures D) acquisitions

73) Which of the following is the most likely advantage of using foreign acquisitions as a

foreign-entry mode?

A) They are easy to initiate and terminate.

B) They require low amounts of investments in terms of capital.

C) They reduce a firm’s exposure to loss of reputation.

D) They are based on contracts rather than ownership.

74) Gregarious Simulation Systems Inc. wants to globally expand its market. It intends to ensure

that its mode of foreign entry allows it to have strong control over its operations and protect its intellectual property, although that may mean investing a significant amount of capital and other resources. In this scenario, which of the following foreign-entry modes would best suit Gregarious Simulation Systems?

A) exporting B) franchise agreement C) acquisition D) licensing

75) Exporting is best described as A) building new, fully owned plants and facilities from scratch.

B) purchasing an existing facility to launch a new production activity.

C) producing goods in one country to sell in another.

D) bringing goods or services into a country from abroad for sale.

76) Aperture Science Inc. has decided to enter into a foreign market by setting up its own

production facilities and distribution channels from scratch. This will give it strong control over all its business activities. Which of these foreign-entry modes will Maddox most likely choose?

A) greenfield operation B) export C) joint venture D) acquisition

77) Which of the following types of organizations comparatively requires the highest levels of

investment and control?

A) joint venture B) franchising C) acquisition D) licensing

78) Blue Wave Industries Inc. manufactures swimming pool pump parts. It wants to globalize but

is unable to spend a considerable amount of money until it’s sure foreign markets would be interested in its products. Which of these business ventures makes the most sense for Blue Wave Industries?

A) licensing some of its newest pump designs to overseas competitors B) acquiring a swimming pool pump parts manufacturer in another country C) beginning a brownfield project in its home country D) exporting swimming pool pump parts to many other countries

79) Fang and Bone Inc. is a snack manufacturer that wants to expand globally. Few people

abroad are familiar with Fang and Bone snacks. The countries into which the company wants to expand require a high degree of local responsiveness when it comes to food, and the citizens of those countries already spend plenty of money on snacks. Which action should the leaders of Fang and Bone take?

A) Achieve economies of scale by using the global standardization approach.

B) Pursue a multidomestic strategy that includes new “local” brands.

C) Keep costs low with undifferentiated product in the international strategy.

D) Appease pressures for cost reductions by following the transnational approach.

80) Hooper’s Store, a luxury motorcycle company, sells the same motorcycles and offers the

same superior services in both its home country and foreign markets. The market in which it operates faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the cost-responsiveness framework does Hooper’s Store most likely pursue?

A) a multidomestic strategy B) a transnational strategy C) a global-standardization strategy D) an international strategy

81) Multinational enterprises (MNEs) such as Harley-Davidson, Rolex, and Starbucks are said to

be following an international strategy because A) they pursue a cost-leadership strategy in their respective industries.

B) they are highly responsive to the local needs and preferences of customers in the host countries.

C) they offer the same products or services in all their stores throughout the world.

D) they attempt to combine benefits of localization and standardization strategies simultaneously.

82) Entertainment 720 Inc. operates in 20 countries around the globe. The company clearly

understands that the skin and hair type of customers varies from one country to another.

Consequently, its products are customized to suit local needs and preferences of customers, even though the costs incurred while making these products are exceptionally high. This strategy helps the company behave as a local firm in a foreign market. In this scenario, which of the following strategies does Entertainment 720 most likely implement?

A) a multidomestic strategy B) a local-as-global strategy C) a transnational strategy D) a sole provider strategy

83) Yubaba Inc., a company that manufactures and sells premium perfumes, is pursuing an

international strategy. Axe Inc., a supermarket chain, follows a multidomestic strategy.

Which of the following statements is most likely true of this scenario?

A) Yubaba Inc. will sell the same products in both domestic and foreign markets, whereas Axe Inc. will customize its product offerings to suit local requirements.

B) Yubaba Inc. will pursue a differentiation strategy at the business level, whereas Axe Inc. will pursue a cost-leadership strategy at the business level.

C) Yubaba Inc. will be better protected from exchange rate fluctuations when compared to Axe Inc. D) Yubaba Inc. will not be able to use its home-based core competencies in foreign markets as much as Axe Inc. will.

84) Blue Cat Inc., a manufacturer of high-technology medical devices, has its product

development centers located in the United States and South Korea. The manufacturing units are located in China and the Philippines to benefit from low labor costs and access to original equipment manufacturers. This allows the company to competitively price its devices. Also, the various phone models sold by the company are uniform in all the foreign markets it operates in. In this scenario, which of the following strategies does Blue Cat most likely pursue?

A) international strategy B) multidomestic strategy C) global-standardization strategy D) transnational strategy

85) To keep track of the latest developments in computing, Lenovo’s research centers are located

in China, the United States, and Japan. Also, to benefit from low-cost labor and reduced shipping costs, the company’s manufacturing facilities are in Mexico, India, and China.

Lenovo’s products are the same for its domestic and foreign markets. Which strategy does Lenovo follow?

A) a transnational strategy B) a multidomestic strategy C) a localization strategy D) a global-standardization strategy

86) Perfect Paws Inc., a pet supply chain, is implementing a multidomestic strategy. Heartland

Express, a company that manufactures small engines for the agricultural industry, is pursuing a global-standardization strategy. How will the two companies most likely differ from each other?

A) Perfect Paws Inc. will focus more on cost-reduction than Heartland Express.

B) Perfect Paws Inc. will have its business functions spread across the world; Heartland Express’s business functions will be highly centralized.

C) Unlike Heartland Express, Perfect Paws Inc. will be able to pursue a differentiation strategy at the business level.

D) Unlike Heartland Express, Perfect Paws Inc. will be able to reap significant economies of scale and location economies.

87) Bayside Inc., a reputed brand for fine art supplies, is implementing an international strategy.

Cyberdyne Corp., a maker of mini-computer tablets, is pursuing a global-standardization strategy. Which of the following statements most likely holds true in this scenario?

A) While Bayside Inc.’s competitive advantage lies in its high local responsiveness, Cyberdyne Corp. will lack such capabilities.

B) Cyberdyne Corp. focuses more on cost reductions when compared to Bayside Inc. C) Cyberdyne’s business functions are highly centralized, whereas Bayside organizes its activities worldwide.

D) Cyberdyne is exposed to greater risks of exchange rate fluctuations.

88) Rainholm Industries is a large snack-food conglomerate that operates in more than 50

countries and employs more than 80,000 people across the world. It operates through multiple regional product divisions, which tend to function as autonomous profit-and-loss centers. This allows the company to reap significant economies of scale. Though each division acts as an autonomous firm with its individual regional leaders, frequent sharing of knowledge between the divisions allows for global learning. These factors help the company reconcile product and service differentiations at low cost. Which of the following strategies does Rainholm Industries most likely use?

A) an international strategy B) a focused-differentiation strategy C) a multidomestic strategy D) a transnational strategy

89) A firm pursuing a

strategy would believe that best practices, ideas, and innovations should be diffused throughout the world.

A) global-standardization B) multidomestic C) transnational D) localization

90) Which of the following is a drawback of pursuing a transnational strategy?

A) It creates bottlenecks for global learning.

B) It exposes a firm to diseconomies of scale and location.

C) It requires a global matrix structure, which is difficult to implement.

D) It involves locating all key business activities in the home country headquarters.

91) Globex Inc., a company popular for its dairy products, successfully follows a multidomestic

strategy. Omni Consumer Products, a large conglomerate, pursues a transnational strategy.

Which of the following statements is most likely true of this scenario?

A) While Omni Consumer Products’ competitive advantage will lie in its high local responsiveness, Globex Inc. will lack such competencies.

B) Omni Consumer Products will face greater pressure for cost reductions than Globex Inc. due to strategy choice.

C) Both Globex Inc. and Omni Consumer Products will have to duplicate key business functions in multiple host countries.

D) While Globex Inc. will require a global matrix structure, Omni Consumer Products Inc. will require a traditional headquarters model.

92) Sirius Cybernetics Inc. has a national competitive advantage in the pharmaceutical industry.

This means that the country A) is a world leader in the pharmaceutical industry.

B) has nationalized the pharmaceutical industry.

C) has low levels of competition, providing other multinational companies with an opportunity to take over the pharmaceutical industry.

D) is a potential foreign market for multinational pharmaceutical companies to sell their products.

93) Oceanic, a venture capital firm, has the opportunity to invest in one of two firms that are in

the process of globalizing. Macmillan, an air-conditioner manufacturer, faces intense pressure from its home market. Rent a Swag, a dog-toy manufacturer, has encountered little competition in its country of origin. In which company should Oceanic invest?

A) Macmillan, because air conditioners cost more to ship than dog toys do B) Macmillan, because firms that face stiff competition at home tend to do better abroad C) Rent a Swag, because firms that face little or no competition at home tend to do better abroad D) Rent a Swag, because dog toys cost less to ship than air conditioners do

94) Jeremy is a strategist who wants to decide on the appropriate strategy to help his firm “go

global.” Which of the following should he consider while choosing his strategy?

A) He must be aware of the fact that despite globalization and the emergence of the internet, firm geographic location has actually maintained its importance.

B) He should rely on his firm’s business-level strategy as a clue to possible strategies pursued globally.

C) He should remember that he has only one framework at his disposal to make global strategy decisions.

D) He must remember that higher levels of control and a lower likelihood of any loss in reputation go along with less investment-intensive foreign-entry modes.

95) Jean Gene Inc. produces an inexpensive frozen croissant that is well tailored for the tastes of

U.S. consumers. However, it has failed to satisfy the consumer preferences of its host country, France. In which of the following categories has Jean Gene performed poorly?

A) cost-reduction B) local responsiveness C) global standardization D) transnational strategy

96) Los Pollos Hermanos is a company that makes frozen lunch and dinner entrées. Based on

what you know about companies like Nestlé, what action should Los Pollos Hermanos take as it strives to become multinational?

A) Pursue a multidomestic strategy, customizing product offerings to suit local preferences.

B) Attempt an international strategy, controlling costs and taking advantage of economies of scale by selling the same (or very similar) products around the globe.

C) Try a global-standardization strategy, which creates standardized products and competes mainly on price.

D) Consider a transnational strategy by creating a blue ocean market.

97) The German multimedia conglomerate Bertelsmann operates in more than 60 countries

throughout the world and owns many regional leaders in their specific product categories, including Random House Publishing in the United States. Bertelsmann operates its more than 500 regional media divisions as more or less autonomous profit-and-loss centers, but it attempts to share best practices across units. Global learning and human resource strategies for executives are coordinated at the network level. Bertelsmann is following a(n) A) multidomestic strategy.

B) international strategy.

C) global-standardization strategy.

D) transnational strategy.

98) The transnational strategy is similar to a(n)

strategy because they both focus on

product and/or service differentiation and low costs.

A) liquidation B) product diversification C) international D) blue ocean

99) Michael Porter’s diamond framework explains A) national value creation.

B) domestic value creation.

C) national competitive advantage.

D) domestic competitive advantage.

100)

In Michael Porter’s diamond framework, _ conditions describe a country’s endowments in terms of natural, human, and other resources.

A) market B) factor C) demand D) supply

101)

Fierce domestic competition in Globex makes a tough environment for any motorcycle company. Success requires top-notch engineering of chassis and engines, as well as keeping costs and fuel consumption in check. As a result, Globex’s motorcycles have a competitive advantage in the global market. According to Porter’s diamond framework, this scenario shows the influence of competitive intensity in A) a peripheral industry.

B) a focal industry.

C) supportive complementors.

D) related complementors.

102)

Toyota’s global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—which in turn improved Toyota’s quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of A) factor conditions.

B) competitive intensity in a focal industry.

C) demand conditions.

D) related and supporting industries/complementors.

103)

104)

What is the engine behind globalization? Provide a real-world example.

What are the implications of continued economic development across the globe for multinational enterprises (MNEs)? Explain using China as an example.

105)

What are the main reasons a firm expands internationally? List them, and then give details on the benefits of one reason.

106)

How can expanding globally become a threat to the reputation of a multinational enterprise? Explain with the help of a real-world example.

107)

Explain how the distance between two countries increases with cultural and administrative and political distance.

108)

What is meant by cultural distance? How does it affect a firm? Use a real-life example of a business affected by cultural difference. The example can be from your everyday life, or it can be something you have read or heard about.

109)

What products and industries does geographic distance affect the most?

110)

When should a firm choose acquisition or greenfield operation as a foreign-entry mode?

111)

When should a firm choose exporting as a foreign-entry mode?

112)

What are the two opposing forces that multinational companies have to face when competing around the globe?

113)

114)

In which industries is a multidomestic strategy common? Give an example.

Discuss the disadvantages of international expansion for firms, particularly in regard to intellectual property. Substantiate with an example from your reading assignment or from your own experience.

115)

What are some of the disadvantages of a multidomestic strategy?

116)

Discuss how demand conditions within Porter’s diamond framework affect national competitive advantage.

117)

Using the automotive industry in Germany as an example, explain how competitive intensity in a focal industry affects national competitive advantage.

118)

Identify the three major advantages to a firm that wishes to expand their operations in international markets.

119)

Explain what is meant with the term coined by Geert Hofstede known as national culture.

120)

According to the cost-responsiveness framework, what strategy do you believe Lenovo has used and why?

Answer Key Test name: Chapter 10 1) FALSE 2) TRUE 3) TRUE 4) FALSE 5) FALSE 6) FALSE 7) FALSE 8) FALSE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) A 14) B 15) C 16) A 17) B 18) C 19) A 20) A 21) D 22) A 23) B 24) B 25) C 26) C 27) A 28) D 29) D 30) D 31) D 32) A 33) D 34) C 35) B 36) B 37) B

38) B 39) D 40) A 41) D 42) D 43) D 44) A 45) D 46) A 47) B 48) B 49) B 50) B 51) D 52) D 53) B 54) B 55) D 56) D 57) D 58) B 59) C 60) C 61) C 62) D 63) B 64) A 65) C 66) C 67) A 68) C 69) C 70) D 71) A 72) B 73) C 74) C 75) C 76) A 77) C

78) B 79) B 80) D 81) C 82) A 83) A 84) C 85) D 86) C 87) B 88) D 89) C 90) C 91) C 92) A 93) B 94) A 95) B 96) A 97) D 98) D 99) C 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

B B D Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120)

Short Answer Short Answer Short Answer

Chapter 11: Organizational Design: Structure, Culture, and Control Student name: 1) Organizational design involves establishing a firm’s structure, culture, and control

mechanisms. ⊚ true ⊚ false

2) Inertia, defined as a firm’s resistance to changing the status quo, can lead to the firm’s

eventual failure. ⊚ true ⊚ false

3) A planned emergence approach to strategic planning is most likely to be found in a highly

centralized firm. ⊚ true ⊚ false

4) Organic organizations typically exhibit a lower rate of entrepreneurial behaviors and

innovation. ⊚ true ⊚ false

5) A firm that successfully balances exploitation of current opportunities and exploration of

future possibilities is considered ambidextrous. ⊚ true ⊚ false

6) A primary advantage of the matrix organizational structure is that it simplifies decision

making and communication in geographically diverse organizations. ⊚ true ⊚ false

7) Firms that pursue a closed approach to innovation typically enjoy first-mover advantages. ⊚ true ⊚ false

8) An open innovation model reduces a firm’s absorptive capacity. ⊚ true ⊚ false

9) Changing corporate culture typically involves mass layoffs. ⊚ true ⊚ false

10) Results-only-work-environments (ROWEs) are characterized by their use of extrinsic

motivations such as promotions or the threat of layoffs. ⊚ true ⊚ false

11) Managerial decisions about a firm’s strategy and organizational structure should not be

interrelated. ⊚ true ⊚ false

12) The four key elements of a firm’s organizational structure are specialization, centralization,

formalization, and generalization. ⊚ true ⊚ false

13) Jerry is one of the SBU managers for a firm that has been in business for over 50 years. The

external environment in which the firm has operated has changed significantly in the past decade, but it is still operating under a “business as usual” mantra. Jerry can’t seem to convince the upper-level executives to reorganize the firm’s structure and formal reporting relationships. This firm is probably experiencing A) a failed strategy.

B) organizational inertia.

C) a change in leadership.

D) increased morale due to their organizational culture.

14) Saddiq’s company has a high degrees of centralization in its organizational structure. Saddiq

has learned that a main drawback of working in a firm with centralized decision making is that it can often result in which of the following?

A) reduced creativity and innovation B) less employee job satisfaction due to the repetition of tasks C) increased levels of hierarchy D) slow response time and reduced customer satisfaction

15) Vanessa, a few years out of law school, and wants to open her own small law firm. Vanessa

should probably adopt a(n) A) simple B) functional C) M-form D) matrix

structure for the firm.

16) Simple organizational structures often exhibit low levels of formalization and specialization.

Which of the following is not a benefit of employing a simple organizational structure?

A) being able to easily and quickly coordinate and communicate within the firm B) not having the need for sophisticated information technology/management systems C) employing specialists that can develop deep knowledge/expertise in their field D) being able to converse with the CEO and other upper level executives

17) The University of Central Florida has a typical College of Business that houses several

specific mini-departments such as management, marketing, finance, accounting, economics, and real estate. This College of Business best resembles a(n) structure.

A) simple B) functional C) multidivisional D) holarchy

18) A firm that uses a functional structure will typically have efficient top-down and bottom-up

communication, but A) dual reporting relationships typically blur lines of authority.

B) the top management team may fail in their coordination and control efforts of functional-level employees.

C) communication may be hampered among the horizontal, distinct organizational functions.

D) career paths and professional development are limited.

19) Paul runs an organization that implements a cost-leadership strategy. This business-level

strategy supports both a_ A) matrix; organic B) M-form; vertical C) simple; organic D) functional; mechanistic

and

structure.

20) Li runs a firm that has diversified into different product lines and geographies. She should

probably use a(n) A) functional B) simple C) network D) M-form

organizational structure.

21) Which type of organizational structure is recommended when a firm has a narrow focus in

terms of product or service offerings and a small geographic footprint?

A) matrix structure B) simple structure C) functional structure D) multidivisional structure

22) Elvira is the CEO of All Things Inc. Her company employs a matrix structure, which is the

combination of the and A) functional; M-form B) simple; functional C) M-form; simple D) network; functional

structure.

23) Raphael’s team meets to discuss and improve “how things get done around here.” The team is

talking about its A) organizational culture.

B) formal operating procedures.

C) open innovation framework.

D) matrix structure.

24) Angelika is the CEO of One Spice Inc., a firm that grows and processes the Naga Viper

pepper, one of the world’s hottest peppers. Angelika wants to better understand the relationship between her firm’s organizational culture and the ability to achieve competitive advantage. The relationship between these two states that A) a firm is unable to achieve a competitive advantage if they are pursuing a differentiation strategy.

B) a firm can achieve competitive advantage if their organizational culture follows the VRIO principles.

C) a firm can achieve and sustain competitive advantage if their balanced scorecard is implemented correctly.

D) a firm cannot achieve a competitive advantage when they have an effective organizational culture.

25) Denise wants to clearly communicate and create a

, a key input control, before her team tackles business activities. This way the team will be able to better allocate her firm’s scarce resources to accomplish the tasks at hand.

A) mission statement B) carrot-and-stick approach C) results-only-work-environment (ROWE) D) budget

26) Kenyatta’s main competitor is known for its strong organizational culture, which gives it a

competitive advantage in a tight market. Kenyatta is eager to duplicate his competitor’s culture but is finding it difficult. Two reasons why are likely the successful competitor’s and .

A) historical conditions; external opportunities B) causal ambiguity; social complexity C) organizational socialization; input controls D) tangible budgets; intangible budgets

27) AT&T, IBM, Siemens, and Pfizer have been shifting their innovation strategy toward a

model designed to blend internal knowledge with external knowledge by sourcing strategic alliances. This example best represents the A) absorptive capacity model.

B) not-invented-here syndrome.

C) closed innovation framework.

D) open innovation framework.

28) Organizational design is A) the process of creating, implementing, and modifying the structure of an organization.

B) primarily focused on replacing a firm’s competitive advantage with competitive

parity.

C) a process that always functions independently of strategy formulation.

D) primarily focused on formulating effective strategies, not implementing them.

29) Why does strategy implementation often require changes within an organization?

A) Strategy implementation is less important than strategy formulation.

B) Strategy implementation transforms strategy into actions and business models.

C) Strategy always follows structure.

D) Strategy implementation does not affect resource allocation and power distribution

within an organization.

30) Which of the following statements is true of strategy in an organization?

A) Strategy implementation is considered unsuccessful if it requires changes within an

organization.

B) To implement a strategy successfully, an organization’s structure must be rigid.

C) Strategy implementation does not affect resource allocation and power distribution within an organization.

D) Organizational structure must follow strategy in order for firms to achieve superior performance.

31) As firms grow in size and complexity, they have a tendency and an incentive to focus

on

, which can lead to inertia and even failure.

A) internal shifts B) organizational structure C) specialization D) incremental innovation

32) What most likely happens when a firm optimizes its organizational structure to its current

situation?

A) It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur.

B) It achieves superior performance.

C) It makes it difficult for managers to make the necessary changes due to its effects on resource allocation and power distribution.

D) It transforms strategy into actions and business models.

33)

refers to a firm’s resistance to change the status quo that can set the stage for the firm’s subsequent failure.

A) PESTEL factors B) Formalization C) Organizational inertia D) Centralization

34) Massey’s regional chain of hardware stores were successful. The stores filled a need in a

particular market at a particular time. Managers defined and measured success by financial metrics, focusing on short-term performance. They put in place structures, measures, and systems to accommodate and manage the firm’s increasing size due to its continuing success.

It’s hard to argue with a formula for success, but as a result of such success, Massey’s executive team became resistant to change. What was the team displaying?

A) a significant value gap B) an innovative approach to organizational design C) organizational inertia D) organizational design

35) Fang and Bone Meds is a successful manufacturer of pet medications. Because the

pharmaceutical industry features a high rate of change and the threat of disruption is high, Fang and Bone Meds should A) be prepared to restructure as the landscape changes.

B) stick with the structure that brought it success no matter what happens.

C) attempt to implement an unstructured organization.

D) switch to whichever structure is most common in the industry.

36) A firm’s

determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

A) norms B) culture C) structure D) control

37) Which of the following real-world scenarios best exemplifies formalization?

A) Zappos’ focus on allowing its customer service employees to use their own approach

rather than depend on scripts B) McDonald’s use of standard operating procedures across the world C) W. L. Gore’s associates organizing themselves in project-based teams that are led by sponsors, not bosses D) Yahoo’s decision to fire its CEO after incurring huge losses

38) Which of the following statements is accurate regarding specialization?

A) It captures the extent to which employee behavior is steered by explicit and codified

rules and procedures.

B) It describes the degree to which a task is divided into separate jobs.

C) It refers to the degree to which decision making is concentrated at the top.

D) It determines the formal, position-based reporting lines and stipulates who reports to

whom.

39) A high degree of formalization in an organization is most likely to A) improve customer service.

B) slow down decision making.

C) produce inconsistent results.

D) increase creativity and innovation.

40) In 2013, then-CEO Tony Hsieh announced that Zappos would implement a reorganization in

which, as Hsieh said, “employees … act more like entrepreneurs and self-direct their work … .” At that point, Hsieh changed Zappos from A) a holacracy to a hierarchy.

B) a hierarchy to a holacracy.

C) a decentralized structure to a formalized structure.

D) a bottom-up to a top-down style.

41)

determines the formal, position-based reporting lines and thus stipulates who reports to whom.

A) Formalization B) Hierarchy C) Specialization D) Centralization

42) Freeport Bagel & Deli is a family-owned business with eight employees. Brother and sister

Elise and Simon run the day-to-day operations and make all the key decisions, including what to include on the menu, which vendors to use, and how much to pay their staff. In this scenario, Freeport Bagel & Deli has adopted a structure.

A) simple B) tall hierarchical C) decentralized organizational D) functional

43) West Coast–based Dr. Suds Soap Company has offices in Los Angeles, San Francisco,

Portland, and Seattle. Each office is headed by a vice-president who reports directly to CEO Ravi Satterjee. The heads of the HR, finance, and marketing teams also report to Satterjee.

Based on this scenario, which of the following statements is most likely to be true?

A) Ravi Satterjee is head of a decentralized organization.

B) Dr. Suds Soap Company is a mechanistic organization.

C) Ravi Satterjee has a wide span of control.

D) Dr. Suds Soap Company is run as a formalized organization.

44) Yubaba Inc., a fidget spinner manufacturing company, encourages its employees to enjoy

their work by taking on additional responsibilities or switching jobs with each other. It allows its employees immense flexibility in charting their own career path within the organization.

Bill has worked at Yubaba for eight years, but has never had a boss or supervised an employee. Which of the following is most likely true in this scenario?

A) Yubaba Inc. is a mechanistic organization.

B) Yubaba Inc. has a flat organizational structure.

C) Yubaba Inc. has a high degree of centralization.

D) Yubaba’s organizational culture is governed by codified rules.

45) Jared works as a frontline employee for a nationwide retail store. He reports to a floor

manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following best describes this retail store?

A) flat structure B) tall structure C) centralized structure D) decentralize structure

46) The Bulwark Tea & Coffee chain recently reorganized, laying off some managers and

employees. The remaining managers were told they would each have an increased span of control. What does this mean?

A) The remaining employees will have decreased power and autonomy.

B) Each manager will have more employees to supervise and monitor.

C) All employees will be expected to take on more specialized roles.

D) Internal communications and decision-making processes will be monitored by top management.

47) E Corp is a pharmaceutical company that has many breakthroughs in medicine to its credit.

Unlike most other pharmaceutical companies, E Corp has a relaxed work environment.

Employees are encouraged to choose the projects that interest them; communication between team members and their supervisors is open and easy. Because of the company’s work culture, its employees feel motivated to work harder and display more entrepreneurial behaviors. In this scenario, E Corp Inc. is most likely an organization that is A) formalized.

B) mechanistic.

C) centralized.

D) organic.

48) McDonald’s operates Hamburger University, which trains students to ensure consistent food

quality across its outlets throughout the world. This indicates that McDonalds’s A) is organic in nature.

B) is mechanistic in nature.

C) has an informal structure.

D) has a decentralized structure.

49) Los Pollos Hermanos is a nationwide fast-food chain. Decision power resides at the top of

the organization. Each job is documented in minute detail. The firm has many levels of supervision, including vice presidents and regional managers. The firm’s headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board. Based on this scenario, which of the following is an accurate statement about Tony’s?

A) Los Pollos Hermanos has a low degree of specialization and formalization, a high degree of centralization, and relies on a flat hierarchy.

B) Los Pollos Hermanos has a high degree of specialization and formalization, a low degree of centralization, and relies on a tall hierarchy.

C) Los Pollos Hermanos has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy.

D) Los Pollos Hermanos has a low degree of specialization, formalization, and centralization and relies on a flat hierarchy.

50) Which of the following accurately describes a mechanistic organization?

A) It has a low degree of specialization and formalization and decentralized decision

making.

B) It has a high degree of specialization and formalization and a tall hierarchy that relies on centralized decision making.

C) It is a highly flexible organization that encourages slow decision making and boasts high employee motivation.

D) It typically exhibits a higher rate of entrepreneurial behaviors and innovation.

51) Hooli, a web development firm, wants to implement an organic structure to foster innovation

and attract the most talented creative minds. Which of the following features will make it difficult to do so?

A) decision-making power distributed throughout the organization B) a wide span of control for managers C) dedication to a cost-leadership business strategy D) flexible job descriptions for employees

52) While working a night job at a call center, John creates an app called iFood, which can be

used to place orders at restaurants, rate the restaurants, and make reservations. Because he receives good responses for his app, he quits his current job to focus his efforts on iFood. He creates a start-up called JohnBuilt1 and hires three people to help him improve iFood and maintain the servers that run it. In this scenario, JohnBuilt1 most likely has a structure.

A) simple B) matrix C) mechanistic D) functional

53) Knitwear designer Ebony has decided to open a storefront where she can sell her products.

Sales are encouraging, so Ebony hires a part-time employee to wait on customers and a parttime knitter to help create her designs. Meanwhile, Ebony is busy designing more knitted fashions and making as many as she can, all while handling the day-to-day responsibilities of running a store. Which of the following is likely to be a pitfall for Ebony as she experiences growth and runs her store in this way?

A) Ebony will likely be pressured to expand her business before she is ready.

B) Ebony will likely have to increase prices on her knitwear.

C) Hiring employees could possibly dilute her brand and infringe on her intellectual property (her designs).

D) As the store grows, Ebony is likely to feel overloaded and experience burnout.

54) Which of the following is an advantage offered by a functional structure?

A) It allows for an efficient top-down communication chain and thus relies on a

relatively tall structure.

B) It facilitates a lower division of labor, which is linked to higher productivity.

C) It allows for a higher degree of specialization and deeper domain expertise.

D) It facilitates a lower level of specialization.

55) Why does a functional structure rely on a flat organizational structure?

A) The work in the organization is centrally coordinated by the CEO. B) It allows for a higher degree of specialization and domain expertise.

C) It allows for efficient bottom-up and top-down communication.

D) It allows for the implementation of a differentiation strategy.

56) Umbrella Corp is a notebook manufacturing company based in Ohio. Umbrella Corps’ main

market is Texas. Its aim is to provide products at better prices than its competitors. Which of the following structures is Umbrella Corp likely to use if it has a functional setup?

A) organic B) simple C) matrix D) mechanistic

57) The goal of a differentiation strategy is to create a competitive advantage by offering

products or services A) that reconcile the trade-offs between differentiation and low cost.

B) at a higher perceived value while controlling costs.

C) that combine the advantages of the functional-structure variations used for cost leadership.

D) that reduce the firm’s cost below that of competitors while offering acceptable value to customers.

58) A functional structure is recommended when a firm A) has a broad focus in terms of its product/service offerings.

B) has a low level of diversification.

C) has a low degree of specialization.

D) diversifies into different product lines and geographies.

59) Which of the following is an advantage of using a functional structure when pursuing a cost-

leadership strategy?

A) It allows a cost-leader to upgrade core competencies in manufacturing and logistics.

B) It enables a cost-leader to build products that are different from its competitors’ offerings.

C) It enables a cost-leader to increase costs above that of its competitors.

D) It allows a cost-leader to operate in a decentralized organizational structure.

60) Why does a firm use an organic organization combined with a functional structure when

implementing a differentiation strategy?

A) It allows the firm to create incentives to foster process innovation in order to drive down cost.

B) It allows the firm to reduce its cost below that of competitors while offering acceptable value.

C) It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing.

D) It allows the firm to nurture and constantly upgrade necessary core competencies in manufacturing and logistics.

61) Which of the following features helps match a cost-leadership strategy to a functional

structure?

A) decentralization B) process and product innovations C) flexibility and mutual adjustment D) focus on economies of scale

62) Blue Cat Restaurant Group relies on a highly centralized functional structure to ensure

consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can the Blue Cat Restaurant Group improve its ability to collaborate without sacrificing the benefits of its current structure?

A) by establishing cross-functional teams B) by switching to a simple structure C) by switching to a competitive M-form structure D) by decreasing managers’ span of control

63) To effectively implement a blue ocean strategy, a firm must balance centralization to control

costs with A) a functional structure that resembles an organic organization.

B) specialization and formalization.

C) a hierarchical organization.

D) decentralization to foster creativity and innovation.

64) Duke & Duke is the parent company of GetItDone.com and NownNever Inc. To cut costs,

Duke & Duke integrated GetItDone.com’s and NownNever Inc.’s management functions with Duke & Duke’s management, while keeping other functions such as product development independent. Duke & Duke has encouraged the senior teams at both GetItDone and NownNever to exploit the success of their existing products while exploring new products for the future. This scenario best exemplifies a(n) A) multidivisional structure.

B) organic organization.

C) simple structure.

D) ambidextrous organization.

65) Which of the following is a disadvantage of a functional strategy?

A) It frequently lacks the tools required to pursue a cost-leadership strategy.

B) It does not facilitate rich communication between members of the same department.

C) It cannot effectively address a higher level of diversification.

D) It does not allow organizations to be flexible or innovative.

66) When a firm diversifies into different product lines and geographies, a

structure is

preferred.

A) simple B) functional C) multidivisional D) network

67) The strategic leaders of Stafford Cookware, a large, successful retail chain based in the

Midwest, want to expand its operations across the United States. Which of the following organizational structures should Stafford Cookware use?

A) simple B) multidivisional C) basic D) functional

68) Rodin Art Supplies operates as a strategic business unit (SBU) under Achieva Chemical Inc.

From this information, it may be reasonable to infer that A) Rodin Art Supplies does not have its own profit-and-loss responsibility.

B) Rodin Art Supplies is dependent on the other SBUs in Achieva Chemical Inc. C) Rodin Art Supplies has a matrix organizational structure.

D) Rodin Art Supplies is led by its own CEO (or equivalent general manager).

69) Why should managers using the M-form organizational structure to support a related-

diversification strategy ideally concentrate decision making at the top of the organization?

A) It allows a high level of integration.

B) It helps contain the core competencies within a strategic business unit (SBU).

C) It leads to competition between SBUs. D) It helps evaluate each SBU as a stand-alone profit-and-loss center.

70) San Francisco–based Shrimpton & Co. sells seafood products to natural foods markets across

the country. The company has core values that define what its leaders consider important and guide employees in achieving and fulfilling its mission. It also has norms that define appropriate employee attitudes and behaviors. Collectively, these shared values and norms make up Shrimpton & Co.’s A) open innovation.

B) functional structure.

C) organizational culture.

D) domestic strategy.

71) An organization that is organized according to strategic business units (SBUs) and also along

organizational structures is most likely using a A) functional B) multidivisional C) matrix D) simple

structure.

72) A firm that uses a structure organized along different business functions such as HR, R&D,

sales, and marketing and also along different geographical areas of the world is most likely using a structure.

A) global matrix B) multidivisional C) functional D) simple

73) Which of the following global strategies best matches with a multidivisional structure?

A) international B) multidomestic C) global-standardization D) transnational

74) Which of the following organizational structures matches best with an international strategy?

A) simple B) matrix C) multidivisional D) functional

75) Why is the optimal organizational structure a multidivisional structure?

A) Its focus is on driving down costs.

B) Its focus is on producing differentiated products.

C) Its focus is on retaining activities within a single geographic area.

D) Its focus is on establishing a flat hierarchy operated in a decentralized fashion.

76) Which of the following provides an example of a common drawback of a functional strategy?

A) Jack had a difficult time communicating efficiently with the manager of another

department.

B) Leslie was surprised about the inflexibility of her firm when it rejected her marketing plan.

C) Chris’s manager dismissed his idea because it was too innovative.

D) Denise did not accept the position with the firm because it has an ineffective costleadership strategy.

77) Rosemont-Cambridge pursues a related diversification strategy. It derives less than 70

percent of revenues from its original business unit, Rosemont- Baskin, and maintains several related units including Rosemont-Ortega and Rosemont-Elm. Which of the following structures is most likely to support this strategy?

A) functional with centralized decision-making power B) M-Form with decentralized decision-making power (competitive multidivisional) C) M-Form with centralized decision-making power (cooperative multidivisional) D) functional with decentralized decision-making power

78) Sirius Cybernetics Corp. produces touch-enabled wearable devices. Its research and

development team recently became aware of a new, open-source technology produced by a firm overseas that would improve the processing speed and battery life of all Sirius Cybernetics devices. In this scenario, Sirius Cybernetics would be best served to embrace A) open innovation.

B) closed innovation.

C) disruptive innovation.

D) radical innovation.

79) Two leading home appliance companies, Globex and Pug Tech, are in competition for

market share. In their quest for exciting new products, Globex employs an open innovation model, while Pug Tech pursues a closed innovation model. Which of the following statements is most likely true?

A) Globex has a greater chance of capturing market share.

B) Pug Tech has a superior absorptive capacity.

C) Pug Tech will protect its intellectual property with patents and trade secrets.

D) Globex is most concerned with securing first-mover advantages.

80)

describes the collectively shared values and norms of an organization’s members.

A) Competitive advantage B) Organizational structure C) Organizational culture D) Core competency

81)

define appropriate employee attitudes and behaviors.

A) Values B) Artifacts C) Appraisals D) Norms

82) Employees learn about an organization’s culture through the process of A) socialization.

B) exploitation.

C) co-opetition.

D) acculturation.

83) The most important yet least visible element of organizational culture is A) values.

B) norms.

C) laws.

D) artifacts.

84) Which of the following statements best describes groupthink?

A) The founder defines and shapes an organization’s culture, which can persist for

decades after his or her departure.

B) Organizations compete with one another for resources, but they also need to cooperate to share competencies.

C) Employees internalize an organization’s values and norms through immersion in its day-to-day operations.

D) Opinions coalesce around a leader without individuals critically challenging and evaluating that leader’s opinions and assumptions.

85) Which of the following types of groups is most susceptible to groupthink?

A) a diverse group B) a cohesive group C) a heterogeneous group D) a decentralized group

86) What is most likely to happen if a firm relies too long on a competency without honing,

refining, and upgrading as the firm and the environment change?

A) The firm’s original core competency can turn from a liability into an asset.

B) The firm’s organizational inertia can turn into its core rigidity.

C) The firm’s competitive parity can turn into its competitive advantage.

D) The firm’s culture can turn from a core competency into a core rigidity.

87) GM’s insistence on sticking to a bureaucratic culture combined with its M-form structure and

its subsequent failure to adapt to changing customer preferences for more fuel-efficient cars, produce higher quality, and create innovative designs best exemplifies A) decentralization.

B) founder imprinting.

C) groupthink.

D) core rigidity.

88) Which of the following real-world scenarios best exemplifies the use of organizational

culture to build competitive advantage?

A) W. L. Gore & Associates organizes its employees into project-based teams.

B) Apple develops high-tech products that are preferred by consumers across the world.

C) Southwest Airlines pilots sometimes help load baggage, which results in quick turnaround time.

D) GM offers compensation if its products do not meet a consumer’s expectations.

89) Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and

Zappos?

A) Their culture reflects complex relationships with their employees, customers, and suppliers.

B) They produce products that cannot be copied easily because of their complex designs.

C) The employees in the organization themselves are unaware of the factors contributing to their organizational culture.

D) It is not commercially viable for other companies to implement the same culture.

90) Which of the following statements is true of organizational culture?

A) Changes in culture are too frequent to have any impact on strategic implementation.

B) It is better for founder CEOs to create a relevant culture, structure, and strategy in the

early stages.

C) It is always better to focus on output control and performance than on organizational culture.

D) According to research, more than 50 percent of firms change culture successfully.

91) Organizational culture can help a firm gain and sustain competitive advantage only if the

culture makes a positive contribution to the firm’s economic value creation and A) eventually gives way to core rigidity.

B) obeys the VRIO principles.

C) does not demonstrate causal ambiguity.

D) displays an absence of social complexity.

92) One of Black Mesa’s core values is to provide unbeatable customer service, a commitment

introduced to the company by its founder more than 10 years ago. This value is expressed in the company’s “Always You” campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer’s initials onto any item for free using a patented sewing technique, two features that are not offered by any of Black Mesa’s competitors. Although the campaign has resulted in a 10 percent decline in profits, Black Mesa has decided to continue to pursue its founder’s vision to reward customers and maintain employees’ sense of purpose. Why does Black Mesa’s culture, exemplified by the “Always You” campaign, fail to support a competitive advantage?

A) It does not increase economic value creation for the firm.

B) It is not a rare resource.

C) Always lacks founder imprinting.

D) The culture is not difficult to imitate.

93) Strategic control-and-reward systems are internal-governance mechanisms to align

the

of principals (shareholders) and agents (employees).

A) values B) incentives C) behavior D) productivity

94) Which of the following best exemplifies the use of input controls?

A) McDonald’s use of standard operating procedures B) GM’s use of the multidivisional strategy C) Zappos’ use of monitoring-free customer service calls D) Southwest Airlines’ use of employee friendliness

95) Delos Inc. is an apparel manufacturer. The management at Delos Inc. prefers moderate

control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through A) output controls.

B) input controls.

C) multidivisional strategy.

D) centralization.

96) Why are controls like budgets and operating procedures that McDonald’s implements known

as input controls?

A) They are independent of an organization’s culture.

B) They are implemented by corporate headquarters.

C) They are considered before employees make any decisions.

D) They are ad hoc and not codified.

97) Sales for Company B have slowed, and profits are way down. Its executive team is

threatening managers with demotions and employees with layoffs unless sales pick up considerably in the next six months. This is an example of A) attempting to tap intrinsic employee motivation.

B) using extrinsic motivation as an output control mechanism.

C) using input controls to boost sales.

D) defining and directing employee behavior through explicit rules and standard operation procedures.

98) Output controls can sometimes discourage collaboration among different strategic business

units. However, more and more work requires creativity and innovation, especially in highly developed economies. One way firms are grappling with this issue is by A) introducing results-only-work-environments to tap intrinsic motivations.

B) refining the budgeting process to encourage more department collaboration.

C) updating standard operating procedures to allow more process flexibility.

D) using output controls only when the goal is to ensure a predictable outcome.

99) Which of the following is true of the process of organizing for competitive advantage?

A) To maintain competitive advantage, companies need to restructure as they grow and

the competitive environment changes.

B) Strategy formulation and strategy implementation are independent activities.

C) Organizing for competitive advantage is a static and not a dynamic process.

D) Formulating an effective strategy is a necessary and sufficient condition for gaining and sustaining competitive advantage.

100)

Nerissa sets up a business consulting firm in which the employees are motivated because they find their work interesting and creative. She carefully hires workers who fit well with their assigned tasks. She also clearly defines the results expected of each worker, but allows the workers to determine the means to these results. Which of the following best describes Nerissa’s business?

A) a firm that relies on high input controls to tap into intrinsic motivation B) a firm that relies on high input controls to tap into extrinsic motivation C) a firm that relies on high output controls to tap into intrinsic motivation D) a firm that relies on high output controls to tap into extrinsic motivation

101)

At 3M, employees are encouraged to spend up to 15 percent of their time on projects of their own choosing. If any of these projects look promising, 3M provides financing to further develop their commercial potential. This is an example of A) using the ROWE framework to tap intrinsic employee motivation.

B) relying on extrinsic motivation.

C) taking advantage of strategy implementation.

D) using OKRs (Objectives and Key Results) to monitor objectives and outcomes.

102)

Successful requires managers to design and shape structure, culture, and control mechanisms.

A) strategy innovation B) strategy formulation C) strategy implementation D) strategy diversification

103)

Why does business historian Alfred Chandler in his seminal book Strategy and Structure say that organizational structure must follow strategy? And why, in reality, does a firm’s strategy often follow its structure?

104)

What is founder imprinting, and what is its impact on a company? Give examples of founder imprinting.

105)

106)

What are the key elements of organizational structure? Define each element.

What are the implications of centralization on strategic management processes in an organization?

107)

What are the characteristics of organic organizations?

108)

What are the characteristics of mechanistic organizations? Explain with the help of an example.

109)

Discuss how a cost-leadership strategy is used with a functional structure.

110)

Discuss how a differentiation strategy is used with a functional structure.

111)

What are multidivisional structures? How are they implemented?

112)

Describe a global matrix structure. Why do firms use it?

113)

Contrast closed and open innovation.

114)

Discuss the "not-invented-here" syndrome with the help of an example.

115)

What is organizational culture? What are the key elements of organizational culture?

116)

When and how do companies pursue an international strategy?

117)

How do results-only-work-environments differ from output controls that depend on extrinsic motivation?

118)

Describe the organizational structure used for firms that are pursuing a globalstandardization strategy.

119)

Compare and contrast the difference between input and output control mechanisms that a firm can employ.

120)

What are strategic control-and-reward systems and how are they used?

Answer Key Test name: Chapter 11 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) B 14) D 15) A 16) C 17) B 18) C 19) D 20) D 21) C 22) A 23) A 24) B 25) D 26) B 27) D 28) A 29) B 30) D 31) D 32) A 33) C 34) C 35) A 36) C 37) B

38) B 39) B 40) B 41) B 42) A 43) C 44) B 45) B 46) B 47) D 48) B 49) C 50) B 51) C 52) A 53) D 54) C 55) C 56) D 57) B 58) B 59) A 60) C 61) D 62) A 63) D 64) D 65) C 66) C 67) B 68) D 69) A 70) C 71) C 72) A 73) B 74) D 75) A 76) A 77) C

78) A 79) C 80) C 81) D 82) A 83) A 84) D 85) B 86) D 87) D 88) C 89) A 90) B 91) B 92) A 93) B 94) A 95) B 96) C 97) B 98) A 99) A 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

C A C Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120)

Short Answer Short Answer Short Answer

Chapter 12: Corporate Governance, Business Ethics, and Business Models Student name: 1) Gary is a senior manager at a large, publicly traded corporation. He has access to insider

information about the company profits, losses, mergers, and acquisitions. It is legally and ethically acceptable for him to have this information as long as he does not use it to buy or sell stocks and does not tell others to buy or sell stocks. ⊚ true ⊚ false

2) Alexi was a manager at Inquiry Inc. Instead of working full-time on Inquiry’s projects, she

used Inquiry’s tools, employees, computers, and other resources to work on a research project that she hopes might help her start her own firm. This is an example of adverse selection. ⊚ true ⊚ false

3) One of the most challenging aspects of principal-agent problems is that firms have almost no

defenses against them. ⊚ true ⊚ false

4) Ruth owns and runs her own firm. She also serves on the boards of several companies.

Although she does not work for these companies, she attends board meetings, analyzes information, and tries to act in the best interests of their shareholders. Ruth is an example of an outside director. ⊚ true ⊚ false

5) It is up to auditors and board members to make certain that the financial statements that their

firms release are correct and not misleading. ⊚ true ⊚ false

6) It can be difficult for shareholders of publicly traded companies to determine how much

money those companies are making or losing because these companies use different accounting firms, and each accounting firm follows different rules. ⊚ true ⊚ false

7) Corporate codes of conduct go beyond what the law requires, imposing higher standards of

honesty and fairness. ⊚ true ⊚ false

8) Research indicates that most corporate ethics problems are caused by a few “bad apples”

rather than an unethical culture. ⊚ true ⊚ false

9) Corporate governance needs to address the issue of moral hazard, which describes the

principal’s difficulty in ascertaining whether agents have put forth their best efforts. ⊚ true ⊚ false

10) Executive compensation is an important element of corporate governance. Research has

found that the rate of executive pay to average employee pay has been relatively stable over the last couple of decades. ⊚ true ⊚ false

11) In the why, what, who, and how of business models framework, the why dimension asks,

“why does the business model create value?” ⊚ true ⊚ false

12) Even though a firm chooses a business model at its founding, it may change that model later

in the life of the firm. ⊚ true ⊚ false

13) Maritza is trying to understand the relationship between what is legal and what is ethical.

Tiffany explains that both of these terms are often synonymous in business. Your response is A) Tiffany is correct; law and ethics are synonymous and should be used interchangeably in business.

B) Tiffany is correct; whatever is legal is always ethical in business.

C) Tiffany is incorrect; a manager’s actions can be legal but ethically questionable.

D) Tiffany is incorrect; there is no relationship between laws and ethics except when the board of directors approve an action.

14) To help increase and maintain ethical values for future managers, a group of Harvard

Business School students developed A) an MBA oath that recognizes the role of business in society and its responsibilities beyond shareholders.

B) the triple-bottom-line framework to guide managers ethical decisions.

C) an ethical value chain that attempts to promote societal benefits.

D) a new way to examine business processes that meet the needs of the community.

15) Some argue that the global financial crisis of 2008 was worsened because large Fortune 500

companies did not practice effective A) corporate governance.

B) external analysis.

C) balanced scorecard techniques.

D) co-opetition.

16) Khalil is interested in building the centerpiece of his firm’s corporate governance, and so

hires a

that is made up of individuals from both inside and outside the firm.

A) strategy consultant B) C-level suite team C) board of directors D) shareholders

17) Blake is a newly elected board member of ABC Inc., a publicly traded stock. As a newly

elected board member, Blake has a(n) party’s interests.

A) moral code B) ethical obligation C) competitive advantage D) fiduciary responsibility

18)

, which is a legal duty to act solely in another

are the board members who are part of the company’s senior management team appointed by shareholders to provide the board with necessary information pertaining to the company’s internal workings and performance.

A) Outside directors B) Inside directors C) Stockholders D) Philanthropists

19) Jack is a board member of firm A but is not an employee of firm A; Jack is a senior executive

from firm B. Jack can best be described as a(n) A) outside director.

B) inside director.

C) shareholder.

D) philanthropist.

20) Industry analysts, auditors, and government regulators are examples of A) inside board members.

B) outside board members.

C) external governance mechanisms.

D) internal governance mechanisms.

21) Stephen is a mid-level manager for a high-tech start-up. His boss has just been asked him to

perform an activity that may be unethical. To improve his ethical decision making, Stephen should A) imagine whether he would feel comfortable explaining and defending the decision in public.

B) go forward with the decision without considering the ethical ramifications.

C) consider the ethical dilemma but base his actions on his short-term career goals.

D) call his previous employer or college instructor and ask for advice.

22) Kendall, a loan officer, advises Vaughn to sign up for an exotic mortgage that turns out to be

very expensive for him and probably not the best financial choice. This is an example of an action that A) is legal and beneficial for Vaughn.

B) is legal but ethically questionable.

C) is illegal but meets most ethical norms.

D) is illegal and damaging for the company.

23)

is the term that describes the difficulty of the principal to ascertain whether the agent has really put forth a best effort.

A) Disparate treatment B) Adverse selection C) The agent issue D) Moral hazard

24) Janelle hires Vanessa to perform a critical task in her organization. However, Vanessa has

misrepresented her knowledge, skills, and abilities, and Janelle has no way of knowing whether Vanessa can indeed perform well. This is an example of A) agency theory.

B) disparate treatment.

C) adverse selection.

D) ineffective corporate governance.

25) Which of the following descriptions best exemplifies adverse selection?

A) A manager cannot ascertain the contributions of individual team members in team

production.

B) A research scientist uses the organization’s resources to conduct personal research.

C) An employee spends time on social networking sites during work hours.

D) An interview candidate lists his qualifications in chronological order.

26) Which of the following could most likely have prevented the accounting scandals of the early

2000s and the global financial crisis?

A) adopting a narrow shareholder perspective B) separating economic interests and social needs C) practicing effective corporate governance D) adopting the principles of shareholder capitalism

27) In public stock companies, which of the following expectations of principals is most likely to

lead to principal-agent problems?

A) the expectation that the agent will follow the country’s laws and regulations B) the expectation that the agent will go above and beyond the call of duty C) the expectation that the agent will reconnect economic and social needs D) the expectation that the agent will act in the principal’s best interest

28) Which of the following is the source of the principal-agent problem in publicly traded

companies?

A) the law of legal personality B) the separation of ownership and control C) limited liability for investors D) transferability of investor ownership

29) Stratton Oakmont Inc. is a publicly traded company. The stockholders of this company

delegate the authority to make decisions for the company to a CEO named Terry. The stockholders expect Terry to make decisions that will benefit the company. However, Terry begins to find ways to maximize his total compensation, which hinders Stratton Oakmont Inc.’s performance. This scenario reflects A) value creation problems.

B) principal-agent problems.

C) inside director-outside director problems.

D) adverse selection problems.

30) Martha received a tip from a close friend who is an executive manager of a publicly traded

company called TelAmeriCorp Inc. The manager received some inside information about how to trade TelAmeriCorp stock to get a huge profit. He shared this information with Martha. This scenario is an example of A) information asymmetry.

B) adverse selection.

C) stakeholder strategy.

D) shared value creation.

31) Jamila, the CEO of Yakyshyn Enterprises, reports to the board of directors appointed by the

shareholders of Yakyshyn Enterprises. Based on shareholder suggestions, the board ties Jamila’s compensation to the performance of Yakyshyn Enterprises. Due to this pressure, Jamila begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Jamila’s compensation to firm performance is to overcome A) shareholder capitalism scenario.

B) inside director-outside director conflict.

C) fiduciary responsibility oversight.

D) the principal-agent problem.

32) Jordan is president of a medium-sized bank. What can Jordan do to lessen the chance of

employees or board members taking part in insider trading?

A) forbid managers and executives from having access to private information B) forbid board members from having access to private information C) work with analysts and customer-facing employees to root out information asymmetry D) create a strict code of ethics and explain that inside traders will be fired

33) The informational advantage that agents possess over principals is often based on the fact

that A) the information is extremely secure and protected from exposure to anyone outside

the company.

B) public stock companies are characterized by information symmetry.

C) insiders are the first to learn about important developments before the information is released to the public.

D) agents are legally permitted to freely trade the information in exchange for benefits, unlike principals.

34) Sergei is a manager at MasterBuilder Tools Inc. and is friends with the company’s CEO. This

privilege gives Sergei the information that MasterBuilder Tools is in talks to take over a leading rival. Sergei buys stocks of MasterBuilder Tools with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of MasterBuilder Tools depreciate in the following months. Are Sergei’s actions unethical? Why or why not?

A) Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.

B) Yes. It is illegal and unethical for Sergei to possess any kind of insider information.

C) No. Sergei did not ask the CEO to disclose such information to him.

D) No. Sergei did not make any profits from trading stocks using this information.

35) Which of the following real-world scenarios best exemplifies information asymmetry in a

public stock company?

A) Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs’ stocks prior to the announcement of missed earnings estimates.

B) GE knew that it could create a profitable venture out of producing green products, so it rolled out the Ecomagination strategy.

C) Mark Hurd, CEO of HP, was unaware of the sexual-harassment allegations, and the board’s demand for him to resign caught him by surprise.

D) Goldman Sachs followed through with the Abacus deal despite knowing its shortcomings.

36) Shi-Hae is the ethics officer at Voltz Autos, a publicly traded company. She wants to make

sure that on-the-job consumption at Voltz Autos stays within legal and ethical bounds. Which action should Shi-Hae and the Voltz Autos board of directors take?

A) Forbid high-cost items such as executive office decoration but permit lavish parties and celebrations because they are essential for morale.

B) Set strict limits on what executives can spend on office redecoration or work-related celebrations.

C) Do nothing. On-the-job consumption is a necessary part of hiring and retaining key executives.

D) Permit on-the-job consumption but cancel executive bonuses.

37) According to the agency theory, A) conflicts that arise in corporations should be addressed in the legal realm.

B) corporations are more than a set of contracts between parties.

C) companies should focus on generating profits for stockholders.

D) principals and agents have interchangeable roles.

38) In a public stock company, senior executives, such as the CEO, face agency problems when A) they delegate authority of strategic business units to general managers.

B) they decide to get involved in the day-to-day operations of a company.

C) the board of directors possesses more information about the company than they do.

D) the firm designs work tasks, incentives, and employments that minimize opportunism.

39) The root cause of the principal-agent problem between senior executives and lower-level

employees can be explained by the A) informational advantage of the lower-level employees.

B) higher number of lower-level employees than senior executives.

C) knowledge of employees regarding day-to-day tasks.

D) operational expertise of lower-level employees in concentrated areas of a particular field.

40) Subrat and James are customer service employees at National Digital Corp. In between calls,

they spend time on TikTok and Instagram. The relaxed guidelines at National Digital allow them to do that. However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they view content on their personal phones. Such behavior A) is neither unlawful nor unethical; hence, Subrat and James cannot be reprimanded.

B) typically exemplifies the agency problem of adverse selection.

C) demonstrates the dangers of information asymmetry.

D) can be stopped by implementing performance incentives and strict control mechanisms.

41) Morgan accepts a job as head of human resources at an engineering firm and learns that the

company believes teamwork is so important that it awards all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Morgan take regarding this program?

A) Expand the program to allow teams to make all hiring and firing decisions.

B) Make sure information asymmetry is corrected before the next round of raises.

C) Make sure the plan goes into place only after the company has corrected information asymmetry.

D) End the program because it encourages opportunistic employees to do little or no work.

42) Domenick is a recent graduate who states that he has interned at a major accounting firm so

that his value as a candidate for employment increases. A start-up recruits Domenick based on his stated credentials without verifying them. Two days into the job, Domenick’s team lead realizes that Domenick does not know much of what he claimed to know during the interview. This scenario best exemplifies A) moral hazard.

B) adverse selection.

C) shared value creation.

D) corporate governance.

43) A company scientist at a biotechnology company decides to work on his own research

project, hoping to eventually start his own firm, rather than on the project he was assigned.

However, the company’s stockholders are unaware of this situation. This is an example of a(n) in the context of a principal–agent problem.

A) adverse selection B) stakeholder strategy C) moral hazard D) shared value creation

44) At Gregarious Simulation Systems, a cross-functional team is formed to work on a project

for a new client. The team consists of David and four other members. At most of the team’s presentations to senior management, David takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, David is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that David did very little actual work but spent some time compiling the project report based on different documents submitted by the others.

This scenario at Gregarious Simulation Systems is a typical consequence of A) moral hazard.

B) adverse selection.

C) shared value creation.

D) corporate governance.

45) Adverse selection in a public stock company occurs when A) information asymmetry increases the likelihood of selecting inferior alternatives.

B) a firm’s work tasks, incentives, and employment contracts minimize opportunism by

agents.

C) a principal is not aware of the context from which information from an agent is derived.

D) an agent manipulates information to benefit stockholders.

46) Layla is the CEO of a financial services firm. What action should she take to be sure the firm

avoids moral hazards?

A) She should closely monitor the behavior and performance of new employees to be certain that they have the skills they claimed to have in interviews.

B) Layla must increase hiring and develop influential relationships with government officials so that the firm will be considered “too big to fail.”

C) She must create a plan in which government agencies or a consortium of other financial services firms will assume any future debts of the company.

D) Layla should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.

47) Gordon’s role in providing inside information to Pearson Specter Litt for the benefit of

Pearson Specter Litt’s stockholders and himself is an example of A) shareholder capitalism.

B) adverse selection.

C) shared value creation.

D) moral hazard.

48) Greg is the president of a technology firm that has recently gone public. What action, if any,

should Greg take to build the confidence of his new shareholders?

A) Greg needs to focus on the company’s earnings because that is what shareholders care about.

B) He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price.

C) He should discourage pension funds from investing because they are interested in safety at the expense of growth.

D) He should make the company stock available only to hedge funds so he will have the freedom to take risks as the firm expands.

49) Which of the following is true of the board of directors in a public stock company?

A) Votes at shareholder meetings determine whose representatives are appointed to the

board of directors.

B) Because shareholders generally have uniform interests, the composition of the board is generally a unanimous decision.

C) The board of directors acts as a facilitator to convey interests of the stockholders to the management without any real authority.

D) The functions of the board of directors are limited to ensuring the hiring and firing of CEOs.

50) Carla recently became a board member of a firm that has a history of reckless actions by

senior employees. Which task would be appropriate for Carla to undertake to help safeguard the company’s financial health?

A) Request and review a copy of the firm’s risk assessment plan, if such a plan exists.

B) Take part in the annual reviews of employees in the financial department.

C) Draft and circulate a statement that the firm’s board members serve at the pleasure of the CEO. D) Determine how to postpone or evade the firm’s compliance with local, regional, and national regulations.

51) Shareholders of public companies need to appoint a board of directors to represent their

interests because A) ownership and control are separated in a public company.

B) they want to limit the amount of money they can lose.

C) the board of directors itself is made up of shareholders.

D) the shareholders want to control day-to-day operations.

52) Beasea is a senior manager for the Wildwood Furniture Company. Because of her

experience, she has been appointed to the board of Woodworks Inc., even though she does not work for this firm. She also serves on the boards of several other companies. Beasea is a(n) for Wildwood Furniture and a(n) for Woodworks Inc. A) CEO; COO B) COO; CEO C) outside director; inside director D) inside director; outside director

53) The board of directors of a public stock company consists of A) managers appointed by the owners of a company to run its day-to-day operations.

B) individuals who formally represent the firm’s shareholders and oversee the work of

executives.

C) the legal owners of a publicly traded company that was purchased in a leveraged buyout.

D) employees of a company who belong to the senior management and directly report to the CEO of the firm.

54) What do we call the board members who are part of a company’s senior management team

appointed by shareholders to provide the board with necessary information pertaining to the company’s internal workings and performance?

A) investors B) outside directors C) inside directors D) auditors

55) Globex Inc. has a board of directors that consists of seven members. Which of the following

is most likely an accurate statement about Globex’s board of directors?

A) Globex’s board of directors ensures the firm’s compliance with laws and regulations but does not conduct risk assessments.

B) Globex’s board of directors provides guidance for the firm’s CEO but does not monitor the firm’s corporate actions.

C) Globex’s board of directors oversees the firm’s succession plan but does not evaluate the firm’s CEO. D) Globex’s board of directors has a minority number of inside directors, and it evaluates the firm’s strategic initiatives.

56) Larry is a board member at Entertainment 720 Inc. He is also a senior executive of the firm.

The board is chaired by Denise Carrows, the CEO of Umbrella Corp. According to this scenario, Larry A) cannot serve on the board of any other organization.

B) is more likely than Denise to take care of stockholder interests.

C) is an inside director of Entertainment 720.

D) can use information from board meetings to trade stocks of Entertainment 720.

57) Ghada is the CEO of Black Mesa Inc., a publicly traded company. The shareholders want

Ghada on the board of directors despite her recent appointment as the CEO. This decision of the shareholders is most likely because Ghada is A) a board member of a major client.

B) more likely than other board members to take care of the stockholders.

C) also the CEO of other companies.

D) likely to provide the board with valuable inside information.

58) General Electric’s board has only one inside director, John Flannery, GE’s CEO, who also

acts as chairperson of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE? A) A CEO is likely to be more responsible because they are setting their own performance targets.

B) The CEO might be able to influence the board through setting the meeting agendas.

C) The CEO possesses invaluable inside information that can help them lead the board effectively.

D) Any CEO will suggest board appointees who will function as strategic allies.

59) Aperture Science is a publicly traded manufacturer of home electronics. Based on what you

have read, which of these actions would be wisest for Aperture Science’s board of directors to take to be sure that the company’s new CEO is as motivated as possible?

A) Encourage the CEO to take all of her compensations in stock options, which will motivate her to keep the stock price high.

B) Offer the largest bonus possible to prevent the CEO from leaving to go a rival firm.

C) Link the CEO’s pay to her performance but avoid high-powered incentives that may cause reckless behavior.

D) Encourage her to emulate Warren Buffett and to take a lower salary than she might command elsewhere.

60) Which of the following is a common result of a hostile takeover of a company?

A) The new owner sells the company in pieces.

B) The new owner keeps the company intact.

C) The new owner keeps the board of directors of the company the same.

D) The new owner enhances the reputations of the company’s management.

61) Because of poor management, the stock price of Rearden Steel Inc. falls, and many investors

sell their shares. Soon Rearden Steel becomes the target of a hostile takeover, during which Dildred buys enough shares to exert control over the firm. In this scenario, Dildred performs the role of a(n) A) inside director.

B) outside director.

C) corporate raider.

D) corporate consultant.

62) Which of the following is a major issue at the forefront of CEO compensation in recent

years?

A) a comparison of the performance of the organization before and after the CEO’s

tenure B) the performance of the CEO as an employee versus the performance as a board member C) the absolute size of the CEO pay package compared with the pay of the average employee D) a comparison of the compensation of senior management hired during and before the CEO’s tenure

63) Which of the following scenarios best exemplifies a leveraged buyout of a microchip

manufacturer, Sirius Cybernetics Corp.?

A) The owner of another company buys all the outstanding shares of Sirius Cybernetics Corp. in order to take it private.

B) A private equity firm, All Things Inc., buys a large number of shares of Sirius Cybernetics Corp.in order to publicly trade it under a new name.

C) Sirius Cybernetics Corp. sells all its shares and declares bankruptcy.

D) Sirius Cybernetics Corp. buys back a large amount of its own shares from the stock market.

64) What are poison pills?

A) Shareholders use them to prevent the founder of a company from taking the company

private through a leveraged buyout.

B) They are unspecified conditions in the contract between stakeholders in an organization.

C) Companies use them in a bid to perform a hostile takeover of competing firms.

D) They are defensive provisions that kick in should a buyer reach a certain level of share ownership.

65) What helps notions such as fairness, honesty, and reciprocity to be codified into law?

A) The notions are synonymous with law.

B) The notions differ to some degree in different cultures around the globe.

C) The notions are universal norms.

D) The notions are characteristics inherited by each person irrespective of the culture.

66) Ethics is A) not synonymous with law.

B) impossible to codify into law.

C) universal and cannot differ between cultures.

D) the minimum acceptable standard in business practice.

67) A bank, Seaside, offers a customer a personal loan. In which of the following circumstances

will this decision most likely be considered unethical?

A) The bank knows that the customer will be unable to pay the loan if the interest rate rises.

B) The bank is not aware of the investments made by the customer.

C) The bank has the financial statements of the customer, but it is not aware of each source of income.

D) The bank is depending on the customer to pay back the loan before term completion.

68) Which of the following is true of the codes of conduct of an organization?

A) They detail how the organization expects an employee to behave and to represent the

company in business dealings.

B) They are a reiteration of the laws pertaining to business dealings in a corporate environment.

C) They are a guide to determine what is lawful and what is unlawful.

D) They help the board of directors and the CEO implement shareholder capitalism.

69) Which of the following best supports the fact that Dieselgate was unethical when entering the

U.S. market?

A) Dieselgate manipulated “triple A” bond ratings to entice investors.

B) VW made no effort to ascertain the stability of the automobile market, even though it had the resources and time to do so.

C) The engineers installed “defeat devices” that altered the concentration of harmful emissions when EPA regulators tested the vehicles.

D) The VW CEO misled investors by spending $50 million on lavish, corporate parties.

70) Sean was recently hired at an up-and-coming firm that has a history of ethics violations.

Which action is best for him to take if he wants to determine whether the firm is now acting ethically?

A) Observe executives at the company and see whether they model ethical behavior and demand it of others.

B) Research the results of the ethics violations. If the perpetrators were fired or jailed, then the rest of the company is sound.

C) Check the company’s mission statement to make sure that it guarantees respect and integrity.

D) Ignore the alleged ethics violations because there is no one standard of ethical behavior.

71) Three months ago, Colin became a board member at Hooli, a publicly traded company. Two

weeks ago, the board members discovered that Hooli’s CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Colin and the other board members hold the CEO? A) They should hold her to the same ethical standards that they would expect of any Hooli employee—no more, no less.

B) They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.

C) If the board members determine that the CEO is not a “bad apple,” then they should give her their full support.

D) The board members must wait until the lawsuit results in a settlement or a guilty verdict.

72) One way to foster ethical behavior in employees is to A) avoid codifying organizational culture.

B) create a control system that encourages desired values.

C) view clients as counter parties to transactions.

D) align the vision statement of the organization with its informal culture.

73) Which of the following is an implication for the strategist in the context of corporate

governance and a company’s success?

A) Very few corporate-governance mechanisms can be effective in addressing the principal-agent problem.

B) Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage.

C) Leading by ethical example often has a lesser effect on employee behavior than words do.

D) A firm that restricts its responsiveness to stockholders (and no other stakeholders) and keeps them committed to its vision will be successful.

74) Kate is the CEO of a firm. She has an opportunity to increase the competitive advantage of

her company but is not sure if accepting the opportunity is ethical. Which of the following questions would help her decide if accepting the opportunity is ethical?

A) What are the chances that her decision to accept the opportunity will be made public?

B) How much profit would be made if she decided to accept the opportunity?

C) How would the media report her decision to accept the opportunity if it were to become public?

D) How long lasting would the competitive advantage be if she decided to accept the opportunity?

75) A mortgage loan officer persuades unsuspecting consumers to sign up for exotic mortgages,

such as option ARMs. These mortgages offer borrowers the choice to pay less than the required interest, which is then added to the principal while the interest rate can adjust upward. Because of this setup, many borrowers are unable to repay the mortgage once the interest rates go up. Which of the following phrases best describes this scenario?

A) legal but not ethical B) ethical but not legal C) legal and ethical D) neither legal nor ethical

76) The name for an agreed-upon code of conduct in business, based on societal norms, is A) fiduciary responsibilities.

B) poison pills.

C) strategic business points.

D) business ethics.

77) The professional social media website LinkedIn allows its users to create their profiles for

free, but it charges a premium price for additional services. This is an example of a business model.

A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium

78) Fresher Corp. produces electric bathroom fragrance diffusers and sells the electric device at a

market rate price. However, they lock their clients into a two-year agreement to purchase the perfume refills solely from them on a monthly basis. Which of the following business models does this best illustrate?

A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium

79) The translation of strategy into action primarily takes place in a firm’s A) B) C) D)

mission statement. executive summary. business model. code of conduct.

80) During the process of formulating an effective business model, a firm’s managers should first A) transform their strategy of how to compete into a blueprint of actions and initiatives.

B) implement their strategy at corporate, strategic business unit, and functional levels.

C) implement their blueprint of actions and initiatives through structures, processes,

culture, and procedures.

D) evaluate the firm’s strategy already in effect and take corrective actions if necessary.

81) You are the founder of Newex Surfboards, and you are considering methods of gaining and

sustaining a competitive advantage. Which of the following changes has the best chance of quickly creating a sustainable advantage?

A) devoting significant resources to researching and developing new products that will be more durable than competitors’ products B) automating the manufacturing process to reduce production costs C) allowing customers to upload their own image designs and help assemble the finished product at retail locations D) switching to a just-in-time inventory system to reduce inventory costs

82)

is a business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set its own price.

A) Agency B) Freemium C) Bundling D) Wholesale

83) Sonron Media sells books to libraries by having salespeople meet with potential customers to

give them a sales pitch for the company’s product line. When a salesperson makes a sale, they get a predetermined percentage commission based on the value of the books sold. This type of business model is called A) an agency.

B) bundling.

C) wholesale.

D) a freemium.

84) Which of the following scenarios best illustrates bundling?

A) Yearin Inc. sells its electric toothbrushes for a low cost, but charges a high price for

replacement brushes.

B) CondaxMedia Inc. sells its cloud computing network by having customers pay for the service as they use it.

C) Isdom Inc. sells its basic TV channels for free but charges high prices for any channels that customers add on later.

D) Warephase Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually.

85) Threadless allows customers to submit their own designs and to vote on which designs they

would like to see printed on a T-shirt. This business uses a(n) A) offshoring B) crowdsourcing C) peer-to-peer D) ultra-low cost

technique.

86) Nam-zim sells its e-book readers at the cost price of $15 each. However, the company makes

its profits when users have to download or buy books online. Which of the following business models is Nam-zim implementing?

A) subscription-based B) razor–razor blade C) pay-as-you-go D) direct sales

87) Treequote Industries has produced a new technology that will monitor the soil moisture in a

user’s garden and send a notification to an app on the user’s phone when it is time to water their plants. The goal of this inexpensive technology is to entice users to purchase Treequote’s more expensive automated watering system, so that they can trigger the watering process from the app on their phones. Which business model is most likely to help Treequote Industries accomplish its goals?

A) agency B) wholesale C) pay-as-you-go D) freemium

88) Bioplex requires its members to pay a quarterly or an annual fee to use its services.

Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?

A) razor–razor blade B) pay-as-you-go C) subscription-based D) freemium

89) A defining characteristic of the pay-as-you-go business model is that the A) users pay for only the services they consume.

B) users pay for access to a product or service whether they use it during the payment

term or not.

C) initial product is often sold at a loss in order to drive demand for complementary goods.

D) the basic features of a service are provided free of charge, but the user must pay for premium services.

90) West State Utilities is an energy provider that charges its customers $0.05 per kilowatt hour

for electricity use. So, if a customer uses 500 kilowatt hours during the billing period, the company charges them $25.00. Which of the following business models does this best illustrate?

A) razor–razor blade B) subscription-based C) pay-as-you-go D) freemium

91) Dontechi is a file hosting service that allows users to store up to 5GB of data with no

restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does this best illustrate?

A) subscription-based B) freemium C) pay-as-you-go D) razor–razor blade

92) Hottechi Laminate has developed a new customer-oriented business model. Rather than

maintain a network of showrooms across the country, the business will now let customers choose several styles that interest them from an online site, and will ship samples of each of the styles to the customer to test in their home free of charge. Once they have settled on a tile choice, Hottechi Laminate will send a representative to their home to schedule installation.

The company has determined that busy middle-class customers will value the convenience of the new model, which allow them to upgrade the look of their homes without spending time browsing showrooms. The new model will be created by selling the old showrooms and shifting resources to the new online site and regional offices for sales personnel. What question remains for Hottechi Laminate to ask in order to put its strategy into action?

A) Why does the business model create value?

B) What activities need to be performed to create and deliver the offerings to consumers?

C) How are the offerings to the customers created?

D) Who are the main stakeholders who will be performing the activities?

93) The

is a business-model innovation in which companies can obtain a large(r) part of their revenues by selling a small number of units from among almost unlimited choices.

A) Pareto principle B) razor-razor blade model C) long-tail concept D) crowdsourcing process

94)

Which of the following strategies might result in the long-tail phenomenon?

A) selling a product at a loss to drive demand for complementary goods B) combining unlimited selection with algorithmic recommendations C) discounting bundled products with negatively correlated demand D) blending the razor-razor blade model with the subscription model

95) Traditionally, 80 percent of sales in a given product category come from what part of the

distribution curve?

A) short head B) mid slope C) Pareto point D) long tail

96) In a distribution curve, where are all the bestsellers, popular titles, and hits to be found?

A) short head B) mid slope C) Pareto point D) long tail

97) Karena owns a mid-priced clothing store that offers seasonal tops, bottoms, outerwear, and

shoes in the most popular sizes and styles. The products in Karena’s store represent the of the distribution curve.

A) short head B) mid slope C) Pareto point D) long tail

98) Which of the following companies has leveraged the long-tail concept?

A) Suburban Square is a big box retailer that features Halloween decorations, candy, and

costumes in a seasonal department each fall.

B) Boo-tique is a pop-up retailer that operates each fall in an otherwise empty mall space selling Halloween costumes and accessories.

C) Howloween World is an online marketplace selling most of its items from a vast inventory of specialty costumes, wigs, and props.

D) Second Street is a thrift store that creates a special Halloween-themed section in October highlighting items suitable for costume use.

99) Which of the following problems can be overcome by leveraging the long tail?

A) buyer inertia B) poison pills C) thin markets D) rising costs

100)

What is the important strategic trade-off that the long-tail business model solves?

A) It increases the number of users paying for access even if they do not use the product or service during the payment term.

B) It provides an opportunity to capture consumers who value one of the products but who have little interest in the second.

C) It allows companies to create demand for replacement parts while taking only a small loss on the sale of the initial product.

D) It lowers space, inventory, and distribution costs while enabling firms to match unique consumer preferences to supply.

101)

Netflix is an example of a company that A) focuses on the short head, producing a few high-impact blockbuster movies and then leveraging them into billion-dollar franchises.

B) leverages the long tail, with its personalized recommendation algorithm combined with producing a large quantity of low-budget content.

C) merges the razor–razor blade model with the subscription model, subsidizing a highend device when you sign up for a lengthy service plan.

D) combines the long-tail concept with crowdsourcing, leveraging user input from idea generation and design to marketing and distribution.

102)

Rascal Interactive produces a few high-impact blockbuster video games and then leverages them through spinoffs, merchandise, and licensing. Rascal is focused on A) the short head.

B) the long tail.

C) bundling D) disruption.

103)

How does the separation of ownership and control in public stock companies present a problem? Provide an example of this problem from your reading in this class, your reading outside of class, or your own experience.

104)

What is the connection between Rajat Gupta and insider trading?

105)

How do principal–agent problems cascade down the hierarchy in an organization?

Describe an example of principal–agent problems. The example can be from your reading in this class, your reading outside of class, or your own experience.

106)

Discuss the agency problem of adverse selection.

107)

Describe moral hazard with an example.

108)

Describe moral hazard in the context of the principal–agent relationship. Use an example.

109)

Describe the role of inside directors as part of a company’s board of directors.

110)

Describe the role of outside directors as part of a company’s board of directors.

111)

Why is board independence critical to effectively fulfilling a board’s governance responsibilities?

112)

Describe the arguments for and against the CEO of a company serving as the chair of the board of directors.

113)

What is the benefit of granting stock options as part of a compensation package in a public stock company?

114)

How does the market for corporate control work? Provide at least one example. The example can be from your reading in this class, your reading in other classes, or your own experience.

115)

How does a leveraged buyout affect a public company?

116)

What usually happens if a hostile takeover attempt is successful?

117)

Law and ethics are not synonymous. Elaborate on this statement with the help of an example.

118)

How can top management foster ethical behavior in employees? Provide an example that you have read about or that comes from your own experience.

119)

How can a manager decide whether a decision is ethical?

120)

Discuss the implications for strategic leaders in the context of corporate governance and sustained competitive advantage.

121)

Explain what is meant with the concept of bad apples versus bad barrels as it relates to organizational ethics in a firm.

122)

Describe what corporate governance is and the benefits it provides organizations.

123)

Explain how business models put strategy into action.

124)

Explain how the razor–razor blade business model works and provide an example of a firm that uses this model.

125)

Explain the difference between a business strategy and a business model.

Answer Key Test name: Chapter 12 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) C 14) A 15) A 16) C 17) D 18) B 19) A 20) C 21) A 22) B 23) D 24) C 25) A 26) C 27) D 28) B 29) B 30) A 31) D 32) D 33) C 34) A 35) A 36) B 37) A

38) A 39) A 40) D 41) D 42) B 43) C 44) B 45) A 46) D 47) D 48) B 49) A 50) A 51) A 52) D 53) B 54) C 55) D 56) C 57) D 58) C 59) C 60) A 61) C 62) C 63) A 64) D 65) C 66) A 67) A 68) A 69) C 70) A 71) B 72) B 73) B 74) C 75) A 76) D 77) D

78) A 79) C 80) A 81) C 82) D 83) A 84) D 85) B 86) B 87) D 88) C 89) A 90) C 91) B 92) B 93) C 94) B 95) A 96) A 97) A 98) C 99) C 100) 101) 102) 103) 104) 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117)

D B A Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer

118) 119) 120) 121) 122) 123) 124) 125)

Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer Short Answer