Strategic Management Text and Cases Gregory Dess 9th Edition- Test Bank

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Description Strategic Management Text and Cases Gregory Dess 9th Edition- Test Bank Sample Questions Instant Download With Answers Chapter 3 Assessing the Internal Environment of the Firm 1) Value-chain analysis assumes that the basic economic purpose of a firm is to create value, and it is a useful framework for analyzing the strengths and weaknesses of the firm.

Answer: TRUE Explanation: Value-chain analysis views the organization as a sequential process of value-creating activities. It provides greater insights into analyzing the competitive position of a firm than SWOT analysis does by itself.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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2) In value-chain analysis, value is measured by the market value of the total stock outstanding of the company.

Answer: FALSE

Explanation: Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price the product of the firm commands and the quantity it can sell.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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3) Primary activities contribute to the physical creation of a product or service, its sale and transfer to the buyer, and its service after the sale.

Answer: TRUE Explanation: The five primary activities in the Porter value chain model (inbound logistics, operations, outbound logistics, marketing and sales, and service) contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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4) The value-chain concept assumes that both primary and support activities can produce value for customers.

Answer: TRUE Explanation: Both types of activities can add value, either directly or through important relationships with other activities.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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5) Managers should focus their attention on interrelationships among value-chain activities within the firm, not on relationships among activities within the firm and other organizations (such as suppliers and customers).

Answer: FALSE Explanation: The importance of relationships among value-chain activities has two levels: (1) interrelationships among activities within the firm and (2) relationships among activities within the firm and with other stakeholders that are part of the expanded value chain of the firm.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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6) Some leading-edge companies are applying the prosumer concept. Here, firms team up with their suppliers and alliance partners to satisfy their customer needs.

Answer: FALSE Explanation: In the future, we will be talking more and more about the prosumer, a customer/producer who is even more extensively integrated into the value chain. As a consequence, production processes will be customized more precisely and individually. Including customers in the actual production process can create greater satisfaction among them, result in significant cost savings, and generate innovative ideas for the firm.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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7) Value-chain analysis can only be applied to manufacturing operations.

Answer: FALSE Explanation: The value chain can be applied to service organizations, suggesting that the valueadding process may be configured differently depending on the type of business a firm is engaged in.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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AACSB: Analytical Thinking Accessibility: Keyboard Navigation 8) Information technology (IT) can also play a key role in enhancing the value that a company can provide its customers and, in turn, increasing its own revenues and profits. IT is an activity within the support activities of general administration.

Answer: TRUE Explanation: Information technology (IT) can also play a key role in enhancing the value that a company can provide its customers and, in turn, increasing its own revenues and profits. General administration consists of a number of activities, including general management, planning, finance, accounting, legal and government affairs, quality management, and information systems.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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9) Campbell Soup uses electronic networks to improve the efficiency of outbound logistics. This is an example of relationships among activities within the firm and with other stakeholders that are part of the company expanded value chain.

Answer: TRUE Explanation: Relationships among value-chain activities exist at two levels: (1) interrelationships among activities within the firm and (2) relationships among activities within the firm and with other stakeholders (e.g., customers and suppliers) that are part of the firm’s expanded value chain.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 10) Some firms find great value by not incorporating their customers into the value creation process.

Answer:FALSE Explanation: When addressing the value-chain concept, it is important to focus on the interrelationship between the organization and its most important stakeholder, its customers. Some firms find great value by directly incorporating their customers into the value creation process.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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11) The resource-based view of the firm focuses solely on the internal analysis of the operations of the firm.

Answer: FALSE

Explanation: The resource-based view (RBV) of the firm combines two perspectives: (1) the internal analysis of phenomena within a company and (2) an external analysis of the industry and its competitive environment.

Difficulty: 2 Medium Topic: Resource-Based View Learning Objective: 03-03 Theresource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 12) Tangible resources are assets that are relatively easy to identify such as financial and physical assets.

Answer: TRUE Explanation: Tangible resources are assets that are relatively easy to identify. They include the physical and the financial assets that an organization uses to create value for its customers.

Difficulty: 2 Medium Topic: Resource-Based View Learning Objective: 03-03 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

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13) Intangible resources of a firm refer to its capacity to deploy tangible resources over time and leverage those resources effectively.

Answer: FALSE

Explanation: Intangible resources are organizational assets that are difficult to identify and to account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources.

Difficulty: 2 Medium Topic: Resource-Based View Learning Objective: 03-03 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 14) Financial resources such as cash and cash equivalents are intangible resources.

Answer: FALSE Explanation: Intangible resources are organizational assets that are difficult to identify and to account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources. Tangible resources are assets that are relatively easy to identify. They include the physical and the financial assets that an organization uses to create value for its customers.

Difficulty: 2 Medium Topic: Resource-Based View Learning Objective: 03-03 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

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15) Human resources and reputation resources are examples of intangible resources.

Answer: TRUE Explanation: Intangible resources are organizational assets that are difficult to identify and to account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources. Tangible resources are assets that are relatively easy to identify. They include the physical and the financial assets that an organization uses to create value for its customers.

Difficulty: 2 Medium Topic: Resource-Based View Learning Objective: 03-03 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 16) Products and services that are difficult to imitate help firms sustain their profitability.

Answer: TRUE Explanation: For a resource to provide a firm with the potential for a sustainable competitive advantage, it must have four attributes. Among these is the idea that the resource must be difficult for competitors to imitate.

Difficulty: 2 Medium Topic: VRIO Framework Learning Objective: 03-04 The four criteria that a firm’s resources must possess to maintain a sustainable advantage and how value created can be appropriated by employees and managers.

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17) Path dependency has no impact on the inimitability of resources.

Answer: FALSE Explanation: Many resources cannot be imitated because of what economists refer to as path dependency. This means that resources are unique and therefore scarce because of all that has happened along the path followed in their development and/or accumulation. Competitors cannot buy these resources quickly and easily; they must be built up over time in ways that are difficult to accelerate.

Difficulty: 2 Medium Topic: VRIO Framework Learning Objective: 03-04 The four criteria that a firm’s resources must possess to maintain a sustainable advantage and how value created can be appropriated by employees and managers.

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18) Capabilities that exhibit causal ambiguity are difficult to imitate.

Answer: TRUE Explanation: One source of inimitability is termed causal ambiguity. This means that would-be competitors may be thwarted because it is impossible to disentangle the causes (or possible explanations) of either what the valuable resource is or how it can be re-created.

Difficulty: 2 Medium Topic: VRIO Framework Learning Objective: 03-04 The four criteria that a firm’s resources must possess to maintain a sustainable advantage and how value created can be appropriated by employees and managers.

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19) Financial analysis provides an accurate way to assess the relative strengths of firms and can be used as a complete guide to study companies.

Answer: FALSE Explanation: The financial position of a firm should not be analyzed in isolation. Important reference points are needed. Some issues that must be taken into account to make financial analysis more meaningful include historical comparisons, comparisons with industry norms, and comparisons with key competitors.

Difficulty: 2 Medium Topic: Financial Analysis Tools for Appraising Firm Performance Learning Objective: 03-05 The usefulness of financial ratio analysis, its inherent limitations, and how to make meaningful comparisons of performance across firms.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 20) A primary benefit of the balanced scorecard is that it complements financial indicators with operational measures of customer satisfaction, internal processes, and the innovation and improvement activities of the organization.

Answer: TRUE Explanation: A balanced scorecard provides top managers with a fast but comprehensive view of the business. In a nutshell, it includes financial measures that reflect the results of actions already taken, but it complements these indicators with measures of customer satisfaction, internal processes, and the innovation and improvement activities of the organization (operational measures that drive future financial performance).

Difficulty: 2 Medium

Topic: Balanced Scorecard Approach Learning Objective: 03-06 The value of the “balanced scorecard” in recognizing how the interests of a variety of stakeholders can be interrelated.

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21) According to Michael Porter in his book, Competitive Advantage, a key concept used in analyzing the competitive position of a firm is creating value for 1.

A) buyers that exceeds the costs of production (i.e., margin).

2.

B) suppliers that exceeds the costs of production (i.e., margin).

3.

C) government that exceeds the costs of production (i.e., margin).

4.

D) employees that exceeds the costs of production (i.e., margin).

Answer: A Explanation: In his book, Competitive Advantage, Michael Porter defines value as the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price the product of the firm commands and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e., margin) is a key concept used in analyzing the competitive position of a firm.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 22) Inbound logistics include which of the following?

1.

2.

3.

4.

A) machining and packaging B) repair and parts supply C) promotion and packaging D) warehousing and inventory control

Answer: D Explanation: Inbound logistics are associated primarily with receiving, storing, and distributing inputs to the product, including material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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23) In assessing its primary activities, an airline would examine 1.

2.

3.

4.

A) employee training programs.

B) baggage handling.

C) criteria for lease versus purchase decisions.

D) the effectiveness of its lobbying activities.

Answer: B Explanation: Five primary activities: inbound logistics, operations (which would include baggage handling for an airline), outbound logistics, marketing and sales, and service contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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Accessibility: Keyboard Navigation 24) Advertising is a ________ activity. Supply of replacement parts is a ________ activity.

1.

2.

3.

4.

A) support; primary B) primary; primary C) primary; support D) support; secondary

Answer: B Explanation: Five primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. Inbound logistics is primarily associated with receiving, storing, and distributing inputs to the product. Marketing and sales activities include advertising.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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25) Which of the following examples demonstrates how successful organizations manage their primary activities?

1.

A) Motorola has revised its compensation system to reward employees who learn a variety of skills.

2.

B) Wal-Mart implemented a sophisticated information system that resulted in reduced inventory carrying costs and shortened customer response times.

3.

C) National Steel improved its efficiency by reducing the number of job classifications.

4.

D) JIT inventory systems are vital to Toyota committing to fulfill new car orders within five days.

Answer: D

Explanation: Just-in-time (JIT) inventory systems were designed to achieve efficient inbound logistics, which is one of the five primary activities in value-chain analysis. With JIT inventory systems, parts deliveries arrive at the Toyota assembly plants only hours before they are needed.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 26) Mercedes-Benz aggressively pushed for product placement in Hollywood movies. This is an example of which value chain primary or support activity?

1.

2.

3.

4.

A) support activity: general administration B) primary activity: service C) support activity: procurement D) primary activity: marketing and sales

Answer: D Explanation: Marketing and sales marketing and sales activities are primary value-chain activities associated with purchases of products and services by end users and the inducements used to get them to make purchases. Consider product placement. This is a marketing strategy that many firms are increasingly adopting to reach customers who are not swayed by traditional advertising.

Mercedes-Benz is a firm that has aggressively pushed for product placement in Hollywood movies.

In 2015, Mercedes products appeared in 9 of the top 31 blockbuster movies. For example, when the villains in the James Bond movie, Spectre, showed up in the desert to pick up Bond, they arrived in a fleet of Mercedes AMGs. Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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27) ________ is/are associated with collecting, storing, and distributing the product or service to buyers. They consist of warehousing, material handling, delivery operation, order processing, and scheduling.

1.

2.

3.

4.

A) Services B) Inbound logistics C) Outbound logistics D) Operations

Answer: C Explanation: Outbound logistics are associated with collecting, storing, and distributing the product or service to buyers. These activities include finished goods, warehousing, material handling, delivery vehicle operation, order processing, and scheduling.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 28) When Nordstrom, the Seattle-based department store chain, aids customers with after-sales support, it exemplifies which primary value-chain activity?

1.

2.

3.

4.

A) operations B) outbound logistics C) inbound logistics D) service

Answer: D Explanation: Service activity includes all actions associated with providing service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment.

Difficulty: 2 Medium

Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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29) Which of the following is a support activity?

1.

2.

3.

4.

A) inbound logistics B) customer service C) technology development D) operations

Answer: C Explanation: Support activities in the value chain can be divided into four generic categories: general administration, human resource management, technology development, and procurement.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 30) Which of the following lists consists of support activities?

1.

A) human resource management, technology development, customer service, and procurement 2.

B) human resource management, customer service, marketing and sales, and operations

3.

C) customer service, information systems, technology development, and procurement 4.

D) human resource management, technology development, procurement, and general administration

Answer: D Explanation: Support activities in the value chain can be divided into four generic categories: general administration, human resource management, technology development, and procurement.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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31) Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports 1.

2.

3.

4.

A) only individual primary activities.

B) mostly support activities but does have some impact on primary activities.

C) only individual support activities.

D) both individual primary and support activities and the entire value chain.

Answer: D Explanation: Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports both individual primary and support activities and the entire value chain.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 32) According to value-chain analysis, which of the following would be considered part of the general administration in a firm?

1.

2.

3.

4.

A) information systems B) technology development C) human resource management D) procurement

Answer: A Explanation: General administration consists of a number of activities, including general management, planning, finance, accounting, legal and government affairs, quality management, and information systems. Administration typically supports the entire value chain and not individual activities.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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33) Coca-Cola has developed data analytic technologies to produce orange juice that meets the taste demands of a global customer base. This is an example of using which value chain support activity?

1.

2.

3.

4.

A) marketing and sales B) technology development C) human resource management D) procurement

Answer: B Explanation: Technology development is a value-chain support activity associated with the development of new knowledge that is applied to the operations of the firm. Technology development related to the product and its features supports the entire value chain, while other technology developments are associated with particular primary or support activities.To meet customer expectations on a daily basis and continue to lead the market, Coca-Cola has turned to data analytics.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 34) Facebook, Intuit, AB InBev, and others empower their recruiters to make offers on the spot when they interview college students, without knowing what specific position they will fill.These firms search for candidates with attributes such as being a self-starter and a problem-solver, and make quick offers to preempt the market. This is an example of which value chain support activity?

1.

2.

3.

4.

A) operations B) technology development C) human resource management D) procurement

Answer: C Explanation: Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports both individual primary and support activities (e.g., hiring of engineers and scientists) and the entire value chain (e.g., negotiations with labor unions).

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-01 The primary and support activities of a firm’s value chain.

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Accessibility: Keyboard Navigation

35) In a telephone operating company, negotiating and maintaining ongoing relations with regulatory bodies can be among the most important activities for competitive advantage. What type of valuechain support activity is this?

1.

2.

3.

4.

A) service B) technology development C) human resource management D) general administration

Answer: D Explanation: Although general administration is sometimes viewed only as overhead, it can be a powerful source of competitive advantage. In a telephone operating company, for example, negotiating and maintaining ongoing relations with regulatory bodies can be among the most important activities for competitive advantage.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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36) The Germany truck and trailer manufacturer, SchmitzCargobull, mainly serves customers who are operators of truck or trailer fleets. What sets the company apart is its expertise in telematics (the integrated application of telecommunications data) to monitor the current state of any Schmitz Cargobull-produced trailer. What type of a value-chain support activity is this?

1.

A) service

2.

3.

4.

B) technology development C) human resource management D) general administration

Answer: D Explanation: General administration consists of a number of activities, including general management, planning, finance, accounting, legal and government affairs, quality management, and information systems. Administration (unlike the other support activities) typically supports the entire value chain and not individual activities. In applying its telematic tools in its products, Schmitz Cargobull is providing clear, tangible benefits. Through telematics, key information is continually available to the driver, the freight agent, and the customer. They can track, for instance, when maintenance is done, how much weight has been loaded, the current cargo temperature, and where the vehicle is on its route. Therefore, Schmitz Cargobull customers can better manage their trailer use and minimize the risk of breakdowns.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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37) A marketing department that promises delivery faster than the ability of the production department to produce is an example of a lack of understanding of the 1.

2.

3.

4.

A) interrelationships among value-creating activities within a firm.

B) organizational culture and leadership.

C) need to maintain the reputation of the company.

D) synergy of the business units.

Answer: A Explanation: Important to value-chain analysis are interrelationships which are the collaborative and strategic exchange relationships between value-chain activities either (a) within firms or (b) between firms. Strategic exchange relationships involve exchange of resources such as information, people, technology, or money that contribute to the success of the firm.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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38) Campbell Soup uses electronic networks to improve the efficiency of outbound logistics. These networks also helped Campbell Soup manage the ordering of raw materials more efficiently, improve its production scheduling, and help its customers better manage their inbound logistics operations.

This is an example of ________ 1.

2.

A) interrelationships among activities within the firm B) relationships among activities within the firm and with other stakeholders that are part of the expanded value chain of the firm.

3.

C) relationships among activities outside of the firm 4.

D) interrelationships among activities outside of the firm.

Answer: B Explanation: There are two levels: (1) interrelationships among activities within the firm and (2) relationships among activities within the firm and with other stakeholders (e.g., customers and suppliers) that are part of the expanded value chain of the firm. Campbell Soup used electronic networks it to improve the efficiency of outbound logistics. However, it also helped Campbell manage the ordering of raw materials more effectively, improve its production scheduling, and help its customers better manage their inbound logistics operations.

This is an example of interrelationships among value chain activities within the firm and with other stakeholders that are part of the expanded value chain of the firm.

Difficulty: 2 Medium Topic: Value Chain Analysis

Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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39) In terms of value-chain analysis, a telephone operating company would find that negotiating and maintaining ongoing relations with regulatory bodies are important activities for achieving 1.

2.

3.

4.

A) inbound logistics.

B) customer awareness.

C) competitive advantage.

D) better employees.

Answer: C Explanation: Although general administration is sometimes viewed only as overhead, it can be a powerful source of competitive advantage. In a telephone operating company, for example, negotiating and maintaining ongoing relations with regulatory bodies can be among the most important activities for competitive advantage.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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40) General administration is sometimes viewed as only ________, but it can be a powerful source of competitive advantage.

1.

2.

3.

4.

A) income B) value C) overhead D) unimportant

Answer: C Explanation: Although general administration is sometimes viewed only as overhead, it can be a powerful source of competitive advantage.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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41) German truck and trailer manufacturer, Schmitz Cargobull, mainly serves customers that are operators of truck or trailer fleets. What sets the company apart is its expertise in telematics (the integrated application of telecommunications data) to monitor the current state of any Schmitz Cargobull-produced trailer. This is an example of using ________ to enhance customer value and increase ________ position.

1.

2.

3.

4.

A) sales; competitive B) operations; marketing C) information technology; competitive D) human resources; marketing

Answer: C Explanation: Information technology (IT) can also play a key role in enhancing the value that a company can provide its customers and, in turn, increasing its own revenues and profits. Schmitz Cargobull, a German truck and trailer manufacturer, uses IT to further its competitive position.

Difficulty: 2 Medium

Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 42) An executive states that HR must be a true partner of the business, with a deep and up-to-date understanding of business realities and objectives, and must ensure HR initiatives fully support them at all points of the value chain. This is an example of 1.

2.

3.

4.

A) relationships among activities within the firm and with other stakeholders.

B) relationships between firms.

C) interrelationships among activities within the firm.

D) interrelationships among firms.

Answer: C Explanation: Managers must not ignore the importance of relationships among value-chain activities. These can be collaborative and strategic exchange relationships between value-chain activities either (a) within firms or (b) between firms. The LiseSaari quote in the text demonstrates interrelationships among activities within the firm.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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43) Regarding the value-chain concept, the most important interrelationship is between the organization and its 1.

2.

3.

4.

A) board of directors.

B) employees.

C) customers.

D) management.

Answer: C Explanation: When addressing the value-chain concept, it is important to focus on the interrelationship between the organization and its most important stakeholder, its customers. Some firms find great value by directly incorporating their customers into the value creation process.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 44) In contrast to ________ interactions, which allow the firm to gain insights on the needs of a particular customer, ________ offers the opportunity to leverage the wisdom of a larger crowd.

1.

2.

3.

4.

A) consumer; sourcing B) prosumer; outsourcing C) prosumer; crowdsourcing D) marketing; crowdsourcing

Answer: C Explanation: In contrast to prosumer interactions, which allow the firm to gain insights on the needs of a particular customer, crowdsourcing offers the opportunity to leverage the wisdom of a larger crowd.

Difficulty: 2 Medium Topic: Value Chain Analysis

Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

45) In using crowdsourcing as a means to integrate the customer into the value chain, there are some perils to consider. Which of the following is not related to crowdsourcing perils?

1.

A) giving customers the opportunity to tarnish the company brand 2.

B) asking for consumer input when demand is highly uncertain 3.

C) eroding a low-cost competitive advantage of the firm 4.

D) repeatedly getting feedback from the same customer

Answer: C Explanation: While crowdsourcing offers great promise, in practice such programs are difficult to run. Research has identified three areas of particular concern: strong brand reputation, high demand uncertainty, too many initiatives.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 46) Accounting is a sort of transformation process that converts daily records of individual transactions into monthly financial reports. The ________ are the inputs, accounting is the operation that adds value, and ________ are the outputs.

1.

A) transaction records; financial statements

2.

3.

4.

B) financial statements; transaction records C) employee records; transaction records D) health records; transaction statements

Answer: A Explanation: Accounting is a sort of transformation process that converts daily records of individual transactions into monthly financial reports. In this example, the transaction records are the inputs, accounting is the operation that adds value, and financial statements are the outputs.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

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47) A travel agent adds value by creating an itinerary that includes transportation, accommodations, and activities that are customized to your budget and travel dates. In terms of the value-chain analysis, this is an example of a ________ organization.

1.

2.

3.

4.

A) retail B) service C) manufacturing D) travel

Answer: B Explanation: A travel agent adds value by creating an itinerary that includes transportation, accommodations, and activities that are customized to your budget and travel dates. These are the operations, or transformation processes, of a service organization.

Difficulty: 2 Medium

Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 48) For an engineering services firm, ________ provides inputs, the transformation process is the engineering itself, and innovative designs and practical solutions are the outputs.

1.

2.

3.

4.

A) experimentation B) customer support C) research and development D) human resource management

Answer: C Explanation: For an engineering services firm, research and development provides inputs, the transformation process is the engineering itself, and innovative designs and practical solutions are the outputs.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

49) For a firm such as Nordstrom that has no manufacturing operations, value is added by developing expertise in the procurement of finished goods and by displaying them in its stores in a way that enhances sales. In the value chain, procurement activities become the primary activity. This begins with ________ and ends with ________.

1.

2.

3.

4.

A) purchasing goods; operating stores B) managing and distributing inventory; marketing and selling C) partnering with vendors; marketing and selling D) partnering with vendors; operating stores

Answer: C Explanation: In the retail industry, there are no manufacturing operations. A firm such as Nordstrom adds value by developing expertise in the procurement of finished goods and by displaying them in its stores in a way that enhances sales. Thus, the value chain makes procurement activities (i.e., partnering with vendors and purchasing goods) a primary rather than a support activity. Operations refer to the task of operating Nordstrom stores. The primary value-chain activities in order would be: partnering with vendors; purchasing goods; management and distributing inventory; operating stores; and marketing and selling.

Difficulty: 3 Hard Topic: Value Chain Analysis Learning Objective: 03-02 How value-chain analysis can help managers create value by investigating relationships among activities within the firm and between the firm and its customers and suppliers.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 50) The resource-based view (RBV) of the firm combines the following two perspectives: 1.

2.

A) the primary and support activities of the firm.

B) the interrelationships among the primary activities of the firm and corporate management.

3.

C) the internal analysis of the firm and the external analysis of the industry and competitive environment.

4.

D) the industry and the competitive environment.

Answer: C Explanation: The resource-based view (RBV) of the firm combines two perspectives: (1) the internal analysis of phenomena within a company and (2) an external analysis of the industry and its competitive environment.

Difficulty: 2 Medium Topic: Resource-Based View

Learning Objective: 03-03 The resource-based view of the firm and the different types of tangible and intangible resources, as well as organizational capabilities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

Chapter 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages 1) Overall cost leadership is a generic strategy unlike others that does not require a tight set of interrelated tactics.

Answer: FALSE Explanation: Overall cost leadership requires a tight set of interrelated tactics that include:

Aggressive construction of efficient-scale facilities.

Vigorous pursuit of cost reductions from experience.

Tight cost and overhead control.

Avoidance of marginal customer accounts.

Cost minimization in all activities in the value chain of the firm, such as R/D, service, sales force, and advertising.

Difficulty: 2 Medium

Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation

2) An example of a firm applying the overall cost leadership generic strategy in a value-chain activity would be to automate the production assembly line to reduce scrappage from quality errors.

Answer: TRUE Explanation: Overall cost leadership requires a tight set of interrelated tactics that includes cost minimization in all activities in the value chain of the firm such as R&D, service, sales force, and advertising. An example of this is the effective use of automated technology to reduce scrappage rates.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

3) The experience curve is a factor central to an overall cost leadership strategy and refers to how business learns to increase costs as it gains experience with production processes.

Answer: FALSE

Explanation: The experience curve is the decline in unit costs of production as cumulative output increases.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation

4) The five-forces model suggests that with intense competition an overall low-cost position will not enable a firm to achieve above-average returns.

Answer: FALSE Explanation: An overall low-cost position enables a firm to achieve above-average returns despite intense competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 5) Factors that lead to a low-cost position also provide substantial entry barriers to substitute and new products as is demonstrated by the retailer, Aldi, whose focus on minimizing costs across the entire operation permits it to position well against competitors such as Walmart.

Answer: TRUE Explanation: The factors that lead to a low-cost position also provide a substantial entry barriers position with respect to substitute products introduced by new and existing competitors. The extreme focus on minimizing costs across its operations makes Aldi less vulnerable to substitutes, such as discount retailers like Walmart and dollar stores.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

6) If the overall cost leadership strategy is to provide sustainable competitive advantage, all activities in the value-chain need to be evaluated including the relationships among the value-chain activities.

Answer: TRUE Explanation: Too often managers make big cuts in operating expenses but do not question year-toyear spending on capital projects. Or managers may decide to cut selling and marketing expenses but ignore manufacturing expenses. Managers should explore all value-chain activities, including relationships among them, as candidates for cost reductions.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 7) A firm can differentiate itself in a support activity by purchasing high-quality components to enhance product image such as Apple does with its laptop computers.

Answer: TRUE Explanation: As the name implies, a differentiation strategy consists of creating differences in the product or services of the firm by offering by creating something that is perceived industrywide as unique and valued by customers. An example is the use by Apple of quality in procurement to enhance the product image.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

8) Caterpillar uses data analytics to differentiate itself from competitors by providing information services.

Answer: TRUE Explanation: More recently, Caterpillar has looked to big data to help it grow its business. In a study of one malfunctioning machine owned by a large mining company, Cat concluded that the new technology of the firm would have reduced repair costs from the 650,000 USD the mining company incurred to 12,000 USD by identifying an emerging problem before it did serious damage. Thus, Cat sees this technology as allowing it to better serve both its customers and dealers, resulting in new sources of income for Cat as customers see value in buying ongoing data-access and software subscriptions.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Bloom’s: Understand

AACSB: Knowledge Application Accessibility: Keyboard Navigation 9) Combination strategies, such as integrating overall low cost and differentiation, makes it easier for rivals to duplicate or imitate because it is harder for the primary firm to provide value.

Answer: FALSE Explanation: Perhaps the primary benefit to firms that integrate low-cost and differentiation strategies is the difficulty for rivals to duplicate or imitate. This strategy enables a firm to provide two types of value to customers: differentiated attributes (e.g., high quality, brand identification, reputation) and lower prices (because of the lower costs of the firm in value-creating activities). The goal is thus to provide unique value to customers in an efficient manner.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

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10) Airlines such as Emirates exploit the profit pool for competitive advantage by adding fees for a variety of services such as access to airport lounges.

Answer: TRUE Explanation: By separating the value of the actual flight from the services associated with flying, airlines have greatly expanded the profit pool associated with flying. They have found that flyers may be very price-conscious when purchasing tickets but are willing to shell out more for a range of services.

Difficulty: 2 Medium

Topic: Competitive Advantage Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 11) A pitfall of integrated overall cost leadership and differentiation is underestimating the expenses associated with coordinating value-creating activities in the extended value chain.

Answer: TRUE Explanation: Integrating activities across a value chain of a firm with the value chain of suppliers and customers involves a significant investment in financial and human resources. Firms must consider the expenses linked to technology investment, managerial time and commitment, and the involvement and investment required by the customers and suppliers of the firm. The firm must be confident that it can generate a sufficient scale of operations and revenues to justify all associated expenses.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-04 How firms can effectively combine the generic strategies of overall cost leadership and differentiation.

Bloom’s: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation

12) Once established, competitive advantages last forever whether the firm is in a high technology environment or not.

Answer: FALSE Explanation: Competitive advantages are, however, often short-lived. Nothing is forever when it comes to competitive advantages. Rapid changes in technology, globalization, and actions by rivals from within and outside the industry can quickly erode firm advantages. It is becoming increasingly important to recognize that the duration of competitive advantages is declining, especially in technology-intensive industries. Even in industries that are normally viewed as low tech, the increasing use of technology has suddenly made competitive advantages less sustainable.

Difficulty: 2 Medium Topic: Sustaining a Competitive Advantage Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 13) A platform business is like a matchmaker in that it can bring together buyers and sellers. An example of a successful platform provider is Facebook. By attracting and retaining users through expanding services it differentiates itself from more narrowly-focused competitors such as Twitter.

Answer: TRUE Explanation: Successful platform firms create a business that attracts a large range of suppliers and a wide population of customers, becoming the go-to clearinghouse that both suppliers and customers turn to, in order to facilitate a transaction. In doing so, they typically successfully combine elements of both cost and differentiation advantages. Facebook has looked to continually extend its differentiation by expanding the range of services it offers, and as a result, has been able to put the squeeze on narrow platform providers, such as Twitter.

Difficulty: 2 Medium Topic: Sustaining a Competitive Advantage Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

14) A platform business such as Airbnb leverages data analytics to differentiate its offer from that of competitors such as VRBO.

Answer: TRUE Explanation: Platform businesses can learn a great deal about their suppliers and customers by observing their search and usage patterns. Successful platform firms leverage this data to figure out how to best fill their matchmaking role in bringing together suppliers and users. Airbnb has worked to create systems that increase the likelihood that hosts will agree to offers from potential renters. The firm realizes that renters get frustrated if their rental offers are declined. Additionally, hosts will be dissatisfied if offers come from undesirable renters. Using data analytics, Airbnb analyzed when specific hosts accepted and declined offers and their satisfaction ratings of renters to develop profiles of preferred renter characteristics. Using the resulting algorithm for matching renter characteristics and host preferences, the company saw a 4 percent increase in its rate of converting offers into accepted rental matches Difficulty: 2 Medium Topic: Sustaining a Competitive Advantage Learning Objective: 05-05 What factors determine the sustainability of a firm’s competitive advantage.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 15) The market life cycle should be used for short-run forecasting because it provides a conceptual framework for understanding what changes typically occur over the life of an industry.

Answer: FALSE Explanation: The industry life cycle refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry. In considering the industry life cycle, it is useful to think in terms of broad product lines such as personal computers, photocopiers, or long-distance telephone service. Changes tend to be slower than what is needed for forecasting.

Difficulty: 2 Medium Topic: Competitive Implications and the Industry Life Cycle Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

16) An important advantage of first movers in a market is that they may establish brand recognition that may later serve as an important switching cost.

Answer: TRUE Explanation: There is an advantage to being the first mover in a market. It led to the success of Coca-Cola in becoming the first soft-drink company to build a recognizable global brand and enabled Caterpillar to get a lock on overseas sales channels and service capabilities.

Difficulty: 2 Medium Topic: Competitive Implications and the Industry Life Cycle Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 17) Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits.

Answer: FALSE Explanation: In the growth stage, revenues increase at an accelerating rate because new consumers are trying the product and a growing proportion of satisfied consumers are making repeat purchases. Since repeat purchases are necessary, a long-term strategy is desirable.

Difficulty: 2 Medium Topic: Competitive Implications and the Industry Life Cycle Learning Objective: 05-06 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

18) A need for turnaround occurs only during the maturity or declining stage of the life cycle.

Answer: FALSE Explanation: A need for turnaround may occur at any stage in the life cycle but is more likely to occur during maturity or decline.

Difficulty: 2 Medium Topic: Competitive Implications and the Industry Life Cycle Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

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19) Few turnarounds require firms to analyze both the external and internal environments relevant to their firm.

Answer: FALSE Explanation: Most turnarounds require a firm to carefully analyze the external and internal environments. The external analysis leads to identification of market segments or customer groups that may still find the product attractive. Internal analysis results in actions aimed at reduced costs and higher efficiency. A firm needs to undertake a mix of both internally and externally oriented actions to affect a turnaround.

Difficulty: 2 Medium Topic: Competitive Implications and the Industry Life Cycle Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

20) Piecemeal productivity improvements can be used by a mature business in need of a turnaround.

Answer: TRUE Explanation: There are many ways in which a firm can eliminate costs and improve productivity.

Although individually these are small gains, they cumulate over a period of time to substantial gains.

Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain.

Difficulty: 2 Medium Topic: Competitive Implications and the Industry Life Cycle Learning Objective: 05-07 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

21) The primary aim of strategic management at the business level is 1.

2.

3.

4.

A) maximizing risk to return trade-offs through diversification.

B) maximizing differentiation of products and/or services.

C) achieving competitive advantage.

D) achieving a low-cost position.

Answer: C Explanation: How firms compete with each other and how they attain and sustain competitive advantages goes to the heart of strategic management. In short, the key issue becomes to identify why some firms outperform others and enjoy such advantages over time.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

22) Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?

1.

2.

3.

4.

A) differentiation B) differentiation focus C) stuck-in-the-middle D) overall cost leadership

Answer: D Explanation: Examples of overall cost leadership within primary value chain activities may involve the effective layout of receiving dock operations (inbound logistics), and support value chain activities may include expertise in process engineering (technology development).

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

23) A manufacturing business pursuing cost leadership is likely to 1.

2.

3.

4.

A) focus on a narrow market segment.

B) use advertising to build brand image.

C) put heavy emphasis on product engineering.

D) rely on experience effects to raise efficiency.

Answer: D Explanation: One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes.

With experience, unit costs of production decline as output increases in most industries.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Apply AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

24) One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by 1.

2.

3.

4.

A) spreading out a given expense or investment over a greater volume.

B) hiring more experienced personnel.

C) repeating a process until a task becomes easier.

D) competing in an industry for a long time.

Answer: C Explanation: One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes.

With experience, unit costs of production decline as output increases in most industries.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

25) With experience, unit costs of production decline as ________ increases in most industries.

1.

2.

3.

4.

A) costs B) volume C) output D) price

Answer: C Explanation: With experience, unit costs of production decline as output increases in most industries. The experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at efficiency gains that come with experience. For a range of products, as cumulative

experience doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation 26) Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform 1.

A) at about the same level as firms that achieve either cost or differentiation advantages.

2.

B) about the same as firms that are stuck-in-the-middle.

3.

C) higher than firms that achieve either a cost or a differentiation advantage.

4.

D) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.

Answer: C Explanation: Both casual observation and research support the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not. There has been a rich history of strategic management research addressing this topic. One study found that businesses combining multiple forms of competitive advantage (differentiation and overall cost leadership) outperformed businesses that used only a single form.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

27) Global logistics firms such as DHL Supply Chain and Global Forwarding or C. H. Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as 1.

2.

3.

4.

A) effective layout of receiving dock operations.

B) effective use of automated technology to reduce scrappage rates.

C) minimize costs associated with employee turnover through effective policies.

D) standardized accounting practices to minimize personnel required.

Answer: A Explanation: Inbound logistics is a primary activity in the value chain. These global logistics firms strive to achieve cost advantages through the design of their receiving dock operations, among other operation design features.

Difficulty: 2 Medium Topic: Value Chain Analysis Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 28) Overhead costs associated with the number of layers of management in a firm are part of the ________ activities of the value chain.

1.

2.

3.

4.

A) human resources management B) firm infrastructure C) operations D) marketing and sales

Answer: B Explanation: Exhibit 5.3 draws on the value-chain concept to provide examples of how a firm can attain an overall cost leadership strategy in its primary and support activities. Reducing management layers to reduce overhead costs is the support activity associated with the firm infrastructure.

Difficulty: 2 Medium

Topic: Value Chain Analysis Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation

29) Primark, a fashion retailer, has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics, a low marketing budget, and negotiating bargain prices from its suppliers. They are using a(n) ________ strategy.

1.

2.

3.

4.

A) differentiation B) overall cost leadership C) focus D) broad differentiation

Answer: B Explanation: Overall cost leadership requires a tight set of interrelated tactics that include: aggressive construction of efficient-scale facilities and vigorous pursuit of cost reductions from experience.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 30) Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe, Australia, and the United States by replicating a simple business format. Aldi limits the number of

products in each category to ensure product turn, to ease stocking shelves, and to increase its power over supplier. This is an example of an overall cost leadership strategy because it 1.

2.

3.

4.

A) gives them competitive advantage by decreasing productivity.

B) gives them competitive advantage by tight cost and overhead control.

C) eliminates the need to compete based on its products.

D) requires the customer to recognize its efforts.

Answer: B Explanation: Aldi, a discount supermarket retailer limits the number of products in each category to become more efficient. This enhances its cost leadership position.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

31) A business that strives for a low-cost advantage must attain a(n) ________ cost advantage over rivals.

1.

2.

3.

4.

A) relative B) evolutionary C) absolute D) potential

Answer: C Explanation: A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals.

Difficulty: 2 Medium

Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 32) A firm typically achieves an absolute cost advantage by offering a ________ product or service to a ________ target market using standardization to derive the greatest benefits from economies of scale and experience.

1.

2.

3.

4.

A) no frills; narrow B) complex; narrow C) no frills; broad D) complex; diverse

Answer: C Explanation: A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals. This is typically accomplished by offering a no-frills product or service to a broad target market using standardization to derive the greatest benefits from economies of scale and experience.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation

33) Primark, an Irish clothing retailer, uses an overall cost leadership strategy. This could fail if it

1.

2.

3.

4.

A) maintains parity with competitors on low cost.

B) cannot maintain parity on differentiation dimensions requested by customers.

C) exceeds customer expectations.

D) increases its sales prices while maintaining competitor parity.

Answer: B Explanation: To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors. Primark, an Irish clothing retailer, has built a low-cost strategy while also being seen as effectively addressing concerns about environmental sustainability.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-01 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.

Bloom’s: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 34) Zulily, an online retailer, competes with Amazon and other online retailers by 1.

2.

3.

4.

in.

A) maintaining a large inventory of products.

B) running a labor-intensive distribution system.

C) ordering products from vendors to keep in stock until a customer order comes D) keeping little inventory and ordering only when customers purchase a product.

Answer: D Explanation: Zulily, an online retailer, has built its business model around lower-cost operations in order to carve out a unique position relative to Amazon and other online retailers. Zulily keeps very little inventory and typically orders products from vendors only when customers purchase the product. It also has developed a bare-bones distribution system. Together, these actions result in deliveries that take an average of 11.5 days to get to customers and can sometimes stretch out to several weeks. Due to its reduced operational costs, Zulily is able to offer attractive prices to customers who are willing to wait.

Difficulty: 2 Medium Topic: Competitive Advantage

Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

35) Which type of competitive strategy is characterized by convincing rivals not to enter a price war, protection from customer pressure to lower prices, and the ability to better withstand cost increases from suppliers?

1.

2.

3.

4.

A) differentiation B) overall low-cost leadership C) differentiation focus D) cost leadership focus

Answer: B Explanation: An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. It protects firms against powerful buyers, who can only drive down prices to the level of the next most efficient producer. A low-cost position provides more flexibility to cope with supplier demands for input cost increases.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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36) An overall low-cost position enables a firm to achieve ________ returns despite strong competition.

1.

2.

3.

4.

A) below average B) average C) no D) above average

Answer: D Explanation: An overall low-cost position enables a firm to achieve above-average returns despite strong competition.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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37) An overall low-cost position protects a firm against rivalry from competitors because ________ allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.

1.

2.

3.

4.

A) higher costs B) higher prices C) lower costs D) lower prices

Answer: C Explanation: An overall low-cost position protects a firm against rivalry from competitors because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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38) An overall ________ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.

1.

2.

3.

4.

A) differentiation B) low-cost C) focused D) high-cost

Answer: B Explanation: An overall low-cost position enables a firm to achieve above-average returns because it protects firms against powerful buyers.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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39) A low-cost position permits buyers to exert power to drive ________ prices only to the level of the next most efficient producer.

1.

2.

3.

4.

A) up B) down C) increasing D) decreasing

Answer: B

Explanation: A low-cost position permits buyers to exert power to drive down prices only to the level of the next most efficient producer.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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40) A low-cost position provides ________ flexibility to cope with demands from powerful suppliers for input cost increases.

1.

2.

3.

4.

A) less B) decreasing C) more D) no

Answer: C Explanation: A low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost increases.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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41) The factors that lead to a low-cost position also provide a substantial ________ barriers position with respect to ________ products introduced by new and existing competitors.

1.

2.

3.

4.

A) entry; substitute B) exit; primary C) product; substitute D) entry; primary

Answer: A Explanation: The factors that lead to a low-cost position also provide a substantial entry barriers position with respect to substitute products introduced by new and existing competitors.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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42) Zulily protects itself from buyer power and intense rivalry from competitors by 1.

2.

3.

4.

A) increasing the bargaining power of its customers.

B) paying close attention to costs.

C) increasing costs.

D) increasing the buyer power.

Answer: B Explanation: Zulily pays close attention to costs that help to protect the company from buyer power and intense rivalry from competitors. Thus, Zulily is able to drive down costs and reduce the bargaining power of its customers.

Difficulty: 1 Easy Topic: Competitive Advantage Learning Objective: 05-02 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

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43) Which of the following is a risk (or potential pitfall) of cost leadership?

1.

2.

3.

4.

A) Cost cutting in one area of the value chain might increase costs in another.

B) Attempts to stay ahead of the competition may lead to gold plating.

C) Cost differences increase as the market matures.

D) Producers are more able to withstand increases in supplier costs.

Answer: A Explanation: Potential pitfalls of overall cost leadership strategy include too much focus on one or a few value-chain activities; increase in the cost of the inputs on which the advantage is based; the strategy is imitated too easily; a lack of parity on differentiation; reduced flexibility; and obsolescence of the basis of cost advantage Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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44) A firm can achieve differentiation through all the following means except 1.

A) improving brand image.

2.

B) offering lower prices to frequent customers.

3.

C) better customer service.

4.

D) adding additional product features.

Answer: B

Explanation: A differentiation strategy consists of creating differences in the product or service offering of the firm by creating something that is perceived industrywide as unique and valued by customers. Differentiation can take many forms, including prestige or brand image, quality, technology, innovation, features, customer service, or a dealer network.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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45) Value-chain support activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure) characterize which generic strategy?

1.

2.

3.

4.

A) overall cost leadership B) differentiation focus C) differentiation D) stuck-in-the middle

Answer: C Explanation: Examples of value-chain activities for differentiation include value chain support activities like excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure).

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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46) High product differentiation is generally accompanied by 1.

2.

3.

4.

A) higher market share.

B) higher profit margins and lower costs.

C) significant economies of scale.

D) decreased emphasis on competition based on price.

Answer: D Explanation: Differentiation provides protection against rivalry because brand loyalty lowers customer sensitivity to price and raises customer switching costs. By increasing company margins, differentiation also avoids the need for a low-cost position.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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47) Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five-forces model?

1.

A) Firms will enjoy high customer loyalty.

2.

B) By increasing firm margins, it avoids the need for a low-cost position.

3.

C) It reduces buyer power because buyers lack comparable alternatives.

4.

D) Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.

Answer: D Explanation: Supplier power is also decreased, because there is a certain amount of prestige associated with being the supplier to a producer of highly differentiated products and services.

Difficulty: 2 Medium Topic: Porter’s Five Competitive Forces

Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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48) A differentiation strategy enables a business to address the five competitive forces by 1.

2.

3.

4.

A) having brand-loyal customers become more sensitive to prices.

B) increasing economies of scale.

C) providing protection against rivalry.

D) serving a broader market segment.

Answer: C Explanation: Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.

Difficulty: 2 Medium Topic: Sustaining a Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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49) Which of the following is not a potential pitfall of a differentiation strategy?

1.

A) Uniqueness that is not valuable.

2.

B) The price premium is too high.

3.

C) All rivals share a common input or raw material.

4.

D) Perceptions of differentiation may vary between buyers and sellers.

Answer: C

Explanation: Potential pitfalls of a differentiation strategy include uniqueness that is not valuable; too much differentiation; too high a price premium; differentiation that is easily imitated; dilution of brand identification through product-line extensions; or perceptions of differentiation may vary between buyers and sellers.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

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50) Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe’s and Home Depot in spite of them using a focus strategy. Why? 1.

2.

3.

4.

A) Achieving parity on costs for specialty retailers is difficult.

B) They have too broad a product line.

C) They have equivalent purchasing power as the national chains.

D) Their costs are the same as those of the national chains.

Answer: A Explanation: Some firms attempting to attain advantages through a focus strategy may have too narrow a product or service. Consider many retail firms. Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe’s and Home Depot that offer a full line of home and garden equipment and accessories. And given the enormous purchasing power of the national chains, it would be difficult for such specialty retailers to attain parity on costs.

Difficulty: 2 Medium Topic: Competitive Advantage Learning Objective: 05-03 The pitfalls managers must avoid in striving to attain generic strategies.

Bloom’s: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation