Test Bank for Strategic Management Concepts and Cases 5th Edition By Jeffrey Dyer, Paul Godfrey, Rob

Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 1 What Is Business Strategy?

1) The origin of strategy comes from the role of a(n) ________. Great individuals in this role provide ________.

A) architect of the greatest buildings in the world; a good goal B) architect of the greatest buildings in the world; high level orchestration and vision C) general in a war; a good goal D) general in a war; high level orchestration and vision Answer: D Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) ________ is defined as a company's plan to create and capture value in a marketplace.

A) Business strategy B) Competitive advantage C) Infrastructure process D) Market value Answer: A Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) ________ is the difference between a customer's willingness to pay for a product and the firm's total costs to provide the product.

A) Advantage B) Cost C) Process D) Value Answer: D Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 1

4) ________ can be best defined as when an organization generates and captures more value compared to its rivals.

A) Client advantage B) Competitive advantage C) Employer advantage D) Unique value Answer: B Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 5) Firms that capture more value than competitors generate ________.

A) higher costs B) higher profits C) lower assets D) lower market value Answer: B Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 6) Gems Corp. is a leading jewelry brand that finds it hard to make as much profit as its competitors. To overcome this, the employees of Gems Corp. decide to work harder to provide unique value to customers and increase the sales of the company. After a year, it makes more profits than its competitors. This scenario best illustrates ________.

A) client advantage B) internal analysis C) external analysis D) competitive advantage Answer: D Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic

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7) The industry and geographic area that a company competes in, is referred to as its ________.

A) niche B) business C) segment D) market Answer: D Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) Adia and Ali are two business partners who want to set up a company that sells imported sports gear and equipment. To make sure that the company makes and retains profit, they must choose an area that is close to where their products have the highest demand. This area should allow them consistently to make profit. In this scenario, Adia and Ali are looking for a ________.

A) market B) strategy C) cost advantage D) mission Answer: A Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 9) ________ can be best defined as the reason a firm wins with customers or the value proposition it offers to customers, such as a low-cost advantage or differentiation advantage.

A) Switching costs B) Unique value C) Complementary products D) SWOT analysis Answer: B Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3

10) The employees of Flamingo Inc., a greeting card company, focus on providing unmatched customer satisfaction. Unlike its competitors, the employees of Flamingo take the time to listen to the needs of individual customers and design custom-made cards upon request. The customers of Flamingo state that the company provides a large variety of affordable products to choose from. The company has won many awards for providing complete customer satisfaction. In this scenario, which of the following does Flamingo Inc. provide to its customers?

A) Backward integration B) Switching costs C) Complementary products D) Unique value Answer: D Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 11) Which of the following is NOT a way strategists can typically increase a customer's willingness to pay?

A) Improving the features or quality of the product B) Increasing the investment in equipment or physical assets C) Providing a complementary product or service D) Widespread adoption of the product Answer: B Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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12) Returns in excess of what an investor expects from other investments with a similar amount of risk are referred to as ________.

A) unique value B) complimentary value C) above-average profits D) above-average losses Answer: C Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 13) The Mykari Publishing House invested in buying high-end machinery that allowed its newspapers to be printed at twice the speed of average printing machines. The executives of the company stated that this would increase the company's profit margin by 12% as opposed to the usual 7 to 8% that it makes annually. When the finances of the company were tallied this year, it was found that the profits increased to about 19%. This scenario best illustrates ________.

A) return of equity B) above-average profits C) complimentary value D) unique value Answer: B Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 14) Which of the following is true of competitive advantage?

A) It requires a company to consistently outperform its rivals in generating value and realizing above-average profits.

B) It should be avoided by organizations that are not trying to make a profit.

C) It is usually achieved by firms that provide general as well as imitable products.

D) It can be measured by using only tangible outcomes.

Answer: A Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic 5

15) Which of the following statements about risks is true?

A) Investing in a utility company that supplies power to customers, who have few alternative sources of power, can be very risky.

B) Investors take up risks every time when they are not sure if their investments will be a gain or a loss.

C) Investing in a stable firm is generally considered very risky even if it has a long history of profitability.

D) Investors face less risk when they put their money into start-up companies that try to launch products based on new technologies.

Answer: B Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic 16) Which of the following is the main purpose of a strategic management process?

A) Ensuring that all employees have managers and supervisors to lead their teams B) Creating an organization that functions systematically according to its vision, mission, and goals C) Creating a high-level plan that can be implemented without fierce competition and undue risk D) Specifying a high-level plan that an organization will employ to create and capture value Answer: D Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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17) The management of Neptune Inc. creates a definite plan of action that will surely create profits for the company. It allocates and sectionalizes its machinery and personnel. The main office is moved to a prime location that helps attract customers and facilitates competitive development. This plan of action helps Neptune Inc. retain its competitive advantage and has also grow as a company. Which of the following terms does this scenario best illustrate?

A) Strategic tools B) Strategic management process C) Functional strategy D) Business unit strategy Answer: B Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 18) Which of the following statements is true of external analysis?

A) It focuses on the weaknesses a company must overcome and the threats that a company might come across.

B) It studies the factors that influence an organization's appeal and environment.

C) It focuses on the factors that influence employees of an organization to leave.

D) It analyzes a firm's resources and capabilities to assess how effectively it is able to deliver unique value.

Answer: B Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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19) The Board of Directors of Miranay Corp. assesses and evaluates the firm's industry structure.

To track the factors that could affect Miranay's performance, it tries to scan the industry's positive and negative trends. The Board of Directors of Miranay Corp. is involved in a(n) ________.

A) financial analysis B) internal analysis C) external analysis D) profit analysis Answer: C Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 20) Which of the following statements best describes the term internal analysis?

A) It studies the infrastructure of a company to gauge the number of employees it can recruit.

B) It examines a company's resources and capabilities to configure a firm's ability to deliver unique value.

C) It examines the emotions of a firm's employees to identify their weaknesses.

D) It examines the efficiency of employees through the help of standardized tests and group discussions.

Answer: B Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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21) Ravi, a supervisor at Autumn Inc., notices that the company has been successful in outperforming its competitors in the industry and declares that the company has achieved competitive advantage. Yolanda, a manager at Autumn Inc., argues that this is not true. Which of the following strengthens Ravi's claim?

A) Autumn Inc. decides to outscore a superior company in the next quarter.

B) Autumn Inc. has been consistently outperforming its rivals in generating above-average profits.

C) Autumn Inc. has reduced the amount it pays to suppliers.

D) Autumn Inc.'s strategy can be pursued by competitors as it is not too costly.

Answer: B Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 22) The board of directors of White Corp. meets to analyze the company's competencies and scope for improvement. It also examines whether White Corp. has been able to meet its potential customers' requirements. The board of directors of White Corp. is involved in a(n) ________.

A) external analysis B) financial analysis C) profit analysis D) internal analysis Answer: D Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic

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23) If a company is considering what industry, customer segment, or location is most attractive as a business area, this is a ________ strategic choice in strategic management.

A) Markets to Pursue B) Resources and Capabilities to Develop C) Sustaining Advantage D) Unique Value to Offer Answer: A Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 24) If a company is debating a cost advantage versus a differentiation strategy as a way to outperform competitors, this is a ________ strategic choice in strategic management.

A) Markets to Pursue B) Resources and Capabilities to Develop C) Sustaining Advantage D) Unique Value to Offer Answer: D Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 25) If a company is considering what assets the firm should accumulate over time or the processes it should develop to achieve specific goals, this is a ________ strategic choice in strategic management.

A) Markets to Pursue B) Resources and Capabilities to Develop C) Sustaining Advantage D) Unique Value to Offer Answer: B Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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26) If a company is creating barriers to imitation as a way to prevent other companies from offering the same value, this is a ________ strategic choice in strategic management.

A) Markets to Pursue B) Resources and Capabilities to Develop C) Sustaining Advantage D) Unique Value to Offer Answer: C Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 27) Sweetmeats Inc., a deli, produces its own grains, such as corn, wheat, rice, and oats. The employees create different types of breads without having to buy the grains from other sources.

This has helped them sell their bread items to customers at much lower prices than other neighboring delis. This scenario best illustrates a(n) ________.

A) complementary service B) emergent strategy C) international process D) cost advantage Answer: D Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic

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28) Fashion Mart Corp., a clothing company, offers the best quality material made using the finest threads and advanced textile machinery. It offers an extended product guarantee to its customers, something that its competitors have found difficult to achieve. This guarantee claims that the clothes that Fashion Mart creates will not wear out even after 200 washes. This guarantee has helped Fashion Mart to retain its loyal customer base and to frequently get new customers. This scenario best illustrates ________.

A) forward integration B) backward integration C) a differentiation strategy D) a cost advantage Answer: C Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 29) The owners of Carpo Inc., a watch company, also own a steel company and a leather goods manufacturing company. This relieves them from expenses that they would have to bear, if they had to rely on outside sources for the raw materials needed to make their watches. This enables the company to produce watches at a much lesser cost than other companies in the industry. This scenario best illustrates a ________.

A) complementary service B) emergent strategy C) unique value D) cost advantage Answer: D Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic

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30) Which of the following is an example of a resource?

A) An overdue B) A mission C) A patent D) A goal Answer: C Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 31) Lavender Furniture established itself in 1965 as a small firm. It was situated on a small stretch of land located miles away from the town. Over the years, due to the high quality of its products, it acquires enough profits to own multiple assets, such as a bigger plot and machinery, recruit employees and establish itself as a brand. Which of the following is an element of the strategic management process that Lavender Furniture has acquired?

A) Values B) Resources C) Capabilities D) Fame Answer: B Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic

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32) Appetit Corp. is a famous deli in the metropolitan city of Atika. The company became popular because of its consistency in the quality of bread it provided and its creativity in adding unique elements to create different flavors. One of Appetit's products is an infusion of peanut butter and barbeque sauce filled in a bun. Appetit Corp. also engages its customers in contests that ask them to make their own unique variety of bread, which later features among the company's products with the winner's name. All these factors have helped to create unique value that keeps its customers coming back for more. This scenario best illustrates Appetit Corp.'s ________.

A) capabilities B) substitutes C) values D) resources Answer: A Diff: 3 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Application Standard 1: AACSB || Analytic 33) The goal of a strategic business plan is to ________.

A) create competitive advantage B) create a monopolistic market C) improve employee morale D) drive competitors out of business Answer: A Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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34) Identify the first decision a company has to make as part of its business strategy.

A) Choose a market in which to compete.

B) Choose a competitor to compete with.

C) Decide what unique value to offer to customers.

D) Decide ways to maintain a competitive advantage.

Answer: A Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic 35) Delivering unique value requires ________.

A) improving employee satisfaction B) investing in a stable firm with a long history of profitability, such as a utility company that supplies power to customers with few choices C) developing resources and capabilities that allow a company to perform activities better than competitors D) producing more products than rivals Answer: C Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic 36) In the context of a firm, resources refer to the ________.

A) assets that the firm accumulates over time, such as plants, equipment, land, brands, patents, cash, and people B) processes or recipes the firm develops to coordinate human activity to achieve specific goals C) investor's uncertainty about the profits or losses that will result from a particular investment D) advantages that firms have over their competitors in the activities associated with producing a product or service Answer: A Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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37) In the context of a firm, capabilities refers to ________.

A) processes the firm develops to coordinate human activity to achieve specific goals B) assets that the firm accumulates over time, such as plants, equipment, and people C) its focus on offering features, quality, convenience, or image that customers cannot get from competitors D) a company's primary purpose that often specifies the business in which the firm intends to compete Answer: A Diff: 2 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Comprehension Standard 1: AACSB || Analytic 38) A company's ________ outlines the company's primary purpose and often specifies the business(es) in which the firm intends to compete or the customers it intends to serve.

A) mission B) price sensitivity C) segmentation analysis D) SWOT analysis Answer: A Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 39) ________ can be used interchangeably with mission; a mission ________ need to be formally stated at the start of a business.

A) Purpose or vision; does B) Purpose or vision; does not C) Strategy or processes; does D) Strategy or processes; does not Answer: B Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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40) A group of four people wants to start an office supply chain. They realize that if their company has to function well, they must set the primary aim for which the company has entered that particular business. This aim will help the company function in an organized manner and provide the staff with a focus to meet their goals. Which of the following does this scenario depict?

A) Capabilities B) Resources C) Mission D) Integration Answer: C Diff: 3 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Application Standard 1: AACSB || Analytic 41) Katherine is the CEO of a car dealership company called Red Cars. When looking for new investors for the company, she usually says that Red Cars wants to "Be the best automotive retailer in the eyes of its customers, employees, and shareholders." Which of the following does this statement best reflect?

A) Red Cars' mission B) Red Cars' strategy C) Red Cars' capabilities D) Red Cars' resources Answer: A Diff: 3 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Application Standard 1: AACSB || Analytic 42) A ________ is the combined and summarized results of external analysis with internal analysis of the firm.

A) mission B) price sensitivity C) segmentation analysis D) SWOT analysis Answer: D Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 17

43) The management of Earth Network Inc., a cell phone company, wants to conduct an overall study of the company. The top officials want to identify Earth Network's competencies, limitations that the company needs to improve on, areas of growth, as well as the areas that the company should completely avoid. The managers feel that this study will help them advance as an organization. This study to be conducted by the management of Earth Network Inc. can be best categorized as an example of a ________.

A) trend analysis B) growth-share matrix C) SWOT analysis D) PEST analysis Answer: C Diff: 3 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Application Standard 1: AACSB || Analytic 44) ________ refers to customers' willingness to pay as identified in an ________ analysis.

A) Price sensitivity; external B) Price sensitivity; internal C) A segmentation analysis; external D) A segmentation analysis; internal Answer: A Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 45) MindaX is a beverage manufacturing company. Despite its various promotional efforts, the company finds it difficult to get more customers. Its market analysts later determine that its price is the reason. They are sold at $10 per liter, which makes it difficult for customers to buy this beverage frequently, so, they opt for other lower priced sodas instead. This scenario best illustrates ________.

A) price reduction B) price increase C) price allocation D) price sensitivity Answer: D Diff: 3 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Application Standard 1: AACSB || Analytic 18

46) ________ refers to specific groups of customers who all have similar needs as identified in an ________ analysis.

A) Price sensitivity; external B) Price sensitivity; internal C) A segmentation analysis; external D) A segmentation analysis; internal Answer: C Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 47) Summer Inc., a departmental store, wants to provide better service to its customers. This includes providing expertise in each type of product and brand. To accomplish this, the general manager of the store suggests that they should begin by identifying the different types of customers. By classifying customers, into various groups, such as mothers, athletes, tech-savvy customers and so on, the store's customer care personnel can specialize on detailed product information. With the help of this classification, the store provides better service to each customer by offering more brands to choose from. This scenario best illustrates ________.

A) segmentation analysis B) group allocation C) group dynamics D) division dynamics Answer: A Diff: 3 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Application Standard 1: AACSB || Analytic

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48) ________ explains why some firms outperform others within the same industry with the assumption that each company is a collection of competencies that are deployed to deliver unique value.

A) Complementary products or services B) Resource-based view of firm C) Attractiveness of an industry D) Segmentation analysis Answer: B Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 49) The managers at Spring Hotels want to find out how their competitor, Crimson Valley Hotels, consistently outdoes them. Spring Hotels have the same facilities and equipment as Crimson Valley Hotels, but each month its efforts to reach the benchmark set by Crimson Valley Hotels fails. This is because Crimson Valley has elements such as great location, beautiful architectural design, and customer-friendly employees that create an edge over other companies in its industry. Which of the following does this scenario exemplify?

A) Complementary products or services B) Resource-based view of firm C) Attractiveness of an industry D) Segmentation analysis Answer: B Diff: 3 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Application Standard 1: AACSB || Analytic 50) Identify a true statement about the role of external analysis in creating a business strategy.

A) It involves standardized surveys to gauge employee satisfaction.

B) It involves an examination of the competition and the forces that shape industry competition and profitability.

C) It involves the examination of a company's set of resources and capabilities that can be deployed to deliver unique value to customers.

D) It involves the study of a firm's operational practices to improve efficiency.

Answer: B Diff: 2 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 20

51) Which of the following statements is true of the resource-based view of a firm?

A) It analyzes the factors that influence an organization's appeal and environment.

B) It was developed to make an inventory of the resources available in a company.

C) It was developed to explain why some firms outperform other firms in the same industry.

D) It examines the efficiency of employees through standardized tests and group discussions.

Answer: C Diff: 2 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 52) ________ strategy refers to decisions that are made by senior executives about where to compete in terms of industries and markets.

A) Business unit B) Corporate C) Functional D) Segmentation Answer: B Diff: 1 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Knowledge Standard 1: AACSB || Analytic 53) The executives at Purple Inc. hold a meeting where they decide the best way to showcase their products. They have a brainstorming session to identify the best geographical areas to conduct business that will bring them maximum profits. They also identify their competitors and decide whether they would be able to withstand top companies selling similar products. The executives at Purple Inc. are discussing a(n) ________ strategy.

A) emergent B) functional C) business unit D) corporate Answer: D Diff: 3 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Application Standard 1: AACSB || Analytic

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54) SunLite Corp. runs fitness centers which are owned by the parent company Cyan Inc. Ryan, the manager of Cyan Inc., needs to decide on how to overcome competition by other fitness centers. He finally decides to bring in advanced facilities, such as imported gym equipment, to give faster results and keep SunLite centers open for patrons 24×7. Ryan feels that this will allow the company to gain more profits. This scenario best illustrates a ________.

A) business unit strategy B) functional strategy C) emergent strategy D) strategy vehicle Answer: A Diff: 3 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Application Standard 1: AACSB || Analytic 55) Sheng, the CEO of Mirrorz Inc., comes up with a plan to implement business unit strategies successfully. He decides to do this by making technical advancements in the manufacturing process of the products and developing a solid financial system run by an efficient team. He also plans to establish a marketing team that would sell to people who would not normally buy the product. The ultimate mission of the company would be to provide a customer friendly environment. The plan initiated by Sheng can be best categorized as a(n) ________.

A) segmentation analysis B) emergent strategy C) functional strategy D) business unit strategy Answer: C Diff: 3 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Application Standard 1: AACSB || Analytic

22

56) Diversification, acquisitions, alliances, vertical integration, and international expansion are ________.

A) resource pools B) corporate think tanks C) strategic vehicles D) functional vehicles Answer: C Diff: 1 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Knowledge Standard 1: AACSB || Analytic 57) ________ refers to adding to a company's products or opening a new line of business to spread out risk and create new growth options.

A) Acquisition B) An alliance C) Diversification D) Vertical integration Answer: C Diff: 1 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Knowledge Standard 1: AACSB || Analytic 58) ________ is a strategy vehicle for growth that emphasizes the purchasing of key resources.

A) Acquisition B) An alliance C) Diversification D) Vertical integration Answer: A Diff: 1 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Knowledge Standard 1: AACSB || Analytic

23

59) ________ is an exclusive relationship with another firm.

A) Acquisition B) An alliance C) Diversification D) Vertical integration Answer: B Diff: 1 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Knowledge Standard 1: AACSB || Analytic 60) ________ refers to manufacturers selling their own products in their own stores rather than selling to third-party retailers.

A) Acquisition B) An alliance C) Diversification D) Vertical integration Answer: D Diff: 1 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Knowledge Standard 1: AACSB || Analytic 61) Femi, the founder of Pluto Inc., feels that the company has been able to continuously maintain a competitive advantage due to the action plan she initiated years ago. The plan involved establishing contacts with influential business personnel and acquiring companies that supplied critical raw materials. This type of planning is an example of ________.

A) resource pools B) corporate think tanks C) strategic vehicles D) functional vehicles Answer: C Diff: 3 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Application Standard 1: AACSB || Analytic

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62) The top executives of Willow Inc., a furniture company, have decided what markets to compete in. Willow Inc. now has to adopt a set of organizational processes that enables it to effectively carry out these decisions. In order to translate these decisions into organizational action in a successful manner, the functional activities of the company are being measured for their efficacy to support organizational decisions. Which of the following does this scenario best illustrate?

A) Strategy implementation B) Strategy vehicles C) Emergent strategy D) Business unit strategy Answer: A Diff: 3 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Application Standard 1: AACSB || Analytic 63) The board of directors of Indigo Bank implements a sound strategy that will help them gain overall profits and maintain competitive advantage. It claims that supervising and measuring the efficacy of the functional strategies of the company are more than sufficient to implement the company's strategies. However, Klark, one of the board members, argues that this alone is not enough and that the company should think of creating an emotional appeal toward its employees.

Which of the following statements strengthens Klark's argument?

A) The employees of Indigo Bank are content with the current culture of the organization.

B) The board of directors feels that creating an informal environment will initiate a high level of absenteeism.

C) The board of directors feels that Indigo Bank is functioning efficiently because the top executives make it a point to maintain an authoritarian distance from their subordinates.

D) Indigo Bank's structure, systems, staff, skills, style, and shared values will help progress strategic implementation if they are designed to facilitate the execution of the strategy.

Answer: D Diff: 3 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking

25

64) Identify a true statement about corporate strategy.

A) It refers to decisions made at the level of the strategic business unit about how to gain and sustain advantage.

B) It refers to decisions about how to effectively implement the business unit strategy within functional areas.

C) It refers to decisions about activities and strategic choices, such as make versus buy, acquisitions, and strategic alliances.

D) It refers to decisions that are made by senior executives about where to compete in terms of industries and markets.

Answer: D Diff: 2 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Comprehension Standard 1: AACSB || Analytic 65) Which of the following statements is true of business unit strategy?

A) It refers to decisions made at the level of the strategic business unit about how to gain and sustain advantage.

B) It refers to decisions about how to effectively implement the business unit strategy within functional areas.

C) It refers to decisions at the corporate level of organization about how to improve a firm's ability to recruit more resources.

D) It refers to decisions that are made by senior corporate executives about what markets to compete in.

Answer: A Diff: 2 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Comprehension Standard 1: AACSB || Analytic

26

66) Identify a true statement about a functional strategy.

A) It refers to decisions made at the level of the strategic business unit about how to gain and sustain advantage.

B) It refers to decisions about how to effectively implement the business unit strategy within functional areas.

C) It refers to decisions about functional activities and strategic choices such as make versus buy.

D) It refers to decisions that are made by senior corporate executives about what markets to compete in.

Answer: B Diff: 2 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Comprehension Standard 1: AACSB || Analytic 67) The final step in a strategic management process is to ________.

A) formalize a company's mission statement B) analyze customer needs and preferences C) find strategy vehicles that help a firm enter attractive markets D) implement the strategy chosen during the strategy formulation process Answer: D Diff: 2 Section Reference: 3: How Are Strategies Formulated?

Learning Objective: 3: Discuss how strategies are formulated and implemented in order to achieve objectives.

Bloom code: Comprehension Standard 1: AACSB || Analytic 68) ________ develop strategy through the strategic management process.

A) Gig employers B) Shareholders C) Stakeholders D) Strategic leaders Answer: D Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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69) Sasha has the new responsibility of initiating strategies that would help safeguarding her company against recession. She conducts a meeting with all the employees in which she explains how she would go about implementing her plans. She also motivates and encourages employees to follow through with her plan. Sasha is a ________.

A) strategic follower B) strategic leader C) strategic helper D) strategic believer Answer: B Diff: 3 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Application Standard 1: AACSB || Analytic 70) ________ strategies are implemented as a result of careful analysis of markets, customers, competitors, and a firm's resources and capabilities.

A) Deliberate B) Emergent C) Ethical D) Segmented Answer: A Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 71) ________ strategies are not expressly intended in the original planning of strategy.

A) Deliberate B) Emergent C) Ethical D) Segmented Answer: B Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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72) ________ strategies occur when leaders recognize and act on unexpected opportunities that occur through serendipity.

A) Deliberate B) Emergent C) Ethical D) Segmented Answer: B Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 73) The managers at Marker Inc., a moving company, want to formulate a plan of action to implement their mission, "We deliver what we promise. Always." To achieve this, the company chooses the best markets to invest in, buys state-of-the-art transportation vehicles, employs spill and damage proof style of packaging equipment, and develops a service-oriented mentality. This method of conducting business earns them a reputation. This scenario is an example of ________ strategy.

A) deliberate B) accidental C) emergent D) evolving Answer: A Diff: 3 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Application Standard 1: AACSB || Analytic 74) The management of Winters Corp., a small company, pursued an unexpected opportunity and gained huge profits over a period of 10 years. At the end of this period, Winters Corp. grew as a company and successfully established itself as a highly valued brand in the industry. This is an example of a(n) ________ strategy.

A) functional B) accidental C) emergent D) deliberate Answer: C Diff: 3 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Application Standard 1: AACSB || Analytic 29

75) ________ are the people to whom an organization is accountable but do not necessarily own the company.

A) Gig employers B) Shareholders C) Stakeholders D) Strategic leaders Answer: C Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 76) ________ are owners of the company.

A) Gig employers B) Shareholders C) Stakeholders D) Strategic leaders Answer: B Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 77) Shareholders and banks are ________ stakeholders.

A) capital market B) community C) organizational D) product market Answer: A Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

30

78) Customers and suppliers are ________ stakeholders.

A) capital market B) community C) organizational D) product market Answer: D Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 79) Employees are ________ stakeholders.

A) capital market B) community C) organizational D) product market Answer: C Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 80) Government bodies and activists are ________ stakeholders.

A) capital market B) community C) organizational D) product market Answer: B Diff: 1 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

31

81) Thomas is an important figure at Seasons Inc. All of the company's functions, acquisitions, marketing strategies, and business development plans need to partially receive approval from Thomas. This is due to the fact that Thomas owns 20% of Seasons Inc. In this scenario, Thomas is a ________.

A) supplier B) stakeholder C) customer D) distributor Answer: B Diff: 3 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Application Standard 1: AACSB || Analytic 82) Ria, an entrepreneur, shares the company's profits as well as losses. She usually receives highest priority from the company. In this scenario, Ria is a ________.

A) distributor B) customer C) shareholder D) stakeholder Answer: C Diff: 3 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Application Standard 1: AACSB || Analytic 83) Which of the following statements is true of strategic leaders?

A) They are responsible only for formulating a business strategy.

B) They are responsible for explaining strategy in a way that employees will understand.

C) They are usually the owners of a company.

D) They are involved in investing in stable firms with a long history of profitability.

Answer: B Diff: 2 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

32

84) Which of the following statements is true of a deliberate strategy?

A) It is implemented as a result of careful analysis of markets, customers, competitors, and a firm's resources and capabilities.

B) It develops when leaders recognize and act on unexpected opportunities that occur through serendipity.

C) It involves decisions on how to effectively implement the business unit strategy within functional areas.

D) It focuses on decisions about how to motivate employees to perform their work efficiently.

Answer: A Diff: 2 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 85) Which of the following statements is true of the strategies of successful companies?

A) They are wholly deliberate due to effective strategic planning processes.

B) They are solely a result of obtaining ideas from within the firm.

C) They are partly deliberate and partly emergent.

D) They are partly established by the owners of the company.

Answer: C Diff: 2 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 86) Identify a capital market stakeholder from the following choices.

A) Banks B) Customers C) Suppliers D) Government bodies Answer: A Diff: 2 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

33

87) An advantage that a firm has over its competitors in the activities associated with producing a product or service, thereby allowing it to produce the same product at lower cost best defines the term ________.

Answer: cost advantage Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 88) A company's primary purpose that often specifies the business or businesses in which the firm intends to compete–or the customers it intends to serve–refers to its ________.

Answer: mission Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 89) What is the first decision that a company which is developing a strategic management process must make when it is initiated?

Answer: In a strategic management process, one of the first decisions a company must make is which markets it will serve.

Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 90) What is the next step in the strategic management process that a company should take after identifying prospective markets?

Answer: The next step in the strategic management process after identifying prospective markets is attempting to decide what unique value is to be offered in those markets.

Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic

34

91) What does the term cost advantage mean?

Answer: It is an advantage that a firm has over its competitors in the activities associated with producing a product or service, thereby allowing it to produce the same product at lower cost.

Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 92) Define business strategy and the four strategic choices it involves.

Answer: A company's business strategy is defined as a company's plan to gain and sustain competitive advantage in the marketplace. This plan is based on the theory its leaders have about how to succeed in a particular market. This theory involves predictions of which markets are attractive and how a company can offer unique value to customers in those markets in a way that will not be easily imitated by competitors. As such, a business strategy plan to achieve competitive advantage involves making four strategic choices: (1) markets to compete in; (2) unique value the firm will offer in those markets; (3) the resources and capabilities required to offer that unique value better than competitors; and (4) ways to sustain the advantage by preventing imitation.

Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 93) What does it mean to provide unique value? Briefly explain the two strategies involved in providing unique value.

Answer: Unique value is the reason a firm wins with customers or the value proposition it offers to customers, such as a low-cost advantage or differentiation advantage. This is often referred to as a company's value proposition, or the value that it proposes to offer to customers.

Companies typically try to achieve a competitive advantage by choosing between one of two generic strategies for offering unique value: low cost or differentiation. A firm that chooses a low-cost strategy focuses on reducing its costs below those of its competitors. Key sources of cost advantage include economies of scale, lower-cost inputs, or proprietary production knowhow. A firm that chooses a differentiation strategy focuses on offering features, quality, convenience, or image that customers cannot get from competitors.

Diff: 1 Section Reference: 1: What Is Business Strategy?

Learning Objective: 1: Define business strategy, including the importance of competitive advantage, the four choices that are critical to strategy formulation, and the strategic management process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 35

94) Briefly explain SWOT analysis.

Answer: SWOT analysis is a strategic planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a business. External analysis involves: (1) an examination of the competition and the forces that shape industry competition and profitability; and (2) customer analysis to understand what customers really want. The combined results of external analysis with internal analysis of the firm are often summarized as a SWOT analysis.

SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. External analysis is particularly useful for shedding light on the latter two: opportunities and threats.

Diff: 1 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 95) Explain the significance of internal analysis.

Answer: Internal analysis focuses on the company itself. Internal analysis completes the SWOT (Strengths, Weaknesses, Opportunities, and Threats) by focusing on strengths and weaknesses.

More formally, internal analysis involves an analysis of the company's set of resources and capabilities that can be deployed–or should be developed–to deliver unique value to customers.

In the 1980s, the resource-based view of the firm, also known as the resource-based model, was developed to explain why some firms outperform other firms within the same industry.

Firms that do not have the resources and capabilities that are necessary to implement the strategies they are contemplating, may need to improve, change, or possibly create them in order to offer unique value to their customers. This is where resource allocation becomes an important dimension of strategy. Once a company decides how it hopes to offer unique value, it must allocate the resources necessary to build those resources or capabilities.

Diff: 2 Section Reference: 2: What Information and Analysis Guides Strategy Formulation?

Learning Objective: 2: Summarize the information that the company's mission and thorough external and internal analysis provide to guide strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

36

96) List the four primary stakeholder groups and give explanations for each.

Answer: Every organization has a set of stakeholders to whom it is accountable–and who therefore can influence business strategies. Organizations have four primary stakeholder groups: 1) Capital market stakeholders (shareholders, banks, etc.)

2) Product market stakeholders (customers, suppliers) 3) Organizational stakeholders (employees) 4) Community stakeholders (communities, government bodies, community activists).

Stakeholders are those who have a share or an interest in the activities and performance of an organization. Shareholders are the owners of a company. Some people believe that shareholders (owners of the company) are the most important. Others make the case that customers, employees, governments, or communities should be the primary beneficiaries of business activity. Each stakeholder group can influence the strategic decisions that are made by a company. Sometimes, different stakeholder groups have conflicting views as to the appropriateness of different strategic decisions. Imagine that your company can lower its product costs by closing down your plants in the United States and moving production to China, where labor is cheaper. This will require firing many of your U.S. employees. Both the employee stakeholder group and community stakeholder groups in the cities where your plants are located will perceive this move as negative, and they will try to stop the company from making this decision. However, shareholders and customer stakeholder groups may applaud this decision. It could increase profits for shareholders and lower prices for customers, or both. Because of conflicts like this, companies need to make sure their strategic actions follow accepted ethical standards for business activity. Since stakeholders influence, and are influenced by, strategic decisions made by a company's management team, it is important to understand the needs of stakeholder groups when making strategic decisions.

Diff: 2 Section Reference: 4: Who Is Responsible for Business Strategy?

Learning Objective: 4: Explain who is responsible for, and who benefits from, good business strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

37

Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 2 Analysis of the External Environment: Opportunities and Threats 1) Which of the following statements is true about customer needs?

A) Companies that meet the need for communication by manufacturing mobile handsets or mobile ham radios are considered part of the same industry.

B) Understanding them can be very helpful in defining the boundaries of an industry.

C) They should be addressed only when many customers have similar needs that require attention.

D) Two firms cannot be considered part of the same industry even if their products do the same job for customers.

Answer: B Diff: 2 Section Reference: 1: Determining the Right Landscape: Defining a Firm's Industry Learning Objective: 1: Explain the importance of correctly identifying and choosing a firm's industries and markets.

Bloom code: Comprehension Standard 1: AACSB || Analytic 2) Which of the following statements is true of understanding an industry?

A) If managers do not properly define and understand their industry, they may be vulnerable to unseen competitors.

B) Truly understanding an industry often begins by taking a product-oriented view.

C) Firms should avoid choosing to compete in several markets at the same time.

D) Identifying an industry based on the product or service provided is the best way to understand the industry.

Answer: A Diff: 2 Section Reference: 1: Determining the Right Landscape: Defining a Firm's Industry Learning Objective: 1: Explain the importance of correctly identifying and choosing a firm's industries and markets.

Bloom code: Comprehension Standard 1: AACSB || Analytic 3) Competition among firms within an industry best defines the term ________.

A) substitute B) threat C) rivalry D) opportunity Answer: C Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 1

4) The companies LaceThings Inc. and BellePrints Corp. sell the same product. They constantly try to outdo each other in terms of resources, price, and customer satisfaction. The companies try to outperform each other to gain customer loyalty and generate more sales. This scenario is an example of ________.

A) integration B) partnership C) rivalry D) switching Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 5) A product that is fundamentally different yet serves the same function or purpose as another product best defines the term ________.

A) threat B) substitute C) opportunity D) rivalry Answer: B Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 6) ________ can be most accurately defined as conditions in the competitive environment that endanger the profitability of a firm.

A) Integrations B) Weaknesses C) Threats D) Rivalries Answer: C Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic

2

7) SevenCloud Inc., a soft drink company, was the main supplier of beverage products to customers in the Cleveland market. A competitor, Sparkle Inc., provided flavored water as a new product in the beverage market. Customers were eager to try out this new product and purchased it because they preferred it over aerated beverages. SevenCloud was afraid that if this trend continued, it would soon run the risk of going out of business. In this scenario, which of the following did SevenCloud Inc. experience?

A) Opportunity B) Threat C) Weakness D) Merger Answer: B Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 8) SevenCloud Inc., a soft drink company, was the main supplier of beverage products to customers in the Cleveland market. A competitor, Sparkle Inc., provided flavored water as a new product in the beverage market. Customers were eager to try out this new product and purchased it because they preferred it over aerated beverages. SevenCloud was afraid that if this trend continued, it would soon run the risk of going out of business. In this scenario, which of the following did SevenCloud Inc. experience?

A) rivalry B) substitution C) an alliance D) a merger Answer: B Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic

3

9) The ways of taking advantage of conditions in the environment to become more profitable most accurately defines the term ________.

A) opportunities B) standardization C) strengths D) substitution Answer: A Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 10) Pancake Platter Inc. opens a new breakfast deli in the small town of Lakeville. It makes a lot of profit during its first year because it is the only deli in the area. Customers choose to have breakfast at this deli because their only other options for availing this type of service would be to travel several miles to the next town. This scenario best illustrates ________.

A) substitution B) rivalry C) opportunity D) integration Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 11) Which of the following statements is true about rivalry?

A) It is an expensive method that treats other companies amicably.

B) It helps increase losses for an organization to a large extent.

C) It is a force that is best avoided in an industry to increase profits.

D) It is an important driving force to increase profitability.

Answer: D Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

4

12) A(n) ________ industry has a large number of firms responding to one another with intense rivalry.

A) concentrated B) fragmented C) standardized D) unethical Answer: B Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 13) A(n) ________ industry has few competitors with a few large firms typically dominating the industry.

A) concentrated B) fragmented C) standardized D) unethical Answer: A Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 14) Which of the following statements is true of a concentrated industry?

A) It is characterized by rivalry that is typically less intense.

B) It usually has very few competitors and tends to be dominated by a few large firms.

C) It is difficult to keep track of the pricing and competitive moves of multiple players.

D) It involves companies selling the same brand of products that are scattered in different locations.

Answer: B Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

5

15) Bright Inc. is a toothpaste manufacturing company that is facing intense competition from its rivals. To encourage higher consumption of its products and to maximize retention of existing consumers, Bright introduced sweepstakes as a consumer sales promotion strategy. However, its rivals retaliated by introducing deals such as rebates, price discounts and bonus size offers. This scenario best illustrates a ________ industry.

A) primary B) secondary C) fragmented D) concentrated Answer: C Diff: 3 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 16) Which of the following statements is true about concentrated industries?

A) These industries have few competitors and rivalry is less intense.

B) Smaller competitors usually respond aggressively to actions taken by large firms.

C) Few large competitors are aware of each other's presence and therefore more likely to create conflict.

D) If firms are approximately the same size, they tend to be able to respond, or retaliate, strongly to moves by rival firms.

Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 17) The household appliance industry has few major manufacturers like Nebula Corp., Cook Well Inc., and Mercury Corp. and a few smaller manufacturers. There is not much competition in this industry because the smaller companies cannot afford to compete aggressively with the large firms which do not engage in price wars. This scenario best illustrates a ________ industry.

A) quandary B) fragmented C) quaternary D) concentrated Answer: D Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 6

18) ________ products boast unique features or better quality that engender loyalty in customers because they meet customer needs in unique ways.

A) Commodity B) Differentiated C) Standardized D) Unethical Answer: B Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 19) Which of the following statements is true of standardization of products?

A) It is easier to convince the customers to switch brands.

B) They meet customer needs in unique ways.

C) It makes buyers more loyal to a particular brand.

D) These products are usually inimitable and of high quality.

Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 20) ________ costs include any cost to the customer for changing brands.

A) Concentrated B) Fragmented C) Standardized D) Switching Answer: D Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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21) The computers of Main Frame Inc., a computer company, are manufactured with in-built operating software. The users of this software have avoided using computers manufactured by other companies because that would entail converting their data to the other software. Also, they would have to get used to working smoothly with the other software. From this scenario, we can infer that ________.

A) the users of Main Frame Inc. have increased power B) the switching cost would be higher for the users of Main Frame Inc. C) the users of Main Frame Inc. have increased industry rivalry tremendously D) it is easy for competitors to poach users of Main Frame Inc. Answer: B Diff: 3 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 22) A popular food company, Crunchez Corp., is finding it difficult to retain its buyers as another food company, MidnightSnax Inc., has started to provide the same product with the same taste for a lesser price. Which of the following is a threat to Crunchez Corp.?

A) Cost push inflation B) Supplier power C) Switching cost D) Unused production capacity Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 23) If customers can easily switch firms, then buyers have ________ power; if buyers can easily switch to new companies attempting to enter the industry, there is a ________ threat of new entry.

A) decreased; higher B) decreased; lower C) increased; higher D) increased; lower Answer: C Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8

24) Zenith Corp., a bag company, produced a lot of high-end leather bags than could be sold in the market for a year. The leather bags eventually wore out and were not fit to be sold, thus causing huge losses for that year. Which of the following did Zenith Corp. most probably experience during that year?

A) Use of full production capacity B) Unused production capacity C) High exit barriers D) Special sales incentives Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 25) CharmingBells Inc. is no longer a profitable company. The board of directors are reluctant to shut the company down because it invested $3,000,000 into equipment which can only be used in that industry. Moreover, the people in CharmingBells Inc. have become emotionally attached to the company and do not want the company to shut down. This scenario best illustrates ________.

A) high fixed costs B) used production capacity C) high exit barriers D) unused production capacity Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 26) Royalz Inc. is an automobile company that requires a lot of raw material to manufacture its cars. Royalz Inc. buys these raw materials from other companies that sell car parts as products.

From which of the following does Royalz Inc. source its inputs?

A) Producers B) Customers C) Suppliers D) Employees Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 9

27) If a retailer creates its own products rather than relying on a supplier to make the product, it is called ________.

A) a network effect B) forward integration C) backward integration D) a switching cost Answer: C Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 28) WillowWorks LLC, a retail clothing store, has been sourcing its raw materials from a supplier named ThreadTym Corp. for the last five years. A change of management at ThreadTym resulted in an increase of the prices of the raw materials. As a result, WillowWorks purchases ThreadTym so that it can produce these products on its own. This scenario best illustrates ________.

A) network effect B) forward integration C) backward integration D) switching cost Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 29) SliderPage Inc., a furniture company, has been trying hard to keep its profits going.

SliderPage asked its suppliers to reduce the cost of the raw materials that would be needed to create its products and also tried to buy supplies that are less expensive. Which of the following buyer price sensitivity factors is best illustrated in this scenario?

A) Product is significant proportion of buyer's costs B) Buyers struggling financially C) Buyers purchase in large volumes D) Product does not affect buyers' performance Answer: B Diff: 3 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 10

30) Satchels Corp. has been in the retail bag business for 10 years. It has created unique value and attained brand loyalty from its customers. Recently, a new bag company started up in the same area as Satchels. To retain the reputation that it has established and avoid competition with the new company, Satchels introduced a new line of fashion bags, conducted a sale, and also increased its advertising. This made it difficult for the new company to gain profits. This scenario best illustrates ________.

A) forward integration B) barriers to exit C) barriers to entry D) backward integration Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 31) If a supplier starts selling its own products instead of relying on a retailer to sell products for them, it is called ________.

A) a network effect B) forward integration C) backward integration D) a switching cost Answer: B Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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32) BlockWood Inc. has been providing raw materials to Couches Corp., a furniture company.

The management at Couches recently decided to cut the prices it pays for the raw materials.

BlockWood Inc. tried to negotiate a price that would be feasible for both companies, but Couches did not agree to pay more than what they had quoted. As BlockWood Inc. was facing similar difficulties with other buyers too, it eventually stopped supplying raw materials and took to manufacturing furniture instead. This scenario best illustrates ________.

A) barriers to entry B) barriers to exit C) backward integration D) forward integration Answer: D Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 33) ________ are all the things a company must offer to start competing in a new industry.

A) Barriers to entry B) Network effects C) Backward supplies D) Switching costs Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 34) ________ occurs when the average cost for producing each individual product or service decreases as a firm produces more.

A) Barriers to entry B) Economies of scale C) Network effects D) Switching costs Answer: B Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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35) The greater the number of people using products from a given firm, the greater the demand grows for that firm's product; this is called ________.

A) Barriers to entry B) Economies of scale C) Network effects D) Switching costs Answer: C Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 36) GetYoung Inc., a cosmetic company, recently launched a beauty bar soap that claims to soften the users' skin, giving it a natural glow, and also make them look up to 5 years younger. A lot of women eagerly tried out this soap and received positive results and thus encouraged their friends to try out the soap. GetYoung Inc. gained profits very fast through this word-of-mouth advertising. This scenario best illustrates ________.

A) backward integration B) forward integration C) barriers to entry D) network effects Answer: D Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 37) Readmore Publishing House, the publisher of a regional daily, has been slowly losing profits as its readers prefer to get news through the television. A recent study on the readers who made the switch stated that it is more accessible and faster to attain up-to-date news through the television rather than to wait for the next day for an update on current events. Which of the following is Readmore Publishing House is facing?

A) Producer power B) Network effect C) Substitute D) New entrant Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Application Standard 1: AACSB || Analytic 13

38) Identify a true statement about competition among firms within an industry.

A) Moves and countermoves do not affect the profit margins of most firms in an industry.

B) Firms' moves and countermoves primarily take the form of sales and promotions.

C) Each move by a firm provokes countermoves among competitors, resulting in a constantly shifting competitive landscape.

D) Competition among firms in an industry is responsible for a significant reduction in motivation toward profitability.

Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 39) The attractiveness of an industry is ________.

A) unregulated by the general environment B) the extent to which a firm has control over its profitability C) the degree to which an average firm in the industry can earn good profits D) dependent on the number of large firms that are operating in an industry Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 40) According to economists, a fragmented industry is an industry which ________.

A) has a lot of competitors B) produces multiple products C) competes in different markets D) has a lot of functional divisions Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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41) In the context of rivalry, which of the following statements is true of products by a firm?

A) Differentiated products engender loyalty in customers.

B) Standardized products make it difficult for people to switch brands.

C) Firms that sell differentiated products often have to compete by offering discounts.

D) Product price wars decrease rivalry and increase profits.

Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 42) Which of the following statements is true of buyer power?

A) If firms offer differentiated products, then buyers have increased power.

B) If firms cannot switch suppliers easily, then buyers have decreased power.

C) If buyers can easily switch firms, then buyers have increased power.

D) If buyers can switch to substitute products easily, then buyers have decreased power.

Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 43) Identify a true statement about switching costs.

A) The lower the switching costs, the easier it is for competitors to poach customers.

B) The higher the switching costs, the easier it is to convince customers to switch brands.

C) It is the loss in profit incurred by a firm for every buyer who switches to another brand.

D) It is the cost a firm has to pay to each buyer who switches to another brand for superior quality.

Answer: A Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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44) Which of the following statements best describes the term backward integration?

A) A firm imposes extra costs on customers for changing brands.

B) A firm joins an alliance with its competitor to share materials.

C) A firm goes into the business of its former buyers, rather than continuing to sell products to them.

D) A firm purchases its suppliers to make a product itself rather than buying it from another firm.

Answer: D Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 45) Which of the following statements best describes forward integration?

A) A firm purchases its suppliers to make a product itself rather than buying it from another firm.

B) A firm imposes extra costs on customers for changing brands.

C) A firm goes into the business of its former buyers, rather than continuing to sell products to them.

D) A firm joins an alliance with its competitor to share materials.

Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 46) Identify a true statement about network effects.

A) It makes it easier for new entrants to steal business from incumbent firms.

B) It decreases the switching costs for customers, making it easier for them to choose between different brands.

C) It is the growth in demand for a firm's product that results from a growth in the number of existing customers.

D) It is the cumulative effect produced when one firm enters an industry and makes a profit which triggers other firms to enter the same industry.

Answer: C Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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47) Identify a true statement about substitutes.

A) Substitutes put upward pressure on the price that firms in an industry can charge.

B) Substitutes give a firm the freedom to charge customers high prices for their products.

C) It is a product with the same basic characteristics and is made using the same general set of inputs.

D) It is a product that is fundamentally different yet serves the same basic function as another product.

Answer: D Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 48) The airline industry is a profitable industry. The firms in this industry create barriers to entry through patents and regulations to reduce the threat of new entrants. It also minimizes the threat of substitutes while keeping rivalry to a minimum. The airline industry can be best categorized as a(n) ________ industry.

A) attractive B) unattractive C) fragmented D) concentrated Answer: A Diff: 2 Section Reference: 3: Overall Industry Attractiveness Learning Objective: 3: Discuss how understanding the five forces that shape industry competition is useful as a starting point for developing strategy.

Bloom code: Application Standard 1: AACSB || Analytic

17

49) Hercules Inc. is a high performing steel manufacturing company. Chang, a stakeholder of the company, believes that it is important to protect the company from threats. Hercules Inc. has often struggled to overcome rivalry and product substitutes. Chang claims that if the company constantly keeps a check on itself by creating power over buyers, paying heed to customers' requests, and strengthening its resources and workforce, the company can maintain competitive advantage. Which of the following statements strengthens Chang's claim?

A) The employees feel that a change in functions will also cause a change in benefits that they currently are enjoying, such as flexible hours.

B) The company has overcome much rivalry just as the way it is currently functioning and need not change its method.

C) The other members of the management feel that the company would require sufficient funds to create this change in functioning.

D) The company can face first-time conflicts if it is not well prepared with a sound method to retain competitive advantage.

Answer: D Diff: 3 Section Reference: 3: Overall Industry Attractiveness Learning Objective: 3: Discuss how understanding the five forces that shape industry competition is useful as a starting point for developing strategy.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 50) Attractive industries are those where firms ________.

A) faced high rivalry and inefficiency B) have developed a product-oriented view of the industry C) have created power over buyers and suppliers D) created easy entrance for new competitors Answer: C Diff: 1 Section Reference: 3: Overall Industry Attractiveness Learning Objective: 3: Discuss how understanding the five forces that shape industry competition is useful as a starting point for developing strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 51) Attractive industries are those where firms ________.

A) faced high rivalry and inefficiency B) have developed a product-oriented view of the industry C) have powerful buyers and suppliers D) made it hard for new competitors to enter the industry Answer: D Diff: 1 Section Reference: 3: Overall Industry Attractiveness Learning Objective: 3: Discuss how understanding the five forces that shape industry competition is useful as a starting point for developing strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 18

52) Identify a true statement about understanding the five forces that shape industry competition.

A) It helps to perceive wider competitive threats and be better prepared to address them.

B) It helps firms have a product-oriented view in defining their industry.

C) It helps a company strategist predict the industry a competitor might enter and hence avoid that industry.

D) It helps a company strategist understand that the five forces are rigid and hence plan the business strategy accordingly.

Answer: A Diff: 2 Section Reference: 3: Overall Industry Attractiveness Learning Objective: 3: Discuss how understanding the five forces that shape industry competition is useful as a starting point for developing strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 53) The automotive industry would be considered an "unattractive market" when using the Five Forces model of analyzing the external environment. Which is an example of a company that successfully entered an unattractive market by offering a unique value?

A) Ford B) General Motors C) Kia D) Tesla Answer: D Diff: 2 Section Reference: 4: Where Should We Compete? New Thinking About the Five Forces and Industry Attractiveness Learning Objective: 4: Discuss situations in which entry into both attractive and unattractive industries follows "new thinking" rather than conventional wisdom.

Bloom code: Application Standard 1: AACSB || Analytic 54) Products that can be used in tandem with those from another industry best define the term ________ products.

A) standardized B) cannibalizing C) complementary D) supplementary Answer: C Diff: 1 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Knowledge Standard 1: AACSB || Analytic

19

55) Smart Waves Inc., a company that sells computers, provides an external hard disk along with its high-end professional laptops. Customers can store extra data in these hard disks without having to purchase them. The offer that Smart Waves provides is an example of ________.

A) complementary products B) network effects C) buyer power D) substitutes Answer: A Diff: 3 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 56) MouseTag Inc. has incorporated a new type of technology that has increased the potential of the company by two-fold. Its machinery can now work faster and produce more products in a day than any of its previous machines ever could. This has also helped increase the profits of the company. Which of the following trends does this scenario best illustrate?

A) Complementary products B) Demographic shift C) Technology change D) Global competitive forces Answer: C Diff: 3 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic

20

57) Jupiter Bank was one of the first banks to adopt intelligent imaging that helps in classifying, storing, and retrieval of data. It was also among the first to practice virtual banking and transfer data electronically. As such, Jupiter Bank was an early adopter of these new and faster techniques of banking. This helped the bank to gain a large market share which consequently enabled it to generate huge profits. Jupiter Bank yielded such profits because it paid importance to ________.

A) technology changes B) population demographics C) legal and regulatory forces D) general economic conditions Answer: A Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 58) Summer Corp., a retailer of consumer electronics, has been experiencing high profits because an increasing percentage of the customers have sufficient disposable income to afford its products. Similar companies have also experienced a boom in customer demand. Which of the following macroeconomic forces is Summer Corp. experiencing?

A) Currency exchange rate B) Economic growth C) Interest rate D) Inflation Answer: B Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic

21

59) Leo Corp., an automobile company, experienced an increase in growth rate this year as the company sold its products at a lesser rate due to the economic conditions that the industry recently went through. This has helped the company to attain more investments than before and consequently to invest in new assets, research and development, and new product development.

Which of the following macroeconomic forces does this scenario best illustrate?

A) Currency exchange rate B) Economic growth C) Inflation D) Interest rate Answer: D Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 60) OneTick Shop Inc. experienced a loss of finances in the small town of Brightland as a lot of people from the town moved to bigger cities in search of jobs. This resulted in a loss of both returning as well as new customers. This scenario primarily reflects ________.

A) regulatory forces B) global forces C) environmental forces D) demographic shifts Answer: D Diff: 1 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 61) The management of GNH Corp., a chemical plant in the city of Werkshore, has promised to take care of its surroundings. It assured to dispose its factory wastes in a way that does not affect the habitat. In order to do so, the company had to go through renovations that allow the plant to take up green initiatives. Which of the following is the source of change for GNH Corp.?

A) Complementary services B) Global forces C) Regulatory forces D) Natural environment Answer: D Diff: 3 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 22

62) ________ forces arise from government agencies and institutions creating new laws.

A) Demographic B) Global C) Natural D) Regulatory Answer: D Diff: 1 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Knowledge Standard 1: AACSB || Analytic 63) CoolDrink Inc., a beverage company, had to change its medical insurance policies because of a new federal law. The new law required all companies with over 50 full-time employees to provide health insurance for their employees. In case these companies are unable to do so, they would have to face penalty. CoolDrink Inc. had to implement changes due to ________ forces.

A) global B) regulatory C) demographic D) natural Answer: B Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 64) A federal act was passed in the country of Arahonia which changed the way many of the Arahonian industries worked. Most of the firms in Arahonia had to restructure their strategic plans accordingly. This resulted in the larger firms acquiring the smaller ones which did not exit the market altogether. This scenario best illustrates a(n) ________.

A) technology change B) regulatory force C) economic change D) cultural force Answer: B Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic

23

65) The board of directors of August Inc., a company that provides legal services, has been debating over whether to provide its 99 full-time employees with health insurance. The managers of the firm, however, are considering dropping employee health insurance as a benefit. Which of the following statements strengthens the managers' consideration?

A) The fine that August Inc. would face would be cheaper than the current premiums for health insurance.

B) The Affordable Health Care Act requires firms with over 50 employees to provide health insurance for their workers, or face fines.

C) The federal Affordable Health Care Act, enacted in 2009, mandates that health insurers cover even those with preexisting conditions.

D) The revised policy would help August Inc. erect entry barriers in its industry and change the nature of rivalry in the industry with most of the small firms.

Answer: A Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 66) ________ forces refer to cultural values, norms, or attitudes.

A) Demographic B) Global C) Regulatory D) Social Answer: D Diff: 1 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Knowledge Standard 1: AACSB || Analytic

24

67) The residents of the town of Segonon have initiated a campaign to stop the production of aerated beverages by Sip Drink Inc. The community members of Segonon stated that these beverages are causing loss of memory, nausea, and tiredness among the children who consume them regularly, and thus, have urged that the company should be shut down. The community's reaction to Sip Drink's beverages illustrates a ________ force.

A) regulatory B) social C) legal D) global Answer: B Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Application Standard 1: AACSB || Analytic 68) Which of the following statements is true about the role of technology in a firm's profitability?

A) Technological change within an industry does not affect a firm's landscape.

B) Technological change can often lower barriers to entry.

C) Incorporating new technology early creates barriers for new entrants.

D) Firms who are late to adopt new technologies benefit more than early adopters.

Answer: B Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Comprehension Standard 1: AACSB || Analytic 69) Identify the role of general economic conditions in a firm's profitability.

A) When interest rates are low, many firms can afford to invest in new assets.

B) When an economy slows down, industry growth rates increase and rivalry decreases.

C) Inflation tends to increase overall economic growth, decreasing rivalry and the threat of substitutes.

D) During deflation, many industries experience increases in price competition as a means of gaining market share.

Answer: A Diff: 2 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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70) Barriers that help keep firms using the same supplier or buyer by imposing extra costs for substituting suppliers or buyers are known as ________.

Answer: switching costs Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 71) A firm that provides products that are inputs to another firm's production process is known as a(n) ________.

Answer: supplier Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 72) How do switching costs affect industry rivalry?

Answer: The lower the switching costs, the easier it is for competitors to poach customers, thereby increasing industry rivalry.

Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 73) How is buying power related to switching costs?

Answer: If customers, or buyers, can easily switch firms, then buyers have increased power.

Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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74) In what way are switching costs a fundamental part of not just rivalry but also the force of new entrants?

Answer: If buyers can easily switch to new companies attempting to enter the industry, there is a greater threat of new entrants.

Diff: 2 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic 75) Identify the five forces that shape the profit-making potential of an average firm in an industry. Discuss the basic steps involved in using the five forces analysis tool.

Answer: Michael Porter, a well-known strategy professor at Harvard, identified five forces that shape the profit-making potential of the average firm in an industry. Those five forces are: (1) rivalry, (2) buyer power, (3) supplier power, (4) threat of new entrants, and (5) threat of substitute products.

There are three basic steps involved in using the five forces analysis tool: • Step 1: Identify the specific factors relevant to each of the five major forces.

• Step 2: Analyze the strength of each force. To what extent is it shaping the industry's attractiveness?

• Step 3: Estimate the overall strength of the combined five forces to determine the general attractiveness of the industry, the expectation that an average firm in the industry can earn good profits.

Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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76) Define switching costs and the forces that it takes into consideration.

Answer: Switching costs are barriers that help keep firms using the same supplier or buyer by imposing extra costs for switching suppliers or buyers. It includes any cost to the customer for changing brands. Switching costs for buyers are related to the degree of product standardization.

Switching costs are a fundamental part of not just rivalry but also the other four forces: 1) Buyer power. If customers, or buyers, can easily switch firms, then buyers have increased power.

2) Supplier power. If firms cannot switch suppliers easily, then suppliers have increased power.

3) New entrants. If buyers can easily switch to new companies attempting to enter the industry, there is a greater threat of new entrants.

4) Substitutes. If buyers can switch to substitute products without much difficulty, firms face an increased threat from those substitutes.

Diff: 1 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Knowledge Standard 1: AACSB || Analytic 77) Define barriers to entry and briefly mention its characteristics.

Answer: Not all industries are created equal. Industries in which the average firm is making good profits can often be targets, enticing firms from outside those industries to enter. Likewise, quickly growing industries are often attractive, which increases the incentive for outside firms to enter those industries. One of the important tasks for strategists is to identify firms that might enter their industries. New entrants pose a double hazard. First, they typically are anxious to gain market share. Unless the industry is growing quickly, that market share must come at the expense of existing firms. Second, new entrants bring new production capacity, which tends to drive prices down unless demand is growing faster than the increase in supply.

New entrants mean greater rivalry, so existing firms often try to discourage new entrants by building barriers to entry. Barriers to entry means the way organizations make it more difficult for potential entrants to get a foothold in the industry. The higher the barriers to entry, the more difficult it is for potential entrants to get a foothold in the industry, and the more likely that they are to quit or choose to not enter in the first place. Likewise, incumbent firms, those already in the industry, often signal new entrants that they are likely to retaliate by slashing prices, increasing advertising, or other competitive moves that help the established firms hold on to their market share. If the threats of retaliation are perceived as credible, potential entrants might decide to stay away.

Diff: 3 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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78) Explain the reason substitute products are taken as a threat by firms.

Answer: A substitute is a product that is fundamentally different yet serves the same basic function or purpose as another product. One of the primary problems for the strategist is to decide if a product is a substitute. It involves determining the boundary of an industry. Generally, something can be considered a substitute if it serves the same function, such as quenching thirst, but does so with a different set of characteristics. If the product has the same basic characteristics and is made using the same general set of inputs, it would be considered part of rivalry, rather than a substitute. In general, substitutes put downward pressure on the price that firms in an industry can charge. The factors that determine the intensity of a threat of substitutes include the awareness and availability of substitutes and their price and performance compared to an industry's products.

Diff: 3 Section Reference: 2: Five Forces that Shape Average Profitability Within Industries Learning Objective: 2: Identify and measure the five major forces that shape average firm profitability within industries to evaluate the overall attractiveness of an industry.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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79) Mention the general environmental factors that can affect the profit potential of a firm.

Briefly explain the factors of technological change and social/cultural forces.

Answer: The eight categories that help shape the general environment are: • Complementary products or services • Technological change • General economic conditions • Population demographics • Ecological/natural environment • Global competitive forces • Political, legal, and regulatory forces • Social/cultural forces Technological change within an industry has the potential to radically reshape a firm's landscape, and sometimes society with it. Technological changes can include new products, such as smart phones; new processes, such as hydraulic fracturing (fracking), which has dramatically increased the output of the natural gas industry; or new materials, such as lithium batteries, which make electric automobiles possible. In many industries, the pace of technological change has accelerated over the last couple of decades. Managers find it increasingly important to consistently scan the environment to locate potential new technologies that might affect their industries. Not only can technology change the nature of rivalry in an industry by giving some firms an upper hand in gaining market share, but it also can often lower barriers to entry.

Social forces refer to society's cultural values and norms, or attitudes. Values and attitudes are so fundamental that they often affect the other six general environmental forces, shaping the overall landscape in which firms compete. Like the other environmental forces, however, social forces can create opportunities if a firm happens to be among the first to act on changes in values and attitudes. Social forces are different, sometimes radically so, in different countries. Firms that compete in a global industry must understand differences among consumers in each country they serve.

Diff: 3 Section Reference: 5: How the General Environment Shapes Firm and Industry Profitability Learning Objective: 5: Identify the factors in the general environment that affect firm and industry profitability.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 3 Internal Analysis: Strengths, Weaknesses, and Competitive Advantage 1) A visual description of the steps required to turn raw materials into finished products and/or services most accurately defines the term ________.

A) virtuous circle B) culture chain C) value chain D) product line Answer: C Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) Which of the following statements is true of a value chain?

A) It is a process of analyzing the corporate social responsibilities of a company.

B) It is a process of enhancing value by eliminating quality checks in a company.

C) It is a method of analyzing the feedback a company receives from its clients.

D) It is a method of depicting and evaluating the activities performed by a company.

Answer: D Diff: 2 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Comprehension Standard 1: AACSB || Analytic 3) The employees at Voyage Ink Corp. were asked to draw a chart that explains the elements which go into making one of their products. They were asked to create a diagram showing the different types of materials that help create the whole product. Which of the following are the employees at Voyage Ink Corp. creating in this scenario?

A) A value chain B) A product line C) A virtuous circle D) A growth-share matrix Answer: A Diff: 3 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Application Standard 1: AACSB || Analytic

1

4) Which of the following is a disadvantage of the value chain process?

A) It does not help analyze a company's strength compared to its competitors.

B) It does not consider company infrastructure or human resource management.

C) It does not help managers to identify areas in which a firm has an absolute strength.

D) It does not span all a firm's economic activities.

Answer: A Diff: 2 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Comprehension Standard 1: AACSB || Analytic 5) Which of the following is an advantage of the value chain?

A) It helps to identify which activities represent a firm's competitive strength.

B) It provides guidance about a firm's strength relative to its competitors.

C) It can be used to know what a firm is better at than relevant competitors.

D) It provides customers with an insight into a company's production processes.

Answer: A Diff: 2 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Comprehension Standard 1: AACSB || Analytic 6) ________ is an example of a primary activity.

A) Firm infrastructure B) Operations C) Procurement D) Technology development Answer: B Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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7) ________ is an example of a primary activity.

A) Firm infrastructure B) Marketing and sales C) Procurement D) Technology development Answer: B Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) ________ is an example of a primary activity.

A) After-sales service B) Firm infrastructure C) Procurement D) Technology development Answer: A Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) ________ is an example of a support activity.

A) Firm infrastructure B) Inbound logistics C) Marketing and Sales D) Operations Answer: A Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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10) ________ is an example of a support activity.

A) After-Sales service B) Inbound logistics C) Marketing and Sales D) Technology development Answer: D Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic 11) ________ is an example of a support activity.

A) After-Sales service B) Human resource management C) Inbound logistics D) Marketing and Sales Answer: B Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic 12) ________ is an example of a support activity.

A) After-Sales service B) Inbound logistics C) Marketing and Sales D) Procurement Answer: C Diff: 1 Section Reference: 1: The Value Chain Learning Objective: 1: Identify the steps in the value chain a firm uses to create competitive advantage.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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13) All assets, capabilities, organizational processes, firm attributes, information, knowledge, and so on, controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness most accurately defines the term ________.

A) priorities B) capabilities C) resources D) functions Answer: C Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 14) ________ are what a firm employs to create value and competitive advantage.

A) Capabilities B) Functions C) Priorities D) Resources Answer: D Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 15) ________ represent how firms do things; they are the processes firms use.

A) Capabilities B) Functions C) Priorities D) Resources Answer: A Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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16) ________ explain why firms allocate critical resources to achieve key objectives.

A) Capabilities B) Functions C) Priorities D) Resources Answer: C Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 17) Erik, the CEO of Indigo Inc. wants to improve the efficiency and effectiveness of his company. To do this, he lists out the assets and knowledge Indigo has acquired over the years.

Erik also analyzes the company's processes and its overall culture. The factor of production that Erik is studying can be best categorized as ________.

A) capabilities B) resources C) attributes D) priorities Answer: B Diff: 3 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Application Standard 1: AACSB || Analytic 18) ________ are the tangible and intangible resources or factors of production that create economic value for the firm.

A) Assets B) Capabilities C) Functions D) Priorities Answer: A Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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19) ________ resources are those with physical presence such as land, factories, machinery, equipment, or cash.

A) Direct B) Indirect C) Intangible D) Tangible Answer: D Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) ________ resources are economically valuable assets that do not have physical presence such as brands, licenses, patents, knowledge, and reputation.

A) Direct B) Indirect C) Intangible D) Tangible Answer: C Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 21) Equipment is an example of a ________ resource.

A) financial B) human C) intangible D) physical Answer: D Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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22) Free cash flow is an example of a ________ resource.

A) financial B) human C) intangible D) physical Answer: A Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 23) Employee know-how, management skill, and talents are examples of ________ resources.

A) financial B) human C) intangible D) physical Answer: B Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 24) Brands and patents are examples of ________ resources.

A) financial B) human C) intangible D) physical Answer: C Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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25) A firm's values and rankings of what is most important most accurately defines the term ________.

A) assets B) priorities C) resources D) capabilities Answer: B Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 26) LittleHut Inc., an international food company, has several resources to its credit. Over the years, the company has acquired factories, machinery, in-depth knowledge, and a stable reputation. The elements mentioned in this scenario can be best categorized as LittleHut Inc.'s ________.

A) equipment B) personnel C) assets D) capabilities Answer: C Diff: 3 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Application Standard 1: AACSB || Analytic 27) Which of the following is true of a tangible resource?

A) It is an economically valuable asset such as brands and patents.

B) It has a physical presence such as land, machinery, and cash.

C) It includes employee and management skills and talents.

D) It includes organizational assets like knowledge and reputation.

Answer: B Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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28) The procedures, processes, or routines for delivering value to customers, employees, suppliers, or investors most accurately define the term ________.

A) competitive parities B) operating capabilities C) dynamic capabilities D) network externalities Answer: B Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 29) The customers, investors, and employees of Pisces Inc. are invariably satisfied with the services and culture of the company. Pisces Inc. has delivered on all its promises and has continued to create a sense of worth among its varied audiences. Which of the following terms best categorizes the elements of Pisces Inc. described in this scenario explaining?

A) Competitive parities B) Dynamic capabilities C) Network externalities D) Operating capabilities Answer: D Diff: 3 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Application Standard 1: AACSB || Analytic 30) Procedures, processes, and routines that continuously expand existing resources or improve operating capabilities most accurately define the term ________.

A) network externalities B) competitive parities C) dynamic capabilities D) operating capabilities Answer: C Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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31) The management at WonderPlanners Inc. wants to improve their production and operating capabilities by adopting a leaner process. As such, the employees of WonderPlanners are asked to eliminate the excess use of efforts and materials. WonderPlanners Inc. finally manages to achieve a competitive advantage after its employees follow these new practices repeatedly over time. From the information given in this scenario, we can infer that WonderPlanners Inc. has developed ________.

A) competitive parity B) dynamic capabilities C) service inimitability D) network externalities Answer: B Diff: 3 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Application Standard 1: AACSB || Analytic 32) Todd & Tyler Inc. is an organization that has gained reputation in the market primarily because of its values. The managers of this organization have created a list that ranks the most important job of the day and then consecutively lists the other jobs according to a descending order of importance. In this way, the managers of Todd & Tyler Inc. ensure that the organization's deadlines are handled efficiently. From the information given in this scenario, we can infer that Todd & Tyler Inc. has worked out its ________.

A) parities B) capabilities C) attributes D) priorities Answer: D Diff: 3 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Application Standard 1: AACSB || Analytic

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33) The employees at Williamson Corp. are finding it hard to manage their daily work in an efficient manner. They are consistently unable to meet their daily targets because they have an unorganized workload, The employees request that the managers create a system where work is prioritized according to the level of importance. This system is put into practice, and the employees find it easier to handle work in a systematic and sequential manner. From the information given in this scenario, we can infer that Williamson Corp. has worked out its ________.

A) priorities B) capabilities C) parities D) attributes Answer: A Diff: 3 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Application Standard 1: AACSB || Analytic 34) Which of the following statements best describes a firm's resources?

A) They explain why firms allocate critical resources to achieve key objectives.

B) They represent how firms do things and which processes they use.

C) They refer to what a firm employs to create value and competitive advantage.

D) They depict the production processes a firm uses.

Answer: C Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic 35) Which of the following statements best describes a firm's capabilities?

A) They represent how firms do things.

B) They depict a firm's strength relative to its competitors.

C) They explain why firms allocate critical resources to achieve key objectives.

D) They refer to what a firm employs to create value and competitive advantage.

Answer: A Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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36) Which of the following statements best describes a firm's priorities?

A) They represent how firms do things.

B) They depict the production processes a firm uses.

C) They refer to what a firm employs to create value and competitive advantage.

D) They explain why firms allocate critical resources to achieve key objectives.

Answer: D Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic 37) Which of the following statements is true about resources?

A) Intangible resources include land and factories.

B) Examples of tangible resources are brands and patents.

C) Intangible resources are those with a physical presence.

D) Accountants classify resources as tangible or intangible assets.

Answer: D Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic 38) Identify an intangible resource from the following choices.

A) Land B) Brand C) Cash D) Machinery Answer: B Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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39) Identify a true statement about dynamic capabilities.

A) They depict a firm's strength relative to its competitors.

B) Companies that have developed strong coordination processes are likely to lose their competitive advantage.

C) They can help firms modify and evolve processes to keep pace with environmental changes.

D) Companies with strong dynamic capabilities have a less secure foundation for competitive advantage than those without them.

Answer: C Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic 40) Which of the following accurately defines a firm's values?

A) They refer to procedures, processes, and routines that continuously expand existing resources or improve operating capabilities.

B) They refer to a firm's ranking of what is most important.

C) They refer to its leaders' beliefs about what is right and wrong, good and bad, desirable and undesirable.

D) They refer to factors of production that create economic value for the firm when employed.

Answer: C Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic 41) ________ is an attribute of a resource or capability that describes the degree of difficulty a competitor would face in copying, imitating, or mimicking the value of that resource or capability.

A) Inimitability B) Organization to exploit C) Rarity D) Value Answer: A Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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42) ________ is the degree to which the legal, administrative, and operating structure of the firm allows it to capture the rents generated.

A) Inimitability B) Organization to exploit C) Rarity D) Value Answer: B Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 43) Path dependence is an issue of ________.

A) Inimitability B) Organization to exploit C) Rarity D) Value Answer: A Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 44) A survey is conducted among the customers of a supermarket chain. This survey reveals that most customers prefer to buy Lia, a brand of soap. The reason for the customers' preference is because the company constantly delivers what it promises. In this scenario, the factor that has made the brand of soap named Lia popular among these customers can be best categorized as ________.

A) value B) rarity C) inimitability D) prestige Answer: A Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 15

45) Pinto's Home Bakes is a 64-year-old company established in 1950. The company has been providing freshly baked breads and pastries daily for many years and has created a high reputation for itself. Its customers have always been satisfied with its timely service and delivery.

The customers of Pinto's Home Bakes state that they prefer to go this deli because the products it delivers are never stale and have a unique flavor. Which of the following has Pinto's Home Bakes created for its customers?

A) Priority B) Value C) Parity D) Prestige Answer: B Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 46) Value is usually created when ________.

A) the end user enjoys direct pleasure and satisfaction from a company's product B) a company survives but has no real competitive advantage over rivals C) a company eliminates quality control processes as much as possible D) the steps in the production chain of a company are reduced Answer: A Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 47) Resources that create ________ can be defined as those that create economic value for a firm.

A) opportunities B) liabilities C) costs D) profits Answer: D Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 16

48) UniFront Corp., a telecommunications company, has launched a new limited-edition smartphone called zNINE that has advanced technology features and is built using high-grade material. The company has made only 99 of these zNINE cellphones and customers are ready to pay more than what the cellphone is worth because it is so limited in number. This scenario can be best categorized as an example of ________.

A) parity B) complexity C) rarity D) inimitability Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 49) LuxeDrive Inc. is an automobile company with minimal competition due to features that set it apart from other automobile companies. These features act as qualifications that rival companies find difficult replicate. This scenario can be best categorized as an example of ________.

A) serviceability B) reliability C) inimitability D) parity Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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50) ________ means that the process through which a resource or capability came into being may make it difficult for competitors to imitate.

A) Barrier to entry B) Path dependence C) Network Externality D) Unfair competition Answer: B Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 51) Leon Royal Hotel was the first inn in the county of Belvore. It had started out with only seven rooms, providing bed and breakfast to travelers who came to Belvore. After 20 years of giving unique and satisfying service to its customers, Leon Royal Hotels grew to have more than 1,500 rooms. The facilities and services provided by the hotel made it one of the best hotels in the county. Meltown Inn started out a decade after the Leon Royal Hotel opened. The Meltown Inn started losing profits and eventually shut down in 1968 due to bad service. Which of the following factors of inimitability is explained in this scenario?

A) Tacit knowledge B) Path dependence C) Casual ambiguity D) Complexity Answer: B Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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52) Runathon Inc. opened a store that displayed shoe brands only. The employees were polite and professional. Runathon also had experts who advised customers on the type of shoe best suited for a particular sport. A few years later, another company called FitRight Corp. opened next to Runathon. Although FitRight stocked shoe brands, sportswear, and other gear, it was not as profitable as Runathon because its salespeople were not as experienced and knowledgeable.

Which of the following factors of inimitability did Runathon Inc. have?

A) Complexity B) Time compression diseconomy C) Path dependence D) Virtuous circle Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 53) ________ knowledge can be written down and easily learned by others.

A) Direct B) Explicit C) Indirect D) Tacit Answer: B Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 54) ________ knowledge is difficult if not possible to learn, teach, or coach to others.

A) Direct B) Explicit C) Indirect D) Tacit Answer: D Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 19

55) Weavers Inc., a popular clothing brand, has been providing its customers with the best quality silk products for many years. The employees of Weavers Inc. use pink berry silkworms for their silk products and weave their greased silk threads in such a way that they produce different shades of colors when held at different angles. Weavers Inc. has been providing unmatched service for millions of customers around the world. Other companies have tried to imitate their products and services but have not been successful. Few competitors who captured these silkworms did not know the precise temperatures that were essential for their breeding and survival. Which of the following factors of inimitability does this scenario regarding Weavers Inc. best reflect?

A) Positive network externalities B) Tacit knowledge C) Time compression diseconomies D) Causal ambiguity Answer: B Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 56) The CEO of Saturn Interiors Corp., an interior designing company, stated in an interview that he credits the company's success to the scenic environment that the company is located in. The employees of Saturn Interiors are inspired by the beauty of nature and that helps them create perfectly aesthetic homes for their customers. A similar company named Virgo Designs LLC had also started up in the same location and around the same time as Saturn Interiors. However, this company was unable to provide the same services to its customers even though the management hoped to do what Saturn Interiors did. It was later found that the employees of Saturn Interiors were trained in a specific way, and the culture of the company was very different from the way Virgo Designs functioned. Which of the following factors of inimitability does Saturn Interiors Corp. have?

A) Tacit knowledge B) Complexity C) Causal ambiguity D) Path dependence Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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57) Speed Express, a courier company, proves to be a challenge to its competitors. The technology, personnel, services, and organizational structure of the company are bound together to create a system widely appreciated by its customers. Speed Express has state-of-the-art facilities for its transportation, delivery, and packaging operations. Speed Express also has a range of travelling bags and brand of wrist watches. The company's success rests on the complex interplay between its functions, products, and operations. Customers remain loyal to the company and prefer it over other brands and services. Which of the following factors of inimitability does Speed Express have?

A) Time compression diseconomy B) Path dependence C) Complexity D) Tacit knowledge Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 58) Michelle, the CEO of airline company Nariko Jets, stated that she owes the credit of her professional success to the time spent as a volunteer at a homeless shelter and her passion for artwork. Nariko Jets, according to Michelle, was the result of her life lessons at the homeless shelter and her paintings which provided her the inspiration to create an airline that would make travel easier and comfortable. Her competitors have always envied her success. Which of the following factors of inimitability is best reflected in this scenario?

A) First-mover advantage B) Positive network externalities C) Causal ambiguity D) Tacit knowledge Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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59) Two years of research and $20 million in investment a year for the next two years is required to get results for MediCure's new pharmaceutical experiment. The CEO of a rival company, PolyMed Inc., decides to spend $60 million on only one year of research. However, PolyMed fails to get the same results. Which of the following best reflects the factor that acted as a barrier to imitation for PolyMed Inc.?

A) Tacit knowledge B) Path dependence C) Complexity D) Time compression diseconomy Answer: D Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 60) The more people that use a product or service, the more valuable that product or service is.

This is a ________.

A) complexity process B) positive network externality C) time compression diseconomy D) virtuous circle Answer: B Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 61) More sellers attract more buyers who in turn attract more sellers. This is a ________.

A) complexity process B) positive network externality C) time compression diseconomy D) virtuous circle Answer: D Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 22

62) Network effects represent a specific form of a ________.

A) barrier to entry B) first-mover advantage C) time compression diseconomy D) unethical strategy Answer: B Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 63) Annabey Inc., a small candy manufacturing company established in 1937, now has several large units that sell unique flavors of candies and assorted chocolates. When the company started out in 1937, it initially experienced slow growth as it was selling brand new products in the market. Later on, their sales picked up at a drastic speed when customers decided to try their products. The CEO of Annabey credits its growth to all the customers who love their candies and chocolates. Which of the following factors of inimitability is best reflected in this scenario?

A) Positive network externality B) Time compression diseconomy C) Virtuous circle D) Complexity Answer: A Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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64) ZipTag Inc. is an online company that allows venders of varied products to display their products to prospective buyers. This company has been providing service to both customers and sellers and has established itself in the market as a credible company to conduct business with.

This has caused more dealers to display their products in ZipTag as they trust that the company will provide the necessary advertising to pull in prospective customers. This is an example of a ________.

A) time compression diseconomy B) virtuous circle C) tacit knowledge D) path dependence Answer: B Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 65) Kleo wants to start his own textile business. He believes that the best way to pull customers into buying his product is to be the first to create lightweight woolen jackets that would keep an individual warm and would also look good on the person. He decides to set up his store in the small town of Marida, which has a rough wintery season almost throughout the year. Kleo believes that he will be able to achieve plenty of profits with this idea with a commodity that is a needed all throughout the year. Which of the following statements strengthen Kleo's idea?

A) Kleo requires a colder place than the town of Marida in order to make profits using these woolen jackets.

B) The people of Marida are not ready to welcome any type of commercialism in their town.

C) Kleo feels his customers will not be willing to try out a lightweight jacket as they believe it will not be able to keep them warm.

D) Kleo has access to all the clothing materials that will be needed to create these jackets.

Answer: D Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking

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66) The exclusive sofa company, Seaterz Inc., has the best resources in terms of equipment, employees, infrastructure, and technology. Yet, it is not able to keep pace with its competitor SoftSofa Corp. After extensive analyses, the CEO of Seaterz stated the reason for their limitation was that their company did not have a definite administrative system to audit and retain the profits created by the employees. Which of the following statements can be inferred about Seaterz Inc. from this scenario?

A) It was not organized to exploit.

B) It was not organized to perform.

C) It does not have competitive parity.

D) It has a successful virtuous circle.

Answer: A Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 67) If the resource is not valuable, rare, or inimitable and the company is not organized to exploit, that is a competitive ________.

A) advantage B) failure C) parity D) success Answer: B Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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68) If the resource is valuable but not rare or inimitable and the company is not organized to exploit, that is a competitive ________.

A) advantage B) failure C) parity D) success Answer: C Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 69) If the resource is valuable and rare but not inimitable and the company is not organized to exploit, that is a competitive ________.

A) advantage B) failure C) parity D) success Answer: A Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) If the resource is valuable, rare, or inimitable but the company is not organized to exploit, that is a ________ competitive advantage.

A) durable B) failed C) paired D) sustained Answer: A Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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71) If the resource is valuable, rare, or inimitable and the company is organized to exploit, that is a ________ competitive advantage.

A) durable B) failed C) paired D) sustained Answer: D Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 72) Lynx Inc., a startup firm, has been trying to sell its product to customers. However, the customers do not perceive any value in the product and neither do they find it unique in any way.

Lynx Inc. also does not have proper systems and processes that can help in auditing and retaining the profits created by their employees. The company has drained its funds in the process, but it has not been able to successfully establish itself in the market. As a result, the firm has not been successful to its stakeholders. Ultimately, the board of directors at Lynx Inc. decides to shut it down completely. This scenario best exemplifies competitive ________.

A) advantage B) parity C) success D) failure Answer: D Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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73) TumbleDry Inc., a washing machine company, has been able to make minimal profits in the market. However, TumbleDry has not been able to come up with any product innovations that are unique and hard to imitate. This scenario best exemplifies competitive ________.

A) success B) failure C) parity D) advantage Answer: C Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic 74) Rize Inc. has been running efficiently as a real estate organization for 25 years. It has consistently provided customer satisfaction by maintaining a customer-friendly culture in the organization. Their competitors have not been able to replicate Rize's services. This has helped then generate and hold on to profits accrued by its vast and rare resource pool. This is an example of ________.

A) inconsistent competitive advantage B) sustained competitive advantage C) competitive parity D) competitive failure Answer: B Diff: 3 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Application Standard 1: AACSB || Analytic

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75) Which of the following best describes rarity?

A) It refers to the characteristics that make a resource or capability difficult to imitate.

B) It is an attribute of a resource that describes its worth or utility.

C) It is an attribute of a resource which means to be uncommon, or not available to other competitors.

D) It refers to an organization's ability to exploit profit returns generated by its unique and valuable resources.

Answer: C Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 76) Explicit knowledge ________.

A) refers to knowledge that is easy to codify and learn B) is easy to teach but difficult to learn C) refers to skills that are difficult to learn and teach D) is mobile and easily imitated by competitors Answer: A Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 77) Identify a true statement about tacit knowledge.

A) It is easy to teach but difficult to learn.

B) It is mobile and easily imitated by competitors.

C) It is easy to codify and learn.

D) It is difficult to learn, teach, or coach.

Answer: D Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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78) Which of the following is true of tacit knowledge?

A) It refers to easy-to-codify-and-learn knowledge.

B) It creates competitive advantage through scarcity.

C) It refers to the notion that one thing causes another.

D) It is difficult to imitate by competitors.

Answer: D Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 79) Time compression diseconomies happen when ________.

A) more sellers attract more buyers, who in turn attract more sellers B) an action increases cost and efficiency C) the value of a product increases with the number of users D) firms establish long-term contracts with customers Answer: B Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 80) Which of the following best describes competitive parity?

A) When a company survives but has no real competitive advantage over rivals B) When firms that cannot create value for their stakeholders do not survive C) When firms combine the legal, administrative, and cultural elements to produce an inimitable product D) When firms introduce valuable products that are also unique and rare Answer: A Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic

30

81) ________ includes written or numeric information that can be found in the library or on the internet.

A) Archival data B) Interviews C) Observation D) Focus groups Answer: A Diff: 1 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Knowledge Standard 1: AACSB || Analytic 82) ________ can be personal questions or impersonal surveys.

A) Archival data B) Interviews C) Observation D) Focus groups Answer: B Diff: 1 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Knowledge Standard 1: AACSB || Analytic 83) ________ includes personal experiences such as visits or use of products or services.

A) Archival data B) Interviews C) Observation D) Focus groups Answer: C Diff: 1 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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84) Kevin, the General Manager at KlockWorks Inc., wants to assess the true worth of his company. Kevin wants to know the amount of profits accrued by the company, its strengths and weaknesses, and how far ahead is the company compared to its rivals. In order to conduct the research, he does an online search, studies the annual reports, the audits, and pays a visit to a local library. Which of the following types of data gathering techniques for company pyramid analysis is being illustrated in the scenario?

A) Observation B) Interviews C) Archival data D) Focus groups Answer: C Diff: 3 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Application Standard 1: AACSB || Analytic 85) A media house wanted to report on the continued success of the software company, AlphaDigiPro Inc. The reporters decided to assess the company in two ways. They spoke to the top management employees and handed out questionnaires to other employees. The results of these data collection techniques helped the media house construct a good article. This scenario illustrates the use of ________.

A) internet searches B) archival data C) interviews D) observation Answer: C Diff: 3 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Application Standard 1: AACSB || Analytic

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86) Bertha, a business analyst, wants to analyze Shop Wise Inc., a software company. She wants to know how the company, supplying its products and services for over a decade, still maintains competitive advantage over other companies. She does the analysis simply by walking around the company and taking notes. She even tries out one of the company's software programs and finds it useful. This scenario illustrates the use of ________.

A) interviews B) focus groups C) archival data D) observation Answer: D Diff: 3 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Application Standard 1: AACSB || Analytic 87) Walter Evans, the founder of IronRod Shipping Industry, suggested using the company pyramid model to help counter the fierce competition in the market. Walter believes that this is a successful model that would create efficient work processes. He believes the model to be an allpurpose solution whether it is in terms of managing resources, prioritizing work, or acknowledging capabilities. Which of the following would strengthen Walter's suggestion to adopt the company pyramid method?

A) Since the model relies exclusively on data provided by the company, Walter thinks that it will work in favor of the company.

B) Since the model avoids considering the company's weaknesses, it is more likely to be successful.

C) The model will only be fully successful if all employees comply to follow through.

D) The model will allow Walter to become fully aware of the limitations and assets of his company.

Answer: D Diff: 3 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking

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88) Which of the following statements is true of the company pyramid tool?

A) It can be counted and quantified on a firm's balance sheet as assets.

B) It helps identify which activities of a firm represent its competitive strengths and weaknesses.

C) It allows one to identify and catalog a firm's potential for sustained competitive advantage.

D) It provides a framework to describe the activities a company performs.

Answer: C Diff: 2 Section Reference: 4: The Competitive Advantage Pyramid: A Tool for Assessing Competitive Advantage Learning Objective: 4: Analyze a company and identify its strengths or weaknesses, resources, capabilities, and priorities using the competitive advantage pyramid tool.

Bloom code: Comprehension Standard 1: AACSB || Analytic 89) A firm's advantage becomes stronger if it develops ________, processes that are designed to continuously expand existing resources or to improve or modify operating capabilities.

Answer: dynamic capabilities Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 90) A resource creates ________ if its contributions allow a company to produce a product or service that is of worth to end users.

Answer: value Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 91) The characteristics that make a resource or capability difficult to imitate is known as ________.

Answer: inimitability Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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92) Define resources.

Answer: Resources are what a firm employs to create value and competitive advantage.

Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 93) What is an intangible resource?

Answer: It is an economically valuable asset that does not have a physical presence.

Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 94) Define capabilities and briefly describe the two types of capabilities.

Answer: Capabilities are the procedures, processes, and routines firms employ in their activities. Capabilities represent how firms do things that is, the processes they use. Operating capabilities refer to procedures, processes, or routines for delivering value to customers, employees, suppliers, or investors. Competitive advantage relies on a strong set of operating capabilities. A firm's advantage becomes stronger if it develops dynamic capabilities. These are processes that are designed to continuously expand existing resources or to improve or modify operating capabilities. Dynamic capabilities are practiced and refined over time and through repetition.

Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 95) What is an asset and how does it create an economic value to an organization?

Answer: Assets are tangible or intangible resources or factors of production that create economic value for the firm when employed. Most resources are, or could be, counted and quantified on a firm's balance sheet as assets. Accountants classify resources as tangible or intangible assets. It enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness.

Diff: 1 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Knowledge Standard 1: AACSB || Analytic 35

96) Differentiate between explicit knowledge and tacit knowledge.

Answer: The actions needed to imitate a sequence can be codified, or written down, and easily learned by others. Such easy-to-codify-and-learn knowledge is referred to as explicit knowledge.

Tacit knowledge is just the opposite. The skills that are difficult, maybe even impossible, to learn, teach, or coach, are based on tacit knowledge. Tacit knowledge is sticky, or immobile, and difficult to imitate by competitors.

Diff: 1 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 97) State the difference between operating capabilities and dynamic capabilities.

Answer: Capabilities are processes that the firm has developed to coordinate human activity in order to achieve specific goals. Operating capabilities are procedures, processes, or routines for delivering value to customers, employees, suppliers, or investors. Dynamic capabilities are procedures, processes, and routines that continuously expand existing resources or improve operating capabilities.

Diff: 2 Section Reference: 2: The Resource-Based View Learning Objective: 2: Distinguish among the core concepts of strengths, weaknesses, resources, capabilities, and priorities.

Bloom code: Comprehension Standard 1: AACSB || Analytic 98) Define rarity and explain how it creates competitive advantage.

Answer: Something that is rare, is to be uncommon, or not available to other competitors.

Competitive advantages arise when resources or capabilities possess two attributes: value and rarity. Unique is often used as a synonym for rare. Rare or unique resources create competitive advantage through a basic principle of economics–scarcity. When products or services are scarce, users are often willing to pay a higher price for them than they would be if the same products or services were more commonly available, leading to higher company profits.

Diff: 2 Section Reference: 3: Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability Learning Objective: 3: Evaluate the strength and sustainability of internally generated competitive advantages using the VRIO model.

Bloom code: Comprehension Standard 1: AACSB || Analytic © 2024 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 4 Cost Advantage 1) A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases best defines the term economies of ________.

A) scope B) finance C) scale D) wealth Answer: C Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) Taurus Inc. usually produces 5,000 handcrafted products in a day. Recently, the demand for handcrafted products drastically increased as one of its products became a popular item for home décor. Due to this increase, the company had to up its production level to 10,000 products per day. This, however, decreased the price of individual products. This scenario best illustrates economies of ________.

A) wealth B) finance C) scope D) scale Answer: D Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 3) The relatively fixed costs such as the costs of plant and equipment, which do not increase with an increase in the number of units manufactured, are known as fixed cost of ________.

A) production B) supply C) demand D) scale Answer: A Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 1

4) Nirvana Publishing House invested in high-end printing equipment. After a year of production, the company had to double the amount of production of its newspapers and weekly magazine because of high customer demand. However, the company did not have to invest in another similar equipment to meet demands. This is an example of a fixed cost of ________.

A) demand B) scale C) production D) supply Answer: C Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 5) Which of the following statements is true of research and development (R&D)?

A) Small volumes of production enable firms to spread the cost of research and development (R&D), advertising, and general and administrative expenses.

B) The higher a firm's R&D costs, the more the scope for the company to expand globally allowing costs to be spread across more customers.

C) Adding R&D allows a firm to have a cost advantage over competitors.

D) Eliminating R&D helps firms to lead in launching new product designs.

Answer: B Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 6) Fuchsia Corp., a retail chain, opens four outlets in different locations of a city. It markets itself for attracting customers to these locations. The company invests in promotional campaigns for one of the outlets and then divides the expenses among the four outlets. Which of the following is the subject of economies of scale in the described scenario?

A) Production costs B) General costs C) Research and development expenses D) Advertising expenses Answer: D Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 2

7) MediDose Inc., a pharmaceutical company, has been studying and experimenting with a few drugs. After 10 years of conducting and standardizing tests, the company comes up with positive results that would help many patients. These drugs become popular and effective among millions of patients and enable the company to expand its operations across the globe while spreading out the cost of the studies. Which of the following is the subject of economies of scale in the described scenario?

A) Research and development expenses B) Advertising expenses C) General and administrative costs D) Production costs Answer: A Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 8) The expenses and taxes that are directly related to the wide-ranging operation of a company best define the term ________ costs.

A) sunk B) research and development C) incentives and promotional D) general and administrative Answer: D Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) ________ costs include the costs of accounting, finance, human resource management, and the chief executive.

A) General and administrative B) Incentives and promotional C) Research and development D) Sunk Answer: A Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3

10) Which of the following statements is true of a company's general and administrative costs (G&A)?

A) They are part of a company's production costs.

B) They exclude the expenses of operating a company.

C) They include Research and Development (R&D) expenses.

D) They help a company with high sales volume that creates cost advantage by managing its G&A across more units.

Answer: D Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 11) The Finance Department of Neptune Industries must audit expenses and profits made each year. It creates separate databases for costs accrued in the form of equipment used in the company and for other costs such as costs of accounting, rent, and managerial salaries. Which of the following is the subject of economies of scale in the described scenario?

A) Research and development expenses B) General and administrative costs C) Incentives and promotional costs D) Advertising expenses Answer: B Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 12) Which of the following is a primary characteristic of employing automated equipment in a company with high levels of production?

A) They help employees to acquire specialized knowledge that helps them complete tasks more efficiently.

B) The general and administrative costs would be high for large companies.

C) They do not help in spreading out the fixed cost of production.

D) Large companies can reduce per-unit cost of production.

Answer: D Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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13) Breaking a large process into smaller elements that require specialized knowledge is known as ________ specialization.

A) professional B) employee C) task D) process Answer: C Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 14) Which of the following is a feature of task specialization?

A) It causes workers to be confused about the task at hand.

B) It enables employees to choose tasks that they are most capable of performing.

C) It enables workers to be more efficient and thus enables them to avoid loss of time.

D) It results in job dissatisfaction because employees must repeat the same functions over time.

Answer: C Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 15) Connections Communications Inc. has been able to achieve optimal efficiency by identifying a task for each employee and enabling them to become thoroughly proficient in their tasks. The company has realized that employees develop an expertise in their specified job profile over time and they gradually begin to work faster than when they started the job. This is an example of ________.

A) task specialization B) employee specialization C) minimum efficient scale D) competitive parity Answer: B Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic

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16) Turbine Industries breaks down its manufacturing process into smaller segments that are performed by employees who are trained very well. This also helps the firm to save time because this way the employees do not need to juggle between various tasks. This scenario best illustrates ________.

A) minimum efficient scale B) competitive parity C) employee specialization D) task specialization Answer: D Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 17) Increased efficiency that results when employees perform a narrow range of tasks repeatedly, leading them to acquire specialized knowledge that helps them complete the tasks more efficiently accurately defines the term ________.

A) competitive parity B) minimum efficient scale C) task specialization D) employee specialization Answer: D Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 18) Attire Corp., a garment manufacturing company, explains to its employees why its previous year's sales had not met the required standards. The management uses a diagram of the cost acquired for each item manufactured against the volume of items produced in a particular time period. The pictorial representation is an example of the ________ curve.

A) scale B) value C) learning D) experience Answer: A Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 6

19) A ________ scale is the optimal quantity for a company to produce.

A) maximum efficient B) maximum effective C) minimum efficient D) minimum effective Answer: C Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) What is true about a minimum efficient scale?

A) It shows the optimal quantity for a company to produce.

B) It can be most efficiently maintained in large industries by increasing the level of production.

C) It proves that the costs per unit decrease with increases in volume till they reach and then maintain the minimal level.

D) It can be achieved by large industries during economic downturns because they can easily spread their fixed costs when demand declines.

Answer: A Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 21) If a company continues to increase its volume beyond the optimal quantity to produce, the cost per unit starts to increase due to ________ scale.

A) diseconomies of B) economies of C) maximum efficient D) minimum efficient Answer: A Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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22) DFN Inc. expanded its manufacturing plant to employ more equipment because the management of the company thought this would help them attain more sales. Unfortunately, this affected the cost of each unit produced because the company invested more finances for better equipment. This also led to a decrease in sales as customers were not willing to buy the product for an increased price. This scenario best illustrates ________.

A) competitive failure B) diseconomies of scale C) economies of scale D) virtuous circle Answer: B Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 23) Economies of ________ exist when the cost of conducting two business activities within the same company is less than the cost of those same two businesses operating separately.

A) scale B) finance C) wealth D) scope Answer: D Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 24) Blaze Corp., a car company, shared its costs of producing cars. It did so by introducing the production of car accessories that are used by customers to upgrade or customize their cars.

Blaze Corp. started selling car accessories such as engine oils, wheels, and music player and thus shared its market research costs between cars and car accessories. This led to a definite decrease in the overall cost of production. This scenario best illustrates economies of ________.

A) scale B) finance C) wealth D) scope Answer: D Diff: 3 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Application Standard 1: AACSB || Analytic 8

25) Orange Superstore is largely customer centric and economical in its methods. The store sells the best quality products at prices that are lower than other stores. The store depends on the fact that its salespeople get better at completing their tasks over time. This method used by Orange Superstore is an example of ________.

A) cost limitation strategy B) cost advantage strategy C) proprietary knowledge strategy D) sustained competitive advantage strategy Answer: B Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 26) Economies of scale ________.

A) exist when cost per unit increases with decrease in volume B) are not more relevant in some industries than others C) arise from the ability to spread fixed costs of production D) produce cost advantages for smaller firms over larger firms Answer: C Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 27) Which of the following is the main source from which economies of scale arise?

A) The ability to spread nonproduction costs B) The ability to get raw materials free of cost C) Specialization of suppliers D) Specialization of production Answer: A Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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28) What is meant by diseconomies of scale?

A) A reduction in costs per unit due to increases in efficiency of production B) The smallest level of output (unit volume) that a plant or firm can produce to minimize its long-run average costs C) A decrease in the average total cost of production because of an increase in the number of different goods produced D) An increase in marginal cost when output is increased Answer: D Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) In large organizations, diseconomies of scale can happen because large plants ________.

A) are associated with decreased waste B) become very complex to manage C) have an output that is below the minimum efficient scale D) are linked to higher employee motivation Answer: B Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 30) Which of the following statements is true of cost advantage?

A) Large firms are guaranteed to secure a wide cost advantage.

B) Size and scale do not always guarantee a cost advantage.

C) Firms with high production volumes are sure to gain a cost advantage.

D) Firms which produce standardized products have a cost advantage.

Answer: B Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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31) Identify a true statement about economies of scope.

A) They exist when costs are reduced by increasing the volume of a specific activity.

B) They exist when costs are reduced by expanding the scope of a company's operations to related activities.

C) They occur when a company decreases its output below the minimum efficient scale.

D) They occur when a company increases its output beyond the minimum efficient scale.

Answer: B Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 32) Humans can perform tasks more ________ (more quickly and with greater dexterity) the more a task is repeated.

A) directly B) effectively C) efficiently D) indirectly Answer: C Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Reflective Thinking 33) Doing a task a lot of times helps humans behave more ________ because they find better ways to complete the task.

A) directly B) effectively C) efficiently D) indirectly Answer: B Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Reflective Thinking

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34) Li, the president of Lavender Inc., believes that when employees are trained, they should work on one task until they know how to perform it perfectly. Thus, the employees are usually encouraged to repeatedly perform their designated tasks. Li claims that the more an employee engages in a particular task, the more skilled he or she will become at it. Which of the following statements strengthens Li's belief?

A) Employees will feel a sense of job dissatisfaction and will lose their overall enthusiasm for their jobs.

B) The work of employees will speed up while compromising their attention to detail.

C) This method of training requires a lot of time, effort, patience, and finances.

D) Employees will find better ways at completing the same task.

Answer: D Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 35) Learning and experience curves require ________ volume production or data.

A) cumulative B) divisional C) multiplicative D) subtractive Answer: A Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Reflective Thinking 36) A group of students studying a firm named Sanders & Collins Corp. found that the workers initially learned their task-related activities very fast. In turn, this helped the firm reduce the labor cost incurred in producing each product. However, their rate of learning these tasks reduced over time. This scenario best illustrates the ________ curve.

A) experience B) learning C) value D) scale Answer: B Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 12

37) In a recent presentation by the management of Seas Inc., the presenters conducted a discussion with a pictorial chart on the cumulative units of production of the company and its correlation with the cost per unit of the product. Which of the following charts did the presenters of Seas discuss?

A) The learning curve B) The experience curve C) The scale curve D) The value curve Answer: B Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 38) Vladimir, the CEO of Autumn Inc., claims that a learning curve is a better option of identifying the growth of the company. His assistant, Mark, states that growth can be better assessed if a scale curve is used to measure reliable and validated results and moreover it shows results of a specific time period. Which of the following statements strengthens Vladimir's claim?

A) A scale curve captures the effects of economies of scale.

B) A learning curve assesses the overall company from its inception.

C) Results of the assessment will definitely contain certain irregularities.

D) Both the processes are cumbersome and will require expertise to acquire necessary data.

Answer: B Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 39) Indigo Inc. experienced a drop in the price of each product as the overall volume of production increased. This relationship or method caused an increase in profits accrued by the company. This is an example of the law of ________.

A) motion B) experience C) value D) knowledge Answer: B Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 13

40) If a company attempts to double its volume so that it is in the top two businesses by volume, it is using a(n) ________ strategy.

A) acquisition B) cost-management C) growth D) pricing Answer: C Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 41) If a company can use the curve to anticipate future costs at different levels of volume, it is using a(n) ________ strategy.

A) acquisition B) cost-management C) growth D) pricing Answer: D Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Analytic 42) If a company pays more to produce a product than its competitors, it is using a(n) ________ strategy.

A) acquisition B) cost-management C) growth D) pricing Answer: B Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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43) If a company purchases another company to gain synergies from that company, it is using a(n) ________ strategy.

A) acquisition B) cost-management C) growth D) pricing Answer: A Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 44) Mercury Corp., a startup company, is sure that it will achieve a steep curve of 75 percent as it is selling a unique product that has not been introduced into the market before. The company is confident that this product will be sold at a fast rate due to two reasons: the product is a necessity in every home, and it is a break-through solution. Mercury sees this product as helping the company grow at a fast pace. Which of the following strategies has Mercury Corp. adopted?

A) The growth/investment strategy B) The pricing strategy C) The cost-management strategy D) The acquisition strategy Answer: A Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 45) Lavender Inc., a computer manufacturing company, sells its products at lower prices than its competitors to gain market share and subsequently increase their profitability. The scenario best illustrates the ________ strategy.

A) acquisition B) cost-management C) pricing D) investment Answer: C Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic

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46) Trends Inc. has been awarded the best branded clothing company award for three years consecutively. The CEO of the company stated that this was possible due to the company strategically lowering the cost of each unit produced, and successfully maintaining that method to effectively contain finances. While comparing Trends with other similar production companies, it was found out that the company did certainly collect more profit than the others.

The scenario best illustrates the ________.

A) acquisition strategy B) investment strategy C) pricing strategy D) cost-management strategy Answer: D Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 47) Rinkon Inc., an automobile company, purchased its competitor TrackRoads Inc. that had similar production quantities and a sufficient amount of raw materials. This takeover was done to decrease the unit cost production of Rinkon and to increase its production using more equipment in Rinkon. This strategy led to record profits and more customers investing their finances on cars manufactured by Rinkon. The scenario best illustrates the ________ strategy.

A) acquisition B) pricing C) cost-management D) investment Answer: A Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic

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48) Ming Gardens Corp., an interior design company, is solely owned by Veronica. The company has been able to achieve competitive advantage due to the knowledge acquired by Veronica over the years. This knowledge was attained under the protective custody of Veronica, and she does not want to publish them to anyone. This scenario reflects the development of ________.

A) procedural wisdom B) proprietary knowledge C) collective intellect D) explicit knowledge Answer: B Diff: 3 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Application Standard 1: AACSB || Analytic 49) Proprietary knowledge refers to ________.

A) resources such as people, information, or financing that are put into a system B) the plan and set of activities implemented by a company C) the sequence of all activities that are performed by a firm D) information that is not public and that is viewed as the property of the holder Answer: D Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 50) Which of the following statement is true of the learning curve?

A) It is simpler to calculate than a scale curve.

B) It is a tool that managers use to determine the emotional quotient of an employee.

C) It is the concept that labor costs per unit decrease with increases in volume due to learning.

D) It is a graphic representation of the relationship between cost per unit and scale of production.

Answer: C Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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51) Identify a true statement about the experience curve.

A) It is a graphic representation of the relationship between cost per unit and scale of production.

B) It is a tool that managers use to determine the learning capability of an employee.

C) It is simpler to calculate than a scale curve.

D) It is a representation of the relationship between cumulative volume and product cost.

Answer: D Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 52) Which of the following statements best defines the law of experience?

A) Costs per unit decrease with increases in cumulative volume of production B) Average total cost of production decreases as a result of an increase in the number of different goods produced C) Cost per unit decreases with the increase in the years of experience of employees D) Marginal cost increases when output is increased Answer: A Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 53) To a strategist, what does the logic of the experience curve suggest?

A) The company with the highest volume in an industry will also be the lowest-cost producer.

B) The company with the steepest learning and experience curves will also be the lowest-cost producer.

C) The company with the lowest market share in an industry will also be the highest-cost producer.

D) The company spending the most on advertising in an industry will also be the lowest-cost producer.

Answer: A Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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54) In the context of the experience curve, what did early work by the Boston Consulting Group show?

A) A company's relative market share was a key indicator of competitive advantage and profit performance.

B) Learning and experience curve slopes tend to be steeper in the later stages of production.

C) The slope of an experience curve is described by the reduction in costs.

D) Scale curves and experience curves tend to be steeper in service industries when compared to manufacturing industries.

Answer: A Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 55) A scale curve slope in a particular industry that is quite steep indicates that ________.

A) first movers in a fast-growing market will end up with a cost disadvantage B) first movers in a fast-growing market will secure a widening cost advantage C) the firms in that industry will have a low cost per unit production D) the output of the firms will not be able to meet the minimum efficient scale Answer: B Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 56) ________ are any purchases that are made by a firm in the course of conducting business activities.

A) Incomes B) Inputs C) Outcomes D) Outputs Answer: B Diff: 1 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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57) ________ include raw materials, supplies, parts, and equipment.

A) Incomes B) Inputs C) Outcomes D) Outputs Answer: B Diff: 1 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 58) ________ include labor, capital, and land.

A) Incomes B) Inputs C) Outcomes D) Outputs Answer: B Diff: 1 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 59) The board of directors of Colors Corp., a new startup, chalked out a list of resources that would be needed to optimize the efficiency of the company. It needed a human resources department to take care of recruitment, a few suppliers to provide raw materials, a few data recording equipment such as computers to store and manage data, and a large geographical area to start the company. The board stated that these provisions would help the company obtain desired profits. The resources and provisions mentioned in this scenario are examples of ________.

A) outputs B) incomes C) inputs D) outcomes Answer: C Diff: 3 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic

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60) Yellow Corp., a supplier that provides raw materials to a leading computer brand, had to lower its costs by 7 percent as the computer brand doubled its order. As a result, Yellow Corp. experienced economies of scale. This negotiation tactic is an example of ________.

A) task specialization B) purchasing volume C) learning curves D) competitive advantage Answer: B Diff: 3 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic 61) Five Checkers Inc. has been able to purchase more supplies for less money than its competitors. Five Checkers makes use of a set of communication skills that create compromising deals with its suppliers. Sound reasons are stated by Five Checkers to show why the suppliers must reduce their prices. The reasons are accepted by the suppliers and thus have helped increase profits for Five Checkers Inc. In this scenario, Five Checkers Inc. used ________.

A) purchasing volume B) negotiating volume C) learning curves D) negotiating tactics Answer: D Diff: 3 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic

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62) String Line Inc. has established a loyal supplier base. The management at String Line had created a system in which it chooses a supplier that is reasonably affordable, and instead of quoting the company's price and demanding that it be met, it complies with the supplier's quotes.

Over time, this has established a bond of loyalty with the supplier. When String Line opened a new branch, the supplier built its plant close to the branch to save transportation costs. Which of the following has String Line Inc. established with the supplier?

A) Rivalry B) Cooperation C) Competition D) Access Answer: B Diff: 3 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic 63) ________ refer to the amount of money employees get paid.

A) Economies of scale B) Exchange rates C) Raw material costs D) Wage rates Answer: D Diff: 2 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 64) ________ refer to the cost of converting money from one country's currency to another country's currency.

A) Economies of scale B) Exchange rates C) Raw material costs D) Wage rates Answer: B Diff: 2 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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65) ________ refer to the costs associated with buying materials from the ground such as digging materials out of the ground or cutting down trees.

A) Economies of scale B) Exchange rates C) Raw material costs D) Wage rates Answer: C Diff: 2 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 66) Techno Inc. is a computer hardware company that gets its computer parts from countries that manufacture them for lesser price than what its competitors pay and at a better quality. This allows Techno to save on the prices paid for the raw materials and use them to increase its production volume. Which of the following is Techno Inc. practicing to attain cost advantage?

A) Transportation rates B) Raw material rates C) Exchange rates D) Wage rates Answer: D Diff: 3 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic 67) Suppose a garment manufacturer named Vogue Inc. buys materials from another country that is well known for its cotton and silk exports. Recently, the currency of this country fell, which enabled Vogue Inc. to purchase more raw materials. Vogue Inc. achieved cost advantage through ________ rates.

A) labor B) wage C) exchange D) transportation Answer: C Diff: 3 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic

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68) ________ is a set of activities used to deliver similar value to customers.

A) A business model B) Employee specialization C) A value chain D) Task specialization Answer: A Diff: 1 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 69) ________ refers to the sequence of all activities that are performed by a firm to turn raw materials into the finished product that is sold to a buyer.

A) A business model B) Employee specialization C) The value chain D) Task specialization Answer: C Diff: 1 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) BizTechno Inc. has always retained competitive advantage over its competitors. The company has offered customer satisfaction for many years by providing the best services and benefits for them. The resources, capabilities, and the organizational structure of the organization have also created an increased edge over its competitors. Which of the following does this scenario best illustrate?

A) Business model B) Employee specialization C) Value chain D) Task specialization Answer: A Diff: 3 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic

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71) TrueBiz Corp. follows a system wherein all the activities of the company are directed toward converting parts of a product into an entire finished good. These activities are done in tandem so that a perfected product can be created which can be sold to a prospective customer. This is an example of a ________.

A) supplier chain B) value chain C) product line D) pricing chain Answer: B Diff: 3 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic 72) VisionZed Inc., a computer software company, spends a lot of finances on research. It tries to implement the latest technologies available and provides services that are matchless when compared to any of its competitors. At the same time, Xtron Technologies Corp., another computer software company, pays half the price that VisionZed pays on research as it combines the intelligence of different software companies and creates its product. This enables Xtron to have a cost advantage over VisionZed. Xtron Technologies Corp. is an example of a company that eliminates steps in the ________ chain.

A) supply B) growth C) value D) pricing Answer: C Diff: 3 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Application Standard 1: AACSB || Analytic

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73) Identify a primary way in which companies achieve cost advantage through lower-cost inputs.

A) By allowing suppliers to exercise strong bargaining power B) By cooperating especially well with suppliers C) By getting inputs from far-off locations D) By blocking access to inputs for other companies Answer: B Diff: 2 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 74) Identify a way in which companies can create a new business model to achieve cost advantage.

A) By exercising strong bargaining power over suppliers B) By eliminating activities in the value chain C) By lowering the wages of the human resources D) By automating the production line Answer: B Diff: 2 Section Reference: 4: Different Business Model or Value Chain Learning Objective: 4: Explain two changes in a firm's business model that can enable a cost advantage strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 75) A strategy in which the unique value offered to customers is lower-priced products or services is known as ________.

Answer: cost advantage strategy Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Analytic 76) Information that is not public and that is viewed as the property of the holder is called ________.

Answer: proprietary knowledge Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Analytic 26

77) When do economies of scope come into existence?

Answer: Economies of scope exist when the cost of conducting two business activities within the same company is less than the cost of those same two businesses operated separately.

Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 78) Explain why a learning curve is more complex than a scale curve.

Answer: The learning curve is more complex than a scale curve to calculate because it requires gathering data on the cumulative volume of a given product or service produced, the total amount since a company started making the product or providing the service. In contrast, the scale curve shows how costs per unit change with increases of volume of production during a given time period, such as a quarter, half-year, or year. It is easier for companies to obtain cost information from specific time periods.

Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic 79) Which is an important source of proprietary knowledge?

Answer: Patents are often important sources of proprietary intellectual property.

Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Analytic 80) Define economies of scale and list out its four principal sources.

Answer: Economies of scale exist when there is a reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases. In other words, economies of scale exist when an increase in company size lowers the company's average cost per unit produced. Economies of scale arise from four principal sources: the ability to spread fixed costs of production, the ability to spread nonproduction costs, specialization of equipment, and specialization of people.

Diff: 1 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Knowledge Standard 1: AACSB || Analytic 27

81) Define the cost advantage strategy and its characteristics.

Answer: Some companies use the basic premise of "practice makes perfect" to help them pursue a cost advantage strategy. These companies are relying on the fact that humans can perform tasks more efficiently–more quickly, with greater dexterity–the more a task is repeated.

Doing a task a lot of times also often helps people become more effective, that is, they find better ways to complete the task. Researchers and strategists measure the effects of learning and experience using the learning curve and the experience curve.

Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Analytic 82) Define scale curve.

Answer: The scale curve is a graphic representation of the relationship between cost per unit and scale (volume) of production in a given time period. The scale curve shows how costs per unit change with increases of volume of production during a given time period, such as a quarter, half-year, or year, because it is easier for companies to obtain cost information from specific time periods. Scale curves are applicable to service, as well as manufacturing, industries.

Diff: 2 Section Reference: 1: Economies of Scale and Scope Learning Objective: 1: Differentiate between economies of scale and scope, and describe how both produce cost advantages.

Bloom code: Comprehension Standard 1: AACSB || Analytic 83) Define learning curve and experience curve. Compare them with each other.

Answer: The learning curve is the concept that labor costs per unit decrease with increases in volume due to learning. New skills or knowledge can be quickly acquired initially, but subsequent learning becomes much slower. The learning curve is a tool that managers can use to determine the contribution of human learning on the part of employees to reductions in costs per unit. Learning curve advantages are relevant in manufacturing as well as service industries such as accounting, consulting, legal services, and even personal services like hair styling.

The experience curve is a representation of the relationship between cumulative volume and product cost and shows how costs per unit change with increases in cumulative volume produced. An experience curve does a better job of capturing the effects of economies of scale than a learning curve does, because it includes all costs, not just labor.

Diff: 2 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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84) Explain proprietary knowledge and its important sources.

Answer: In some cases, companies are able to achieve a cost advantage due to proprietary knowledge that is independent of scale or output. Proprietary knowledge is information that is not public and that is viewed as the property of the holder. Patents and trade secrets are often important sources of proprietary intellectual property.

Diff: 1 Section Reference: 2: Learning and Experience Learning Objective: 2: Describe what an experience curve is and how it can be used to make effective business decisions.

Bloom code: Knowledge Standard 1: AACSB || Analytic 85) Mention the four ways that companies achieve cost advantage through lower-cost inputs and explain bargaining power over suppliers.

Answer: Inputs are resources such as people, raw materials, energy, information, or financing that are put into a system (such as an economy, manufacturing plant, computer system, etc.) to obtain a desired output. There are four primary ways that companies achieve cost advantage through lower-cost inputs: (1) exercising strong bargaining power over suppliers, (2) cooperating especially well with suppliers, (3) getting inputs from low-cost locations, and (4) arranging better access to inputs than other companies have.

Perhaps the most important way that companies get lower-cost inputs is by having greater bargaining power over suppliers than their competitors do. There are two main sources of bargaining power: buying a lot from the supplier and using successful negotiating tactics.

(1) Purchasing Volume: Perhaps not surprisingly, suppliers can be expected to drop prices when buyers increase their volume of purchases. Indeed, as a rule of thumb, suppliers are known to drop prices by 5 to 10 percent with a doubling of purchased volume. At high volumes, suppliers experience economies of scale and the law of experience, so they can lower their prices.

(2) Purchasing and Negotiating Tactics: Even when two firms purchase similar volumes of inputs, one of the firms may have negotiation skills and purchasing tactics that allow it to get inputs at lower prices.

Diff: 2 Section Reference: 3: Lower Input Costs Learning Objective: 3: Discuss sources of lower input costs and how they provide the basis of a cost advantage strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 5 Differentiation Advantage 1) A strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services is known as ________.

A) product depreciation B) mass customization C) product differentiation D) service dissemination Answer: C Diff: 1 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) Purple Inc., an interior design company, offers its clients unique design solutions. Clients can choose from Purple's in-house products, customize them to meet their needs, and see how their home would appear using a 3D visualization software in a mini theatre at Purple's office. This gives Purple a competitive advantage over its rivals since none of them offer this unique combination of services. Purple's advantage is due to its ________ strategy.

A) service standardization B) mass customization C) product differentiation D) supply-driven Answer: C Diff: 3 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 3) Leo Corp., a mobile manufacturer, attains competitive advantage over its rivals by providing unique features in the phones they manufacture, such as a 3000 mAh battery, facial recognition software, and customized applications. Which of the following is Leo trying to attain through these additional product features?

A) Service standardization B) Mass customization C) Product depreciation D) Product differentiation Answer: D Diff: 3 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 1

4) Which of the following is true of product differentiation?

A) It is a matter of customer thought and perception.

B) It cannot occur when two companies use similar technologies.

C) It does not typically require higher costs.

D) It is independent of intangible features such as brand image and value.

Answer: A Diff: 2 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 5) When the perceived value of the product increases in the mind of the customer, it ________.

A) decreases the customer's willingness to pay B) decreases the technical features of the product C) increases the customer's willingness to pay D) increases the technical features of the product Answer: C Diff: 1 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 6) Identify a true statement about product differentiation.

A) When the perceived value of a product increases in the mind of the customer, it also increases the customer's willingness to pay a higher price.

B) Companies that invest resources to create unique features in their products often charge a lower price.

C) It exists only when the products of two different companies are different in terms of technical features.

D) It is a strategy whereby companies attempt to gain advantage by producing similar products in bulk to reduce costs.

Answer: A Diff: 2 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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7) Which of the following is NOT a source of differentiation advantage?

A) Better quality B) Convenient purchase C) Lower cost D) Superior features Answer: C Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) Willow Inc., a company that designs and manufactures watches, designs a digital watch allowing users to sync it with their mobile phones. It has a touchscreen, microphone, and Bluetooth device installed in it. The watch is also water-resistant for up to 200 meters. The other general features of the watch remain the same. Which of the following statements is true in this case?

A) The touchscreen feature enables the product to do more jobs on existing functions in terms of product differentiation.

B) The Bluetooth device feature enables the product to do a better job of the existing functions in terms of product differentiation.

C) The water-proof feature enables the product to do more jobs in terms of product differentiation.

D) The microphone feature enables the product to do a unique job in terms of product differentiation.

Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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9) Time-Threads Inc. sells storage devices, such as memory cards, thumb drives, and external hard disks. Which of the following is most likely true if it achieves product differentiation by designing its products to perform more jobs than its competitors?

A) Its thumb drives come with a tracker to help users locate them.

B) Its memory cards offer more space than most others in the market.

C) Its hard disks are designed for quicker copying of files from various mediums.

D) Its instructions manuals are printed in more languages than its competitors.

Answer: C Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 10) When a company mass-produces the various modules of a product and then allows customers to select which modules will be combined together, it is known as ________.

A) mass standardization B) product standardization C) product differentiation D) mass customization Answer: D Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 11) Ochre Inc. manufactures accessories such as belts, bags, and shoes. It produces the basic models of all these items on large scale. However, customers can customize these products by choosing embellishments of their choice, such as zippers, straps, and buckles. Ochre's manufacturing process best exemplifies ________.

A) mass optimization B) mass customization C) mass consumerism D) mass production Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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12) Juan, the manager of Pvari, a chain of jewelry stores, claims that mass customization is the best way to create value for their products. Nate, the senior designer, believes that every product must be customized from the pre-production stage. Which of the following statements will strengthen Juan's claim?

A) Designers feel their creative skills will be underutilized in mass production.

B) The production costs will reduce to half if products are made in large scale.

C) Customers love the idea of designing their own jewelry from scratch.

D) Their clientele includes a niche group that prefers highly customized products.

Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 13) Gear-up Inc., an apparel brand, differentiates its products by manufacturing jeans that last longer than those of other brands. The fabric is durable and does not wear out even after years of regular use. This attracts customers despite Gear-up's high prices. Which of the following elements of product differentiation is Gear-up primarily providing?

A) Aesthetics B) Quality C) Convenience D) Quantity Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 14) Which of the following is necessary for a product to be considered reliable?

A) It needs to do a better job as far as performance on existing features is concerned.

B) It needs to do more jobs than products offered by other firms in the market.

C) It needs to last longer than products offered by other firms in the market.

D) It needs to offer unique functions and features that no other firm offers.

Answer: C Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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15) Which of the following products best exemplifies reliability?

A) A computer that has greater processing speed than others in the market.

B) A phone that offers the unique function of face recognition.

C) A washing machine that works optimally for many years.

D) An air conditioner that detects movement automatically.

Answer: C Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 16) In terms of product differentiation, convenience refers to ________.

A) how long a product will function B) how unique a product is when compared to others C) how efficient a product is in meeting consumers' primary needs D) how easy it is for customers to purchase a product Answer: D Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 17) Kiara states that, as a customer, the pen she had recently purchased was a very convenient product. In terms of product differentiation, which of the following is Kiara most likely to denote?

A) The pen lasted longer than pens by other brands.

B) The pen came in different colors and shapes.

C) The pen was made with high-quality plastic.

D) The pen was easier to purchase than other products.

Answer: D Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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18) Zmart is a retail chain that stocks a large variety of household products. Items include home appliances, clothing, and groceries. Customers prefer the store because they can buy everything they need under one roof. Zmart has more than 100 outlets across the state, which makes the store easily accessible for customers. These features of Zmart best exemplify the element of ________.

A) quantity B) convenience C) preference D) quality Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 19) Network ________ occur(s) when some products or services are more convenient to use because there is a large network of other users.

A) ethics B) effects C) latency D) virtualization Answer: B Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) Network effects exemplify the ________ element of ________.

A) cost leadership; convenience B) cost leadership; quality C) differentiation; convenience D) differentiation; quality Answer: C Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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21) Zeal Inc. launches a new software application. The application does not offer any new features but is cheap compared to others in the market. However, because of its low price, customers benefit from network effects. The application often crashes due to bugs in the software. Which of the following is likely to be true in this case?

A) Zeal's new product is an example of customization.

B) The users of the product can contact other users for queries.

C) Zeal's new product is likely to be considered reliable although not convenient.

D) The customers are likely to purchase it for the unique job the product does.

Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 22) When products are differentiated through marketing, via advertisements, promotions, and other marketing activities, it is known as brand ________.

A) availability B) conflict C) image D) loyalty Answer: C Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 23) Companies focus most on establishing brand image when ________.

A) they can differentiate their products based on their features B) the quality of their products is higher than that of others in the market C) the familiarity principle does not work for their products D) they have trouble differentiating their product based on convenience Answer: D Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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24) Tangerine Inc. differentiates its products by building a brand image, whereas Cloud Inc. does not rely on brand image to differentiate its products. Which of the following statements is likely to be true in this case?

A) Tangerine is likely to rely on product features to attract customers.

B) Tangerine is likely to use advertisements to differentiate its products.

C) Cloud is likely to use promotional tools to increase market share.

D) Cloud is unlikely to rely on reliability to boost sales.

Answer: B Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 25) Suede Inc., a company that manufactures bags, makes extensive use of advertising to compete in the market. The features of its product are similar to existing products in the market.

It uses other promotional tools such as discounts, coupons, and rebates to increase its customer base. In this scenario, which of the following elements does Suede rely on to differentiate its products?

A) Product reliability B) Convenience C) Brand image D) Quality Answer: C Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 26) When firms rely on brand image to differentiate products, some of them associate their products with positive qualities in the minds of customers. These are known as ________ brands.

A) prestige B) convenient C) utility D) functional Answer: A Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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27) Peter always buys shoes from Brown Boot's Inc., although other brands offering shoes of same quality are available closer to home and at lower prices. Brown Boots differentiates itself through a strong brand image. Their advertisements associate the brand with class, style, and elegance. Which of the following is a likely reason for Peter's preference toward Brown Boot's?

A) Quality B) Reliability C) Convenience D) Prestige Answer: D Diff: 3 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 28) Which of the following is a source of differentiation advantage?

A) More convenient to find, purchase, or use B) Reduced quality or reliability C) Manufacturing products with similar features D) Manufacturing different products for each feature Answer: A Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) Identify a way in which companies can differentiate their products based on features.

A) By offering customers a feeling of prestige upon using their products B) By making their products easily available to customers C) By designing products to be customizable by customers D) By designing products of superior quality compared to others in the market Answer: C Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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30) A product is said to be differentiated by quality or reliability when ________.

A) it gives customers a certain feeling or idea B) it is easily available when the customer needs or wants it C) it does a better job on features available in other products D) it does the same job as other products but does it for longer Answer: D Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 31) Firms use convenience as a source of differentiation advantage by ________.

A) making a product easier to find and purchase B) promoting a product through advertisements and promotions C) making a product identical to other products on the market D) selling their products only in the company's exclusive stores Answer: A Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 32) Which of the following is a characteristic of network effects?

A) They cannot be reproduced by competitors.

B) They make a service more convenient to use due to popularity.

C) They offer customers the satisfaction of owning a unique product.

D) They add more value to a product when the product has few customers.

Answer: B Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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33) When do companies often turn to brand image as a source of differentiation advantage?

A) When their products have achieved top-of-mind awareness in their customers B) When there is difficulty differentiating products based upon features, reliability, or convenience C) When their products or services have the largest network of loyal customers in the industry D) When they produce services that are more reliable than the services of their competitors Answer: B Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 34) Why do many people prefer prestige brands over other products in the same industry?

A) They always come with a longer warranty.

B) They help them feel part of an elite group or "club."

C) They are almost always manufactured in specialized plants with highly skilled workers.

D) They are functionally superior products which can be purchased at a much lower price.

Answer: B Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 35) ________ are groups of people who share similar needs and thus are likely to desire the same features in a product.

A) Customer segments B) Demographics C) Product attributes D) Psychographics Answer: A Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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36) Marketers do NOT typically segment markets by attributes of the ________.

A) customer B) functionality C) products D) suppliers Answer: D Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 37) Marketers do NOT typically segment markets by attributes of the ________.

A) customer B) job-to-be-done C) products D) suppliers Answer: D Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 38) Marketers do NOT typically segment markets by attributes of the ________.

A) customer B) customer's circumstance C) products D) suppliers Answer: D Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 39) ________ jobs help customers to do something that is desired.

A) emotional B) functional C) paid D) social Answer: B Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 13

40) ________ jobs help customers feel nostalgic, hopeful, or attractive.

A) emotional B) functional C) paid D) social Answer: A Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 41) ________ jobs help customers be perceived in a certain way by others.

A) emotional B) functional C) paid D) social Answer: D Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 42) The marketing department of a cosmetics brand conducts research. It finds that 40% of its customers said that they prefer the brand because they do not need to reapply the product often, while 30% said that they chose the brand because the products are organic. If the brand segments the customers by the features of the cosmetics they prefer, the segmentation is primarily based on ________.

A) brand image B) demographics C) product attributes D) psychographics of wholesalers Answer: C Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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43) Crimson Corp. designs its products based on the demographics of its customers. Jaded Inc. designs its products based on product attributes. Which of the following is likely to be true in this case?

A) Crimson is likely to consider reliability of products as the primary factor for customer segmentation.

B) Crimson is unlikely to consider customizability of products as the primary factor for customer segmentation.

C) Jaded is likely to consider income level of customers as the primary factor for customer segmentation.

D) Jaded is unlikely to consider quality of products as the primary factor for customer segmentation.

Answer: B Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 44) Sasha, the marketing head of a firm, believes that customers choose products to do jobs for them and that these jobs should be the basis for market segmentation. In this case, which of the following is Sasha likely to approve?

A) Segmentation based on age and gender of end consumers.

B) Segmentation based on features such as durability and quality.

C) Segmentation based on the functions provided by a product.

D) Segmentation based on socio-economic factors of customers.

Answer: B Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 45) Tina prefers buying products for the emotional dimension of the job they perform rather than their functional attributes. Jay prefers to buy products for the social dimension of the job they do rather than their functional or emotional attributes. In this case, which of the following is most likely to be true?

A) Tina buys a bike because of its low rate of fuel consumption.

B) Tina buys an original painting by her favorite artist even though it is not in good condition.

C) Jay buys a car he loves even though his friends think it does not look classy.

D) Jay buys a piece of furniture that allows more storage space despite its looking odd.

Answer: B Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 15

46) Mapping the ________ involves identifying all the steps through which customers pass from the time they first become aware of a need for a product to the time when they finally have to dispose of it or discontinue using it.

A) consumption chain B) consumption life cycle C) product life cycle D) purchasing chain Answer: A Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 47) The research and development department of Chi Inc. studies the buying patterns of its customers. If it starts with the customers in the first step of the consumption chain, which of the following does it most likely study?

A) How do its customers find its products?

B) How do its customers order its products?

C) How do its customers become aware of their needs?

D) How do its customers pay for the products?

Answer: C Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 48) At Red Inc., a retail store, Mark, the manager, maps the consumption chain to understand the buying patterns of the consumers. He has identified how consumers become aware of their needs for products or services. Which of the following is he likely to do next?

A) He identifies how consumers find the store's offerings.

B) He identifies why dissatisfied consumers return products.

C) He identifies the kind of help that consumers need to use their products.

D) He identifies the mode used to pay for the products.

Answer: A Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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49) During the process of mapping the consumption chain of a product, Nina looks at the methods followed by companies that send their engineers to check laptops when they detect that a possible bug could be affecting a system. Which of the following questions does this example address?

A) What if customers are not satisfied and need a return or exchange?

B) What help do customers need to become familiar with the product?

C) How is your product stored?

D) How is your product repaired, serviced, or disposed of?

Answer: D Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 50) Tracie, the CEO of Bonney's Inc., wanted to analyze what customers think of their products.

She began her survey by finding out how her customers become aware of their needs, how they find the products, how they purchase products, and how the products are serviced or repaired.

These steps are part of ________.

A) mapping the consumption chain B) studying the value chain C) studying the production cycle D) mapping the supply chain Answer: A Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 51) Kim, a consumer, is in the final stage of selecting a product. Which of the following is true if her actions follow the typical consumption chain?

A) Kim is unlikely to have become aware of her need for a product yet.

B) Kim is likely to be persuaded by the product attributes at this stage.

C) Service providers are likely to assist Kim in helping her use the product.

D) Service providers are likely to detect faults with the performance of the product.

Answer: B Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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52) Leo Foods is an eatery that sells organic food. It opens a number of outlets across the state, creates a website that makes ordering and take-away easy, and also does not charge a delivery fee for its regular customers. Which step of the consumption chain does this scenario depict?

A) The sixth step: how is your product stored/moved around?

B) The fourth step: how do consumers become aware of their need?

C) The tenth step: how is your product/service paid for?

D) The second step: how do consumers find your offering?

Answer: D Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 53) Home Shore Inc., an electronics store, provides value to its customers by setting up televisions at customers' homes for free. The company also provides instructional manuals on how to set them up without professional help. Which step of the consumption chain does this scenario depict?

A) The sixth step: how do consumers find your offering?

B) The seventh step: how is your product stored/moved around?

C) The tenth step: what if customers are not satisfied and need to return or exchange?

D) The fifth step: how is your product/service delivered?

Answer: D Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 54) Floyd Inc., a manufacturer of washing machines, encourages customers to choose their brand through extensive marketing. Features of Floyd's products are compared with those of other brands, and customers are made to see the benefits they get from purchasing Floyd's products.

Which step of the consumption chain does this scenario depict?

A) The eighth step: what do customers need help with when they use your product?

B) The ninth step: what if customers are not satisfied and need a return or exchange?

C) The third step: how do consumers make their final selections?

D) The fourth step: how do customers order and purchase your product?

Answer: C Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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55) Rita lives in a dorm with other students at her college. She hesitates to buy furniture owing to lack of space. She wants to buy a new study desk, one that can easily fold away and be dismantled so that it does not occupy much space when not in use. What is Rita's main concern?

A) How to use the product B) How to store the product C) How to assemble the product D) How to locate the product Answer: B Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 56) Economists use the word ________ to refer to products or services that are frequently bought and used together.

A) complements B) contingencies C) scalability D) united Answer: A Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 57) Saturn Inc., a manufacturer of home appliances, familiarizes customers with its products through advertising. Apart from attracting new customers, it offers quick demos in mass media that assist existing customers. Which of the following stages in the consumption chain is depicted in this scenario?

A) The eighth step: what do customers need help with when they use a product?

B) The ninth step: what if customers are not satisfied and need a return or exchange?

C) The third step: how do customers make their final selections?

D) The fourth step: how do customers order and purchase a product?

Answer: A Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic

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58) Whenever customers of Black Inc., a mobile manufacturer, have a complaint to make about a product not being up to the mark, the company makes it a point to contact the customer or even go to their homes to understand the issue. The company believes that this will help retain customers and create better products. Which step of the consumption chain is this scenario depicting?

A) The third step: how do consumers make their final selections?

B) The fifth step: how is your product/service delivered?

C) The sixth step: how is your product/service paid for?

D) The ninth step: what if customers are not satisfied and need a return or exchange?

Answer: D Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Application Standard 1: AACSB || Analytic 59) Which of the following questions denotes the last step in a consumption chain?

A) How do consumers find your offering?

B) How is your product stored/moved around?

C) How is your product repaired, serviced, or disposed of?

D) How is your product/service delivered?

Answer: C Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 60) Frieda, the manager of a retail store, believes that a customer, Jake, is in the selection making stage. Nina, the salesperson, believes that Jake is at the stage where he requires help in using the product. Which of the following statements strengthens Frieda's argument?

A) Jake is unaware of his need for a product.

B) Jake had placed an order for the product earlier and was in the store to pick it up.

C) Jake is comparing the product features offered by two brands.

D) Jake had purchased the product and is looking for a manual.

Answer: C Diff: 3 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking

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61) How do companies pursuing customer segmentation as a differentiation strategy become successful?

A) By grouping customers based on similar needs B) By designing a specific product for each customer C) By creating products that meet the needs of their entire customer base D) By allowing customers to customize their products based on their individual preferences Answer: A Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 62) Marketers typically segment markets based on ________.

A) the production capacity of a firm B) various attributes or the price of products C) the number of competitors in the market D) network effects that make products convenient to use Answer: B Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 63) What is meant by mapping the consumption chain?

A) Differentiating products by associating them with positive qualities in the minds of customers B) Grouping customers based on similar needs C) Identifying all the steps through which customers pass, from the time they first become aware of a product to the time they have to dispose it D) Differentiating products through marketing via advertisements, promotions, and other marketing activities Answer: C Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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64) Identify the best way a company can enable consumers to find its products once they are aware of a need.

A) By investing heavily in marketing B) By imitating the product design of a successful brand C) By placing the products at convenient locations where consumers are likely to find them D) By selling the products solely at certain shops at a significantly high price Answer: C Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 65) Which of the following ways can be used by companies to influence a consumer's product selection process?

A) Imitating the product design of a successful brand B) Making the product easier to find and purchase C) Designing products to signal the user when they are no longer effective and have to be replaced D) Providing customers with side-by-side comparisons of their products with those of competitors Answer: D Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 66) ________ requires acquiring and allocating resources.

A) Segmentation of the market B) Mapping the consumption chain C) Building the capacity to deliver unique value D) Analyzing a company's differentiation strategy Answer: C Diff: 2 Section Reference: 4: Building the Resources and Capabilities to Differentiate Learning Objective: 4: Discuss how to build the resources and capabilities to differentiate.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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67) A ________ is a tool for assessing customer satisfaction.

A) appreciation score B) consumption chain C) net promoter score D) production chain Answer: C Diff: 1 Section Reference: 4: Building the Resources and Capabilities to Differentiate Learning Objective: 4: Discuss how to build the resources and capabilities to differentiate.

Bloom code: Knowledge Standard 1: AACSB || Analytic 68) Identify a true statement about the Net Promoter Score.

A) It is a tool used to assess a business model.

B) It is used to measure the brand image of a product.

C) It is used to build resources and capabilities to deliver value.

D) It is a useful tool for assessing customer satisfaction.

Answer: D Diff: 2 Section Reference: 4: Building the Resources and Capabilities to Differentiate Learning Objective: 4: Discuss how to build the resources and capabilities to differentiate.

Bloom code: Comprehension Standard 1: AACSB || Analytic 69) When products are differentiated by being associated with positive qualities in the minds of customers, they are considered ________.

Answer: prestige brands Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) Network effect occurs when some products or services are more convenient to use because there is a ________ of other users.

Answer: large network Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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71) ________ is grouping customers based on similar needs.

Answer: Customer segmentation Diff: 1 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 72) What are the three ways in which product features can be offered for the purpose of differentiation?

Answer: The following are the three ways in which product features can be offered.

1) The product does a "better job" of meeting a customer need on existing product features.

2) The product does "more jobs" for a customer than other products.

3) The product does a "unique job" that nothing else does.

Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 73) Briefly discuss the questions that a company must ask in order to figure how to deliver the unique value of a product.

Answer: It is important for a company to figure out how to deliver the unique value of a product. For example, how does a company consistently offer different features in its products?

How does a company deliver high quality and reliability? How does a company build a brand image? Building the capacity to deliver unique value requires acquiring and allocating resources.

Diff: 2 Section Reference: 4: Building the Resources and Capabilities to Differentiate Learning Objective: 4: Discuss how to build the resources and capabilities to differentiate.

Bloom code: Comprehension Standard 1: AACSB || Analytic 74) Explain product differentiation.

Answer: Product differentiation is a strategy whereby companies attempt to gain competitive advantage by offering value that is not available in other products or services or that other products do not do as well. This value may come in the form of different product features, product quality or reliability, convenience, or brand image. It is important to remember that product differentiation is always a matter of customer perception. The actual products of two different companies may be similar in terms of technical features, but if one product is perceived as being different in a way that is valued by customers, then product differentiation exists.

Diff: 1 Section Reference: 1: What Is Product Differentiation?

Learning Objective: 1: Define product differentiation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 24

75) Define mass customization and explain what companies must do in order for this method to be successful.

Answer: Mass customization is when a company mass-produces the various modules of a product and then allows customers to select which modules will be combined together.

Companies that choose this approach must develop the resources and capabilities necessary to create their products in modules and to accurately combine those modules as customers request.

Diff: 1 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 76) What is brand image and when does a company make use of this product differentiation method?

Answer: Brand image is when products are differentiated through marketing, advertisements, promotions, and other marketing activities. Companies often turn to this source of advantage when they have difficulty differentiating their products based on features, reliability, or convenience. Numerous studies have shown that the more people are exposed to something, be it a brand, company, or product, the more they come to trust it.

Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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77) Explain how product features can be used to create differentiation in the market.

Answer: It is useful to think about offering different product features in three ways: 1) The product does a "better job" of meeting a customer need on existing product features.

2) The product does "more jobs" for a customer than other products.

3) The product does a "unique job" that nothing else does.

Does a better job on existing features: Some companies differentiate their products by focusing on one particular feature and doing a better job than other products of providing value on that particular feature. Some companies succeed by doing a better job providing service to customers by figuring out ways to exceed customer expectations.

Does more jobs: In some cases, a product might not do a better job on existing features but simply does more jobs, or meets more needs, for customers than competitor offerings.

Does a unique job: Some products do a completely unique job that other products simply do not do. Rather than simply doing existing jobs better or doing more of jobs than other products, they offer a completely new feature to the market.

Diff: 2 Section Reference: 2: Sources of Product Differentiation Learning Objective: 2: Describe the four major categories or sources of product or service differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 78) What is customer segmentation? Mention the three types of customer segmentation.

Answer: Customer segmentation involves grouping customers based on similar needs.

Customer segments are groups of people who share similar needs and thus are likely to desire the same features in a product. Along with defining customer segments, a company must choose which segments are actually in its target market. Marketers typically segment markets in one of three ways: 1) Based on various attributes or the price of products 2) Based on attributes of the individuals or companies who are customers, including demographics or psychographics 3) Based on the job-to-be-done view, an alternative way of segmenting customers that has emerged recently Diff: 2 Section Reference: 3: How to Find Sources of Product Differentiation Learning Objective: 3: Explain how to find sources of product differentiation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 6 Corporate Strategy 1) The search for competitive advantage within a single industry, market, or line of business best defines the term ________ strategy.

A) complementary service B) corporate C) business unit D) cost advantage Answer: C Diff: 1 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) The search for competitive advantage in several different industries and markets best defines the term ________ strategy.

A) business unit B) complementary service C) corporate D) cost advantage Answer: C Diff: 1 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) Which of the following statements best describes corporate strategy?

A) It is an approach for creating competitive advantage within a single industry, market, or line of business.

B) It refers to a firm's strategy of selling existing products to new customers.

C) It refers to a firm's strategy of selling new services to new customers.

D) It is an approach for creating value and competitive advantages through participation in several different industries and markets.

Answer: D Diff: 2 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic

1

4) Venus Inc. is a large firm that sells several healthcare products such as bathing soaps, shampoos, body creams, and baby products. Each of these products has its own customer base.

Individually, each of these products has upheld unique approaches to establish and maintain competitive advantage over its own rival companies that sell similar products. Which of the following strategies does Venus Inc. use for its products?

A) Business unit strategy B) Global marketing strategy C) Corporate strategy D) Economic spending strategy Answer: A Diff: 3 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Application Standard 1: AACSB || Analytic 5) Rest & Sleep Inc. is a mattress manufacturing firm. By manufacturing related products such as bed covers, comforters and quilts, and pillows, it has gained significant competitive advantage as it has managed to create profits in all these markets as well. Rest & Sleep creates a challenge for the other companies in the market by providing unique value through its customer services and warranties. Which of the following terms best describes what Rest & Sleep Inc. is practicing?

A) Market penetration B) Business unit strategy C) Corporate strategy D) Unrelated diversification Answer: C Diff: 3 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Application Standard 1: AACSB || Analytic 6) Movement into adjacent markets by a firm along its own value chain can be best termed ________.

A) vertical integration B) horizontal integration C) horizontal diversification D) vertical diversification Answer: A Diff: 1 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2

7) Movement into adjacent businesses or a new industry value chain can be best termed ________.

A) vertical integration B) horizontal integration C) horizontal diversification D) vertical diversification Answer: C Diff: 1 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) Brentwood Industries, a furniture company, bought a supplier factory that creates raw materials for the whole range of products Brentwood manufactures. Brentwood has made sure not to look for outside sources for providing the company's raw materials. Brentwood Industries is practicing ________.

A) market penetration B) unrelated diversification C) vertical integration D) horizontal diversification Answer: C Diff: 3 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Application Standard 1: AACSB || Analytic 9) The movement into an adjacent, or unrelated, market that is not along a firm's own value chain defines the term ________.

A) horizontal diversification B) vertical specialization C) forward integration D) backward integration Answer: A Diff: 1 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

3

10) Marble Cakes Inc., after serving a good number of customers in its home state, has set up business in three other states with additional menu options of cupcakes, donuts, and coffees to generate new customers. This has enabled the company to successfully maintain its corporate strategy. Marble Cakes Inc. is engaging in ________.

A) vertical integration B) horizontal specialization C) vertical specialization D) horizontal diversification Answer: D Diff: 3 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Application Standard 1: AACSB || Analytic 11) Pluto Corp. has been manufacturing hardware materials for its existing customer base for several years. Recently, the company introduced a new line of electronic products to its customers. Pluto Corp. is engaging in ________.

A) vertical integration B) market penetration C) value-based initiative D) horizontal diversification Answer: D Diff: 3 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Application Standard 1: AACSB || Analytic 12) Which of the following statements is true of a corporate strategy?

A) It refers to a management strategy that focuses solely on the professional behavior and attitudes of a company's employees.

B) It entails competing in a core industry or business and operating in adjacent businesses or markets.

C) It entails competing exclusively with large and well-established firms to increase competitive advantage.

D) It refers to the overall strategy that helps a company recruit the right type of employees for the right type of job.

Answer: B Diff: 2 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 4

13) Which of the following is an example of a horizontal diversification?

A) A new company selling a new product in the market B) An old company increasing its supply of existing products C) A company acquiring its raw materials from many parts of the world D) A new company trying to reintroduce an old product with improved advertising tactics Answer: A Diff: 2 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14) A ________ business is one where more than 95 percent of the revenues comes from one business.

A) dominant B) dominant horizontal C) dominant vertical D) single Answer: D Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 15) A single business is one where more than ________ percent of the revenues comes from one business.

A) 60 B) 75 C) 80 D) 95 Answer: D Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

5

16) Sparkle LLC, a beverage industry, earns almost all its profits only by selling beverages.

Sparkle LLC can be best categorized as a ________ business.

A) single B) diversified C) dominant vertical D) dominant Answer: A Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 17) A ________ business earns more than 70 percent of its revenue from its main line of business and the rest from businesses located along the value chain.

A) dominant B) dominant horizontal C) dominant vertical D) single Answer: C Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 18) A dominant vertical business earns more than ________ percent of its revenue from its main line of business and the rest from businesses located along the value chain.

A) 60 B) 70 C) 80 D) 90 Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

6

19) Backward integration refers to ________ businesses along the value chain.

A) cross-functional B) downstream C) internal D) upstream Answer: D Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) Forward integration refers to ________ businesses along the value chain.

A) cross-functional B) downstream C) internal D) upstream Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 21) Pisces Corp. is an apparel manufacturing company. It purchased a few of its raw material suppliers and set up their factories close to the clothing stores so that the company does not have to invest on transportation charges. This is an example of ________.

A) downward diversification B) forward integration C) backward integration D) horizontal diversification Answer: C Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic

7

22) Markus United Inc., a soap manufacturing company, maintained strategic advantage over other companies by retaining profits in a unique way. The company bought a few distributors in order to improve efficiency and cut down transportation costs while distributing its products to retail stores. The company generated more profits than its competitors this way. This is an example of ________.

A) horizontal diversification B) backward integration C) forward integration D) horizontal specialization Answer: C Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 23) Movement by a firm along its own value chain in the direction of sales, service, or warranty operations is termed ________.

A) horizontal specialization B) backward integration C) forward integration D) horizontal diversification Answer: C Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

8

24) The main focus of Neptune Corp. is to sell apparel, which amounts to 70 percent of its revenue. It also runs warehouses, distribution centers, and logistics as additional businesses that generate the rest of the 30 percent of the earnings. Which level of diversification is followed by Neptune Corp.?

A) Single business B) Dominant business C) Related-linked business D) Dominant vertical business Answer: D Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 25) A ________ business earns more than 70 percent of its revenue from its main line of business and the remainder from other lines across different value chains.

A) dominant B) dominant horizontal C) dominant vertical D) single Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 26) A dominant business earns more than ________ percent of its revenue from its main line of business and the remainder from other lines across different value chains.

A) 65 B) 70 C) 80 D) 95 Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9

27) Which of the following statements defines a dominant business?

A) A firm earning more than 95 percent of the revenues from a single line of business B) A firm that earns more than 70 percent of its revenue from its main line of business and the rest from businesses located along the value chain C) A firm that earns more than 70 percent of its revenue from its main line of business and the remainder from other lines across different value chains D) A firm that operates in related markets, but fewer linkages exist between the new and existing markets than the elements create separately Answer: C Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 28) A dominant vertical business differs from a dominant business in that a dominant business ________.

A) earns 30 percent of its revenue from businesses located along the value chain of its main line of business B) earns 30 percent of its revenue from business lines across different value chains C) earns less than 70 percent of its revenue from its main line of business D) earns more than 95 percent of its revenue from its main line of business Answer: B Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) Which of the following statements is true of a dominant vertical business?

A) It earns less than 70 percent of its revenue from its main line of business.

B) It earns more than 95 percent of revenue from its main line of business.

C) It earns 30 percent of its revenue from business lines across different value chains.

D) It earns 30 percent of its revenue from businesses located along the value chain.

Answer: D Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 10

30) A(n) ________ diversified firm earns less than 70 percent of its revenue from its main line of business and its other lines of business share product, technological, and distribution linkages with the main business.

A) related-constrained B) related-linked C) unrelated D) unrelated-constrained Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 31) Which of the following statements represents related-constrained diversification?

A) A firm earning more than 95 percent of the revenues from a single line of business B) A firm that earns more than 70 percent of its revenue from its main line of business and the rest from businesses located along the value chain C) A firm that earns less than 70 percent of its revenue from its main line of business and whose other lines of business share product, technological, and distribution linkages with the main business D) A firm that earns more than 70 percent of its revenue from its main line of business and the remainder from other lines across different value chains Answer: C Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic

11

32) Which of the following is a defining feature of firms that practice related-constrained diversification?

A) They earn more than 70 percent of their revenues from their main line of business and the rest from businesses located along the value chain.

B) They earn less than 70 percent of their revenues from their main line of business and their other lines of business share product, technological, and distribution linkages with the main business.

C) They operate in related markets, but fewer linkages exist between the new and existing markets than the elements create separately.

D) They earn more than 95 percent of the revenues from a single line of business.

Answer: B Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 33) Virgo Inc. earns less than 70 percent of its revenue from manufacturing computers. It recently started manufacturing tablets. The company made use of existing technology and materials and decided to distribute the tablets through the same distributors used for its computers. In this scenario, Virgo Inc. chose ________ diversification.

A) related-constrained B) related-linked C) unrelated-constrained D) unrelated-linked Answer: A Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic

12

34) A(n) ________ diversified firm has businesses that are still related but fewer linkages exist between the new and existing business.

A) related-constrained B) related-linked C) unrelated D) unrelated-constrained Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 35) Saturn Inc. is an e-commerce company that sells home appliances. The firm recently started selling its line of packaged food items online. In this scenario, Saturn Inc. chose ________ diversification.

A) unrelated-linked B) related-constrained C) unrelated-constrained D) related-linked Answer: D Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 36) A(n) ________ diversified firm competes in product categories and markets with few, if any, links between them.

A) related-constrained B) related-linked C) unrelated D) unrelated-constrained Answer: C Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

13

37) Azure LLC is a toy manufacturing company. The company has recently started manufacturing industrial wiring for construction companies. In this scenario, Azure LLC has chosen ________ diversification.

A) related B) unrelated C) related-linked D) related-constrained Answer: B Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 38) Zia, the CEO of Indigo Corp., states that it is essential to diversify the company into new markets and to create new products. She believes that it is important and profitable to tap new customer bases and challenging markets as this experience will help the company grow financially as well as enhance its knowledge base on strategic management. Which of the following statements strengthens Zia's belief?

A) Moderate diversification is effective but very high levels of diversification will lead to lower levels of performance.

B) The company will not be able to provide the same value and customer satisfaction when segmented.

C) Diversification will create a loss of revenue if the parent company decides to segment itself to different markets.

D) Diversification will reduce the company's overall cost of producing goods and services.

Answer: D Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking

14

39) Diversification adds value if ________.

A) the combined businesses deliver the same value every time to new or existing customers as before diversification B) the combined businesses reduce the firm's overall cost of producing goods or services C) expansion into an adjacent business requires fewer resources and capabilities D) expansion into an adjacent business requires reducing the existing production capacity Answer: B Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 40) If a business gets value from the "front-end" customer-facing part of the business and value through exploiting resources, that business will ________.

A) better serve existing customers through more and better products B) broaden existing production capacity C) enhance R&D capabilities or outputs D) identify new trends earlier Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 41) If a business gets value from the "front-end" customer-facing part of the business and value through expanding resources, that business will ________.

A) better serve existing customers through more and better products B) broaden existing production capacity C) enhance R&D capabilities or outputs D) identify new trends earlier Answer: D Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

15

42) If a business gets value from the "back-end" operational parts of the business and value through exploiting resources, that business will ________.

A) better serve existing customers through more and better products B) broaden existing production capacity C) enhance R&D capabilities or outputs D) identify new trends earlier Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 43) If a business gets value from the "back-end" operational parts of the business and value through expanding resources, that business will ________.

A) better serve existing customers through more and better products B) broaden existing production capacity C) enhance R&D capabilities or outputs D) identify new trends earlier Answer: C Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 44) A(n) ________ market is a closely related market for creating value and utility for customers.

A) adjacent B) broad C) enhanced D) shared Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

16

45) Elegant Meals Inc., a company that owns a chain of restaurants, sells dinnerware to its customers who fancy them. Since their restaurants are known for their interior designs, they also sell home décor products. By selling these products, Elegant Meals Inc. caters to a(n) ________ market.

A) entertainment B) capital C) adjacent D) global Answer: C Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 46) Winter Sources Inc., an apparel manufacturer, recently opened a retail store in its unused office space to sell the excess material produced. In this way, the company generated extra profits. The unused space that was available to Winter Sources Inc. is an example of ________.

A) kanban B) kaizen C) hubris D) slack Answer: D Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 47) Slack refers to ________.

A) a lag in the production B) unused resource capacity C) reduced production capacity D) a lack of adequate resources Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 17

48) Which of the following statements is true of slack?

A) Employing slack usually creates value through exploitation.

B) Slack adds value in the form of economies of scale.

C) Slack destroys value through expansion of resources.

D) It refers to the lag in production due to inadequate resources.

Answer: A Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 49) Economy of ________ arises when the average cost of producing two different products is less when delivered together than separately.

A) scale B) scope C) skill D) trend Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 50) Jupiter LLC is a manufacturer of leather items. The board of directors of Jupiter realized that it is better to produce handbags and shoes together rather than in two separate factories. This way, the company can reduce its production costs. This scenario best illustrates a(n) ________.

A) related-linked diversification B) unrelated diversification C) economy of scope D) economy of scale Answer: C Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic

18

51) Summer Technologies Inc. is proud of its managerial personnel who have been able to create unique value for the company. These people have been engaged in coming up with strategic activities that enabled Summer Technologies to grow and establish itself as a reliable brand. This set of abilities of the Summer Technologies personnel can most accurately be termed ________.

A) management skill B) employee expertise C) collective wisdom D) explicit knowledge Answer: A Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 52) Aquarius Corp., a consumer goods company, offers a chain of products that includes food and beverages, beauty care products, apparels, and home décor. By offering these goods, Aquarius creates more value for itself than it would have if it had sold these products individually. This practice by Aquarius Corp. can be referred to as ________.

A) imitation B) synergy C) a merger D) an acquisition Answer: B Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic

19

53) In the context of the six Ss, synergy occurs when ________.

A) managers of a company conceptualize the business and make critical human resource allocation decisions B) different elements of a system interact in a way that creates more value together than the elements create separately C) the combined business delivers the same value every time to new or existing customers as it did before diversification D) a company acquires unused redundant resources during an acquisition that expands slack Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 54) ________ are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.

A) Core competencies B) Dominant logic C) Inimitability practices D) Prestige development Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

20

55) Spring Resources LLC creates unique value by establishing a learning organization that coordinates various production tactics and assimilates different types of technologies. This knowledge is distributed to the entire organization so that its branches can adapt and perform according to their own markets. These tactics and technologies distributed throughout the organization that create value for Spring Resources LLC are termed ________.

A) inimitability practices B) prestige development C) core competencies D) dominant logic Answer: C Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 56) ________ is a method for enabling value to be created and exchanged between companies and their customers.

A) A business model B) A plan of action C) Dominant logic D) Shared knowledge Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

21

57) Galaxy Corp. is a manufacturing company that aims to provide value to its customers by identifying sources of revenue, the intended customer base, products and processes, and details of financing. This method that Galaxy Corp. wants to adopt is termed ________.

A) a plan of action B) a business model C) dominant logic D) prestige development Answer: B Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 58) ________ is the way managers conceptualize the business and make critical resource allocation decisions.

A) A business model B) A plan of action C) Dominant logic D) Shared knowledge Answer: C Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 59) Even though companies offer varied products and provide unique value to their customers, they have similar barriers to face when entering into a host country due to policies set up by the country's government. The similarities shared by the companies in the way they set up business in the country are an example of a(n) ________.

A) plan of action B) passive judgment C) dominant logic D) imitation Answer: C Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 22

60) In a(n) ________ market, companies create value across business units by moving funds, talent, or knowledge from unit to unit.

A) adjacent B) internal capital C) external capital D) related-constrained Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 61) Amber Corp., a jute manufacturing company, wants to diversify into the food industry. To do so, the board of directors decides to move some of its existing resources, expertise, and technology to set the base of the food unit. The market analysts at Amber predict that this unit has a high growth potential. Thus, rather than leaving the new food unit to grow on its own, the board decides to invest in it as it this will help increase the corporate value of the company. In this scenario, Amber Corp. is trying to create value by acting as a(n) ________ market.

A) adjacent B) internal capital C) external capital D) related-constrained Answer: B Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic

23

62) ________ units are judged on returns but they win when the technology available in a startup can be transferred to the corporate parent.

A) Corporate venture capital B) Initial public offering C) Public offering D) Venture capital Answer: A Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 63) Under which of the following circumstances does diversification destroy value?

A) When high-powered incentives for managers are provided B) When resource commonality between the lines of business exists C) When the new line of business expands the company's capabilities D) When the new line of business fails to exploit the company's resources Answer: D Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 64) Which of the following is an ancient Greek word for excessive pride, arrogance, or overconfidence that is used to refer to the actions of managers when they diversify or make acquisitions based on their own experience or gut feelings rather than on solid data and research?

A) Kanban B) Hubris C) Agora D) Kaizen Answer: B Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

24

65) Stacy works as a manager at Daffodils Corp., a manufacturing firm that has not been performing well. Despite the availability of research materials and databases, she uses her own experience to make acquisitions because she is usually very confident about the success of her plans. This attitude of Stacy can be termed ________.

A) hubris B) selfishness C) solipsism D) megalomania Answer: A Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 66) If a manager believes a failed acquisition just needs more incremental investment to succeed, that manager is engaged in ________.

A) arrogance B) hubris C) positive thinking D) a sunk cost fallacy Answer: D Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

25

67) A company called Techno Plus LLC experienced a failed acquisition, but the managers of the company were hesitant to end the venture as they had already invested too much time, finances, and effort into it. They presumed that everything would work out with a little more money and time. This attitude of the managers of Techno Plus LLC can be termed ________.

A) hubris B) arrogance C) positive thinking D) sunk cost fallacy Answer: D Diff: 3 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Application Standard 1: AACSB || Analytic 68) Which of the following statements is true of the sunk cost fallacy?

A) It refers to the decisions made by managers to diversify their corporation because their competitor diversified first.

B) It is based on the belief of firm managers about the potential of their company's ability to create value in the adjacent market.

C) It refers to the excessive pride, arrogance, or overconfidence of managers that leads to poor decisions while making acquisitions.

D) It is the belief of managers that investment in a failed acquisition must continue because significant amounts have already been invested.

Answer: D Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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69) According to the Boston Consulting Group's growth share matrix, cash cows are business units that ________.

A) have high relative market share but a low growth rate and which can generate large cash flows B) combine high share with high growth and which require heavy investments C) require significant investment and effective strategic management D) have low share and low growth and which add little profitability to a company Answer: A Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 70) According to the Boston Consulting Group's growth share matrix, which of the following is true of stars?

A) They are business units that have high share but low growth and which can generate large cash flows that can be used to fund growth businesses.

B) They are business units that combine high share with high growth and smart managers should invest heavily in these units to improve their position over time.

C) They are business units that require significant investment and effective strategic management.

D) They are business units that have low share and low growth and add little profitability to a company's overall portfolio businesses.

Answer: B Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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71) Identify a limitation of the Boston Consulting group's growth share matrix.

A) It is complex and difficult to understand.

B) It does not help in evaluating a firm's current portfolio.

C) It does not provide any guidance to the managers of firms about which business units to invest in and which business units to divest.

D) It says almost nothing about whether a business unit will help the corporation exploit or expand a company's resources and capabilities.

Answer: D Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 72) ________ means a company opens its own operations.

A) Acquisition B) Brownfield entry C) Greenfield entry D) Merger Answer: C Diff: 1 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 73) ________ makes the most sense when a company can afford to enter new arenas slowly and at small to moderate investment.

A) Acquisition B) Brownfield entry C) Greenfield entry D) Merger Answer: C Diff: 1 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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74) Lee, the CEO of Libra Inc., decided that the best way to diversify this food processing company would be to set up its own small-scale beverage producing unit in a new area where its new products would have high demands. This decision by Lee best reflects a(n) ________.

A) acquisition B) greenfield entry C) brownfield entry D) merger Answer: B Diff: 3 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Application Standard 1: AACSB || Analytic 75) ________ means a company outright purchases another company.

A) Acquisition B) Brownfield entry C) Greenfield entry D) Merger Answer: A Diff: 1 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 76) ________ makes the most sense when delaying entry into a market proves costly such as an industry with a steep learning or experience curve.

A) Acquisition B) Brownfield entry C) Greenfield entry D) Unrelated diversification Answer: A Diff: 1 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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77) Neon Colors Corp., a well-established apparel industry, increased its corporate value by purchasing a footwear company as part of its growth strategy. It purchased the footwear company because developing its own operations and processes would be expensive and time consuming. This is an example of a(n) ________.

A) merger B) brownfield entry C) acquisition D) greenfield entry Answer: C Diff: 3 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Application Standard 1: AACSB || Analytic 78) Under which of the following conditions should a firm ideally choose greenfield entry?

A) When access to channels is difficult and expensive B) When a rapid entry is needed to capture an opportunity C) When the company's brands are not well-known in a new market D) When the customers in a new market are similar to existing customers Answer: D Diff: 2 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Comprehension Standard 1: AACSB || Analytic 79) Under which of the following conditions should a firm ideally choose the acquisition mode of entry?

A) When it can afford to enter new arenas slowly B) When its industry favors competitors with small scale C) When its industry is characterized by a steep learning or experience curve D) When its industry demands standardized knowledge and skills that can be easily gained Answer: C Diff: 2 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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80) Before searching for a firm to purchase, managers must understand the real, value-creating need behind the move. This is a ________.

A) strong due diligence B) strong investment thesis C) weak due diligence D) weak investment thesis Answer: B Diff: 1 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 81) ________ is a close examination of the target firm to understand its core processes, strengths, and weaknesses.

A) Due diligence B) An investment thesis C) Market intelligence D) Unrelated diversification Answer: A Diff: 1 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 82) In order to successfully carry out an acquisition, the managers at Pink Inc. prepared a list of potential target companies that it could purchase. In the next step, the managers evaluated each prospective company in depth to understand their methods of operations, processes, procedures, strengths, and limitations to choose the best target company. This process of evaluating the companies is best known as ________.

A) due diligence B) market intelligence C) consultation D) market evaluation Answer: A Diff: 3 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Application Standard 1: AACSB || Analytic 31

83) In a ________, the acquiring firm breaks up the target firm and weaves its individual elements into the fabric of the acquiring firm.

A) greenfield entry B) merger C) takeover D) union Answer: C Diff: 1 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 84) Blue Work LLC, a software company, purchased an electronics and electrical company and implemented its resources and technologies in the target company. Blue Work changed the entire culture and brand of the target company and introduced its own culture such that the identity of the target company disappeared. Blue Work benefitted from this acquisition and witnessed a significant growth. This type of acquisition is known as a ________.

A) greenfield entry B) takeover C) union D) merger Answer: B Diff: 3 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Application Standard 1: AACSB || Analytic

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85) A ________ represents what companies do when they build one new firm from the components of the two.

A) greenfield entry B) merger C) takeover D) union Answer: B Diff: 1 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 86) BestBrew Corp. and True Coffee Inc. were two leading coffee manufacturing firms. They united and created a whole new firm called True Brew Inc. that used the best customer front-end and operational back-end processes of the two firms. This union is an example of a ________.

A) brownfield entry B) greenfield entry C) takeover D) merger Answer: D Diff: 3 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Application Standard 1: AACSB || Analytic

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87) Two firms recently had a bolt-on acquisition. Martha, the managing director of one of these firms, claims that an integration team is required to decide which tactical elements and operational functions of the two firms should be strategically integrated and implemented. She believes having this team will enable fair decisions to be made, thus inculcating a friendly atmosphere in the new firm. Which of the following statements strengthens Martha's claim?

A) Having the team may consume the company's time and effort, but in the long run, it may help the company grow.

B) The team members of the two firms may be biased toward their own firms, preventing fair implementation.

C) The team always makes sound decisions that are based on the integration templates that managers in the acquiring firm choose.

D) The team helps in deciding which culture will be incorporated in the new entity.

Answer: D Diff: 3 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 88) Acquisitions may fail to create value because of ________.

A) low acquisition price B) poor strategic fit C) loose integration D) complete due diligence Answer: B Diff: 2 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Comprehension Standard 1: AACSB || Analytic 89) When a firm moves to an adjacent business or enters a new industry value chain, it engages in ________ diversification.

Answer: horizontal Diff: 1 Section Reference: 1: Corporate Versus Business Unit Strategy Learning Objective: 1: Describe how a corporate strategy differs from a business unit level strategy.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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90) A firm earning more than 95 percent of the revenues from a single line of business is known as a ________.

Answer: single business Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic 91) What are the mechanisms that help companies in exploiting and/or expanding their resources and capabilities?

Answer: Exploiting and/or expanding the resources and capabilities usually come through one of six mechanisms. A mnemonic device of the six Ss helps one remember these important elements: employing slack, creating synergy, leveraging shared knowledge, utilizing similar models for success, spreading human and financial capital to its best use, or providing a steppingstone for the company to a completely new business sector.

Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 92) What does the term adjacent market mean?

Answer: An adjacent market is a market or industry that is closely related to markets or industries a firm currently competes in. The adjacent market may mean selling the firm's existing products to new customer groups, bringing new products and services to existing customers, or selling new products and services to new customers.

Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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93) How does diversification help exploit existing customer-facing resources?

Answer: Diversification allows companies to exploit their existing customer-facing resources by adding new operational resources and capabilities.

Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 94) Explain the ways in which diversification adds value.

Answer: Diversification adds value when it allows the combined businesses to deliver greater value and utility to new or existing customers than a firm could without being diversified.

Diversification also adds value if the combined businesses reduce the firm's overall cost of producing goods or services. Diversification adds value when expansion into an adjacent business either exploits the firm's core and valuable resources and capabilities or diversification enhances and grows the resource base. Diversification allows companies to exploit their existing customer-facing resources by adding new operational resources and capabilities. Diversification also creates value when it helps a company enhance its existing set of resources and capabilities or diversification enables it to prepare for the future.

Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic 95) What is a greenfield entry? When should a company use it?

Answer: A greenfield entry is defined as entry into an adjacent market by a firm that opens its own operation. Greenfield entry makes sense, first and foremost, when companies have the frontend and back-end resources and capabilities they can immediately exploit to create value.

Greenfield also makes sense when companies can afford to enter new arenas slowly and at small to moderate investment.

Diff: 2 Section Reference: 3: Methods of Diversification Learning Objective: 3: Use a portfolio management tool to characterize a company's different business units and to evaluate how well a company manages its portfolio.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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96) What are the two challenges related to acquisition premium that an acquiring firm faces when acquiring a target firm?

Answer: Acquirers must pay a premium to acquire a target; the premium represents a bet by the acquirer on its ability to create value through the acquisition. The acquisition premium creates two challenges for the acquiring firm. First, the larger the premium, the more value they must actually create to justify the acquisition. Second, given the time value of money, the larger the premium, the quicker the acquirer must create that value.

Diff: 1 Section Reference: 4: The Acquisition and Integration Process Learning Objective: 4: Explain how a company would choose whether to diversify by greenfield entry or by acquisition. Explain how a company should decide how tightly to integrate an acquisition into its current business portfolio.

Bloom code: Knowledge Standard 1: AACSB || Analytic 97) How does a related-constrained diversification differ from a related-linked diversification?

Answer: A related-constrained diversification occurs when a firm earns less than 70 percent of its revenue from its main line of business and its other lines of business share product, technological, and distribution linkages with the main business. A related-linked diversification occurs when a firm operates in related markets, but fewer linkages exist between the new and existing markets than the elements create separately.

Diff: 2 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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98) Mention the factors that lead to destroying value through diversification. Explain any three of them.

Answer: Value usually gets destroyed in one of five ways: excessive pride; sunk cost fallacy; imitative diversification; poor governance and incentives; or the lack of resource commonality between the lines of business. (Students' answers may vary.)

Hubris: Managers may diversify based on their own beliefs about the potential of their company's ability to create value in the adjacent market. Hubris is an ancient Greek word for excessive pride, arrogance, or overconfidence. Managers act with hubris when they diversify or make acquisitions based on their own experience or their gut feelings rather than on solid data and research.

Sunk Cost Fallacy: Closely related to hubris as a reason why diversification fails is the sunk cost fallacy, whereby managers believe that their investment in a failed acquisition just needs more incremental investment in order to succeed. Executives are often reluctant to abandon a project in which they have already invested so much time and capital; they often move forward under the assumption that things will turn around with a little more investment.

Imitation: Managers sometimes feel pressure to diversify their corporation when a competitor diversifies first. The competitor has done due diligence and selected an attractive target for acquisition or made a greenfield entry after careful research and planning. Caught off-guard, a firm might quickly look for a similar acquisition target or hurry to create a similar line of business. In their rush to respond, managers fail to consider how attractive the target really is, or if they have the resources and capabilities that make the new market a value adding adjacency.

Diff: 1 Section Reference: 2: Creating Value Through Diversification Learning Objective: 2: Identify the eight ways in which a company may create value through diversification, and the advantages of each source. Be able to evaluate a diversified company's ability to create value using one or more of these sources.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 7 Vertical Integration and Outsourcing 1) The process where a firm contracts out a business process or activity to an external supplier is known as ________.

A) outsourcing B) vertical integration C) horizontal diversification D) market penetration Answer: A Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) North Road LLC, an apparel company, found that its fashion supplies and accessories section was not generating much profit. Thus, the company contracted this section of its business to another company that designs and manufactures these products in a better way. The management of North Road realized that the employees of North Road could use the time to focus on other aspects that bring profit to the company. This scenario best illustrates ________.

A) market penetration B) vertical integration C) horizontal diversification D) outsourcing Answer: D Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 3) Which of the following scenarios illustrates the concept of outsourcing?

A) TechOn Inc., a company that buys raw materials from a supplier company B) BNX Corp., a company that procures raw materials and supplies them to a different company C) Virgo Corp., a company that contracts out a business activity to another company D) Red Inc., a company that sells all its assets to another company Answer: C Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 1

4) Vertical integration can be best defined as ________.

A) breaking a large process into smaller tasks that require specialized knowledge B) bringing business processes or activities previously conducted by outside companies in-house C) a graphic representation of the relationship between cost per unit of a product and its scale of production D) the sequence of all activities that are performed by a firm to turn raw materials into a finished product Answer: B Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 5) Vertical integration is also called ________.

A) customization B) diversification C) insourcing D) outsourcing Answer: C Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 6) Which of the following scenarios best illustrates the concept of vertical integration?

A) NZB Corp., a company that sells all its assets to another company B) Hues Inc., a company that owns its supply chain for its raw materials and processes C) Scorpio LLC, a company that buys raw materials from a supplier company D) Blue Corp., a company that makes raw materials and supplies them to a different company Answer: B Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic

2

7) Green Solutions Corp. is a washing machine manufacturing company. When it initially started out, it had held contracts with a supplier who provided the company with finished washing machine parts. However, Green Solutions later started manufacturing the parts by itself and assembling its products within the company without having to seek supplier intervention. This scenario best exemplifies ________.

A) vertical integration B) market penetration C) task specialization D) horizontal diversification Answer: A Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 8) The sequence of all activities that are performed by a firm to turn raw materials into a finished product that is sold to a buyer best describes the term ________.

A) product line B) task specialization C) virtuous circle D) value chain Answer: D Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) BHG Corp. is a glass manufacturing company that specializes in float glasses. The company manufactures float glass through various stages of melting, refining, coating, and annealing. It is then inspected and cut according to customer requirements. This manufacturing process performed by BHG Corp. is referred to as ________.

A) virtuous circle B) value chain C) task specialization D) supply chain Answer: B Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 3

10) Companies that participate in only one activity are ________.

A) horizontally integrated B) horizontally specialized C) vertically integrated D) vertically specialized Answer: D Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 11) Yellow Express LLC is a company in the computer hardware industry that solely manufactures microchips. Yellow Express LLC is ________.

A) diagonally integrated B) vertically integrated C) horizontally diversified D) vertically specialized Answer: D Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 12) Activities closer to the beginning of the industry value chain are referred to as ________ activities.

A) middle B) forward C) upstream D) downstream Answer: C Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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13) Activities associated with gathering the raw materials used to create a product are referred to as ________ activities.

A) middle B) forward C) upstream D) downstream Answer: C Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 14) Activities closer to the end of the industry value chain are referred to as ________ activities.

A) middle B) forward C) upstream D) downstream Answer: D Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 15) Activities associated with the final products that consumers purchase are referred to as ________ activities.

A) middle B) forward C) upstream D) downstream Answer: D Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic

5

16) If a company wants to grow by moving into the downstream part of its supply chain, it is called ________.

A) backward integration B) forward integration C) horizontal diversification D) market penetration Answer: B Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 17) Coral Corp. is a company that initially used to manufacture handbags. It has now set up a store in which it sells its own products rather than supplying them to different stores. This initiation by Coral Corp. best illustrates ________.

A) forward integration B) backward integration C) horizontal diversification D) market penetration Answer: A Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 18) If a company wants to grow by moving into the upstream part of its supply chain, it is called ________.

A) backward integration B) forward integration C) horizontal diversification D) market penetration Answer: A Diff: 1 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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19) Browns Inc., a well-established suitcase brand, started manufacturing its own suitcases. It added new features in its suitcases such as water-resistance and extra storage space. The initiation by Browns Inc. to manufacture its own suitcases best illustrates ________.

A) linked diversification B) backward integration C) forward integration D) assisted development Answer: B Diff: 3 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Application Standard 1: AACSB || Analytic 20) Identify a true statement about vertically integrated companies.

A) They participate in many or all stages of the industry value chain from exploration to final sale.

B) They participate only in activities closer to the beginning of the industry value chain.

C) They participate only in activities closer to the end of the industry value chain.

D) They participate in only one activity of the industry value chain.

Answer: A Diff: 2 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic 21) Which of the following is an example of a vertically specialized company?

A) A company that contracts all of its activities to an external supplier B) A company that participate in all stages of the industry value chain C) A company that participates in only one activity of the industry value chain D) A company that wants to grow by moving forward in the industry value chain Answer: C Diff: 2 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic

7

22) In the context of the primary reasons for vertical integration in companies, what do capabilities refer to?

A) Whether a company has the finances to handle and overcome organizational criticism B) Whether a company knows when it should establish and exercise strict rules and regulations C) Whether a company can economize on scarce inputs in order to reduce transaction costs D) Whether a company has the right resources to perform an activity better than other firms Answer: D Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 23) The chief executive officer (CEO) of Ecos Inc., a well-established firm in the real estate industry states that the firm has the resources to outperform its competitors. In the context of reasons for vertical integration, the CEO is referring to the firm's ________.

A) control B) priorities C) capabilities D) coordination Answer: C Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic

8

24) In this context of the three Cs of vertical integration, which of the following scenarios accurately depicts capabilities?

A) BagMore Inc., a handbag company, decides to engage in backward integration and manufacture all of its products and accessories in the company house.

B) GoSpeed Corp., an automobile manufacturing company, evaluates itself by asking if it can perform the vertically integrated activity better than its rivals.

C) StyleRight LLC, an apparel company, manufactures eco-friendly, organic, and sustainable clothes.

D) HDC Inc., an electronics company, decides to effectively regulate its new technologies.

Answer: B Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 25) A ________ is a supplier that provides an input to a focal firm.

A) contractor B) custom provider C) raw dealer D) subcontractor Answer: D Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 26) A supplier that is contracted to create and provide a customized input to a local firm is called a(n) ________.

A) acquirer B) coordinator C) subcontractor D) advocate Answer: C Diff: 1 Section Reference: 2. Three Key Reasons to Vertically Integrate Learning Objective: 2. Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9

27) Which of the following statements is a characteristic of subcontractors?

A) They are responsible for bringing in key functions to regulate a company.

B) They assign and coordinate various projects of a company.

C) They have 10 percent share in the profits accrued by a company.

D) They create made-to-order contributions for a company.

Answer: D Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 28) White Flower Corp. and DLG Inc. are competitors in the crockery industry. Claude, the head of operations at White Flower, says that the company can undertake its in-house business processes and activities much better than DLG. This, Claude says, helps White Flower produce better quality products that DLG. In the context of vertical integration, Claude's statements refer to the concept of ________.

A) coordination B) networking C) priorities D) control Answer: A Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic

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29) In the context of the primary reasons for vertical integration in companies, which of the following statements is true of coordination?

A) The greater the interdependence between activities, the more a company should vertically integrate.

B) Activities that require high levels of coordination are known to be modular in nature.

C) The greater the interdependence between activities, the more a company should rely on outsourcing.

D) Activities that require low levels of coordination are known to be reciprocal in nature.

Answer: A Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 30) ________ interdependence activities require low levels of coordination.

A) Extensive B) Modular C) Reciprocal D) Sequential Answer: B Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 31) ________ interdependence activities require more regular team meetings and consistent coordination of teamwork because one set of individuals cannot perform tasks until another set of individuals has completed a task and passed on the results.

A) Extensive B) Modular C) Reciprocal D) Sequential Answer: D Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 11

32) ________ interdependence activities require iterative knowledge sharing.

A) Extensive B) Modular C) Reciprocal D) Sequential Answer: C Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 33) DHC Inc. is a television manufacturing company. The components of the televisions are manufactured separately by different companies around the globe. Later, these components are tested and then assembled to get the finished products in house by DHC Inc. In the context of the degree of coordination, this scenario best illustrates ________ interdependence.

A) sequential B) reciprocal C) modular D) extensive Answer: C Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 34) A car goes through several different levels of manufacturing processes before it can be painted. The painting process cannot be initiated until a car is externally assembled and then inspected. This type of interdependence can be best termed as ________ interdependence.

A) extensive B) modular C) reciprocal D) sequential Answer: D Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 12

35) Apex Electronics LLC requires many teams to work together intensively and in tandem with each other to effectively produce its products. A high level of coordination between the working teams is essential for the company to maintain the high quality of its products. This type of interdependence can be best termed as ________ interdependence.

A) sequential B) reciprocal C) limited D) modular Answer: B Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 36) Which of the following best illustrates a vertically integrated company with control?

A) Runners Corp., a shoe manufacturing company, which has a say in how much of its assets are divided among the company's shareholders B) Blueberry Inc., a confectionery company, which has a stronghold over an important resource of the company that helps in differentiating its final product C) Trendsetters LLC, an apparel manufacturing company, which has a stronghold over the number of employees that the company can afford to recruit, train, and retain D) Coders Corp., a software development company, which successfully deflects any possibilities of hostile takeovers Answer: B Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic

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37) Sport Soles Inc., a sports footwear manufacturing company, makes athletic shoes with rubber soles. To maximize its value and profit, Sport Soles sets up its operations right next to rubber tree fields. This way, the company gets easy access to its main raw material. In the context of vertical integration, this scenario illustrates that Sport Soles Inc. is exercising ________.

A) control B) coordination C) extensive focus D) modular interdependence Answer: A Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 38) A transaction- ________ asset is customized to a particular transaction and has little value when redeployed to its next-best use; this is a type of ________ when considering the three Cs of vertical integration.

A) generic; capability B) generic; control C) specific; capability D) specific; control Answer: D Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 39) Which of the following is a primary characteristic of a transaction-specific asset?

A) It can generate value only when used for several purposes together.

B) It is an intangible asset whose value is very hard to evaluate.

C) It is an asset that can be transported or transferred with ease.

D) It can generate maximum value only when used for a particular purpose.

Answer: D Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14

40) Which of the following examples correctly depicts a company that uses a transaction-specific asset?

A) Indigo Inc., a company that manufactures faucets B) Eclipse Corp., a company that manufactures pens and sells them through distributors C) BLC Corp., a company that uses heavily customized software to manufacture airplane seats D) Vertigo LLC, a company that sources raw material from suppliers to manufacture dinnerware Answer: C Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 41) The country of Lydania has a complex network of pipelines that transports natural gas for millions of people. These pipelines are specifically designed for the transportation of natural gas and have limited uses outside the natural gas industry because of inherent industry regulations.

These pipelines exemplify a(n) ________.

A) sunk cost B) transaction-specific asset C) intangible asset D) greenfield entry Answer: B Diff: 3 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Application Standard 1: AACSB || Analytic 42) Identify a reason why companies choose to make versus buy.

A) They have the capability to perform an activity better than other firms.

B) They lack the marketing capability to build a brand that will differentiate its products.

C) Coordinating multiple activities in the value chain is always easy.

D) It offers the flexibility to make changes to any activity in the value chain.

Answer: A Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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43) In the context of the three Cs of vertical integration, under what conditions should a firm choose to engage in vertical integration?

A) When the firm lacks the capability to perform an activity better than other firms B) When the firm is incapable of coordinating different activities within its departments C) When the activities of the firm are conducted independently D) When there is greater interdependence between the activities of the firm Answer: D Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 44) Which of the following statements is true of subcontractors?

A) They are contracted to create customized inputs for a firm.

B) They are contracted to oversee the production process of a firm.

C) They are responsible for the production capacity of a firm.

D) They are responsible for the profitability of a firm.

Answer: A Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 45) In the context of the three Cs of vertical integration, some activities or tasks require more coordination than others to be successful because ________.

A) people performing the activity are not skilled B) those activities need no supervision C) of greater interdependence with other activities D) those activities are independent of each other Answer: C Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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46) In the context of the three Cs of vertical integration, some activities require lower levels of coordination than others to be successful because the activities ________.

A) are modular in nature B) do not involve huge investments C) are not very important in the value chain D) are performed by highly skilled professionals Answer: A Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 47) Which of the following best illustrates modular interdependence?

A) A firm in which team performance is based on individual activities that are pooled together B) A firm in which activities are based on the completion of preceding tasks by another firm C) A firm whose performance is achieved through a process of iterative knowledge sharing D) A firm whose performance is free of the results of individual activities in the value chain Answer: A Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 48) Identify a true statement about activities that are sequentially interdependent.

A) They require low levels of coordination because of their sequential nature.

B) They require team members to meet together more regularly and consistently to coordinate their work.

C) They require individuals to be responsive to the needs of those performing related activities.

D) They require individuals to communicate their own requirements frequently.

Answer: B Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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49) Which of the following best illustrates reciprocal interdependence?

A) Designing and manufacturing nuts and bolts B) A golf team C) Product development teams D) Designing and manufacturing automobile components Answer: C Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic 50) Loss of ________ means a company loses its ability to quickly make technological changes or handle unexpected volatility in the business environment.

A) frequency B) focus C) flexibility D) facility Answer: C Diff: 1 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3. Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 51) Having more flexibility, or being less vertically integrated, is more valuable when ________.

A) a firm can create its own raw materials B) technology used is outdated C) the cost to perform an activity remains the same D) new technologies are innovated Answer: D Diff: 2 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3: Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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52) Pulse Corp., a vertically integrated company, is finding it difficult to adapt to current technology that helps speed up its manufacturing process. The company is used to performing work in a specific manner using the old technology. However, to maintain competitive advantage, it has to upgrade itself to the current technology. This scenario is an example of loss of ________ that is one of the disadvantages of vertical integration.

A) frequency B) focus C) flexibility D) facility Answer: C Diff: 3 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3. Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Application Standard 1: AACSB || Analytic 53) Loss of ________ refers to the fact that the greater the number and variety of activities a firm needs to manage, the harder it is to be world class in all of those activities.

A) frequency B) focus C) flexibility D) facility Answer: B Diff: 1 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3. Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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54) Violet Inc. has been undertaking a lot of responsibilities as a company in order to be the best in its industry. Over time, however, these responsibilities become tough to handle and the company finds it difficult to efficiently manage the time and effort to perform its activities. In contrast, other firms in the industry that outsource some of their activities to smaller companies find it easier to generate more profit than Violet Inc. The situation faced by Violet Inc. in this example illustrates one of the important disadvantages of vertical integration that is loss of ________.

A) flexibility B) frequency C) focus D) facility Answer: C Diff: 3 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3: Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Application Standard 1: AACSB || Analytic 55) Teal Motors Inc., an automobile company, outsources the manufacturing of most of the automobile parts to several other companies that specialize in making parts such as ignition boxes, coil wires, and grills. Teal Motors makes sure to get these parts manufactured at a much lesser rate than it would if it manufactures its own parts. In this scenario, Teal Motors Inc. is effectively avoiding a loss of ________.

A) identity B) frequency C) facility D) focus Answer: D Diff: 3 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3: Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Application Standard 1: AACSB || Analytic

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56) Saturn LLC., a computer manufacturer, uses outdated technology to build specialized graphic cards for its computers. The company finds it difficult to upgrade its graphic card building technology to a newer version. However, Sun Products Inc., one of its competitors, upgrades itself to the new version with lesser difficulty. In this scenario, Saturn LLC is facing a loss of ________.

A) frequency B) focus C) flexibility D) facility Answer: C Diff: 3 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3. Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Application Standard 1: AACSB || Analytic 57) Identify a danger of vertical integration.

A) Loss of flexibility to quickly make changes to a business B) Loss of capabilities to create a new product C) Loss of creativity to create a unique product D) Loss of control over the activities of the value chain Answer: A Diff: 2 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3. Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic 58) Which of the following is a danger for vertically specialized companies?

A) They offer their best product at the lowest price.

B) They do not allow the firm to focus on making profits.

C) They have the flexibility to quickly make changes to the business model.

D) They are unlikely world class in all the activities they manage.

Answer: D Diff: 2 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3. Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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59) In general, outsourcing gives firms ________ flexibility and ________ focus.

A) less; less B) less; more C) more; less D) more; more Answer: D Diff: 2 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Comprehension Standard 1: AACSB || Reflective Thinking 60) Nate, the managing director of Juniper Inc., believes that instead of making auto parts on its own, it should rather outsource these tasks to other companies so that the company can focus only on the critical aspects of the final product. His colleague, Salma, believes that the company would have more competitive advantage if it made its own auto parts. Which of the following statements strengthens Nate's belief?

A) Outsourcing will minimize the capital investment Juniper Inc. requires to grow.

B) Outsourcing will lessen the pressure of crowdsourcing so that lesser and more stable options are sought.

C) Outsourcing will help minimize Juniper Inc.'s need to innovate its assets or activities.

D) Outsourcing will minimize suppliers' bargaining power as Juniper Inc. chooses its suppliers.

Answer: A Diff: 3 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 61) Which of the following companies is most likely to experience the benefits of outsourcing?

A) Pulsar Corp., a shoe manufacturer, which has invested huge an amount of capital to afford its suppliers B) Black Inc., a consumer electronics company, which has been importing its supplies from other companies and focuses only on the critical aspects of its work C) Carbon LLC, an automobile manufacturer, which has the capability to produce more of its raw materials in house D) Beta Corp., a computer manufacturer, which has been trying hard to adapt new technologies to gain competitive edge in the industry Answer: B Diff: 3 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Application Standard 1: AACSB || Analytic 22

62) Which of the following scenarios supports the view that a company should engage in outsourcing?

A) Zenith Corp., a publishing house, which needed a high capital investment to grow because it contracted most of its peripheral activities to other companies B) FRC Inc., an apparel company, which fears the loss of a strong hold over its prime activities if it does not perform them in house C) AutoLuxe LLC, an automobile company, which has the flexibility to contract processes to another company at a fast rate D) Innovator Inc., a software company, which foresees that its employees will have less work and more time under their disposal for leisure activities if it lets other suppliers help perform its activities Answer: C Diff: 3 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Application Standard 1: AACSB || Analytic 63) ________ refers to the phenomenon of ________ tasks to individuals or organizations that are outside an organization.

A) Crowdsourcing; insourcing B) Crowdsourcing; outsourcing C) Offshoring; insourcing D) Offshoring; outsourcing Answer: B Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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64) A production house called Script Creations Inc. initiated a strategy for making its next movie. It invited a mass of people to create short documentaries on a social theme. As per the terms and conditions, Script Creations would select top three short stories to create an overall complete movie. This initiation by Script Creations Inc. is an example of ________.

A) crowdsourcing B) insourcing C) offshoring D) benchmarking Answer: A Diff: 3 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Application Standard 1: AACSB || Analytic 65) Crowd ________ refers to enlisting a crowd to complete a simple, repetitive task, such as inputting data or verifying the accuracy of data.

A) creating B) innovation C) tasking D) voting Answer: C Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 66) Crowd ________ refers to turning to the crowd to complete a task that requires specific knowledge or expertise on the part of the crowd member.

A) creating B) innovation C) tasking D) voting Answer: A Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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67) Crowd ________ means the crowd will select the designs to take to market.

A) creating B) innovation C) tasking D) voting Answer: D Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 68) Crowd ________ refers to using a crowd to evaluate an offering or to make predictions about uncertain events.

A) creating B) innovation C) tasking D) voting Answer: D Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic 69) Crowd ________ refers to using the crowd to solve a challenging problem that requires a new or unique solution.

A) creating B) innovation C) tasking D) voting Answer: B Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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70) Lupus LLC is a company that sells personalized gift items. It reduces the cost of employing professional artists, designers, photographers, salespeople, and retailers by letting its members and other people submit their ideas for designs, quotes, and phrases on its e-commerce website.

Which of the following types of crowdsourcing does Lupus LLC use?

A) Crowdvoting B) Crowdinnovation C) Crowdtasking D) Crowdcreating Answer: D Diff: 3 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Application Standard 1: AACSB || Analytic 71) Cygnus Bank is a banking and financial services company. It offered a large sum of money and a chance to receive employment to the programmers who could create software that would help enhance employee productivity. Which of the following types of crowdsourcing did Cygnus Bank use?

A) Crowdvoting B) Crowdinnovation C) Crowdtasking D) Crowdcreating Answer: B Diff: 3 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Application Standard 1: AACSB || Analytic 72) Outsourcing is advantageous when ________.

A) there is high technological uncertainty in an industry B) a high degree of coordination is required between activities C) a firm does not have an established brand image to protect D) a firm is operating at a loss and is on the verge of a shutdown Answer: A Diff: 2 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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73) A(n) ________ is something that prevents other companies from copying what a particular company can do.

A) barrier to imitation B) equity stake C) knowledge barrier D) unfair advantage Answer: A Diff: 1 Section Reference: 5. Dangers of Outsourcing Learning Objective: 5: Discuss the actions a manager could take to prevent a subcontractor from becoming a competitor.

Bloom code: Knowledge Standard 1: AACSB || Reflective Thinking 74) Adia, the chief executive officer (CEO) of Touch Works Corp., believes that outsourcing would be a disadvantage to her company. She states that she would not be able to control the finances and assets of her company if work gets outsourced. Which of the following statements strengthens Adia's belief?

A) Outsourcing would maximize the capital investment that Touch Works Corp. would require to grow.

B) Outsourcing would prevent Touch Works Corp. from contracting out activities to industry specialists.

C) Touch Works Corp. would be forced to focus on a wide range of activities.

D) Touch Works Corp. would lose the ability to innovate and create competitive advantage.

Answer: D Diff: 3 Section Reference: 5. Dangers of Outsourcing Learning Objective: 5: Discuss the actions a manager could take to prevent a subcontractor from becoming a competitor.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 75) Hydrus Corp. contracted most of its business processes to various other companies. This helped the company generate immediate profits, but Hydrus was losing competitive advantage over its rivals in the long run due to its lack of innovation. Which of the following is a danger of outsourcing that Hydrus Corp. experienced?

A) Lack of control B) Loss of capabilities C) Lack of focus D) Loss of technology Answer: B Diff: 3 Section Reference: 5. Dangers of Outsourcing Learning Objective: 5: Discuss the actions a manager could take to prevent a subcontractor from becoming a competitor.

Bloom code: Application Standard 1: AACSB || Analytic 27

76) Which of the following is a disadvantage of outsourcing?

A) It is difficult to focus on many different activities at once.

B) A lack of control over critical assets or activities results.

C) A firm does not have an established brand image to protect.

D) Firms lack the flexibility to quickly make changes to the business model.

Answer: B Diff: 2 Section Reference: 5: Dangers of Outsourcing Learning Objective: 5: Discuss the actions a manager could take to prevent a subcontractor from becoming a competitor.

Bloom code: Comprehension Standard 1: AACSB || Analytic 77) Identify an action managers could take to prevent a subcontractor from becoming a competitor.

A) Take an equity stake in the supplier.

B) Share tacit knowledge with suppliers.

C) Choose a single supplier for outsourcing activities.

D) Involve the supplier in the production process.

Answer: A Diff: 2 Section Reference: 5: Dangers of Outsourcing Learning Objective: 5: Discuss the actions a manager could take to prevent a subcontractor from becoming a competitor.

Bloom code: Comprehension Standard 1: AACSB || Analytic 78) When one firm tries to take advantage of another firm that has made a transaction-specific investment, by causing a brief delay in business because a product has no other use is known as a(n) ________.

Answer: hold-up Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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79) As a danger of vertical integration, a(n) ________ refers to the fact that the more different types of activities a firm needs to manage, the harder it is to be world class in all of those activities.

Answer: loss of focus Diff: 1 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3: Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Knowledge Standard 1: AACSB || Analytic 80) Briefly state the difference between outsourcing and insourcing.

Answer: Outsourcing is the process where a firm contracts out a business process or activity to an external supplier, whereas vertical integration or insourcing brings business processes or activities previously conducted by outside companies in-house.

Diff: 2 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic 81) What is the main difference between a company that is vertically integrated and a company that is vertically specialized?

Answer: Companies that participate in many or all stages of the industry value chain from exploration to final sale are vertically integrated. Companies that participate in only one activity are vertically specialized.

Diff: 2 Section Reference: 1: What Is Vertical Integration?

Learning Objective: 1: Define vertical integration, forward vertical integration, and backward integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic 82) In the context of vertical integration, when is flexibility most valuable?

Answer: Having more flexibility–that is, being less vertically integrated–is particularly valuable when new technologies are being developed or if the cost to perform an activity can change quickly.

Diff: 2 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3: Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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83) In the context of coordination, what is modular interdependence?

Answer: In the context of coordination, modular interdependence is one of the three types of interdependence. Some activities in a vertically integrated firm require low levels of coordination because the activities are modular in nature. This means the results are pooled together but the individual activities can be conducted without coordinating with other activities. The members of such teams may share information about the activity with each other, but in the final analysis, the activity is done by the individual performer. In this case, team performance is based on individual performances or activities that are pooled together. This is typically referred to as modular or pooled interdependence, meaning that the degree of coordination required is relatively low.

Diff: 1 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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84) Explain the three Cs of vertical integration.

Answer: The three Cs of vertical integration–capabilities, coordination, and control–are the primary reasons that companies choose to make versus buy. The first C is capabilities, which refers to the question of whether a firm has–or can build–the capabilities to perform an activity better than other firms. The firm's leaders should ask this question: To what extent are they, or could they be, the best in the world at conducting that activity? If the firm can be one of the best in the world, then it is probably an activity it should do. But, if it cannot be one of the best in the world, then the firm is probably better off by outsourcing the function to a company that has stronger capabilities.

The second C is coordination, which refers to the question of whether a firm is better able to effectively coordinate an activity with other activities in the firm when both are conducted internally. In this case, the firm is not necessarily more capable at performing a particular activity, but it lowers the coordination costs associated with two interdependent activities. A firm's leaders should ask: To what extent will they improve their ability to coordinate their business activities–and offer unique value–by conducting this activity themselves? The fact of the matter is that some activities or tasks require more coordination than others to be successful because of greater interdependence with other activities. The greater the interdependence between activities, the more it makes sense to vertically integrate and have these done within a company where the team members can effectively coordinate their work.

The third C is control, which refers to a firm's desire to maintain control over a valuable activity or input in the value chain. In other words, an organization's leaders must ask: to what extent should they maintain control over a crucial step in the value chain by conducting that activity themselves? A company may want to vertically integrate in order to control some scarce and valuable resource, particularly if it is a differentiator of its final product. The choice to backward integrate may be made in order to control access to important raw materials or inputs that are highly customized to downstream activities. In a similar vein, it might make sense to maintain control over investments in assets or equipment that provide key inputs at lower cost.

Diff: 2 Section Reference: 2: Three Key Reasons to Vertically Integrate Learning Objective: 2: Describe the three Cs that represent the primary reasons that firms may choose to vertically integrate (make) and perform an activity internally versus outsource (buy) the activity to (from) a supplier.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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85) What are the dangers of vertical integration?

Answer: There are two important dangers–a loss of flexibility and loss of focus–the two Fs. First, when many activities are managed in a value chain, the flexibility to quickly make changes to the business is lost. This might be important when there are major technological changes. In fact, research has shown that companies that are more vertically integrated take a bigger hit to performance when there is a technological change. Having more flexibility–that is, being less vertically integrated–is particularly valuable when new technologies are being developed or if the cost to perform an activity can change quickly.

A loss of focus refers to the fact that the more different types of activities a firm needs to manage, the harder it is to be world class in all of those activities. It is just too difficult for managers to focus on many different activities at once and be world class at all of them. There is one more dimension to focus that is worth mentioning. When firms are vertically specialized, they only stay in business when they can focus on making profits. If they cannot make enough profits, they go out of business.

Diff: 2 Section Reference: 3: Dangers of Vertical Integration Learning Objective: 3: Describe the two Fs, which examine the potential dangers of vertical integration.

Bloom code: Comprehension Standard 1: AACSB || Analytic 86) What are some of the advantages of outsourcing?

Answer: Outsourcing does give firms more flexibility to quickly move activities to whatever company is the best at performing that particular activity. When there is high technological uncertainty in an industry with lots of new leapfrog technologies being developed, flexibility is valuable, and outsourcing is often preferred to vertical integration. Outsourcing also allows firms to focus their attention on being good at a narrower range of activities. Along with this benefit, outsourcing also minimizes the capital investment required to grow. Also, outside suppliers can often produce at much greater scale than in-house suppliers because in-house suppliers often have difficulty getting outside customers.

Diff: 1 Section Reference: 4: Advantages of Outsourcing Learning Objective: 4: Explain the advantages of outsourcing and the conditions under which it might be advantageous to outsource an activity to an external supplier.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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87) What are the disadvantages to outsourcing?

Answer: There are two major dangers of outsourcing: a loss of capabilities (particularly the capability to innovate) and a lack of control over critical assets or activities. In addition to leading to a loss of innovation capabilities, outsourcing can lead to a loss of control as suppliers that provide key inputs gain bargaining power.

Diff: 1 Section Reference: 5: Dangers of Outsourcing Learning Objective: 5: Discuss the actions a manager could take to prevent a subcontractor from becoming a competitor.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 8 Strategic Alliances 1) A ________ is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

A) contractual alliance B) equity alliance C) joint venture D) strategic alliance Answer: D Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) Zeal Inc., a software firm, decides to enter the publishing industry. While it has the financial resources required to enter the new market, it lacks the expertise and technical knowledge required to establish itself in the new industry. So, Zeal Inc. enters into strategic alliance with Chrome Corp., a leading e-publisher. Which of the following is likely to be true in this case?

A) Chrome is likely to lose its relational advantage through this alliance.

B) Zeal and Chrome are likely to cooperate even at the stage of research and development.

C) Zeal's vision is likely to contradict that of Chrome.

D) Chrome is likely to provide its expertise only at the marketing stage.

Answer: B Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic 3) Which of the following statements is true about strategic alliances?

A) Strategic alliances exclude functions that are bought through bidding.

B) In strategic alliances, the power to make decisions is always evenly distributed amidst the firms.

C) In strategic alliances, companies may choose to cooperate at any stage along the value chain.

D) Strategic alliances usually lead to one of the firms losing their relational advantage.

Answer: C Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic 1

4) Which of the following statements is true about firms that establish strategic alliances?

A) Firms that collaborate at the sales stage are not considered strategic partners.

B) Firms that produce different products cannot enter a strategic alliance.

C) Firms can collaborate to improve their performance at any stage along the value chain.

D) Firms often enter strategic alliances at the cost of losing their relational advantage.

Answer: C Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic 5) Drew's Cafe Inc. and Cuppa Corp., two local coffee chains, combine resources to enter the global market. They retain their individual ownership; however, they agree to share production facilities and manpower, and they also decide to market their products through combined promotional tools. The arrangement made by the two retail chains to combine resources and collaborate for a common objective refers to a ________.

A) strategic alliance B) mass-customization strategy C) standardization venture D) product-differentiation strategy Answer: A Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic 6) In a ________, firms cooperate to create competitive advantage through their collaboration.

A) cooperative strategy B) differentiation agreement C) equity relationship D) unequal partnership Answer: A Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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7) In a ________, firms cooperate to create competitive advantage through their collaboration.

A) differentiation agreement B) equity relationship C) relational advantage D) unequal partnership Answer: C Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) In a(n) ________, the buyer purchases an input with no obligation to have a long-term relationship with the supplier.

A) arm's length relationship B) differentiation agreement C) equity relationship D) unequal partnership Answer: A Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) Which of the following statements is true about how an arm's-length relationship is used in strategic alliance?

A) Firms cannot buy inputs from multiple sources using the arm's-length relationship.

B) Firms typically use the arm's-length relationship between internal departments.

C) Firms that use the arm's-length relationship acquire the production facilities of other firms.

D) Firms use the arm's-length relationship to purchase inputs at the lowest price.

Answer: D Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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10) Identify the firm that is using an arm's-length relationship to establish a strategic alliance.

A) Ochre Inc. manufactures all the components required for production within the firm.

B) Sapphire Inc. acquires the production facility of Brick Corp. to enter a foreign market.

C) Jade Corp. sends out a bid to suppliers for raw materials required for production.

D) Leo Corp. forms a twenty-year contract with a wholesaler to sell its goods.

Answer: C Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic 11) Timber Inc. enters an exclusive partnership to ally with Teal Corp. to enter a foreign market.

Which of the following statements is likely to be true in this case?

A) Timber and Teal are unlikely to receive inputs or activity from each other.

B) Timber is likely to buy an activity from Teal using an arm's-length relationship.

C) Timber is likely to send a bid to Teal along with other suppliers for the lowest price.

D) Timber is likely to acquire an activity or input from Teal to create a new value.

Answer: D Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic 12) Redwood Inc. has an arm's-length relationship with Blue Ink Corp. Which of the following is likely to be true in this case?

A) Redwood is likely to conduct all functions within the firm.

B) Redwood is likely to choose another firm over Blue Ink for lower costs.

C) Blue Ink is unlikely to have made the deal through a bid.

D) Blue Ink's manufacturing units are likely to have been acquired by Redwood.

Answer: B Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic

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13) Victor Corp., a high-end mobile manufacturer that targets businesspeople, decides to increase its customer base. It forms a strategic alliance with Gray Inc. to produce new instruments designed to attract students. Gray helps design products that change how Victor is perceived by young customers. Which of the following is the primary objective of this strategic alliance?

A) To source inputs or activities that create more productivity B) To source inputs or activities that influence the brand C) To source inputs or activities that reduce the total costs D) To source inputs or activities that increase productivity of existing products Answer: B Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic 14) An air conditioner manufacturer, Hues Corp., decides to form a strategic alliance with a firm to source components that make up the highest percentage of total costs. Which of the following suppliers is it most likely to choose as a partner?

A) Jades Inc., which manufactures the packages required for Hues Corp.

B) Black Corp., which prints the Hues Corp. logo on the air conditioners C) Fin Inc. which produces the compressors used in Hues Corp. air conditioners D) Den Corp., which produces the designer vents for Hues Corp.

Answer: C Diff: 3 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Application Standard 1: AACSB || Analytic

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15) Which of the following statements best describes a strategic alliance?

A) It is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

B) It is an arrangement where a firm purchases an input from another firm with no obligation to have a long-term relationship with the other firm.

C) It is an unofficial arrangement in which two large firms cooperate unofficially to control production and prices within a certain market segment.

D) It is a cooperative arrangement where a firm which is on the verge of shutting down sells all of its assets to another firm.

Answer: A Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic 16) The most common way to distinguish one type of alliance from another is by the ________.

A) motive behind the alliance B) mechanism used to govern the alliance C) products of the firms involved in the alliance D) measure of profit each firm derives out of the alliance Answer: B Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic 17) Which of the following inputs qualifies as "strategic" inputs that merit forming an alliance relationship?

A) High value inputs that make up a high percentage of one's total costs B) Inputs that do not differentiate one's product in the minds of customers C) Activities that require a lot of unskilled manpower D) Activities that require no coordination to achieve the desired quality Answer: A Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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18) A ________ is a cooperation between firms that is managed directly through signed documents without an independent firm being created.

A) contractual alliance B) equity alliance C) joint venture D) strategic alliance Answer: A Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic 19) A ________ is a cooperation between firms that is managed directly through signed documents without an independent firm being created.

A) equity alliance B) joint venture C) nonequity alliance D) strategic alliance Answer: C Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) Crimson Corp., a painting unit, collaborates with a car manufacturing company. They sign a contract that specifies the tasks of each party in alliance. Which of the following is being exemplified in this scenario?

A) A nonequity alliance B) An equity alliance C) A coordination alliance D) A vertical alliance Answer: A Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic

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21) Marcel, the CEO of an automobile company, considers extending his research and development facility by collaborating with a multinational company. He believes that a contractual alliance will be ideal for this collaboration, but other senior members of the management oppose a contractual alliance. Which of the following statements is likely to strengthen Marcel's argument?

A) The relationship between the two firms is likely to be supported by equity investments.

B) The two firms are likely to seek a joint venture through the collaboration.

C) Cooperation between the two firms is not likely to depend on cross-equity holdings.

D) Interdependence between the two firms is not likely to be low.

Answer: C Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 22) If one firm receives a license or permission to use a resource from another firm in return for a percentage of the revenues or profits, this is called a(n) ________ agreement.

A) distribution B) input C) licensing D) supply Answer: C Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 23) If a vendor agrees to develop certain customized inputs for a customer, this is called a(n) ________ agreement.

A) distribution B) input C) licensing D) supply Answer: D Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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24) If a retailer agrees to provide certain customized services to help sell a product, this is called a(n) ________ agreement.

A) distribution B) input C) licensing D) supply Answer: A Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 25) Sepia Inc., a fertilizer company, needs permission to test its new products on plantations owned by an agro-based industry. In return, Sepia is willing to pay a percentage of revenue to the agro-based industry. In this case, which of the following contractual alliances should be adopted

by Sepia?

A) A licensing agreement B) A supply agreement C) A distribution agreement D) An input agreement Answer: A Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic 26) John requires 500 shirts of a particular fabric and quality. He partners with Loumang Inc., a fabric manufacturing company, to develop certain customized inputs. Which of the following is being exemplified in this scenario?

A) A licensing agreement B) A supply agreement C) A distribution agreement D) A profit agreement Answer: B Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic

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27) Velara Inc., a healthcare company, owns 35% stake in the firm that supplies most of its raw materials. This encourages the supplier to align its incentives with Velara's needs. Which of the following is being exemplified in this case?

A) A licensing agreement B) An equity alliance C) A distribution agreement D) A contractual alliance Answer: B Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic 28) A ________ occurs when cooperating firms combine resources to form an independent firm in which they invest.

A) contractual alliance B) equity alliance C) joint venture D) strategic alliance Answer: C Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic 29) Borpon Inc. and Biocolog Corp. are well-established biotechnology companies. They enter into a strategic alliance in which they create and own a legally independent company. The new company is created from resources and assets contributed by the parent firms. Revenues, expenses, and profits are equally shared by both firms. Which of the following strategic alliances is adopted by Borpon and Biocolog?

A) A contractual alliance B) An equity alliance C) A distribution agreement D) A joint venture Answer: D Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic

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30) Sands Inc., a financial firm, partners with another organization that is at a similar stage along the value chain. The parent organizations create a legally independent firm. However, Sands brings more resources to the new firm than the other partner. Which of the following is being exemplified in this case?

A) A contractual alliance B) An equity alliance C) A distribution agreement D) A joint venture Answer: D Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic 31) Which of the following statements is true about firms in a joint venture?

A) The firms contribute knowledge, but each performs its roles separately.

B) The contributions made by individual firms are easy to measure.

C) The parent firms share revenues and expenses in a particular ratio.

D) The dependency level between partners is low.

Answer: C Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic 32) An organization wants to form a strategic alliance with another firm. The second firm is at the same level along the value chain. It cannot contribute the same level of financial resources, although it can contribute an extensive level of knowledge. To accommodate these factors, they decide to start a legally independent firm. Which of the following alliances will be best suited for the organization?

A) A contractual alliance B) An equity alliance C) A distribution agreement D) A joint venture Answer: D Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic

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33) A ________ alliance is an alliance between firms that are positioned at different stages along the value chain.

A) profit B) horizontal C) selling D) vertical Answer: D Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 34) Suppliers and buyers would form a ________ alliance.

A) profit B) horizontal C) selling D) vertical Answer: D Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 35) A ________ alliance is between two firms that do not have a supplier-buyer relationship and are typically positioned at a common stage of the value chain.

A) profit B) horizontal C) selling D) vertical Answer: B Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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36) Competitors would form a ________ alliance.

A) profit B) horizontal C) selling D) vertical Answer: B Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 37) An organization enters into an alliance with a firm that is positioned at a different stage along the value chain. The alliance is formed to combine unique resources and lower transaction costs.

In this case, which of the following alliances has been adopted by the organization?

A) A profit alliance B) A selling alliance C) A vertical alliance D) A horizontal alliance Answer: C Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic 38) Two organizations, Purple Inc. and Spring Corp., are positioned at a common stage of the value chain. However, they do not have a supplier-buyer relationship. They form an alliance to benefit from complementary activities. Which of the following is exemplified in this scenario?

A) A horizontal alliance B) A vertical alliance C) A joint venture D) A supply agreement Answer: A Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic

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39) A U.S.-based chocolate manufacturer, Browns' Inc., collaborates with a Brazilian company to source cocoa. The cocoa sourced from Brazil along with Browns' unique recipe creates products that are differentiated based on taste and quality. The alliance between the two firms is an example of ________.

A) a joint venture B) a vertical alliance C) a horizontal alliance D) a distribution agreement Answer: B Diff: 3 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Application Standard 1: AACSB || Analytic 40) A contractual alliance is preferred when ________.

A) firms bring knowledge, but each can perform their roles separately B) firms bring difficult-to-measure contributions that must be combined C) interdependence between partners is low D) the contribution of each partner is difficult to measure Answer: C Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic 41) Identify a true statement about a nonequity alliance.

A) It is an alliance in which two or more firms write a contract to govern their relationship.

B) It is an alliance in which the collaborating firms supplement contracts with equity holdings in their alliance partners.

C) It is an alliance in which collaborating firms create and jointly own a legally independent company.

D) It is an alliance in which one of the collaborating firms invests in product development and the other focuses on sales.

Answer: A Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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42) In an equity alliance, ________.

A) two or more firms write a contract to govern their equity relationship B) the collaborating firms often supplement contracts with equity holdings in their alliance partners C) a supplier may agree to develop certain customized inputs for a customer D) a distributor or retailer may agree to provide certain customized services in order to help sell a product Answer: B Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic 43) When do firms tend to opt for equity alliances?

A) When it is easy to specify what each party is supposed to do in the relationship B) When it is easy to specify the rewards that should come from meeting one's obligations in the alliance C) When an alliance requires less interdependence among the firms involved D) When an alliance requires the joint creation of new resources and capabilities by the partners Answer: D Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic 44) Identify a true statement about a horizontal alliance.

A) It occurs between firms that have a supplier-buyer relationship.

B) It occurs when the output of one of the firms in the relationship is the input of the other.

C) It occurs only between firms that are positioned at different stages along the value chain.

D) It can occur between companies who do not do the same activities but do complementary ones.

Answer: D Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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45) Green Dye Inc., a manufacturing firm that produces organic products, is approached by Zoe, a leading clothes designer owning her own label. Together, they create a line of clothes using organic dye and fabric made from pure cotton. Which of the following is likely to be the primary value created by this alliance?

A) Combining unique resources along different stages of the value chain B) Lowering distribution costs at all stages of the value chain C) Lowering the transaction costs at all stages of the value chain D) Offering customized retail benefits to increase the sale of the products Answer: A Diff: 3 Section Reference: 3. Ways to Create Value in Alliances Learning Objective: 3. Describe the different ways value is created in alliances.

Bloom code: Application Standard 1: AACSB || Analytic 46) Two firms that produce industrial machinery decide to form a strategic alliance. The objective of this collaboration is to combine their manufacturing facilities to achieve economies of scale during production. Which of the following is the primary value they aim to create through this alliance?

A) Combining unique skills B) Pooling similar resources C) Lowering distribution costs D) Creating product differentiation Answer: B Diff: 2 Section Reference: 3. Ways to Create Value in Alliances Learning Objective: 3. Describe the different ways value is created in alliances.

Bloom code: Comprehension Standard 1: AACSB || Analytic 47) Identify a way firms create value through alliance.

A) By pooling trade secrets B) By combining unique resources C) By increasing the transaction costs D) By creating new industry-specific resources Answer: B Diff: 2 Section Reference: 3. Ways to Create Value in Alliances Learning Objective: 3. Describe the different ways value is created in alliances.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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48) Firms pool similar resources typically to ________.

A) increase the cost per unit B) decrease administrative costs C) create standardized products at a much lower cost D) share the risks associated with conducting a particular activity Answer: D Diff: 2 Section Reference: 3. Ways to Create Value in Alliances Learning Objective: 3. Describe the different ways value is created in alliances.

Bloom code: Comprehension Standard 1: AACSB || Analytic 49) Alliances that create value through lower transaction costs are primarily trying to ________.

A) lower the costs between transactions in the value chain B) expand the available resources of all the partners C) decrease administrative costs D) increase production costs Answer: A Diff: 2 Section Reference: 3. Ways to Create Value in Alliances Learning Objective: 3. Describe the different ways value is created in alliances.

Bloom code: Comprehension Standard 1: AACSB || Analytic 50) ________ occurs when one partner tries to exploit the alliance-specific investments made by another partner.

A) Hold-up B) Misrepresentation C) Bondage D) Battery Answer: A Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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51) Stylink Inc. and Plateus Inc. formed an alliance to create and own a legally independent company. However, Stylink tried to exploit the alliance-specific investments made by Plateus.

Which of the following is being exemplified in this case?

A) Hold-up B) Misrepresentation C) Bondage D) Battery Answer: A Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic 52) ________ occurs when one partner in an alliance creates false expectations about the resources it brings to the relationship or fails to deliver what it originally promised.

A) Hold-up B) Misrepresentation C) Bondage D) Profit stealing Answer: B Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 53) The research and development department of a pharmaceutical company is in the process of developing a new drug to cure Parkinson's disease. It requires additional resources to complete the process. To convince another pharmaceutical company to provide the necessary resources, it gives false information about how long the drug has been in the developmental pipeline and the guidelines followed in the production process. Which of the following is being exemplified in this case?

A) Hold-up B) Misrepresentation C) Bondage D) Profit stealing Answer: B Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic 18

54) Pearltech Inc., an information technology company, decides to establish a business alliance in order to differentiate its products. The manager of research and development, Sanah, is willing to form an alliance only with individuals she has known for a long time or a company within Pearltech's business network. Nate, the operations head, suggests extending the prospects by looking outside their usual network. Which of the following statements strengthens Sanah's argument?

A) Firms within the network could result in inbreeding of ideas.

B) Firms within the network prevent against opportunism.

C) Firms outside the network widen the scope of research solutions.

D) New partners bring in unique skills that add value to the product.

Answer: B Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 55) An alliance is likely to rely most on relationships between individuals when it is based on ________.

A) legal contracts B) collateral bonds C) goodwill trust D) shared ownership Answer: C Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 56) ________ issues involve how decisions will be made, how profits will be split, and how disputes will be resolved.

A) Exit B) Governance C) Operating D) Strategic Answer: B Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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57) ________ issues involve what performance is expected and how intellectual property will be shared and protected.

A) Exit B) Governance C) Operating D) Strategic Answer: C Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 58) ________ issues include the conditions under which partners can leave the alliance.

A) Exit B) Governance C) Operating D) Strategic Answer: A Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 59) ________ clauses are governance clauses in which parties often specify how profits or assets created from alliances are to be split among partners.

A) Residual rights B) Voting rights C) Dispute resolution D) Noncompete Answer: A Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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60) ________ clauses are governance clauses in which joint ventures must specify what percentage of equity is owned by each of the partners.

A) Residual rights B) Voting rights C) Equity D) Dispute Answer: C Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 61) ________ clauses specify product markets or businesses that partners are restricted from entering.

A) Intellectual property right protection B) Noncompete C) Preemption rights D) Put option Answer: B Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 62) ________ clauses specify confidential information brought to the alliance by partners that is not to be used by other partners or shared outside of the alliance without the partner's written consent.

A) Intellectual property right protection B) Noncompete C) Preemption rights D) Put option Answer: A Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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63) ________ clauses specify that if one partner wishes to sell its equity, it must first offer to sell the equity to the other partner.

A) Intellectual property right protection B) Noncompete C) Preemption rights D) Put option Answer: C Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 64) ________ clauses specify the conditions under which one partner can force another partner to sell (or buy its shares and at what price.

A) Intellectual property right protection B) Noncompete C) Preemption rights D) Put option Answer: D Diff: 1 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Knowledge Standard 1: AACSB || Analytic 65) An organization forms an alliance contract. It specifies in detail the duties and obligations of each of the partners, how the profits are to be split by the partners, and the process by which disputes will be resolved. Which of the following clauses is likely to cover the duties and obligations of the partners, including warranties and minimum output levels required to satisfy the contract?

A) Residual rights clause B) Voting rights clause C) Performance clause D) Dispute clause Answer: C Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic

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66) Teal Inc. forms a strategic alliance with White Corp. In their contract, they specify how governance issues, operating issues, and termination issues would be resolved. Which of the following is likely to be covered under the clause that deals with governance issues?

A) What performance is expected by Teal and White from each other B) How intellectual property will be shared by Teal and White C) Under which circumstances Teal or White can exit the alliance D) How profits will be split between Teal and White Answer: D Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic 67) A graphic design firm and an advertising firm form a contractual alliance. In the first clause, they specify how decisions will be made, how profits will be split, and how disputes will be resolved. In the second clause, they specify how intellectual property will be shared and protected. Which category of issues does the second clause address?

A) Governance issues B) Operating issues C) Exit issues D) Termination issues Answer: B Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic 68) Two organizations that are positioned at different stages along the value chain form an alliance. The contract includes the conditions under which the contract will be closed and the consequences of closure for each partner. Which of the following clauses specifies the above conditions?

A) Preemption rights clauses B) Voting rights clauses C) Termination clauses D) Noncompete clauses Answer: C Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic 23

69) Spade Investments Corp. owns a financial stake in Loisa Inc., a manufacturing company.

Spade's resources help the organization increase productivity, which results in increased sales and profits. These profits are shared among the partners in a particular ratio. In this case, the relationship between the two firms is based primarily on ________.

A) personal trust B) legal contracts C) shared equity D) reputation Answer: C Diff: 3 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Application Standard 1: AACSB || Analytic 70) How can firms protect themselves against misrepresentation?

A) By partnering only with start-ups B) By partnering only with trustworthy individuals and firms C) By desisting from forming any kind of alliance with other firms D) By creating an equity alliance with the partnering company Answer: B Diff: 2 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Comprehension Standard 1: AACSB || Analytic 71) In the context of an alliance contract, which of the following is true of a performance clause?

A) It specifies the specific duties and obligations of each of the partners, including warranties and minimum execution levels required to satisfy the contract.

B) It specifies product markets or businesses that partners are restricted from entering.

C) It specifies intellectual property or confidential information brought to the alliance by the partners that is not to be used by other partners or shared outside of the alliance without the partner's written consent.

D) It specifies ownership rights to intellectual property (such as patents) created as a result of the alliance.

Answer: A Diff: 2 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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72) J.L. Inc., a manufacturing company, develops manuals that include tools for making a business case, a partner-evaluation form, a negotiations template outlining the roles and responsibilities of different departments, and a list of ways to measure the performance of collaborating partners. Through this measure, J.L. primarily seeks to achieve ________.

A) organized alliance-management knowledge B) increased external visibility C) low transaction costs D) increased profits Answer: A Diff: 3 Section Reference: 5: Building an Alliance Management Capability Learning Objective: 5: Describe the importance of building an alliance management capability.

Bloom code: Evaluation Standard 1: AACSB || Analytic 73) Plateus Inc., a software company, has a website that gives detailed information about partnering processes for firms that seek collaboration with Plateus. Plateus describes the terms and conditions of different grades of partnership on its website, allowing potential partners to choose which level fits them best. Through this measure, Plateus seeks to primarily achieve ________.

A) organized alliance-management knowledge B) increased external visibility C) low transaction costs D) increased profits Answer: B Diff: 3 Section Reference: 5: Building an Alliance Management Capability Learning Objective: 5: Describe the importance of building an alliance management capability.

Bloom code: Evaluation Standard 1: AACSB || Analytic 74) Pharmax Inc., a pharmaceutical firm, holds annual surveys for its employees and the alliance partners' employees. After the survey, the management discusses the issues brought up by the employees and their suggestions. Conflicts are avoided by regular interaction, and any dispute that arises is resolved at an early stage. Through these measures, Pharmax seeks to primarily achieve ________.

A) organized alliance-management knowledge B) increased external visibility C) intervention and accountability D) increased profits Answer: C Diff: 3 Section Reference: 5: Building an Alliance Management Capability Learning Objective: 5: Describe the importance of building an alliance management capability.

Bloom code: Evaluation Standard 1: AACSB || Analytic 25

75) In the context of the alliance lifecycle, which of the following tools are used in alliance management?

A) Relationship evaluation form, yearly status report, termination checklist, termination planning worksheet B) Decision making template, trust-building worksheet, work planning worksheet, alliance communication infrastructure C) Partner screening form, technology and patent domain maps, cultural fit evaluation form, due diligence team D) Needs analysis checklist, make vs. buy vs. ally analysis, list of possible alliance partners with resources to meet needs Answer: B Diff: 2 Section Reference: 5: Building an Alliance Management Capability Learning Objective: 5: Describe the importance of building an alliance management capability.

Bloom code: Comprehension Standard 1: AACSB || Analytic 76) Which of the following is a key function of an effective dedicated alliance function?

A) Becoming more independent B) Increasing external visibility C) Refusing internal support to a firm D) Eliminating management accountability Answer: B Diff: 2 Section Reference: 5: Building an Alliance Management Capability Learning Objective: 5: Describe the importance of building an alliance management capability.

Bloom code: Comprehension Standard 1: AACSB || Analytic 77) A(n) ________ is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

Answer: strategic alliance Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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78) A(n) ________ is a type of strategic alliance in which cooperation between firms is managed directly through contracts, without cross-equity holdings, or an independent firm being created.

Answer: nonequity or contractual alliance Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 79) A(n) ________ is a type of contractual alliance in which a retailer may agree to provide certain customized services in order to help sell a product.

Answer: distribution agreement Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 80) With respect to categories of issues, ________ issues deal with how decisions will be made, how profits will be split, and how disputes will be resolved.

Answer: governance Diff: 2 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Comprehension Standard 1: AACSB || Analytic 81) What are the ways in which strategic partners can build trust in alliance relationships?

Answer: There are four primary ways that partners build trust in alliance relationships: (1) personal trust, (2) legal contracts, (3) shared equity/financial collateral bonds, or (4) reputation.

Diff: 2 Section Reference: 4: The Risks of Alliances Learning Objective: 4: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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82) Companies have three choices–make, buy, or ally–when it comes to conducting any particular activity that needs to be done to offer a product or service to a customer. Explain the three choices and the process involved in each.

Answer: First, firms can make, or conduct the activity themselves within the firm. Second, they can buy, or purchase, the activity or input from another firm, using an arm's-length relationship, in which the buyer purchases an input with no obligation to have a long-term relationship with the supplier. Companies that send out a bid to numerous suppliers and then buy from the supplier that offers the lowest price have an arm's-length relationship with those suppliers. The winner of the bid this month may lose next month. Finally, they can ally, or acquire, the activity or input from another firm, using an exclusive partnership relationship with that firm.

Diff: 1 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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83) What are the four kinds of inputs and activities that might qualify as strategic inputs, which merit forming an alliance relationship? Explain the four inputs with suitable examples.

Answer: Students' examples may vary. However, the answer must include the following four types of inputs. i) Inputs that can differentiate a firm's product in the minds of customers. Automakers are much more likely to want to partner with a supplier that provides important engine or drivetrain components that influence engine performance or reliability than one that provides fasteners. For example, truck manufacturers often partner with Cummins, a respected maker of truck engines and components, in the manufacture of their trucks. ii) Inputs that influence a firm's brand or reputation. Volvo, a Swedish manufacturer of cars and trucks, has tried to develop a reputation on the safety of its cars. Consequently, it has worked closely with key suppliers, including Autoliv, a Swedish supplier of seat belts and airbags, to put pioneering safety technology into its vehicles. iii) High value inputs or activities that make up a high percentage of a firm's total costs.

Companies that make refrigerators are more likely to partner with the supplier who provides the compressor–the component that costs the most and cools the refrigerator–than with the suppliers of plastic trays or fixtures. iv) Inputs or activities that require significant coordination in order to achieve the desired fit, quality, or performance. Whenever one needs to coordinate closely with another firm to get the desired performance from their input or activity, he or she probably wants a partnership relationship.

Diff: 2 Section Reference: 1: What Is a Strategic Alliance?

Learning Objective: 1: Distinguish the conditions under which to use a strategic alliance, vertical integration, and an arm's-length supplier relationship.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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84) What are the three types of strategic alliances based on governance arrangement? Also, briefly explain how alliances can also be categorized based on the stages of the value chain.

Answer: The following are the three types of strategic alliance based on governance arrangement. i) A contractual or nonequity alliance: This is a type of strategic alliance in which two or more firms write a contract to govern their relationship. There is ownership shared between the companies. ii) An equity alliance: In this type of alliance, the collaborating firms often supplement contracts with equity holdings in their alliance partners. iii) A joint venture: This is an alliance in which collaborating firms create and jointly own a legally independent company. The new company is created from resources and assets contributed by the parent firms.

In addition to distinguishing alliances by the type of governance arrangement (e.g., nonequity, equity, joint venture), alliances are sometimes categorized as either vertical alliances or horizontal alliances. A vertical alliance is an alliance between firms who are positioned at different stages along the value chain, such as a supplier and a buyer. A horizontal alliance is between two firms that do not have a supplier-buyer relationship and are typically positioned at a common stage of the value chain.

Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic 85) What are the different types of nonequity alliances?

Answer: Different types of nonequity alliances include: i) Licensing agreement: It is an alliance in which one firm receives a license, or permission to use a resource, such as a brand or a patent, from another firm in return for a percentage of the revenues or profits. ii) Supply agreement: It is a type of alliance in which a supplier may agree to develop certain customized inputs for a customer. iii) Distribution agreement: It is the agreement in which a distributor or retailer may agree to provide certain customized services in order to help sell a product.

Diff: 1 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Knowledge Standard 1: AACSB || Analytic 30

86) Explain the different ways through which a firm can create value in an alliance. Support your answer with suitable examples.

Answer: Students' examples may vary. However, the answer must include the following concepts. i) Combine unique resources: Pixar contributed computer-generated animation (CGA) and storywriting skills that brought to life unique stories in films such as Toy Story, Finding Nemo, Cars, and The Incredibles. Disney contributed worldwide film distribution to the partnership and sold products involving Pixar's movie characters–such as Woody and Buzz Lightyear–at its Disney stores and theme parks. ii) Pool similar resources: Intel and Micron wanted to manufacture flash memory–a business that required billions of dollars of investment in plant and equipment. They decided to create IMFlash, a joint venture designed to produce flash memory products. By splitting the cost of the plant and equipment, the two companies were able to build a much larger plant and, through economies of scale, produce flash memory at a lower cost per unit. iii) Create new alliance-specific resources: The alliance between Toyota Boshoku and Toyota is an example of building new resources in order to improve efficiency, the ability of the partners to coordinate their joint work. Toyota Boshoku, which supplies automobile seats to Toyota, built its factory next door to Toyota's assembly factory. Because seats are bulky and costly to ship, building the plant nearby lowered Toyota Boshoku's costs of inventory and shipping to Toyota.

Then, to further reduce shipping costs, Boshoku decided to build a conveyer belt to take seats directly from its factory into Toyota's. The factory plant and the conveyor belt were both new resources that were created to support Boshoku's transactions with Toyota. These investments substantially lowered transportation costs, inventory costs, and costs associated with face-to-face meetings. iv) Lower transaction costs: General Motors and its suppliers had higher transaction costs because they did not trust each other. This resulted in spending extra time negotiating agreements and writing legal contracts. In contrast, Toyota had developed relationships with its supplier partners that were based on mutual trust. One thing that Toyota did to build trusting relationships with some suppliers was to purchase a minority stock ownership stake in the supplier. Because Toyota owned part of the suppliers' stock, suppliers felt that Toyota would behave in a trustworthy manner.

Diff: 2 Section Reference: 2: Types of Alliances Learning Objective: 2: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloom code: Comprehension Standard 1: AACSB || Analytic © 2024 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course.

Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 9 International Strategy 1) The average ________, defined as the tax on goods imported into a country, has ________ over the last 50 years.

A) FDI; decreased B) FDI; increased C) tariff; decreased D) tariff; increased Answer: C Diff: 1 Section Reference: 1: The Globalization of Business Learning Objective: 1: Discuss the globalization of business.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) The average tariff has ________ during the last 50 years; the volume of international trade and companies selling across national borders has ________ during the last 50 years.

A) decreased; decreased B) decreased; increased C) increased; decreased D) increased; increased Answer: B Diff: 1 Section Reference: 1: The Globalization of Business Learning Objective: 1: Discuss the globalization of business.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) Which of the following factors affects the success of international strategies?

A) Variation in environmental factors B) Public preference for local firms C) Variations in the strength of supporting industries D) High trade barriers Answer: C Diff: 2 Section Reference: 1: The Globalization of Business Learning Objective: 1: Discuss the globalization of business.

Bloom code: Comprehension Standard 1: AACSB || Analytic

1

4) Organizations that obtain lower-cost resources, extend the lifespan of products, and achieve economies of scale and scope are pursuing ________.

A) efficiency B) globalization C) growth D) risk Answer: A Diff: 1 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic 5) Organizations that extend the life cycle of their products by selling older versions in other countries are pursuing ________.

A) differentiation B) efficiency C) growth D) risk Answer: B Diff: 2 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic 6) Firms that compete in foreign markets increase the number of units sold, thereby reaping the benefits of greater ________.

A) economies of scale B) economies of scope C) related diversification D) unrelated diversification Answer: A Diff: 1 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic

2

7) Firms that compete in foreign markets allow firms to spread their costs across more units in multiple product categories, thereby reaping the benefits of greater ________.

A) economies of scale B) economies of scope C) related diversification D) unrelated diversification Answer: B Diff: 1 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) Blue Corp., a car manufacturing company, reaches its five-year goal of becoming market leader in the domestic market. Upon reaching saturation in the local market, it decides to expand its market globally to increase its profits. Which of the following is likely to be the primary reason for Blue to enter the global market?

A) Lower-cost resources B) Longer product life C) Sales growth D) Product differentiation Answer: C Diff: 3 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Application Standard 1: AACSB || Analytic 9) Leo Inc., a U.S.-based firm, decides to enter a foreign market through offshoring. Which of the following is likely to be the primary reason for Leo to enter the new market?

A) The new market is ideal to dump Leo's excess products that cannot be sold in the United States.

B) The new market has facilities for research and development that are not available in the United States.

C) Leo is likely to have reached saturation in terms of sales growth in the domestic market.

D) Labor and raw materials are available at a lower cost in the new market than in the United States.

Answer: D Diff: 3 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Application Standard 1: AACSB || Analytic

3

10) Karl Jahaz Corp., an automobile company, has many business units across the globe.

Although the company has reached saturation in the domestic market, it continues to generate substantial revenue by selling its old-model, light commercial vehicles in a few countries. In this case, which of the following is achieved by the globalization of the company?

A) Extension of product's life cycle B) Deduction of production costs C) Higher profits by lowering prices D) Greater economies of scale Answer: A Diff: 3 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Application Standard 1: AACSB || Analytic 11) In which of the following circumstances can a firm best achieve economies of scale?

A) When the firm can spread the costs of investments in a plant across many sales B) When the firm creates better quality products due to higher quality equipment C) When the firm can reap the benefit of investing in research through higher customer satisfaction D) When the firm creates highly customized products for a niche audience in the market Answer: A Diff: 2 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic 12) Two marketing students, Fiona and Sayid, discuss the strategies of Star Seven Inc., a leading firm in the United States. Fiona believes that Star Seven entered a foreign market for the sake of efficiency, while Sayid argues that it entered for the purpose of expanding knowledge. Which of the following weakens Fiona's argument?

A) Star Seven aims to spread the costs of investments in plant and equipment across more sales in the new market.

B) Star Seven aims to serve multiple types of customers in the new market to gain new insights about its products.

C) Star Seven aims to sell products produced in excess at lower prices in the new market.

D) Star Seven aims to outsource some of its functions to reduce the labor and production costs.

Answer: B Diff: 3 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2. Explain why firms choose to expand internationally.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking

4

13) Firms choose to compete in international markets to ________.

A) find high-value expensive resources B) raise profits by lowering cost C) improve sales in the home market D) extend the lifespan of their machinery Answer: B Diff: 2 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14) Identify an advantage of competing in international markets.

A) It can help firms identify unmet needs in multiple areas.

B) It can help firms find high-value resources for a premium cost.

C) It helps firms lower a product's life cycle.

D) It helps firms attain diseconomies of scale.

Answer: A Diff: 2 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic 15) Competing in multiple markets allows firms to ________.

A) avoid economies of scope B) avoid economies of scale C) increase their average cost of production in the long run D) spread their costs across more units in many product categories Answer: D Diff: 2 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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16) Which of the following statements is true about globalization?

A) It refers to the direct investment in production or business in one country by a business from another country.

B) It is the degree of difference between the cultures of two nations.

C) It is the spread of businesses across national borders.

D) It refers to the stages a product or service goes through during its lifespan.

Answer: C Diff: 2 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic 17) ________ distance refers to differences in language, norms, behaviors, beliefs, customers, and shared values.

A) Administrative B) Cultural C) Geographic D) Legal Answer: B Diff: 1 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Knowledge Standard 1: AACSB || Analytic 18) ________ distance refers to differences in the legal, political, and regulatory institutions between countries.

A) Administrative B) Cultural C) Economic D) Geographic Answer: A Diff: 1 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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19) ________ distance refers to how many miles separate two countries.

A) Administrative B) Cultural C) Geographic D) Legal Answer: C Diff: 1 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) ________ distance primarily to differences in the average income of customers in two countries.

A) Administrative B) Cultural C) Economic D) Geographic Answer: C Diff: 1 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Knowledge Standard 1: AACSB || Analytic 21) Nina, a marketing student, studies how people from different countries accept ambiguity or follow rules and laws. When she focuses on this specific trait while studying the distance between a domestic and foreign market, she is likely to be focusing on the markets' ________ distance.

A) administrative B) geographic C) legal D) cultural Answer: D Diff: 3 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Application Standard 1: AACSB || Analytic

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22) With respect to distance between a foreign and a domestic market, administrative distance is likely to be more when the new market ________.

A) uses the common law system used in the Anglo sphere B) has not been part of the colonizer/colony network C) uses the same currency as the domestic market D) does not belong to a different trade bloc Answer: B Diff: 2 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Comprehension Standard 1: AACSB || Analytic 23) The industries most affected by economic distance are those for which ________.

A) the demand for products is very elastic B) the supply for products is very stable C) the geographic distance is the highest D) the administrative distance is the lowest Answer: A Diff: 2 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Comprehension Standard 1: AACSB || Analytic 24) Dave is a research analyst at Geo Corp., a U.S.-based firm, specializing in organic farm produce. Since the management is considering entering a foreign market, Dave begins to study the risks associated with this move. After gathering sufficient data regarding the internal factors of the new market, he categorizes the risks based on the type. Which of the following is most likely to be considered a political risk?

A) Marketers of Geo standardizing products based on local market needs B) Distribution costs being higher in the market than that in the United States C) Laws prohibiting foreign ownership of local firms in the new market D) Consumers preferring local goods to foreign products in the new market Answer: C Diff: 3 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Application Standard 1: AACSB || Analytic 8

25) Which of the following is most likely to be categorized as a market risk associated with entering a new market?

A) The local government introducing tariffs on foreign products B) The local government requiring a certain percentage of managers to be locals C) The currencies of countries fluctuating significantly when compared to the U.S. dollar D) The distribution process being different from that in the United States Answer: D Diff: 2 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Comprehension Standard 1: AACSB || Analytic 26) Which of the following is true of costs in terms of how firms compete internationally?

A) Adapting operations to fit local circumstances is cheap.

B) The more tailored a product is, the higher the cost.

C) Higher costs ensure risks are lowered or negated.

D) Firms achieve economies of scale by avoiding standardization.

Answer: B Diff: 2 Section Reference: 3. Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Comprehension Standard 1: AACSB || Analytic 27) Administrative distance refers to ________.

A) distance in miles, or kilometers, between two countries B) a firm's adjustments to products, services, and processes C) differences in the legal, political, and regulatory institutions between countries D) differences in language and culture, the way people live and think about the world Answer: C Diff: 1 Section Reference: 3: Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance and how they affect the likelihood of a successful international expansion. Explain how this affects the choice of where firms should go when they expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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28) Identify a true statement about administrative distance.

A) Low administrative distance can increase the rate of entry by foreign firms into a country.

B) High administrative distance can decrease the effect of geographical distance.

C) Low administrative distance can keep foreign firms from entering a new country to expand business.

D) High administrative distance lowers both transportation and communication costs.

Answer: A Diff: 2 Section Reference: 3: Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance and how they affect the likelihood of a successful international expansion. Explain how this affects the choice of where firms should go when they expand internationally.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) Among which countries is administrative distance low?

A) Countries that use the same currency B) Countries that have different legal systems C) Countries that have never been colonized D) Countries that are from different trading blocs Answer: A Diff: 2 Section Reference: 3: Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Comprehension Standard 1: AACSB || Analytic 30) ________ is the need to tailor products, marketing, and distribution strategies to the local customers in a foreign country.

A) Global integration B) Global standardization C) Local responsiveness D) Mass customization Answer: C Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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31) ________ means the firm achieves economies of scale by standardizing products, producing them without variations, or integrating processes on a global scale.

A) Global integration B) Global standardization C) Local responsiveness D) Mass customization Answer: A Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic 32) The ________ strategy emphasizes local responsiveness over standardization.

A) arbitrage B) differentiation C) global D) multidomestic Answer: D Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic 33) The ________ strategy emphasizes global standardization and economies of scale over local responsiveness.

A) arbitrage B) differentiation C) global D) multidomestic Answer: C Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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34) The ________ strategy takes advantage of country-comparative advantages such as cheap labor or skilled workers.

A) arbitrage B) differentiation C) global D) multidomestic Answer: A Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic 35) The ________ strategy standardizes some activities to take advantage of country comparative advantages while other activities are conducted locally.

A) arbitrage B) differentiation C) global D) transnational Answer: D Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic 36) The ________ strategy centers on tailoring products and operations to individual markets.

A) arbitrage B) differentiation C) global D) multidomestic Answer: D Diff: 1 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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37) Ryuuku Inc., a cloth manufacturing company, enters a foreign market. It tailors its products and distribution strategies to meet the needs of the local market. Modifying the products and operations to fit local customer requirements results in high cost to the company; however, the revenue was higher than that in the domestic market. In this case, the competing pressure addressed by Ryuuku is ________.

A) global standardization B) local responsiveness C) licensing requirements D) mass customization Answer: B Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 38) Score Ink Corp., a publishing firm, decides to enter a new market. It changes its strategy from standardization to local responsiveness in order to meet the needs of the new market.

However, in order to execute this strategy, it had to increase production and distribution expenses. Which of the following is adopted by Score Ink? A) A multidomestic strategy B) A global strategy C) An arbitrage strategy D) A standardization strategy Answer: A Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic

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39) Tokef Inc., a U.S.-based firm, adopts a multidomestic strategy to enter the Japanese market.

Which of the following is likely to be true in this case?

A) It is likely to focus on local responsiveness over standardization.

B) It is likely to focus on economies of scale over local responsiveness.

C) It is likely to focus on global standardization over local responsiveness.

D) It is likely to focus on standardization over mass customization.

Answer: A Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 40) Which of the following statements is true about multidomestic strategy?

A) It tailors products and operations to individual markets.

B) It prefers to standardize products to achieve economies of scale.

C) It does not allow regional managers to make decisions on their own.

D) It enables firms to easily develop a worldwide competitive advantage.

Answer: A Diff: 2 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic 41) Wale Inc., an electronics manufacturer, adopts a multidomestic strategy to enter the global market. It centers on tailoring products and operations to individual markets. However, the cost pressure becomes too intense. To reduce costs, Wale Inc. only sells air conditioners in a specific country. Which of the following is being exemplified in this case?

A) Focus adaptations B) Externalize adaptations C) Design adaptability D) Global adaptations Answer: A Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic

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42) Nate, the CEO of Venus Corp., decides to make some changes to the strategies adopted to operate in global market. Although he remains with the multidomestic strategy, he decides to manage the variations and the costs incurred through it by allowing a local firm to take up a franchise. This ensures that Venus does not have to work on adapting the product to the local needs. Which strategy has Nate adopted to manage the variations?

A) Focus adaptations B) Externalize adaptations C) Design adaptability D) Market adaptability Answer: B Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 43) Jade Inc., an automobile company, manages the costs of localization by mass producing standard core components such as the engine. However, it makes these components in such a way that they can be adapted to modified external components that are customized to specific local markets. This ensures a certain extent of economies of scale. Which of the following is exemplified in this case?

A) Focus adaptations B) Externalize adaptations C) Design adaptability D) Market adaptability Answer: C Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic

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44) Slate-E Corp., an industrial equipment manufacturer, engages in design adaptability in order to manage the costs of variations. Which of the following is likely to be true in this case?

A) Slate-E's is likely to mass produce machinery that are standard across the globe.

B) Slate-E's cranes are likely to have the exact same external features in every market.

C) Slate-E's factory machines are likely to have standard core components across the globe.

D) Slate-E's is likely to create highly customized equipment from scratch for every individual customer.

Answer: C Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 45) The Purple Lace Inc., a home furnishing company, emphasizes standardization over local culture and needs of the specific market. It maintains consistency of operations across the different countries that the firm operates in. Which of the following is being exemplified in this scenario?

A) A multidomestic strategy B) A global strategy C) An arbitrage strategy D) A customization strategy Answer: B Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 46) Which of the following statements is true about a firm that adopts a global strategy?

A) It tailors its products and operations to individual markets.

B) It focuses on customer needs and preferences rather than standardization.

C) It focuses on economies of scale and leveraging firm capabilities.

D) It uses a different strategy in each of the countries where it competes.

Answer: C Diff: 2 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic 16

47) Trosome Petroleum Corp. opens new plants in Sopintry. In order to gain economies of scale, it centralizes its products and operations. Decisions regarding operations in Sopintry are made at the central headquarters. Which of the following primary strategies is used by the company to do business internationally?

A) A multidomestic strategy B) A global strategy C) An arbitrage strategy D) A local responsiveness strategy Answer: B Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 48) An automobile manufacturing company has its production units and sales units in two different locations. The production units are situated in geographical areas that offer cheap labor and easy resource availability. On the other hand, the sales units are in places where there is a high demand for the products. Which of the following strategies is best exemplified in this scenario?

A) A multidomestic strategy B) A global strategy C) An arbitrage strategy D) A standardization strategy Answer: C Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic

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49) A multinational footwear company believes in capitalizing on differences in the cost of stocks by acquiring the stocks where they are less expensive. In this scenario, which of the following arbitrage strategies is adopted by the company?

A) An economic arbitrage B) A cultural arbitrage C) An administrative arbitrage D) A capital arbitrage Answer: D Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 50) Although there are several alternative treatments available across the globe, herbal products produced in Brazil are sold at a premium. The ancient Brazilian recipes for wellness are considered the main reason for the premium price. This is an example of a(n) ________ arbitrage.

A) economic B) cultural C) administrative D) capital Answer: B Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic

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51) Kitsch Along Inc., a cloth manufacturer, raises funds in a country where interest rates are lower than the United States. In this case, the type of arbitrage strategy adopted by the company is primarily ________.

A) linguistic B) cultural C) administrative D) capital Answer: D Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 52) Neon Inc. considers two foreign markets for expansion. The first market has lesser taxes compared to the second along with more lenient trade regulations. Thus, Neon chooses the first market despite it being more distinct in terms of language and tradition. By choosing the first market, Neon exhibits a(n) ________ arbitrage.

A) economic B) cultural C) administrative D) capital Answer: C Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic

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53) Neferent Inc., a finance company, incorporates itself in the Notre Islands because of low corporate tax rates there. In this case, the strategy adopted by Neferent is to gain a(n) ________ arbitrage.

A) economic B) cultural C) administrative D) capital Answer: C Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 54) Shondura Inc. focuses on both local responsiveness and standardization in global business.

The company typically begins with a strong emphasis in a single strategy and then works to minimize the downsides associated with that strategy as much as possible as they begin to implement the second strategy. Which of the following is best exemplified in this case?

A) A multidomestic strategy B) A global strategy C) An arbitrage strategy D) A transnational strategy Answer: D Diff: 3 Section Reference: 4. How Firms Compete Internationally Learning Objective: 4. Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Application Standard 1: AACSB || Analytic 55) Identify a true statement about local responsiveness.

A) Adapting products and operations to fit local circumstances is inexpensive.

B) The more a company tailors a product to a local market, the higher the cost.

C) Companies with higher costs can beat their competition through lower prices.

D) Firms achieve economies of scale by producing products with variations.

Answer: B Diff: 2 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic 20

56) Firms that use a multidomestic strategy to do business internationally emphasize ________.

A) economies of scale over local responsiveness B) local responsiveness over standardization C) country-comparative advantages D) global standardization Answer: B Diff: 2 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic 57) Which of the following is a limitation of a global strategy?

A) It is typically a low-cost strategy.

B) It uses differentiated processes in its value chain.

C) Standardized products may not meet the needs of customers in particular countries.

D) Global firms may improve sales by not being responsive.

Answer: C Diff: 2 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic 58) Identify a true statement about an arbitrage strategy.

A) It involves tailoring products or services to local markets.

B) It involves buying where costs are low and selling where they are high.

C) It involves selling standardized products using standardized processes around the world.

D) It involves a combination of both local responsiveness and standardization.

Answer: B Diff: 2 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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59) Which of the following statements best describes global integration?

A) It is a strategy that involves tailoring products or services to local markets.

B) It involves making products and/or processes consistent across different units within a firm.

C) It refers to the standardization of processes within a single business in different locations around the world.

D) It refers to a firm's adjustments to products, services, and processes in order to account for local culture and needs.

Answer: C Diff: 2 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Comprehension Standard 1: AACSB || Analytic 60) ________ involve(s) producing products in a single location and selling them in foreign markets.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: A Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 61) ________ work(s) well when little adaptation of a product is required and good distribution networks are in place in the foreign market.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: A Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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62) ________ is/are the least risky of entry modes because it involves the least investment in a foreign country.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: A Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 63) ________ involve(s) selling the rights to produce a firm's products or services.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: B Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 64) ________ is/are a good entry mode for firms that have unique know-how or a solid brand that can be easily valued but do not have the capital or resources and capabilities to expand abroad.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: B Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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65) ________ involves sharing resources, risks, and rewards with a partner.

A) An alliance B) Exporting C) Licensing D) Wholly owned subsidiaries Answer: A Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 66) ________ is/are a special form of alliance involving the creation of a new firm by two or more businesses.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: C Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 67) ________ is/are local units owned outright by the entering firm.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: D Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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68) ________ require(s) the most investment and create(s) the most risk because the firm has to put up all of the capital itself.

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: D Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 69) ________ means the firm builds operations from scratch.

A) Exporting B) Franchising C) A greenfield investment D) Licensing Answer: C Diff: 1 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) Petick Inc., an electronic goods manufacturer, produces its products in the domestic unit.

These products are sold in foreign markets across the globe. In this case, which of the following modes of international market entry is adopted by Petick?

A) Exporting B) Licensing C) Joint ventures D) Wholly owned subsidiaries Answer: A Diff: 3 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Application Standard 1: AACSB || Analytic

25

71) Which of the following is a disadvantage of exporting as a mode for entering a foreign market?

A) It increases the cost of selling in the foreign market.

B) It does not work when the product adaptation required is minimal.

C) It cannot work with distribution networks in the foreign market.

D) It involves heavy investment in the foreign country.

Answer: A Diff: 2 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic 72) Vactin Motors, an automobile company, is a well-recognized brand. It does not have the capital and capabilities to set up manufacturing units abroad, although it is keen to have its products made in the foreign market. It decides to have the products produced and sold under its brand name. In this case, which of the following modes of international market entry should be adopted by Vactin?

A) Exporting B) Franchising C) Joint venture D) Wholly owned subsidiaries Answer: B Diff: 3 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Application Standard 1: AACSB || Analytic 73) In the context of modes of international market entry, which of the following statements is true of licensing and franchising?

A) It offers the highest amount of control of all the various modes of entry.

B) It is easy to extract knowledge for use in other locations through this mode.

C) It can increase the cost of selling in a foreign market.

D) It involves the risk of a local firm in alliance to become a competitor.

Answer: D Diff: 2 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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74) A healthcare company deals with significant management challenges. The production units are based in various geographic locations, which results in cultural and linguistic barriers.

Operations require relying on a local firm to adapt the products to meet the needs of the local market. In this case, the company is likely to be engaging in ________.

A) Exporting B) Importing C) Offshoring D) Alliances Answer: D Diff: 3 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Application Standard 1: AACSB || Analytic 75) Which of the following statements is true of alliances as a means of entering international markets?

A) It is a favored way to enter markets that are close to the home market.

B) It allows the alliance to be perceived by both government and consumers as local.

C) It avoids sharing resources, risks, and rewards.

D) It offers the least amount of control of all the various modes of entry.

Answer: B Diff: 2 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic 76) In the context of modes of international market entry, which of the following statements is true of a joint venture?

A) It is a favored way to enter markets that are close to the home market.

B) It involves cultural barriers that increase the difficulty of operations.

C) It avoids sharing resources, risks, and rewards.

D) It offers the least amount of control of all the various modes of entry.

Answer: B Diff: 2 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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77) Which of the following statements is true of wholly owned subsidiaries as means of entering international markets?

A) It requires the least investment for market entry.

B) It avoids sharing resources, risks, and rewards.

C) It overcomes trade and transportation barriers by producing locally.

D) It offers the least amount of control of all the various modes of entry.

Answer: C Diff: 2 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic 78) Hats Corp., a firm headquartered in Boston, enters India through a wholly owned subsidiary.

It has already franchised a few units to Nepal and China. Which of the following is likely to be true in this case?

A) Hats faces lesser risk through the wholly owned subsidiary than the franchises it holds in Nepal.

B) Hats invests lesser in the wholly owned subsidiary in India than the franchise it holds in China.

C) Hats appears more local through a wholly owned subsidiary than a franchise.

D) Hats overcomes trade and transportation barriers better through a franchise than a wholly owned subsidiary.

Answer: C Diff: 3 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Application Standard 1: AACSB || Analytic 79) A U.S.-based insurance firm purchases a company in Germany. The purchase allows the U.S. firm to acquire local resources, knowledge, and expertise while still maintaining control through 100 percent ownership. This process of purchasing a local firm is called ________.

A) acquisition B) licensing C) franchising D) authorization Answer: A Diff: 3 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Application Standard 1: AACSB || Analytic 28

80) Maria and Sasha, researchers at Gem Corp., discuss the best method for their firm to enter a foreign market with wholly owned subsidiaries. Maria believes that greenfield investments would be more suitable, while Sasha believes that acquiring a local firm is a better option. Which of the following weakens Maria's argument?

A) Gem requires high level of control right from production to marketing in the new market.

B) Gem has the capabilities and resources required to set up a unit from scratch.

C) Gem finds integration to be very difficult because of the cultural differences with the host country.

D) Gem needs to enter the new market at the earliest to gain advantage of the product cycle.

Answer: D Diff: 3 Section Reference: 5. How a Firm Gets into a Country: Modes of Entry Learning Objective: 5. Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 81) Which of the following statements is true of exporting?

A) It involves very high investments.

B) It allows for lesser economies of scale across countries.

C) It is the least risky of the modes of international market entry.

D) It works well when high differentiation of a product is required.

Answer: C Diff: 2 Section Reference: 5: How a Firm Gets into a Country: Modes of Entry Learning Objective: 5: Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic 82) Which of the following is true of a firm's choice of entry mode?

A) It is based on a firm's product.

B) It is based on a firm's international experience.

C) It is based on a firm's operational practices.

D) It is based on a firm's in-house production experience.

Answer: B Diff: 2 Section Reference: 5: How a Firm Gets into a Country: Modes of Entry Learning Objective: 5: Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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83) The spread of businesses across national borders is called ________.

Answer: globalization Diff: 1 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic 84) The stages a product or service goes through during its lifespan refers to a(n) ________.

Answer: product's life cycle Diff: 1 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic 85) ________ distance is usually measured as per capita gross domestic product.

Answer: Economic Diff: 1 Section Reference: 3: Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Knowledge Standard 1: AACSB || Analytic 86) ________ is the need to tailor an organization's products, marketing, and distribution strategies to the local customers in a foreign country.

Answer: Local responsiveness Diff: 1 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic 87) Granting another business the permission to use or sell a firm's product, technology, or process is called ________.

Answer: licensing Diff: 1 Section Reference: 5: How a Firm Gets into a Country: Modes of Entry Learning Objective: 5: Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic 30

88) Explain why firms choose to compete in international markets.

Answer: These are the primary reasons for firms to compete in international markets.

Growth: The need to grow sales is one of the biggest reasons that firms expand internationally.

Some firms have saturated their home markets, and entering foreign markets is the only way for them to sustain growth.

Efficiency: Many firms enter additional markets in order to become more efficient. Efficiency takes a number of forms, including obtaining lower-cost resources, extending the lifespan of products, and achieving economies of scale and scope.

Managing risks: Operating in more than one country can also provide firms with a measure of protection against disaster, both economic and natural.

Knowledge: Another reason for expanding into other countries is to generate more knowledge, the basis for innovation. When a firm sells in different countries, to people with different tastes and needs, it often gains new insights about its products and services. Serving multiple types of customers can help a firm to identify unmet needs in multiple markets. Those insights can be valuable for increasing sales in many locations.

Responding to customers: Last, but not least, firms may expand internationally in response to either customers or competitors. This is particularly true of business-to-business (B2B) firms that perform intermediate steps of the value chain for large customers.

Diff: 1 Section Reference: 2: Why Firms Expand Internationally Learning Objective: 2: Explain why firms choose to expand internationally.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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89) Write a note on cultural distance.

Answer: Cultural distance refers to differences in language and culture, the way people live and think about the world. People in another country might hold different beliefs about a host of significant issues, including how people should interact and how business should be conducted.

They might have very different worldviews about human nature and the role of individuals and companies in society. All of these can add up to a very foreign environment that makes it difficult for firms to understand their customers and local employees.

Although it is only one aspect of culture, the issue of language is influential. Firms are 42 percent less likely to do business in a country with a different language. Language differences are relatively easy to fix, but potential problems increase rapidly when companies move into countries with deeper, more difficult to overcome types of cultural distance.

These may include differences in: • Religion • Ethnicity • Trust for outsiders • How genders are expected to behave • The degree to which the culture is focused on individuality or collective action • How people accept ambiguity or follow rules and laws • The degree to which people allow abuses of political or market power Many of these types of cultural differences can be subtle but still have a significant impact on consumer behavior and shape the market demand for foreign products.

Diff: 1 Section Reference: 3: Where Firms Should Expand Learning Objective: 3: Describe different kinds of distance, how they affect successful international expansion, and how this affects the choice of where firms should go when they expand.

Bloom code: Knowledge Standard 1: AACSB || Analytic 90) What are the three primary strategies that firms can use to do business internationally?

Answer: There are three primary strategies firms can use to do business internationally: i) Multidomestic strategy–emphasizes local responsiveness over standardization. ii) Global strategy–emphasizes global standardization and economies of scale over local responsiveness. iii) Arbitrage strategy–takes advantage of country-comparative advantages–sources of low cost (e.g., cheap labor) or unique resources (e.g., skilled workers).

Diff: 1 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic 32

91) Explain the ways to manage variation and successfully pursue a multidomestic strategy.

Answer: Firms can manage variation in three major ways to successfully pursue a multidomestic strategy: i) Focus adaptations: Some firms manage the variation by tightly focusing on a particular product, customer segment, or geographic area. Such highly focused firms still tailor their products, but the amount of variety they face is more manageable by maintaining a tight focus. ii) Externalize adaptations: Some firms externalize the work of adapting the product for local needs, generally by arranging for local customers to do it. Methods of externalization include franchising and alliances, which are discussed later in this chapter. iii) Design adaptability: A third method for managing the costs of localization involves designing a product so that it can be adapted while still maintaining some economies of scale. Some companies design for cheap adaptation by investing in flexible manufacturing that reduces the costs of short manufacturing runs. Others modularize their product, creating a set of standard interfaces that allow many different types of alternatives to plug into one another.

Diff: 1 Section Reference: 4: How Firms Compete Internationally Learning Objective: 4: Explain the three primary types of international strategy and be able to use the international strategy triangle to determine which international strategy is right for a specific firm.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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92) Explain the four different modes of international market entry.

Answer: The four different modes of international market entry are: exporting; licensing and franchising; joint ventures and alliances; wholly owned subsidiaries.

Exporting involves producing goods in a single location and selling them in foreign markets.

Licensing and franchising both involve selling the rights to produce a firm's products or services.

Alliances involve sharing resources, risks, and rewards. They are an increasingly favored way to enter markets that are distant (i.e., riskier) from the home market.

Wholly owned subsidiaries are local units owned outright by the entering firm. This type of entry requires the most investment and creates the most risk, as the firm has to put up all of the capital itself. Wholly owned subsidiaries can, however, overcome trade and transportation barriers by producing locally. They may also allow a foreign firm to appear more local to host-country governments and consumers.

Diff: 1 Section Reference: 5: How a Firm Gets into a Country: Modes of Entry Learning Objective: 5: Explain when a firm should use each of four major ways to enter a foreign market.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 10 Innovative Strategies that Change the Nature of Competition 1) ________ describes the creation of a unique or novel concept, method, or process that is often turned into a tangible outcome such as a new product.

A) Innovation B) Invention C) Revolution D) Variation Answer: B Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) ________ refers to the creation of the idea of method itself.

A) Innovation B) Invention C) Revolution D) Variation Answer: B Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) ________ refers to the use of a novel idea or method.

A) Innovation B) Invention C) Revolution D) Variation Answer: A Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

1

4) ________ is the conversion of a novel concept into a product, process, or business model that generates revenues and profits.

A) Innovation B) Invention C) Revolution D) Variation Answer: A Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 5) Nathan, a designer at Zeal Inc., comes up with a new idea. While Nathan considers turning it into a piece of art, Ricky, his colleague, suggests converting the idea into a product that generates revenue. Ricky's suggestion to convert the idea into a revenue-generating product refers to a(n) ________.

A) innovation B) revolution C) invention D) variation Answer: A Diff: 3 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Application Standard 1: AACSB || Analytic 6) ________ innovation builds on a firm's established knowledge base and steadily improves the product or service a firm offers.

A) Incremental B) Indirect C) Direct D) Radical Answer: A Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

2

7) ________ innovation draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way.

A) Incremental B) Indirect C) Direct D) Radical Answer: D Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) Lean manufacturing is a ________ that is a type of ________ innovation.

A) process; incremental B) process; radical C) product; incremental D) product; radical Answer: B Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) Inks Corp. is a manufacturer of pens. It creates a new product called , a quick-drying ink pen that does not require the use of blotting paper. It creates this product by building on its established knowledge of the properties of ink and the mechanisms of a pen. Which of the following innovations is being exemplified in this case?

A) A revolutionary innovation B) An incremental innovation C) A radical innovation D) A subversive innovation Answer: B Diff: 3 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Application Standard 1: AACSB || Analytic

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10) Pearl Corp., a manufacturer of dental equipment, creates a new instrument. With the experience it has in creating small equipment required for dental surgeries, it customizes the new tool to be more accurate and effective. It also comes with an improvised handle. Which of the following innovations has Pearl adopted in this scenario?

A) An altered innovation B) An incremental innovation C) A radical innovation D) A progressive innovation Answer: B Diff: 3 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Application Standard 1: AACSB || Analytic 11) Which of the following statements is true of an incremental innovation?

A) It focuses on a different knowledge base to deliver value in a truly unique way.

B) It creates new values through a different set of resources and capabilities than that of rivals.

C) It sustains a company's current product offering and revenues.

D) It typically creates improvements based on the knowledge perceived from competitors.

Answer: C Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 12) A salon that specializes in haircuts comes up with a new service that sets it apart from those of its rivals. Clients are requested to send in their photographs; the stylists then create a set of digital images with various looks. Once the client chooses a desired look, a stylist goes to the client's home to deliver the service. The strategy of creating digital images, which requires a unique set of resources and skills, is an example of a(n) ________ innovation.

A) altered B) incremental C) radical D) progressive Answer: C Diff: 3 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Application Standard 1: AACSB || Analytic

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13) Which of the following statements is true of a firm that creates a radical innovation?

A) It focuses on the established knowledge base of a firm to deliver value.

B) It relies on existing technologies and resources to create a new product.

C) It employs a fundamentally different business model than its rivals.

D) It aims to sustain its current product offering and revenues.

Answer: C Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14) A(n) ________ strategy is a strategy that introduces a fundamentally different business model than rivals.

A) cost B) customer orientation C) innovative D) operational effectiveness Answer: C Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 15) The approach, or pricing strategy, a company uses to get paid for the value it delivers through its business model is called the ________ model.

A) cost B) customization C) differentiation D) revenue Answer: D Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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16) Innovative strategies based on radical innovations are sometimes referred to as ________ innovations.

A) deliberate B) disruptive C) supporting D) unfair Answer: B Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 17) A telecommunications service provider, Chrome Inc., creates a new application for its users.

The application allows users to make free calls through the Internet. While this increased the number of paid subscribers of Chrome, its competitors who levied a fee for their telecommunication services lost their customers. This is an example of a ________ innovation.

A) supporting B) complementary C) disruptive D) decremented Answer: C Diff: 3 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Application Standard 1: AACSB || Analytic 18) Which of the following statements is a characteristic of a disruptive innovation?

A) It disturbs an existing market by displacing an earlier technology.

B) It typically uses old technologies used by competitors in the market.

C) It sustains a company's current product offering by the firm's established knowledge.

D) It typically offers value in a way that is easy to imitate.

Answer: A Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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19) Which of the following statements is true about invention?

A) It essentially enables firms to deliver value in new ways.

B) It refers to the use of a novel idea or method.

C) It is the creation of a unique or novel concept, method or process that is often turned into a tangible outcome such as a new product.

D) It is the conversion of a novel concept into a product, process, or business model that generates revenues and profits.

Answer: C Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 20) Which of the following statements refers to incremental innovation?

A) It is a pricing strategy that a company uses to get paid for the value it delivers through its business model.

B) It can be described as building on a firm's established knowledge base to create minor improvements to the product or service a firm offers.

C) It can be described as innovation that draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way.

D) It can be described as building on a competing firm's established knowledge base to steadily improve a firm's own product or service.

Answer: B Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 21) Strategies that draw on more radical innovations ________.

A) build products on a firm's established knowledge base B) employ a fundamentally similar business model as a firm's rivals C) often use new technologies to create, deliver, and capture value D) create minor improvements to the product or service a firm offers Answer: C Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

7

22) Radical innovation strategies are sometimes referred to as disruptive innovation because ________.

A) they disrupt the normal functioning of the activities in the industry value chain B) they disrupt the production process, thus reducing the production capability of the firm C) companies in the same industry can easily imitate this innovation D) rival firms find them so disruptive that they can no longer do business as usual Answer: D Diff: 2 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 23) Copper Inc., an existing clothing outlet, decides to shift from direct to online retailing. It offers the same products at a reduced price as it does not have to incur the costs to manage a store. In this case, which of the following patterns of innovative strategies has Copper adopted?

A) Reconfiguring the value chain to eliminate activities B) Creating low-end disruptive innovations to decrease competition C) Forming product differentiation strategies to increase value D) Adding additional product features to increase the product life cycle Answer: A Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 24) Stars Corp. decides to eliminate activities associated with collecting and storing the products by directly distributing the finished goods to its customers. This enabled Stars to reduce the total cost. Which of the following is being exemplified in this case?

A) Disintermediation B) Low-end disruptive innovations C) Standardization D) High-end radical innovations Answer: A Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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25) Gem Inc. a clothing manufacturer, creates a new strategy to increase its customer base.

Maya, a marketing student, observes that Gem engages in disintermediation, while Nate, her friend, believes that this observation is incorrect. Which of the following statements is likely to support Maya's observation?

A) Gem is likely to offer coupons to regular customers and increase brand loyalty.

B) Gem is likely to create disruptive innovations to eliminate competition.

C) Gem is likely to eliminate middlemen and directly deliver products to customers.

D) Gem is likely to misrepresent facts in its promotions to increase sales.

Answer: C Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 26) Identify a true statement about the innovative strategy of disintermediation.

A) It uses the price skimming strategy to gain a foothold in the market.

B) It involves reconfiguring the value chain to eliminate activities or steps.

C) It creates products that outperform existing products in the market.

D) It involves producing a low-cost product or service at the low-end or most price-sensitive segment of the market.

Answer: B Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 27) A ________ disruption occurs when firms use a different set of activities or technologies from their rivals to produce a low-cost product or service.

A) bottom-up B) low-end C) high-end D) top-down Answer: B Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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28) An automobile company used its profits from the sale of motorcycles to invest in the development of cars. These cars were less expensive but technologically more advanced than those of its competitors. This is an example of ________.

A) disintermediation B) low-end disruptive innovations C) standardization D) high-end disruptive innovations Answer: B Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 29) A software firm decides to offer its products at a lower price. In order to reduce costs, it outsources some of its in-house functions to countries that offer less expensive labor. As a result, it gains a cost advantage. The strategy adopted by this firm is an example of ________.

A) disintermediation B) low-end disruptive innovations C) free business models D) high-end disruptive innovations Answer: B Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 30) Which of the following is a characteristic of products created through top-down disruptive innovation?

A) They move upmarket as they improve their technology and processes.

B) They are of poorer quality than the existing products in the market.

C) They are priced significantly lower than other similar products in the market.

D) They are initially purchased by the most discriminating and least price-sensitive buyers.

Answer: D Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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31) Crimson Inc. initially introduced a new gadget to the niche market. Eventually, other organizations provided the same product at a lower price. Hence, Crimson had to reduce the price of the gadget to the market price. This is an example of a ________.

A) disintermediation strategy B) low-end disruptive innovation C) differentiation strategy D) high-end disruptive innovation Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 32) An automobile manufacturer creates high-performance products, which are new in the market. Since the product offers features that are unique, customers were willing to pay a high price for the product. However, after a couple of months, other brands offered the same features at a lower price, which made the innovators reduce the price as well. Which of the following innovations is being exemplified in this scenario?

A) A disintermediation strategy B) A low-end disruptive innovation C) A customization strategy D) A high-end disruptive innovation Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 33) Which of the following statements is true of a high-end disruptive innovation?

A) It disrupts an existing market by displacing a high-end technology with a low-end tool.

B) It relies on discounted prices to increase the sale of high-end services.

C) It uses the price skimming strategy to gain a foothold in the market.

D) It creates new products that offer superior performance on some existing product features.

Answer: D Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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34) Mass customization means the components are ________ and the final product is ________.

A) customized; customized B) customized; mass produced C) mass produced; customized D) mass produced; mass produced Answer: C Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 35) A clothing manufacturer produces some basic models on a large scale. The customers can then choose print, color, embellishments, and size and place a specific order. Which of the following is being exemplified in this case?

A) Reconfiguration of the value chain to eliminate activities B) Creation of a low-end disruptive innovation C) Reconfiguration of the value chain to allow for mass customization D) Creation of a high-end disruptive innovation Answer: C Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 36) Prints Inc., offers visiting cards, brochures, business cards, and personalized greeting cards.

It allows customers to choose from a set of modules and create their own designs. Which of the following is being exemplified in this case?

A) Reconfiguration of the value chain to eliminate activities B) Creation of a low-end disruptive innovation C) Reconfiguration of the value chain to allow for mass customization D) Creation of a high-end disruptive innovation Answer: C Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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37) Lila, the CEO of Purple Inc., a bag manufacturing company, observes that customers prefer some personalized features. She considers implementing a mass customization strategy, while the production manager, Steven, suggests that standardization is the best strategy. Which of the following will strengthen Lila's decision?

A) Purple's customers are wholesalers who prefer bulk order of standard products.

B) Purple's production budget allows only mass production from start to finish.

C) Purple's value is primarily based on it being perceived as an economical brand.

D) Purple's production facility allows for mass production and alterations at the end stage.

Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 38) Which of the following statements is true of mass customization?

A) It is the best option when products need to be customized from start to end.

B) It works best if a product can be broken into modules that offer different features.

C) It does not need the additional costs of creating need-specific components.

D) It does not require standard core components to be produced in large scale.

Answer: B Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 39) Identify a true statement about the innovative strategies based on the concept of mass customization.

A) They do not need the additional costs of creating need-specific components.

B) They do not require standard core components to be produced in large scale.

C) They work best in markets where customers have a variety of different needs.

D) They are the best option when products need to be customized from start to end.

Answer: C Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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40) The ________ strategy means a company can succeed by creating new demand in an uncontested market space.

A) blue ocean B) cost C) differentiation D) innovation Answer: A Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 41) Which of the following statements is true of the blue ocean strategy?

A) It disrupts an existing market by displacing an earlier technology.

B) It relies on its existing knowledge of products to improvise on new features.

C) It uses low-end disruptive innovations to compete in the market.

D) It creates new demand in an uncontested market space.

Answer: D Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 42) Palm's, a new restaurant in Boston, enters the market with a new strategy. Cooking enthusiasts can co-create a dish for their family along with the in-house chefs. They also allow families to cook their meals together and dine by the poolside. None of the other restaurants in the city offers this unique service. This is an example of a ________.

A) blue ocean strategy B) low-end disruptive innovation C) mass-customization strategy D) high-end disruptive innovation Answer: A Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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43) J.J. Inc., a software company, was the first to create a customized messenger application. The subscribers can choose the features they wish to install. The value offered by J.J. is different from its competitors in the market. Which of the following is being exemplified in this case?

A) A blue ocean strategy B) A low-end disruptive innovation C) A standardization strategy D) A high-end disruptive innovation Answer: A Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 44) Identify an accurate statement about blue ocean strategy.

A) It involves creating new demand by targeting nonconsumption.

B) It disrupts an existing market by displacing an earlier technology.

C) It uses low-end disruptive innovations to compete in the market.

D) It relies on its existing knowledge of products to improvise on new features.

Answer: A Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 45) Jobs Now is an employment website. Like its competitors, it offers free listings in every category, which is free for job seekers but not for companies. This feature of Jobs Now is an example of ________.

A) a blue ocean strategy B) a mass-customization strategy C) a standardization model D) a revenue model Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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46) Zolac Inc. is an online store that sells lifestyle products. It offers 15% discount on weekend purchases. This marketing strategy is an example of a ________.

A) blue ocean strategy B) differentiation model C) standardization strategy D) revenue model Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 47) An organization launched a new product in the market. It offered a free trial of the basic model to gain widespread initial use, after which users were offered a fee based premium version of the same product. Which of the following strategies is used by the company in this case?

A) A blue ocean strategy B) A cross-sell strategy C) A third-party pay strategy D) A bundling strategy Answer: B Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 48) Which of the following statements is true of the cross-sell strategy?

A) It focuses on a small product user base.

B) It offers premium features to free users.

C) It requires a high conversion rate.

D) It uses discounts to gain widespread initial use.

Answer: C Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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49) High conversion rate refers to ________.

A) the high rate at which the production cost is returned in the form of profits from sales B) a high percentage of sales achieved as a result of a firm's current marketing strategy C) the high rate at which people switch to a firm's product from a rival firm's product D) a high percentage of free users who are willing to convert to paid customers for premium features Answer: D Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 50) The cross-sell strategy involves offering a ________.

A) paid product with another unrelated product at discount B) free product with a paid product when the product requires ongoing maintenance C) free basic product to gain widespread initial use, after which users are offered a fee based premium version D) free product to a community of product users as a method of generating revenue from a third party who pay to access those users Answer: C Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 51) Ochre Inc. uses the freemium strategy to enter a market. This strategy successfully gains a wide customer base. Which of the following is likely to be true in this case?

A) It is likely to use the high-end disruptive innovation strategy.

B) It is likely to use product differentiation to mark-up the initial price of the product.

C) It is likely to gain a wide customer base only if there is a high conversion rate.

D) It is likely to gain new customers in an existing market only through price skimming.

Answer: C Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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52) A ________ strategy means that a firm provides free products to a community of product users as a method of generating revenue from another firm that pays to access those users.

A) blue ocean B) bundling C) cross-sell D) third-party pay Answer: D Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 53) The Table Mat, an online review site, provides information about restaurants, the products they offer, details on home delivery, take away, and so on. Restaurants are charged by The Table Mat for advertising to millions of product users. Which of the following is being exemplified in this case?

A) A blue ocean strategy B) A cross-sell strategy C) A third-party pay strategy D) A bundling strategy Answer: C Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 54) Flytech Inc. is an online store where people and businesses buy and sell a broad variety of goods and services. Various brands pay Flytech to advertise and sell their products online. Which of the following is being exemplified in this case?

A) A blue ocean strategy B) A cross-sell strategy C) A third-party pay strategy D) A bundling strategy Answer: C Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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55) Which of the following statements best describes third-party pay strategy?

A) It involves providing free products to a community of product users as a method of generating revenue from a third party who pay to access those users.

B) It involves offering a free product with a paid product or service when the product requires ongoing maintenance.

C) It involves offering a free basic product to gain widespread initial use, after which users are offered a non-free premium version.

D) It involves offering a free version of a product to consumers to use at home and a paid version with additional features to the third-party market.

Answer: A Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 56) Lica Inc., a software company, initially offers a small percentage of its services for free.

Once customers get familiar with the services, they decide to purchase them at a premium. The company makes money on the add-on services like application downloads, messenger updates, and other online services. Other companies pay Lica for advertising through these portals. Which of the following innovative strategies has been adopted by the company?

A) A combination of freemium and third-party strategies B) A cross-sell strategy C) A combination of high-end and low-end disruptive strategies D) A bundling strategy Answer: A Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 57) A ________ is a group of individuals similar on a key dimension such as a demographic characteristic.

A) character judge B) customer segment C) innovative categorization D) supplier category Answer: B Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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58) Which of the following statements is true of a third-party pay strategy?

A) It focuses on a small product user base.

B) It charges the consumers of the actual product or service a high price.

C) It requires a targeted community of users that comprises a customer segment.

D) It typically sells products for a premium price rather than at a discount.

Answer: C Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 59) A cell phone manufacturing company gives away a free case with a purchase of any product higher than $50. Which of the following is being exemplified in this case?

A) A blue ocean strategy B) A cross-sell strategy C) A third-party pay strategy D) A bundling strategy Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic 60) Mel Inc., a popular cosmetics and perfume brand, delivers free samples with products worth $75 and more. This is an example of ________ strategy.

A) a blue ocean B) a cross-sell C) a third-party pay D) a bundling Answer: D Diff: 3 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Application Standard 1: AACSB || Analytic

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61) Which of the following statements is true of a bundling strategy?

A) It works particularly well when a company offers a broad array of products.

B) It works best in markets where freebies are likely to be very expensive.

C) It typically uses price skimming as a strategy to increase profits.

D) It encourages sales by providing products at a discount.

Answer: A Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 62) Identify a true statement about bundling strategy.

A) It works well when the product requires ongoing maintenance.

B) It typically uses price skimming as a strategy to increase profits.

C) It encourages sales by providing products at a discount.

D) It requires bundled products to be related to free products.

Answer: A Diff: 2 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Comprehension Standard 1: AACSB || Analytic 63) ________ refers to Professor Rich's argument that competitive intensity has increased and periods of competitive advantage have decreased.

A) Hypercompetition B) Mass customization C) Third-party competition D) Standardization Answer: A Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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64) Early ________ are types of buyers willing to try out the latest new gadget; these people are associated with the ________ stage.

A) adopters; introduction B) adopters; growth C) majority; introduction D) majority; growth Answer: A Diff: 1 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Knowledge Standard 1: AACSB || Analytic 65) Paws Corp., a manufacturer of pet products, tries to get a few customers to try out their products. The primary goal of the organization is to get some reference customers that will seed future growth to increase market acceptance. In this case, the organization is in the ________ stage of the product life cycle.

A) introduction B) growth C) maturity D) decline Answer: A Diff: 3 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Application Standard 1: AACSB || Analytic 66) Which of the following is true of the introduction stage of the product life cycle?

A) It tries to get early adopters to try out a new product.

B) It focuses not only on a proven concept but also a low price.

C) It emphasizes increased sales and high profits.

D) It tries to minimize competition by forming an alliance with rivals.

Answer: A Diff: 2 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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67) Early ________ are a new group of buyers convinced that the product concept works; these people are associated with the ________ stage.

A) adopters; introduction B) adopters; growth C) majority; introduction D) majority; growth Answer: D Diff: 1 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Knowledge Standard 1: AACSB || Analytic 68) Peach Corp. continues to refine its chocolate products even as they look for innovative ways to reach customers through marketing and new distribution channels. In this case, the organization is in the ________ stage of the product life cycle.

A) introduction B) growth C) maturity D) decline Answer: B Diff: 3 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Application Standard 1: AACSB || Analytic 69) ________ design is a standard product that emerges that signals the market's agreement about a common set of engineering and design features; this is established in the ________ stage.

A) Dominant; introduction B) Dominant; growth C) Innovative; introduction D) Innovative; growth Answer: B Diff: 1 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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70) Which of the following statements best describes the introduction stage of a product's life cycle?

A) New products enter the market that cause demand to fall.

B) Product innovation is much more important than process innovation.

C) The increasing market growth leads to a decrease in competitive rivalry.

D) A standard emerges that signals the market's agreement on a common set of engineering and design features.

Answer: B Diff: 2 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Comprehension Standard 1: AACSB || Analytic 71) Late ________ are buyers who want not only a proven concept but also a low price; these people are associated with the ________ stage.

A) majority; growth B) majority; maturity C) minority; growth D) minority; maturity Answer: B Diff: 1 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Knowledge Standard 1: AACSB || Analytic 72) Which of the following statements is true of the maturity stage of an industry's life cycle?

A) The market size of the product shrinks significantly.

B) Growth starts to slow as total market penetration increases.

C) Demand increases as the early majority is convinced that the product concept works.

D) Toward the end of this stage product innovation starts to give way to process innovation.

Answer: B Diff: 2 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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73) Identify a true statement about the decline stage of an industry's life cycle.

A) The market size of the product increases significantly during this stage.

B) The increasing market growth leads to a decrease in competitive rivalry.

C) Some firms try to minimize competition and consolidate the industry by buying rivals.

D) A standard emerges that signals the market's agreement on a common set of engineering and design features.

Answer: C Diff: 2 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Comprehension Standard 1: AACSB || Analytic 74) A(n) ________ describes the creation of a unique or novel concept, method or process that is often turned into a tangible outcome.

Answer: invention Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 75) A radical innovative strategy in which companies in the same industry find the innovation so destructive that they can no longer do business as usual is called a(n) ________.

Answer: disruptive innovation Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 76) Creating new demand in an uncontested market space is called the ________.

Answer: blue ocean strategy Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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77) Groups of people who share similar needs and thus are likely to desire the same features in a product are called ________.

Answer: customer segments Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 78) ________ coined the term hypercompetition.

Answer: Professor Rich D'Aveni Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 79) Define two general categories of innovations.

Answer: An incremental innovation builds on a firm's established knowledge base and steadily improves a product or service it offers.

Radical innovation draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way. Examples of products based on radical innovations include the computer (versus the typewriter), CT scanner (versus the X-Ray), cell phone (versus the landline phone), and MP3 player (vs. CD player).

Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 80) What is a business model? Briefly explain the revenue model.

Answer: The term business model refers to the rationale of how an organization delivers and captures value. The way a company generates revenue streams to get paid for the value it delivers. The term revenue model is sometimes used to refer to the approach, or pricing strategy, a company uses to get paid for the value it delivers through its business model.

Diff: 1 Section Reference: 1: What Is an Innovative Strategy?

Learning Objective: 1: Discuss innovative or disruptive strategies and the differences among the types of innovation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

26

81) What are low-end disruptive innovations? Explain with an example.

Answer: Students' examples may vary. However, their answers should include the following concepts. A second type of innovative strategy is called a low-end disruption. Rather than eliminating steps in the value chain, some firms use a different set of activities or technologies than their rivals to produce a low-cost product or service. Harvard professor Clayton Christensen observed a pattern in a number of industries where a firm leverages new technologies to launch a product at the low end–the most price-sensitive segment of the market–and then gradually moves upmarket as it improves its technology and processes.

Honda started at the low end in the automobile industry by offering 50cc and 150cc motorcycles.

When Honda first launched, Harley-Davidson wasn't concerned about the competition because its market was superheavyweight motorcycles. Harley-Davidson's CEO even proclaimed that Honda's entry was good for Harley-Davidson because Honda would increase the number of people riding a motorcycle. New riders would eventually graduate to a Harley. But over time, Honda used profits from its large volume of small motorcycles to invest in the development of larger motorcycles and eventually entered the superheavyweight motorcycle categories with bikes that were less expensive but more technologically advanced than Harley-Davidson's.

Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic 82) Explain mass customization with an example.

Answer: Students' examples may vary. However, their answers should include the following concepts.

Mass customization is an oxymoron, like "jumbo shrimp" or "act naturally." Until recently, most products in business were either mass produced OR customized, but not both. However, new technologies and processes have allowed for the mass production of individually customized goods or services. For example, Build-A-Bear Workshop customers "build" their own teddy bear or other stuffed animal by choosing from a large variety of body styles, after which the animal is stuffed at the store to the customer's liking. The customer can also add a heart or sound box during stuffing, enabling the animal to "talk" or play music. After helping to stuff their animal, the customer can dress their furry friend in an outfit of their choice from a soccer uniform, or witch costume, to a sequin shirt and jeans, and they can even add shoes. In short, the components of the teddy bear are mass produced but put together in a customized way by each individual customer.

Diff: 1 Section Reference: 2: Categories of Innovative Strategies Learning Objective: 2: Identify the different categories of innovative strategies.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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83) Explain the four stages of the product life cycle.

Answer: Introduction Stage: During the introduction stage the company tries to get early adopters–those types of buyers willing to try out the latest new gadget–to try out the new product. The primary goal is to get some reference customers that will seed future growth to increase market acceptance.

Growth Stage: Sales accelerate during the growth stage as the initial innovation gains traction and increased market acceptance. A company continues to refine a product during this stage as they also look for innovative ways to reach customers through marketing and new distribution channels. As the product starts to gain widespread acceptance a standard (or dominant design) emerges that signals the market's agreement on a common set of engineering and design features.

Toward the end of this stage product innovation starts to give way to process innovation.

Maturity Stage: As an industry moves into the mature stage, growth starts to slow as total market penetration increases. What little growth there is comes from buyers called the late majority entering the market who want not only a proven concept but also a low price.

Decline Stage: The decline stage is often initiated by new products entering the market that cause demand to fall.

Diff: 1 Section Reference: 3: Innovation and the Product/Business/Industry Life Cycle (S-Curve) Learning Objective: 3: Describe the accelerating pace of innovation and the product, business, and industry life cycle.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 11 Competitive Strategy and Sustainability 1) A set of companies that compete in similar ways with similar business models pursuing similar sets of customers is called a ________.

A) strategic group B) joint venture C) supplier group D) strategic alliance Answer: A Diff: 1 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) In order to compete effectively, a firm must ________.

A) neutralize its strengths and weaknesses B) devise and use the same competitive action across all market environments C) understand the structure of the competitive environment in which it operates D) generate only reactive strategies Answer: C Diff: 2 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Comprehension Standard 1: AACSB || Analytic 3) Marcel, the owner and president of a three-star hotel, believes that only competitors within the same strategic group need to be analyzed. Nina, the chief of client services, believes that other groups must also be considered to stay ahead of competition. Which of the following situations strengthens Nina's argument?

A) A newcafé on the same lane as Marcel's hotel is being frequented by businesspeople.

B) A grocery store close to Marcel's hotel has all the ingredients required for her restaurant.

C) The customers of Marcel's hotel are class conscious and do not prefer routine services available elsewhere.

D) The hotel owned by Marcel enjoys monopoly as it is located in a suburb with few similar service providers.

Answer: A Diff: 3 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 1

4) Lucy, a researcher, wants to identify the main differences in different healthcare firms competing to deliver value. She studies the relative price, product line breadth, and geographic placement to identify the differences. Which of the following is Lucy likely to rely on to identify how the firms compete?

A) A strategic group map B) A workflow analysis C) An employee survey D) A quality control measure Answer: A Diff: 3 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Application Standard 1: AACSB || Analytic 5) Why is visualizing strategic group structure an important component of competitive analysis?

A) It eliminates any potential changes in the competitive landscape.

B) It identifies the major arenas of competition.

C) It focuses on the indirect competitors in an industry.

D) It helps companies retain only their old and loyal consumers.

Answer: B Diff: 2 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Comprehension Standard 1: AACSB || Analytic 6) Which of the following statements is true about strategic groups?

A) They identify allies in business groups.

B) The firms within each group are unlikely to target the same customer segment.

C) The firms within each group compete in similar ways.

D) They exclude rivals who share a similar business model.

Answer: C Diff: 2 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Comprehension Standard 1: AACSB || Analytic

2

7) Alex, the CEO of a manufacturing company, is asked by the board if he will consider switching strategic groups. However, Alex thinks it might not be advisable. Which of the following statements strengthens Alex's belief?

A) Marketers will be more able to identify rivals if they switch to another strategic group.

B) The customers of his company are not brand conscious and loyal.

C) His company has tough competition from firms outside their strategic group.

D) His company has rigid systems, which have been in place for many years.

Answer: D Diff: 3 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 8) Companies in specific strategic groups choose particular ways to configure their activities and these activity systems do not change quickly or easily. This means it is hard to switch between groups in a strategic group map. This is a barrier to ________.

A) differentiation B) entry C) mobility D) unrelated diversification Answer: C Diff: 1 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) Fuchsia Inc., a cosmetics manufacturer, decides to change how it competes in the market.

With this objective in mind, it decides to target a different market segment with its existing set of products. However, Fuchsia takes a long time to reconfigure its activities and systems to meet these changes. Which of the following is being exemplified in this case?

A) Mobility barrier B) Product differentiation C) Customer bias D) Tasks disintermediation Answer: A Diff: 3 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Application Standard 1: AACSB || Analytic

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10) Ryan, a researcher, wants to indicate whether companies in one group appeal to the primary markets of another group. Which of the following is likely to help Ryan in his research?

A) Mobility barriers B) Quality analyses C) Strategic group maps D) Product measurements Answer: C Diff: 2 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Comprehension Standard 1: AACSB || Analytic 11) Zara, a research analyst, is studying the business decisions of some restaurant owners.

During the data analysis stage, she employs a strategic canvas. Which of the following is likely to be her primary reason to employ this tool?

A) To understand the pricing strategy used for different dishes within each restaurant B) To study the differences in the ways the restaurants compete with each other C) To identify the combined target audience of strategic groups as a whole D) To observe the similarities in the employees' views of their respective organizations Answer: B Diff: 3 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Application Standard 1: AACSB || Analytic 12) A ________ is a way to assess relative competitive strengths and weaknesses against specific purchase criteria.

A) strategic group map B) strategy canvas C) structural analysis D) workflow analysis Answer: B Diff: 1 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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13) A research firm creates a graph to represent how companies compete with each other. The Xaxis represents the competitive offerings and Y-axis represents performance. Which of the following is does the graph represent?

A) A strategy canvas B) A structural analysis C) A strategic group map D) A workflow analysis Answer: A Diff: 3 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Application Standard 1: AACSB || Analytic 14) A(n) ________ identifies characteristics of a competitor to assess how it might respond in the face of rival actions.

A) competitor response profile B) organizational chart C) strategic application D) structural graph Answer: A Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 15) Copper Enterprises manufactures industrial machinery. It decides to identify the characteristics of a new firm that offers the same products as Copper. To assess how it might respond in the face of rival actions, Copper must develop a(n) ________.

A) organizational chart B) structural graph C) strategic application D) competitor response profile Answer: D Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic

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16) An organization wants to compete at an international level. It sets the company objectives and the assumptions to reinforce the objectives. Which of the following is being exemplified in this case?

A) Organizational chart B) Structural graph C) Strategic application D) Competitor response profile Answer: D Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 17) A research institute plans to build a competitor response profile for a study. Which of the following is the first step to build such a profile?

A) Identifying the assumptions B) Studying the strategic ideas of competitors C) Creating a structural chart D) Focusing on productivity Answer: A Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 18) In the context of a competitor response profile, the identification of a competitor's objectives and assumptions mostly helps a company understand ________.

A) what the competitor is doing or is capable of doing B) what drives the competitor C) how its employees view the competitor D) how its own vulnerabilities can be protected and neutralized Answer: B Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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19) In the context of a competitor response profile, the identification of a competitor's resources and capabilities usually helps a company understand ________.

A) how the company can device a universal competitive action B) how it is perceived by its competitors C) what drives the competitor D) what the competitor is doing or is capable of doing Answer: D Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 20) An organization studies the strategies of its competitors closely. At the current stage, it studies factors such as geographic location, characteristics of business model, services provided, and time management. At this stage, the organization is identifying the competitor's ________.

A) resources and capabilities B) objectives C) organizational structure D) goals and achievements Answer: A Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 21) Gia Inc., a healthcare company, aims to create a competitor response profile. It has identified its objectives and assumptions. The next step is to ________.

A) identify the competitors' resources and capabilities B) study the price range of its own products lines C) create a structural chart D) focus on productivity Answer: A Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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22) An airline service provider watches its rivals closely. It studies the potential for reliable, timely, and service-oriented international travel offered by its competitors. In this case, the firm is focusing on the competitors' ________.

A) objectives B) resources and capabilities C) organizational structure D) market risks Answer: B Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic 23) The word "theory" in game theory refers to ________.

A) the strategic interaction among competitors B) a set of predictions C) a competitor's objectives D) the resources and capabilities of a competitor Answer: B Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 24) The word "game" in game theory refers to ________.

A) the strategic interaction among competitors B) a set of predictions C) a competitor's objectives D) the resources and capabilities of a competitor Answer: A Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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25) An organization has few rivals in the industry. These rivals are considering such moves as price changes, capacity adjustments, or new product features. Which of the following will help the organization predict the strategic actions most likely to be taken by its rivals?

A) Structural analysis B) Game theory C) Strategic canvas D) Study of productivity Answer: B Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic 26) The prisoner's dilemma is a type of ________ game.

A) consecutive shift B) infinitely repeated C) linear change D) simultaneous move Answer: D Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 27) A simple game has two players; each player has two choices. Assume that the players make their moves at the same time and they only play the game once. Which of the following is exemplified in this case?

A) Linear change game B) Infinitely repeated game C) Consecutive shift game D) Simultaneous move game Answer: D Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic

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28) In the context of game theory, what is a pay-off?

A) The greatest profit that is delivered when rivals make moves B) A choice that rivals have to consider to reach their best outcome C) The logic of anticipating what is in a rival's best profit interest D) A strategy that cannot be easily imitated or copied Answer: A Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) In the context of game theory, implicate is also called a ________ strategy because it is the best choice under every alternative choice of the rival.

A) deterministic B) differentiation C) direct D) dominant Answer: D Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 30) In the context of game theory, implicate is also what is called a dominant strategy because ________.

A) it gives one of the players incentives to change their choices B) it is the best choice under every alternative choice of a rival C) it is a set of actions that are played as a reaction to a rival's choices D) it is a choice that adds incentive to defect Answer: B Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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31) Even though ________ games are not literally played forever, they are treated this way since the competitors interact over an unending time period.

A) consecutive shift B) infinitely repeated C) linear change D) simultaneous move Answer: B Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 32) Which of the following is a feature of infinitely repeated games?

A) They are literally played forever.

B) The ending period is known.

C) The competitors interact over and over again.

D) The competitors engage in a one-shot game.

Answer: C Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 33) Nash equilibrium is represented by a set of moves in a game that ________.

A) improves the firms' payoffs by changing the choice B) sustains an incentive to defect by changing the choice C) minimizes each firm's input based on the number of rivals D) maximizes each firm's payoff given the choices of rivals Answer: D Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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34) An organization wants to maximize its payoff given the choices of rivals and remove incentive to defect in the sense that no organization can improve its payoffs by changing its choice. Which of the following concepts will help the organization create such a structure?

A) D'Aveni's hypercompetition B) Strategic group map C) Strategic canvas D) Nash equilibrium Answer: D Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic 35) Which of the following statements is true about the Nash equilibrium?

A) It is the solution concept used in games that are played forever.

B) It reduces the possibility of compromise.

C) It is the solution concept used to predict the outcome of competitive interaction.

D) It is a set of moves in a game that simultaneously minimize each firm's payoff.

Answer: C Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 36) A researcher wants to study an organization that strives at achieving the best outcome and ensures that the outcome is stable. In this case, the organization has developed the concept of ________.

A) D'Aveni's hypercompetition B) infinitely repeated game C) strategic canvas D) Nash equilibrium Answer: D Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic

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37) The Nash equilibrium is represented by a set of moves in a game that ________.

A) minimizes each firm's input based on the number of rivals B) minimizes each firm's payoff given the choices of rivals C) improves players' payoffs when they change their choices D) removes incentive to defect Answer: D Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 38) Most companies are in competition with their rivals every day, month, or year with no certain end date. This is an example of ________.

A) a parallel game B) an infinitely repeated game C) a simultaneous game D) the Nash equilibrium Answer: B Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 39) Which of the following statements is true about an infinitely repeated game?

A) In this game, players always believe there is a future.

B) In this game, each player's best choice is to implicate the rivals.

C) It is the solution concept used to predict the outcome of competitive interactions.

D) It removes incentive to defect in the sense that no firm can improve its payoffs.

Answer: A Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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40) Companies watch each other closely and choose actions that mimic what their rivals are doing. This is an example of a ________ strategy.

A) differentiation B) parallel game C) simultaneous D) tit-for-tat Answer: D Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 41) An organization watches it rivals closely and chooses actions that mimic what its rivals are doing. This is an example of a ________.

A) structural analysis B) tit-for-tat strategy C) parallel game D) simultaneous game Answer: B Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic 42) A manufacturing firm maintains its price unless it observes its rival choosing to lower price.

Any time the rival lowers price, the firm responds by lowering its own price. This is an example of a ________.

A) structural analysis B) tit-for-tat strategy C) strategic canvas D) complementary game Answer: B Diff: 3 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Application Standard 1: AACSB || Analytic

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43) Identify a feature of the tit-for-tat strategy.

A) It is generally used to take a cooperative stance.

B) It always ends in a collusion.

C) It responds in kind to the moves of rivals.

D) It is used to do the exact opposite of what a company's rivals are doing.

Answer: C Diff: 2 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Comprehension Standard 1: AACSB || Analytic 44) A company wants to form the foundation of a competitive strategy. It decides to assess its strengths and weaknesses. In this case, the company should first assess its ________.

A) resources and capabilities B) organizational structure C) structural chart D) competitors' strategies Answer: A Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic 45) An insurance firm decides to recognize its resources and capabilities. It observes that a few resources and capabilities deliver unique value, but others are subjected to easy imitation. In this case, the organization is ________.

A) learning its strengths and weaknesses B) bringing strength against weakness C) neutralizing vulnerability D) developing strategies that cannot be easily copied Answer: A Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic

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46) Noah, a researcher, identifies various resources and capabilities of an organization that are subjected to rapid obsolescence, easy imitation, and high cost not recouped by value. In this case, Noah is ________.

A) learning the organization's weaknesses B) bringing strength against weakness C) neutralizing vulnerability D) developing strategies that cannot be easily copied Answer: A Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic 47) Zeal Inc., an electronic goods manufacturer, launches an air conditioner that contributes to the downfall of Ochre Corp., a company struggling to stay in the market amidst bankruptcy.

Which of the following concepts is exemplified in this scenario?

A) Knowing the strengths and weaknesses B) Bringing strength against weakness C) Neutralizing vulnerability D) Developing strategies that cannot be easily copied Answer: B Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic 48) Laser Tech., a leading printing firm, launches a new printing technique to meet the changing demands of the market. Blue Corp., its prime competitor, had been rigid in adapting to the changes in the market and is put out of business because of the launch of the new technique by Laser. Which of the following is exemplified in this case?

A) Knowing the strengths and weaknesses B) Bringing strength against weakness C) Neutralizing vulnerability D) Developing strategies that cannot be easily copied Answer: B Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic

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49) Which of the following statements is true about the principles of competitive strategy?

A) A company's strengths are the resources and capabilities that deliver unique value.

B) A company's strengths are the resources and capabilities that are subject to rapid obsolescence.

C) A company's weaknesses should always be masqueraded as strengths so that companies are afraid of attacking competitive strengths.

D) A company's own weaknesses must be strengthened instead of being neutralized.

Answer: A Diff: 2 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Comprehension Standard 1: AACSB || Analytic 50) Peach Line Inc., manufacturers of furniture, identifies that its choice of suppliers is its weakness and makes this irrelevant by standardizing the production process irrespective of the source of raw materials. This way, its choice of suppliers does not become the target of competitors. Which of the following is exemplified in this case?

A) Knowing the strengths and weaknesses B) Bringing strength against weakness C) Neutralizing vulnerability D) Developing strategies that cannot be easily copied Answer: C Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic 51) A restaurant chain serves common dishes that are also available in other restaurants. As it does not offer any unique dishes, it introduces other options to customize the products such as the choice of cheese, bread, and spices. It also promises a short waiting time for take-away and free home deliveries. In this case, the restaurant chain is ________.

A) learning its strengths and weaknesses B) bringing strength against weakness C) neutralizing vulnerability D) developing strategies that cannot be easily copied Answer: C Diff: 3 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Application Standard 1: AACSB || Analytic 17

52) The number of rivals in a particular market is the market ________.

A) composition B) entry C) process D) structure Answer: D Diff: 1 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 53) A barrier to ________ is any factor that increases the costs, lowers the profit margins, or limits the market share of entrants to a market.

A) differentiation B) entry C) mobility D) structure Answer: B Diff: 1 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 54) A well-established manufacturing firm decides to set the market price of a product just low enough so that a new firm cannot pay the cost of entering a market and eventually be profitable.

Which of the following is exemplified in this case?

A) A tit-for-tat strategy B) An entry barrier C) A strategic canvas D) The Nash equilibrium Answer: B Diff: 3 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Application Standard 1: AACSB || Analytic

18

55) Plateus Inc., a food manufacturing company, has brand equity worth a billion dollars that has been accomplished through consistent delivery of quality products and long-term advertising.

These strategies make entering the industry a formidable task for any other firm. Which of the following is exemplified in this case?

A) An entry barrier B) A tit-for-tat strategy C) A complementary strategy D) The Nash equilibrium Answer: A Diff: 3 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Application Standard 1: AACSB || Analytic 56) Walden Inc., a well-established finance company, hires the most valuable scientists and experts. Hence, start-ups and other small businesses find it difficult to compete with Walden.

Which of the following is exemplified in this case?

A) A tit-for-tat strategy B) A limited competitive access to scarce resources C) A parallel game strategy D) The Nash equilibrium Answer: B Diff: 3 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Application Standard 1: AACSB || Analytic 57) A successful chain of restaurants is successful in securing the most advantageous geographic positions. This effectively bars competition. Which of the following is exemplified in this case?

A) A tit-for-tat strategy B) A limited competitive access to scarce resources C) A low-end disruptive innovation D) The Nash equilibrium Answer: B Diff: 3 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Application Standard 1: AACSB || Analytic

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58) An insurance company has procured all the capacity available in its market for $100 million.

Thus, the company has placed a lock on the resources that other firms may require to develop their products. Which of the following is being exemplified in this case?

A) A tit-for-tat strategy B) A limited competitive access to scarce resources C) A low-end disruptive innovation D) The Nash equilibrium Answer: B Diff: 3 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Application Standard 1: AACSB || Analytic 59) An automobile manufacturing firm has dominated its market by consistently releasing automobile upgrades and enhancements. Which of the following is being exemplified in this case?

A) Implementing a tit-for-tat strategy B) Limiting competitive access to scarce resources C) Introducing new products frequently D) Representing the Nash equilibrium Answer: C Diff: 3 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Application Standard 1: AACSB || Analytic 60) What does market structure mean in the simplest terms?

A) The number of competitive actions that are effective for a certain environment B) The structure of a rival's objectives and assumptions C) The structure of a rival's resources and capabilities D) The number of rivals in a particular market Answer: D Diff: 2 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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61) Which of the following is a response that a monopolist should consider when it has new competitors threatening to enter its market?

A) Encouraging access to scarce resources B) Introducing new products rarely C) Innovating and patenting D) Lowering entry barriers Answer: C Diff: 2 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 62) Identify a feature of a monopoly.

A) It is a market of one highly dominant firm.

B) It is typically a market of 2 to 5 firms.

C) It is a market of up to 8 or 10 firms.

D) It is a market with hundreds of firms.

Answer: A Diff: 2 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 63) Why is the upper bound of oligopolies difficult to define?

A) The designation depends on whether firms in these markets are monitoring and reacting to specific rival behavior.

B) The firms must make their moves carefully, knowing that rivals will detect their actions and respond accordingly.

C) The firms in oligopolies are locked in tight competition with only a few other firms.

D) The number of firms in these markets in some cases can be up to 100 or 150.

Answer: A Diff: 2 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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64) Which of the following is a characteristic of markets with perfect competition?

A) They are markets with one highly dominant firm.

B) Attempts to use price strategically are not effective in these markets.

C) Dropping price increases total margin by more than it increases sales.

D) The firms in these markets are price setters.

Answer: B Diff: 2 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 65) A strategy for "sustaining competitive advantage" includes ________.

A) Implementing an exit strategy B) Create or preempt rare resources C) Introducing new products frequently D) Monitoring and mimicking rival behavior Answer: B Diff: 2 Section Reference: 5: Sustaining Competitive Advantage Learning Objective: 5: Analyze the sustainability of a company's competitive advantage.

Bloom code: Application Standard 1: AACSB || Analytic 66) An analysis that breaks down the structure of a market or industry into its constituent groups is called a(n) ________.

Answer: strategic group analysis Diff: 1 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Knowledge Standard 1: AACSB || Analytic 67) Any factor that limits the ability of a company to move between strategic groups is called a(n) ________.

Answer: barrier to mobility Diff: 1 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Knowledge Standard 1: AACSB || Analytic

22

68) A ________ profile identifies characteristics of a competitor in order to assess how it might respond in the face of rival actions.

Answer: competitor response Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 69) In game theory, a set of actions that are always played no matter what a rival chooses to do is referred to as the ________.

Answer: dominant strategy Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) Any factor that increases the costs, lowers the profit margins, or limits the market share of entrants to a market is called a(n) ________.

Answer: entry barrier Diff: 1 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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71) Write a note on strategic groups and mobility barriers.

Answer: An analysis that breaks down the structure of a market or industry into its constituent groups is called a strategic group analysis. Visualizing this group structure is an important component of competitive analysis because it identifies the major arenas of competition and who competes directly with whom.

Companies find that switching strategic groups is difficult once they have built a history in one.

The reason is that companies in specific strategic groups choose particular ways to configure their activities and these activity systems do not change quickly or easily. This creates a barrier to mobility between groups. Once a firm is in a particular group, it is not mobile and can't simply leap to a different group.

Diff: 1 Section Reference: 1: Understanding the Competitive Landscape Learning Objective: 1: Create a strategic group map and a strategy canvas of a competitive landscape.

Bloom code: Knowledge Standard 1: AACSB || Analytic 72) Briefly describe the game theory.

Answer: The word "game" in game theory refers to strategic interaction among competitors and the word "theory" refers to a set of predictions about how competitors play games. In most games, rivals are expected to make moves that deliver the greatest profit, called a pay-off. Firms typically make their choices with this objective in mind. But rivals have choices, too. With both firms facing choices, each must consider what the other will do in order to reach their own best outcome. This logic of anticipating what is in a rival's best profit interest before making your own move is central in game theory. Game theory is especially useful in contexts in which only a few rivals exist, and these rivals are considering such moves as price changes, capacity adjustments, or new product features, and are wondering how competitors are likely to respond.

Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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73) Briefly describe the Nash equilibrium.

Answer: John Nash, a famous game theorist, developed an equilibrium concept in games that has come to be known as the Nash equilibrium. The Nash equilibrium is represented by a set of moves in a game that: (1) maximizes each firm's payoff given the choices of rivals and (2) removes incentive to defect in the sense that no player can improve his payoffs by changing his choice.

Diff: 1 Section Reference: 2: Evaluating the Competition Learning Objective: 2: Analyze a company's competitors to identify the likely ways they will respond to a company's strategic moves using a competitor response profile and the tools of game theory.

Bloom code: Knowledge Standard 1: AACSB || Analytic 74) What are the principles that strengthen a company's ability to compete?

Answer: The following principles, when applied, strengthen a company's ability to compete: - Know your strengths and weaknesses - Bring strength against weakness - Protect and neutralize vulnerabilities - Develop strategies that cannot be easily imitated or copied (go where the competitor is not) Diff: 1 Section Reference: 3: Principles of Competitive Strategy Learning Objective: 3: Describe the different types of competitive strategies that can be deployed contingent on the environment in which a company operates.

Bloom code: Knowledge Standard 1: AACSB || Analytic 75) Briefly describe competition under monopoly.

Answer: Monopoly is a market of one firm or one highly dominant firm. The basic strategic objective of a monopolist is to reinforce its monopoly. It does so in several ways, such as by: (1) raising entry barriers, (2) limiting competitive access to scarce resources, (3) innovating and patenting, and (4) introducing new products frequently. If a monopolist has new competitors threatening to enter its market, these are among the competitive actions they should consider taking as a response. On the flipside, the competitor attempting to enter the monopolist's market can expect these kinds of retaliatory actions from the monopolist.

Diff: 1 Section Reference: 4: Competitive Actions for Different Market Environments Learning Objective: 4: Choose or create a competitive strategy suitable to a company's competitive situation.

Bloom code: Knowledge Standard 1: AACSB || Analytic © 2024 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course.

Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 12 Implementing Strategy 1) ________ means that the important elements of the organization are in the proper relationship with each other by fitting together and reinforcing each other.

A) Alignment B) Differentiation C) Processing D) Strategy Answer: A Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) Which of the following is NOT one of the seven Ss in The 7 S Model?

A) Staffing B) Strategy C) Style D) Sustainable Answer: D Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) ________ is/are the plan, process, and related activities that create and sustain value for stakeholders and a competitive advantage for a firm in its target markets.

A) Staffing B) Strategy C) Structure D) Systems Answer: B Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

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4) Which of the following statements is true about strategy?

A) It represents the most important S in the 7 S model because all the others align around it.

B) It refers to the priorities, values, and virtues that members of an organization see as important.

C) It includes recruitment, hiring, training, promotion, and compensation.

D) It is the ability of an individual to perform tasks.

Answer: A Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 5) ________ divide(s) labor and tasks within the organization into separate units and, by doing so, defines the reporting or authority structure of the firm.

A) Staffing B) Strategy C) Structure D) Systems Answer: C Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 6) ________ assign(s) accountability for particular tasks and allows for the measurement of performance by a particular organizational unit.

A) Staffing B) Strategy C) Structure D) Systems Answer: C Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

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7) Godwel Inc., an insurance company, wants to assign accountability for tasks. It wants to measure the performance of every unit of the company. Which of the following organizational elements will help Godwel accomplish the given task?

A) Strategy B) Structure C) Style D) Skill Answer: B Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 8) Rafael, the chief executive officer of a chemical firm, believes that concentrating on the hard triangle of the 7 S model will help bring in the necessary organizational alignment in a relatively short period of time. Which of the following statements, if true, would strengthen Rafael's belief?

A) Changing the style or shared values of an organization is a less burdensome task for the top management.

B) The organizational element of strategy is often difficult to codify.

C) The elements of strategy, structure, and systems can help an organization to quickly reach the desired level of change within an organization.

D) The elements of style and skills are often easy to codify and can speed up the process of change in an organizational structure.

Answer: C Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Analysis Standard 1: AACSB || Analytic 9) Mark Dinewell Inc., a well-established restaurant chain has vice presidents for different geographic regions and functional managers for each of those regions. Which of the following organizational elements is exemplified in this case?

A) Strategy B) Structure C) Style D) Skill Answer: B Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 3

10) Walter Gary Corp., a multinational consumer electronics firm, set up several branches around the globe to cater to the needs of its global customers and expand its reach. As part of this initiative, it appointed vice presidents of marketing and vice presidents of finance and accounting for every geographical region. In the context of the 7 S model of organizational alignment, this is an example of ________.

A) strategy B) structure C) style D) skill Answer: B Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 11) Turner Inc., a manufacturer of athletic shoes, decides to assign responsibility to capture a particular market to its functional manager and product manager, wherein both the managers will equally share the assigned responsibilities. The company believes that both strong functional expertise and nuanced product knowledge play vital roles in creating competitive advantage.

Which of the following organizational elements is exemplified in this case?

A) Strategy B) Structure C) Style D) Skill Answer: B Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic

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12) An organization believes that each division of services is a separate business. Each division of the organization includes all the functions needed to run that business. This is an example of a(n) ________.

A) M-form structure B) strategy C) guiding coalition D) soft square Answer: A Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 13) In the context of the 7 S model of organizational alignment, which of the following statements is true of structure?

A) It represents the most important S in the 7 S model.

B) It helps create alignment between goals, skills, and environmental needs.

C) It includes recruitment, hiring, training, promotion, and compensation.

D) It is the ability of an individual to perform tasks.

Answer: B Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14) A firm gives significant decision-making authority, and the responsibility for profits and losses, to two managers. It shares responsibility between a functional manager and a product manager. This arrangement is an example of a ________.

A) hard triangle B) soft square C) matrix structure D) multidivisional form Answer: C Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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15) Which of the following statements brings out a difference between a matrix structure and an M-form corporation?

A) A matrix structure combines expertise in decision making, while an M-form corporation treats each division as a separate business.

B) A matrix structure builds on the idea of a corporate parent and business unit children, whereas an M-form corporation gives significant decision-making authority to two managers.

C) A matrix structure has managers running their own business, while an M-form corporation shares responsibility between a functional manager and a product manager.

D) A matrix structure holds managers accountable for their successes and failures, whereas an M-form corporation makes life more complicated for managers and employees.

Answer: A Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 16) Which of the following is a characteristic of matrix structures?

A) They involve managers running their own business so that their successes and their failures can be traced back to the decisions of these managers.

B) They build on the assumption that both strong functional expertise and nuanced product knowledge play vital roles in creating competitive advantage.

C) They help managers claim that "corporate made me do it."

D) They make life easier for managers and employees.

Answer: B Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 17) Identify a demerit of the multidivisional form.

A) It makes the decisions of managers accountable.

B) It creates substantial redundancy across a corporation.

C) It makes life more complicated for managers and employees.

D) It gives the responsibility for profits and losses to two managers.

Answer: B Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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18) ________ is/are mechanisms, policies, or processes that coordinate and control work of the different units of the organization.

A) Staffing B) Strategy C) Structure D) Systems Answer: D Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 19) ________ refer(s) to the human resource management processes in the organization.

A) Staffing B) Strategy C) Structure D) Systems Answer: A Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) Porben Inc., a specialist educational firm, targets public universities, job fairs, and job portals during its recruitment process. It provides on-the-job training to the new employees of the company. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Structure B) Strategy C) Style D) Staffing Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic

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21) LeeAllen Inc., a well-established healthcare centre, starts a new production unit. The company hires 100 new employees for the new unit to meet the customer demand. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Structure B) Strategy C) Style D) Staffing Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 22) In the context of the 7 S model of organizational alignment, which of the following statements is true of staffing?

A) It represents the most important S in the 7 S model.

B) It helps create alignment between goals, skills, and environmental needs.

C) It includes recruitment, hiring, training, promotion, and compensation.

D) It is the ability of an individual to perform tasks.

Answer: C Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 23) ________ refer to the abilities of individuals within the firm, as well as how the firm has combined those individual talents to build capabilities, to create a competitive advantage.

A) Shared Values B) Skills C) Styles D) Systems Answer: B Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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24) Green Cruz Inc., a multinational retailer, is hiring employees who possess creative talents and prefer working in a challenging environment. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Structure B) Strategy C) Skills D) Systems Answer: C Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 25) Which of the following statements is true of skills?

A) It represents the most important S in the 7 S model.

B) It helps create alignment between goals, skills, and environmental needs.

C) It includes recruitment, hiring, training, promotion, and compensation.

D) It refers to the abilities of individuals, groups, or organizations to perform tasks.

Answer: D Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 26) ________ refer(s) to the interpersonal relationships between people in the organization and comprises the culture of the organization.

A) Shared Values B) Skills C) Style D) Systems Answer: C Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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27) ________ comprise the culture of the organization.

A) Shared Values and Strategy B) Shared Values and Style C) Strategy and Staffing D) Strategy and Style Answer: B Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 28) Neskel Inc., a software company, collaborates in teams and continuously shares and refines critical skills. It fosters an environment that celebrates and leverages diversity. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Structure B) Strategy C) Systems D) Style Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 29) Janice is the sales head at a dairy exporting firm. She spends much of her time interacting with people from various cultural backgrounds. The competitive and risk-taking attitude of Janice is different from those in more conservative work areas. In the context of the 7 S model of organizational alignment, which of the following is being exemplified in this case?

A) Structure B) Strategy C) Skills D) Style Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic

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30) Reyes Corp., an event management firm, permits its employees to dress up for work in shorts, T-shirts, and flip-flops. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Structure B) Strategy C) Skills D) Style Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 31) Fortunize Inc., an advertising company, operates in an office space with a more informal setting that is conducive to creative thinking. The employees at Fortunize call each other by their first name or use nicknames. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Structure B) Strategy C) Skills D) Style Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 32) The employees of a firm usually dress up for work and refer to each other as Mr. or Ms. They also respect each other's work environment by keeping office doors closed. In the context of the 7 S model of organizational alignment, which of the following is exemplified in this case?

A) Skills B) Style C) Structure D) Systems Answer: B Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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33) ________ refer(s) to the priorities, values, and virtues that members of the organization see as important.

A) Shared Values B) Skills C) Styles D) Systems Answer: A Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 34) Which of the following statements is true of shared values?

A) It refers to the priorities, values, and virtues that members of an organization see as important.

B) It represents the most important S in the 7 S model because all the others align around it.

C) It helps create alignment between goals, skills, and environmental needs.

D) It includes recruitment, hiring, training, promotion, and compensation.

Answer: A Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 35) ________ are a set of high-level goals that all stakeholders agree on to capture the same thing as shared values.

A) Scorecards B) Skills C) Strategies D) Superordinate goals Answer: D Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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36) Superordinate goals capture the same thing as ________.

A) shared values B) skills C) styles D) systems Answer: A Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 37) Gonkie Inc., strives to create shared values by focusing on respect for the individual and extraordinary customer service. It works to create these shared values by sharing stories with its associates and managers that provide examples of the behavior they want to encourage. Which of the following is exemplified in this case?

A) Scorecard B) Strategy C) Skills D) Superordinate goals Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 38) ________ constitute the hard triangle of the 7 S Model.

A) Strategy, staffing, and skills B) Strategy, structure, and systems C) Structure, skills, and shared values D) Structure, systems, and style Answer: B Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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39) The ________ represents the levers that managers can quickly pull to create alignment or realignment; these levers are ________.

A) hard triangle; intangible B) hard triangle; tangible C) soft square; intangible D) soft square; tangible Answer: B Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 40) ________ constitute the soft square of the 7 S Model.

A) Strategy, staffing, skills, and systems B) Strategy, structure, systems, and shared values C) Style, skills, systems, and strategy D) Style, staffing, skills, and shared values Answer: D Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 41) ThomasMyers Inc., a global automobile company, aims at developing a strategy to create and sustain a competitive environment. It wants to develop a structure that divides the labor and tasks of the organization. It aims at coordinating and controlling work of the different units within the firm. In the context of the 7 S model of organizational alignment, which of the following best exemplifies ThomasMyers' approach?

A) Scorecard B) Hard triangle C) Guiding coalition D) Soft square Answer: B Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic

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42) Richardson Corp., a biotechnology company, wants to hire people who have the abilities to perform tasks, maintain interpersonal relationships, and focus on values of the organization. In the context of the 7 S model of organizational alignment, which of the following best exemplifies Richardson's approach?

A) Scorecard B) Hard triangle C) Guiding coalition D) Soft square Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 43) Clinton Corp., a global fashion brand, has shifted its focus primarily to the elements of style, skills, staffing, and shared values. Owing to the nature of these elements, the organization realizes that it will take a long time to influence and change the work environment. In the context of the 7 S model of organizational alignment, which of the following best exemplifies Clinton's approach?

A) Scorecard B) Hard triangle C) Guiding coalition D) Soft square Answer: D Diff: 3 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Application Standard 1: AACSB || Analytic 44) Which of the following is a part of the soft square of the 7 S model of organizational alignment?

A) The priorities and virtues that members of an organization see as important B) An organization's plan for creating competitive advantage C) The set of organizational arrangements that divide labor and tasks D) Mechanisms, policies, or processes that coordinate and control work of the different units of an organization Answer: A Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 15

45) Identify a feature of the hard triangle.

A) Structure usually appears in policy manuals, computer programs, or equipment.

B) It represents a set of levers that managers can quickly pull to create alignment.

C) The word "hard" in this context refers to difficulty, not tangibility.

D) It represents elements that are often difficult to codify.

Answer: B Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 46) Identify a feature of the soft square.

A) Changing an organization's skill set can take several months.

B) Changing the style or shared values of a firm takes place over a week.

C) It includes elements that can be influenced and changed easily.

D) It represents a set of levers that managers can quickly pull to create realignment.

Answer: A Diff: 2 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Comprehension Standard 1: AACSB || Analytic 47) ________ begins the change process as individuals and groups within the organization recognize and publicly admit that the current situation is not working.

A) Changing B) Refreezing C) Strategizing D) Unfreezing Answer: D Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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48) ________ entails moving away from certain actions, policies, or strategies before adopting anything new.

A) Changing B) Refreezing C) Strategizing D) Unfreezing Answer: D Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 49) Rimezine Inc., a pharmaceutical company, incurred losses in the current quarter due to low customer demand. It recognized and publicly admitted that the current strategies of the company are not producing acceptable results. The company is in the ________ phase of organizational change.

A) unfreezing B) hard triangle C) soft square D) changing Answer: A Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 50) Gonzalez Inc., a leather-processing company, realizes that the current strategies have decreased the productivity. It makes a clear break with past actions and develops new strategies to be successful. Which of the following phases of organizational change is best exemplified in this case?

A) Unfreezing B) Hard triangle C) Soft square D) Changing Answer: A Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic

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51) Which of the following statements is true of the unfreezing phase of organizational change?

A) It allows organizations to maintain the progress they made through change.

B) It means moving from one set of behaviors and activities to another.

C) It is the phase where an organization engages in a trial-and-error process.

D) It provides the fundamental motivation for change.

Answer: D Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic 52) Identify a feature of the unfreezing phase of organizational change.

A) It requires the hard work of aligning a company's activities to support change.

B) It means moving from one set of behaviors and activities to another.

C) It entails moving away from certain actions, policies, or strategies before adopting anything new.

D) It allows organizations to maintain the progress they made through change.

Answer: C Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic 53) Which of the following should ideally take place in the unfreezing phase of organizational change?

A) Developing new behaviors B) Embedding new behaviors in training compensation C) Engaging in trial-and-error process D) Making a public admission that the current state is not working Answer: D Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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54) ________ is how a company adapts to its environment and learns new behaviors; it is the most difficult part of the process.

A) Changing B) Refreezing C) Strategizing D) Unfreezing Answer: A Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 55) Robinson Inc., a manufacturer of smartphones, focuses on moving from its one set of strategic plans to another by increasingly engaging itself with customer services. It feels that it is important to increase the quality of products to increase and retain its customer base. Which of the following phases of organizational change is exemplified in this case?

A) Unfreezing B) Hard triangle C) Changing D) Refreezing Answer: C Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 56) Which of the following statements is true of the changing phase of organizational change?

A) It entails moving away from certain actions, policies, or strategies before adopting anything new.

B) It means moving from one set of behaviors and activities to another.

C) It involves formalizing and institutionalizing new behaviors, methods, processes, or routines.

D) It provides the fundamental motivation for change.

Answer: B Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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57) Jackson Inc., a manufacturer of high-end bikes, creates a new set of plans to improve the production rate. In the process, it realizes that it is not clear which new behaviors will work.

Hence, Jackson decides to adopt a trial-and-error method to determine the best course of action.

Which of the following phases of organizational change is exemplified in this case?

A) Unfreezing B) Hard triangle C) Changing D) Refreezing Answer: C Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 58) RandallCollins Inc., a wholesale fuel distributor, develops a new strategy that creates and sustains a competitive advantage in its target markets. However, it aims at making this alteration a part of its operations. Which of the following phases of organizational change is exemplified in this case?

A) Unfreezing B) Hard triangle C) Changing D) Refreezing Answer: C Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 59) Identify a feature of the changing phase of organizational change.

A) It is how a company adapts to its environment and learns new behaviors.

B) It begins when individuals, groups, or companies make a "stop doing" list.

C) It allows organizations to maintain the progress they made through change.

D) It provides the fundamental motivation for change.

Answer: A Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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60) Which of the following should ideally take place in the changing phase of organizational change?

A) Making a public admission that the current state is not working B) Making a clear break with past actions C) Embedding new behaviors in culture D) Empowering action Answer: D Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic 61) ________ means making the change permanent so that all activities support the change.

A) Changing B) Refreezing C) Strategizing D) Unfreezing Answer: B Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 62) ________ allows organizations to maintain the progress they made through change.

A) Changing B) Refreezing C) Strategizing D) Unfreezing Answer: B Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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63) Which of the following statements is true of the refreezing phase of organizational change?

A) It allows organizations to maintain the progress they made through change.

B) It involves formalizing and institutionalizing new behaviors, methods, processes, or routines.

C) It is the phase where an organization engages in a trial-and-error process.

D) It provides the fundamental motivation for change.

Answer: B Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic 64) MorrisWhitaker Inc., a metallurgical firm, wants to create a new production plan. This step involves formalizing and institutionalizing new behaviors, methods, processes, or routines. This is an example of the ________ phase of organizational change.

A) unfreezing B) monitoring C) changing D) refreezing Answer: D Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 65) Walker and Harris are senior research fellows at a global non-profit organization. They are working on a project that studies the growth trend of a multinational corporation, Garcia Inc. When Walker and Harris decide to consolidate their study findings, Walker is of the opinion that Garcia is in the 'change process' phase, while Harris believes that the company is in the "refreeze" phase. Which of the following statements, if true, would strengthen Harris' belief?

A) Garcia Inc. publicly admits that the current situation is not working.

B) Garcia Inc. formalizes and institutionalizes its new growth strategies.

C) Garcia Inc. adopts a trial-and-error method to decide on the best growth strategy.

D) Garcia Inc. decides to adapt to its environment and learn new growth-inducing behaviors.

Answer: B Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Analysis Standard 1: AACSB || Analytic

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66) Which of the following should ideally take place in the refreeze phase of organizational change?

A) Making a clear break with past actions B) Engaging in trial-and-error process C) Creating alignment D) Developing new behaviors Answer: C Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic 67) Identify a feature of the refreezing phase of organizational change.

A) It begins when individuals, groups, or companies make a "stop doing" list.

B) It provides the fundamental motivation for change.

C) It allows organizations to maintain the progress they made through change.

D) It entails moving away from certain actions, policies, or strategies before adopting anything new.

Answer: C Diff: 2 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Comprehension Standard 1: AACSB || Analytic 68) Noel, the CEO of a firm operating in the electronics industry, wants to change the environmental trends, store keeping facilities, and distribution strategy by creating a new plan for the production plant immediately. This need for change can be achieved by ________.

A) generating urgency B) building a guiding coalition C) creating a response profile D) refreezing Answer: A Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic

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69) A(n) ________ is a group of influential people from all levels in the organization who work to lead the change effort.

A) ad hoc team B) guiding coalition C) response profile D) steering committee Answer: B Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) The CEO of a well-established firm stresses on the need for change in the production pattern for the betterment of the company. He is supported by a group of influential people from all levels in the organization who work to lead the change effort. This is an example of ________.

A) generation of urgency B) building a guiding coalition C) creation of a response profile D) refreezing Answer: B Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 71) A ________ is a clear statement of where the organization wants to go, and what life will be like when the change has been successful.

A) coalition B) differentiation C) strategy D) vision Answer: D Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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72) A software industry implements a new structural change in the corporate hierarchy.

Employees are provided with a clear statement of desired outcomes and endpoints for organizational change. This is an example of ________.

A) generating urgency B) building a guiding coalition C) creating a response profile D) creating a vision Answer: D Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 73) A company revises its pay grades to motivate its employees. The details of the revised pay grades are distributed to the employees through a memo or a post on the company's intranet site.

This is an example of ________.

A) generating urgency B) building a guiding coalition C) creating a response profile D) communicating a vision Answer: D Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 74) ________ means giving people authority to try new practices, giving them the resources and knowledge to engage in new practices, providing a safety net for people should they fail, and providing a system in place to learn from those failures.

A) Coalition building B) Empowerment C) Response profiling D) Vision creation Answer: B Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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75) A well-established pharmaceutical company has built a number of mechanisms to promote innovation. As part of this initiative, it provided an opportunity to its employees to work on projects that interest them. It also arranged for a weekly brainstorming session to gather and consolidate innovative ideas and approaches. This is an example of ________.

A) empowering individuals B) building a guiding coalition C) creating a response profile D) communicating a vision Answer: A Diff: 3 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Application Standard 1: AACSB || Analytic 76) To ________ an organizational element or practice, it needs to become so essential, or so routine, that its value is taken for granted and becomes part of the central values of the culture.

A) align B) institutionalize C) refreeze D) strategize Answer: B Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 77) When an organizational element or practice is made so essential that its value is taken for granted, it is referred to as ________.

A) generating a sense of urgency B) building a guiding coalition C) creating a vision D) institutionalizing change Answer: D Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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78) The ________ helps managers create measurement systems to overcome the limited perspectives of individual organizational members.

A) communication of a vision B) creation of a response profile C) empowerment of action D) principle of line of sight Answer: D Diff: 1 Section Reference: 3: Measurement Learning Objective: 3: Discuss how creating effective line-of-sight measures can assist managers in the strategy implementation process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 79) Austin Inc., a media firm, wants to link its employees' day-to-day activities to its impact on the overall strategy. Which of the following will help the company in this case?

A) Empowerment of action B) Principle of line of sight C) Creation of a response profile D) Communication of a vision Answer: B Diff: 3 Section Reference: 3: Measurement Learning Objective: 3: Discuss how creating effective line-of-sight measures can assist managers in the strategy implementation process.

Bloom code: Application Standard 1: AACSB || Analytic 80) Which of the following statements is true about the principle of line of sight?

A) It helps to overcome the limited perspectives of individual organizational members.

B) It means moving from one set of behaviors and activities to another.

C) It is often successful by trial and error.

D) It provides the fundamental motivation for change.

Answer: A Diff: 2 Section Reference: 3: Measurement Learning Objective: 3: Discuss how creating effective line-of-sight measures can assist managers in the strategy implementation process.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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81) Identify an accurate statement about the principle of line of sight.

A) It is often successful by trial and error.

B) It provides the fundamental motivation for change.

C) It helps company strategies to revolve around vague notions such as creating shareholder value and increasing earnings.

D) It recognizes that grand strategies only come to fruition as individual managers and employees make decisions about how to allocate the valuable resources they control.

Answer: D Diff: 2 Section Reference: 3: Measurement Learning Objective: 3. Discuss how creating effective line-of-sight measures can assist managers in the strategy implementation process.

Bloom code: Comprehension Standard 1: AACSB || Analytic 82) In the context of the 7 S model of organizational alignment, ________ refers to the plan, process, and related activities that create and sustain a competitive advantage for a firm in its target markets.

Answer: strategy Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 83) In the context of the 7 S model of organizational alignment, the ________ category describes key processes that span a firm's organizational structure.

Answer: systems Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 84) ________ begins when leaders recognize and publicly admit that the current situation is not producing acceptable or adequate results.

Answer: Unfreezing Diff: 1 Section Reference: 2. Strategic Change Learning Objective: 2. Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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85) A group of influential people from all levels in an organization that support and lead the change effort is called a ________.

Answer: guiding coalition Diff: 1 Section Reference: 2. Strategic Change Learning Objective: 2. Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 86) A tool that measures four broad areas of organizational performance which are financial results, customer goals, internal business processes, and learning and growth is called the ________.

Answer: balanced scorecard Diff: 1 Section Reference: 3: Measurement Learning Objective: 3: Discuss how creating effective line-of-sight measures can assist managers in the strategy implementation process.

Bloom code: Knowledge Standard 1: AACSB || Analytic 87) Write a note on the structure of the 7 S model of organizational alignment.

Answer: The 7 S model identifies seven important organizational elements that must be aligned in order to ensure effective implementation of a firm's strategy. The 7 Ss are: strategy, structure, systems, staffing, skills, style, and shared values. Structure divides labor and tasks within an organization into separate units and, by doing so, defines the reporting or authority structure of the firm. This is important because it assigns accountability for particular tasks and allows for the measurement of performance by a particular organizational unit. Managers can use structure to help create alignment between goals, skills, and environmental needs.

Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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88) Explain the hard triangle and soft square in the 7 S model.

Answer: Strategy, structure, and systems constitute the hard triangle of the 7 S model. The hard triangle represents a set of "hard" levers that managers can quickly pull to create alignment, or realignment. Hard doesn't refer to difficulty, but, rather, tangibility. Structure appears on paper, strategy in a formal plan or document, and systems are found in policy manuals, computer programs, or equipment. The other four represent the soft square, the elements that are often difficult to codify, like style, or that take a long time to influence and change, like shared values.

Strategists can change structure in a day, strategy in a week, or systems in a quarter. That doesn't mean an organization practices the new strategy, works well in the new structure, or actually uses the new systems.

Diff: 1 Section Reference: 1: Alignment: The 7 S Model Learning Objective: 1: Describe how the 7 S model can be used to determine the level of alignment within a company and between the company and its environment.

Bloom code: Knowledge Standard 1: AACSB || Analytic 89) What are the three phases of changes?

Answer: Unfreezing: Unfreezing begins the change process as individuals and groups within the organization recognize and publicly admit that the current situation is not working.

Unfreezing entails moving away from certain actions, policies, or strategies before adopting anything new.

Changing: The change process is how a company adapts to its environment and learns new behaviors.

Refreezing: This is the last phase of organizational change. This step involves formalizing and institutionalizing new behaviors, methods, processes, or routines.

Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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90) What are the eight steps to successful change?

Answer: The eight key tasks are: 1) Generate a sense of urgency.

2) Build a guiding coalition.

3) Create a vision.

4) Communicate the vision.

5) Empower individuals to act.

6) Garner short-term wins.

7) Consolidate gains and move on for more change.

8) Institutionalize the change.

Diff: 1 Section Reference: 2: Strategic Change Learning Objective: 2: Evaluate a strategic change effort and explain the underlying reasons why the effort succeeded or failed.

Bloom code: Knowledge Standard 1: AACSB || Analytic 91) Write a note on the principle of line of sight.

Answer: Line of sight links day-to-day organizational behaviors and decisions to their impact on the overall strategy. For example, if a company's strategy relies on relentless low-cost production and control, then it should postpone meetings, leave the customer and employee in limbo, and spend time preserving the product. In contrast, a clearly customer- centric focus would entail calling the customer first. Finally, it can be seen that a clear strategy of winning through innovation means the design meeting will take place as scheduled or the employee will be contacted if he contributes important innovation skills to the team.

The line-of-sight principle recognizes that grand strategies don't just happen, they only come to fruition as individual managers and employees make decisions about how to allocate the valuable resources they control. The ability to formulate a clear and direct strategy provides the point of reference to establish line of sight. The next step in creating a line of sight involves translating the overall strategy into a set of specific objectives for divisions or large work groups.

Line of sight tells manufacturing managers whether quality comes before costs. With a clear line of sight, marketing and sales staff know which customers to focus on, how deeply to discount prices to win deals, and what levels of personal attention and service each account should receive. Line of sight helps human resource professionals design compensation systems to encourage and reward those behaviors that actually create strategic value.

Diff: 1 Section Reference: 3: Measurement Learning Objective: 3: Discuss how creating effective line-of-sight measures can assist managers in the strategy implementation process.

Bloom code: Knowledge Standard 1: AACSB || Analytic © 2024 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course.

Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 13 Corporate Governance and Ethics 1) ________ is best described as the processes and structures that provide the ultimate decisionmaking authority for a firm.

A) Strategic management B) Corporate responsibility C) Corporate governance D) Corporate management Answer: C Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) A ________ is a legal structure for organizing a business that is considered a distinct and separate entity from its owners (also known as ________).

A) corporation; shareholders B) corporation; stakeholders C) proprietorship; shareholders D) proprietorship; stakeholders Answer: A Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) Which of the following statements is true about the first 100 years of the history of the United States?

A) Many businesses operated as corporations.

B) General partnerships were very rare.

C) Most economic activity was carried out by partnerships.

D) Individual proprietorships were very common.

Answer: D Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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4) Identify a feature of corporations.

A) They allow entities to grow the larger economy.

B) They prohibit entities from industrializing.

C) They have sole ownership.

D) They have unlimited personal liability.

Answer: A Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 5) Autumn Inc. is a company that functions on its own. It has the right to enter into contracts, hire employees, and also pay taxes. The shareholders of the company are entitled to its profits.

Autumn Inc. is an example of a ________.

A) cooperative B) limited partnership C) general partnership D) corporation Answer: D Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 6) A ________ is a legal structure for organizing a business where the organization is a distinct and separate entity from its owners.

A) general partnership B) proprietorship C) corporation D) limited partnership Answer: C Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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7) Antonia owns and runs a bakery in her neighborhood. She is the only person responsible for the liabilities of her bakery. Her bakery is an example of a(n) ________.

A) individual proprietorship B) corporation C) partnership D) joint venture Answer: A Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 8) Which of the following statements is true of an individual proprietorship?

A) It is owned by two or more partners.

B) It is run and owned by the same person.

C) It is considered a distinct and separate entity from its owners.

D) It is a rare form of business ownership in the United States.

Answer: B Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 9) Fatima wants to start a small business. She does not want to share the profits of her business with anyone else. In this scenario, Fatima should most likely opt for which of the following types of business ownership?

A) A joint venture B) An individual proprietorship C) A partnership D) A corporation Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Analysis Standard 1: AACSB || Analytic

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10) Ria and Maria start an investment firm together that is not a separate legal entity. They have an equal share of the profits and the liabilities of the business. This type of business ownership can be best categorized as a(n) ________.

A) cooperative B) partnership C) corporation D) individual proprietorship Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 11) Veltek Development Solutions was a company that existed in the nineteenth century. It was formed after obtaining a charter from the state legislature for the purpose of building a small bridge over a river. In this scenario, Veltek Development Solutions can be considered a ________.

A) cooperative B) limited partnership C) general partnership D) corporation Answer: D Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 12) How did the general-purpose corporations formed in the twentieth century grow?

A) By allowing investors to run the corporation B) By relying on investors to run the corporation C) By selling products and services to the investors at reduced prices D) By offering investors a share of ownership in the company, or stock Answer: D Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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13) Chang, the founder of a multinational corporation, believes that his business should mainly focus on the benefit of those people who own its stock. In this scenario, he most likely follows ________, a model of business management.

A) stakeholder model B) shareholder primacy C) customer value D) stakeholder value Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 14) Anastasia, a student of business management, claims that since most businesses are primarily concerned with acquiring more assets, the shareholder primacy model is better than the stakeholder model of business management. Which of the following facts strengthens her claims?

A) Shareholders can easily trade the stock they own of an organization.

B) Shareholders exchange money with the corporation without a clearly specified payment in return.

C) Shareholder value creates negative consequences for firms.

D) Shareholders are the legal owners of all the material possessions of the corporation.

Answer: D Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Analysis Standard 1: AACSB || Reflective Thinking 15) ________ is a model of the corporation suggesting that a firm is the sum total of its contracts with different stakeholders.

A) Nexus of contracts B) Shareholder primacy C) Stakeholder model D) Supplier contracts Answer: A Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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16) Javier is the shareholder of a cellphone manufacturing company. Which of the following statements about him is true?

A) He does not have any claim to the residual earnings of the company.

B) He is the only person entitled to receive the profits of the company.

C) He is protected from being taken advantage of by the management team due to his oversight rights.

D) He is not able to exchange money with the corporation without a clearly specified payment in return.

Answer: C Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 17) Jiao, a student of business management, claims that the shareholder primacy model is better than the stakeholder model of business management. Which of the following statements best supports her claim?

A) The customers are the legal owners of the corporation's assets.

B) The most important input into making a business successful is wealth.

C) The shareholders own stock of a corporation that they can easily trade.

D) The shareholders have different objectives for investing in a firm.

Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 18) Salma owns stocks of an e-commerce business. In exchange for the money she has invested, she has received two property rights from the business. Which of the following is most likely to be one of the property rights given to her?

A) She will get a share of the residual earnings of the business.

B) She will be the only owner of the assets of the business.

C) She will get ownership of the private properties owned by other investors of the business.

D) She will be entitled to a higher percentage of the profits earned by the business.

Answer: A Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic

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19) Raj, a student of business management, claims that the shareholder primacy model is not a good model of business management. Which of the following statements should he use to best support his claim?

A) The shareholders are not the legal owners of the corporation's assets.

B) Financial capital is the most important input into making a business successful.

C) The shareholders cannot not trade or own any stock of the corporation.

D) Managing for shareholder value creates negative consequences for firms.

Answer: D Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 20) Tinos Inc. is a company that manufactures toys. Which of the following would be its primary stakeholder?

A) Other local toy manufacturers B) Foreign toy manufacturers C) People who purchase its toys D) People who purchase toys in foreign countries Answer: C Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 21) A ________ is anyone who can affect or is affected by the activities of the corporation.

A) Competitor B) Manufacturer C) Stakeholder D) Strategist Answer: C Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

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22) Shareholders, customers, suppliers, employees, and local communities are ________ stakeholders.

A) direct B) indirect C) primary D) secondary Answer: C Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 23) Which of the following is a primary stakeholder?

A) Competitor B) Customer C) Global community member D) Special-interest group member Answer: B Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 24) Competitors, national communities, and special-interest groups are ________ stakeholders.

A) direct B) indirect C) primary D) secondary Answer: D Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

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25) Which of the following is a secondary stakeholder?

A) Competitor B) Customer C) Employee D) Shareholder Answer: A Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 26) TinyToys Inc. is a company that manufactures toys. Which of the following would be its secondary stakeholder?

A) Other local toy manufacturers B) Companies that supply its raw materials C) People who purchase its toys D) People who work for the company Answer: A Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 27) Kate, a business owner, is a proponent of the stakeholder model of business management.

Which of the following is a reason she supports this model?

A) The stakeholders are the legal owners of the corporation's assets.

B) Managers spend most of their time interacting with and managing the demands and needs of different stakeholder groups.

C) The stakeholders own stock of a corporation that they can easily trade.

D) Managers have no way to run their firms efficiently and effectively as they have no way to decide whose claims have priority.

Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

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28) Which of the following statements is true of the intrinsic stakeholder model of business management?

A) It is the belief that stakeholder groups have the right to be considered in decisions that will impact them.

B) It is the belief that giving importance to stakeholders makes it difficult for managers to effectively run their firms.

C) It is the belief that stakeholder interactions have longer-term consequences on a firm's performance and competitive advantage.

D) It is the belief that financial capital is the most important input into making a business successful.

Answer: A Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) Abdul, a student of business management, claims that the stakeholder model is not a good model of business management. Which of the following would he most likely cite as a reason for his claim?

A) The shareholders are not the legal owners of the corporation's assets.

B) Managers need to focus on the only objective of increasing shareholder value.

C) The stakeholder groups should be considered in decisions that will impact them.

D) Managers spend most of their time interacting with stakeholders.

Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 30) Newe Chemicals Inc. is a company that manufactures household chemicals. Its customers consist of people who purchase its products. They will be affected by the business through the ________.

A) wages it pays to its employees B) payment it makes to its suppliers C) earnings it generates for its investors D) advertising campaigns it uses to promote its products Answer: D Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 10

31) Agrolus Corp. is a company that manufactures fertilizers used in farming. Its customers consist of farmers who purchase its products. Its employees will be affected by the business through the ________.

A) working conditions of the company B) payment it makes to its suppliers C) earnings it generates for its investors D) fertilizers sold by the company Answer: A Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 32) HMR Inc. is a company that manufactures household chemicals and fertilizers used in farming. Its customers consist of farmers and other people who purchase its products. Its suppliers will be most affected by the business through the ________.

A) working conditions of the company B) reputation of the company C) earnings it generates for its investors D) chemicals and other products sold by it Answer: B Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 33) Yellow Moon Inc. is a company that manufactures consumer electronics. Its investors will be primarily affected by the business through the ________.

A) training and development provided to its employees B) employees living in its community C) earnings generated by the company D) order consistency of the company Answer: C Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

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34) Chemica Corp. is a company that manufactures household chemicals and fertilizers used in farming. The government of the state in which it operates will be affected by the business through the ________.

A) effect its products have on environmental pollution B) reputation of the company C) earnings generated by the company D) employment opportunities that the company generates Answer: A Diff: 3 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Application Standard 1: AACSB || Analytic 35) Which of the following is a characteristic of the shareholder primacy model?

A) It was advocated by Professor Merrick Dodd.

B) It holds that shareholders have a special type of contract with a corporation.

C) It holds that no group should enjoy primacy in decision making.

D) It is based on the belief that a corporation should be run for the benefit of the entire community.

Answer: B Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 36) Identify a feature of the stakeholder model.

A) It holds that the executive team should be legally and morally obligated to work for the owners of a corporation.

B) It holds that financial capital is the most important input into making a business successful.

C) It holds that no group should enjoy primacy in decision making.

D) It was advocated by Professor Adolf Berle.

Answer: C Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

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37) Which of the following is an issue pointed out by critics of the shareholder primacy school as evidence against this model?

A) The absence of a financial capital makes it hard to hire employees, buy inventory or other needed inputs, and produce products for customers to buy.

B) Managers make difficult trade-offs to satisfy one shareholder group at the expense of others.

C) Corporations that run for other stakeholder groups often cause real damage to economies, communities, and the natural environment.

D) Shareholders actually own their corporation.

Answer: B Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 38) Which of the following statements is true of the agency problem facing the modern public corporation?

A) It arises when a corporation hires a private agency to conduct audits of its business practices.

B) It arises when a government agency is assigned with the task of identifying corrupt practices by a corporation.

C) It arises as a consequence of the separation of ownership and control in the corporation.

D) It arises as a consequence of the managers of the corporation focusing on enhancing shareholder value.

Answer: C Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 39) Pick N Shop Inc. operates a chain of supermarkets. The company offers a bonus of $500 to its sales representatives if they can sell products worth $5,000 per month. It also offers bonuses and other benefits to its employees and managers. By offering such bonuses, Pick N Shop Inc. is primarily trying to avoid a(n) ________.

A) hostile takeover B) proxy fight C) agency problem D) accountability problem Answer: C Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 13

40) RedMart Corp. operates a chain of supermarkets. The managers and other employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen drastically. Pro Investments Inc. purchases a majority of the shares of RedMart, confident that it can manage the company better. The problem faced by RedMart Corp. as result of the separation of ownership and control can be termed as a(n) ________.

A) hostile takeover B) proxy fight C) agency problem D) accountability problem Answer: C Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 41) Identify an accurate statement about agency problems.

A) They are mostly faced by sole proprietorships.

B) The managers of a corporation are also called the principals.

C) They occur when the goals of principals differ from those of agents.

D) The shareholders of a corporation act as the agents of the principals.

Answer: C Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 42) Which of the following statements is true of the aspects of ownership and control in corporations?

A) Principals and agents have different goals.

B) Managers always want a corporation managed in a way that maximizes revenue and minimizes cost.

C) Shareholders usually want to maximize their own utility.

D) Shareholders have no right to monitor the performance of the managers of a corporation.

Answer: A Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14

43) ________ are the ________ of a corporation; they want to maximize the return on the dollars they have put into the firm and want the corporation managed in a way that maximizes revenue and minimizes cost.

A) Agents; shareholders B) Agents; stakeholders C) Principals; shareholders D) Principals; stakeholders Answer: C Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 44) Identify a way in which principals usually salvage their businesses from agency problems that destroy value.

A) They make investments in blue ocean strategies.

B) They get greenfield investments in equipment or knowledge.

C) They monitor their manager-agents through the board of directors.

D) They reduce the compensation and incentives of their manager-agents.

Answer: C Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 45) ________ are the managers who operate the firm and want to maximize their own utility.

A) Agents B) Customers C) Governments D) Principals Answer: A Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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46) Anastasia is one of the managers of Geller Technology Inc., an information technology firm.

She will be considered the agent of the ________.

A) people who own stocks of the firm B) people who purchase the software created by the firm C) software engineers who work for the firm D) businesses that use the software created by the firm Answer: A Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 47) DigiGo Inc. is a multinational corporation that manufactures and sells home appliances. Who among the following are its principals?

A) The people who own stocks of the company B) The people who purchase the home appliances it manufactures C) The electronics engineers who work for the company D) The retailers that sell the home appliances it manufactures Answer: A Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 48) ________ are investor groups who believe they can manage the corporation's assets better than the current management team.

A) Angel investors B) Corporate raiders C) Secondary stakeholders D) Venture capitalists Answer: B Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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49) ________ are investor groups who believe they can manage the corporation's assets better than the current management team.

A) Angel investors B) Secondary stakeholders C) Takeover artists D) Venture capitalists Answer: C Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 50) Identify a feature of takeover artists.

A) They help implement shareholder strategies once they convince other investors to sell their shares.

B) They make public offers called petition offers to purchase shares of dissatisfied investors.

C) They are investors who are attracted to the high share prices of firms.

D) They believe they can manage a corporation's assets better than the current management team.

Answer: D Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 51) Corporate raiders make a public offer called a ________ offer to purchase shares of ________ investors usually at a 10-30% premium above the current stock price but below what they believe the company is really worth.

A) proxy; dissatisfied B) proxy; satisfied C) tender; dissatisfied D) tender; satisfied Answer: C Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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52) Peach Corp. operates a chain of supermarkets. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to historic low. Globe Investments decides to purchase a majority of the shares of Peach Corp., confident that it can manage the company better. Globe Investments makes a public offer to purchase the shares of the investors who are dissatisfied with the performance of Peach Corp. The offer made by Globe Investments can be termed as a(n) ________.

A) proxy offer B) tender offer C) discount offer D) private offer Answer: B Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 53) ShopEazy Inc. operates a chain of supermarkets. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to a historic low. Zeltro Investments decides to purchase a majority of ShopEazy's shares, confident that it can manage the company better. In this scenario, Zeltro Investments can be best categorized as a(n) ________.

A) corporate raider B) venture capitalist C) secondary stakeholder D) angel investor Answer: A Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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54) A(n) ________ is an attempt to get the current owners of the company to change their strategy by placing their own people on the board of directors.

A) agency problem B) employee buyout C) friendly acquisition D) proxy fight Answer: D Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 55) YCL Inc. operates a retail chain. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to a historic low. UltraPlus Investments decides to purchase a majority of the shares of YCL, confident that it can manage the company better. The board of directors of YCL refuses to sell the shares of the company to UltraPlus Investments. As a result, UltraPlus tries to place its own people on the YCL's board of directors to change their decision. In this scenario, UltraPlus is involved in a(n) ________.

A) agency problem B) proxy fight C) employee buyout D) friendly acquisition Answer: B Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 56) What do most businesses do when the principal's investments are difficult to recover?

A) They get sunk-cost investments in equipment or knowledge.

B) They monitor their manager-agents through the board of directors.

C) They increase the compensation and incentives of their manager-agents.

D) They make investments in blue ocean strategies.

Answer: A Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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57) The ________ is a group of individuals who monitor the executive team of the corporate and ensure that those executives are acting in the best interests of the ________.

A) board of directors; shareholders B) board of directors; stakeholders C) corporate raiders; shareholders D) corporate raiders; stakeholders Answer: A Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 58) The ________ of a corporation have a legal fiduciary duty to act in the best interests of the corporation's owners.

A) customers B) suppliers C) directors D) distributors Answer: C Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 59) Which of the following individuals has a legal fiduciary duty to act in the best interests of the owners of the corporation where he or she works?

A) Neehara, a nurse at a private hospital B) Ivana, a senior executive at a financial corporation C) Steve, a salesperson at an electronic store D) Jamal, a technical support engineer at an IT firm Answer: B Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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60) Identify a true statement about fiduciary duties.

A) A fiduciary is obligated to work for the greatest advantage for stakeholders.

B) The executives of a corporation cannot be legally bound by fiducial obligations.

C) A fiduciary is obligated to maximize profits for managers.

D) Fiduciary duties include the duty of care.

Answer: D Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 61) ________ directors are executives and managers in the firm that bring their skills and working knowledge of the firm's operations and strategies to the board.

A) Direct B) Indirect C) Inside D) Outside Answer: C Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 62) ________ directors are people not employed by the corporation in any other role who should bring deep knowledge and a fresh perspective to ensure that the firm's strategy will serve the financial interests of the shareholders.

A) Direct B) Indirect C) Inside D) Outside Answer: D Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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63) ________ directors are people not employed by the corporation in any other role who should bring deep knowledge and a fresh perspective to ensure that the firm's strategy will serve the financial interests of the ________.

A) Inside; shareholders B) Insides; stakeholders C) Outside; shareholders D) Outside; stakeholders Answer: C Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 64) Identify a primary characteristic of the inside directors of corporations.

A) They comprise people who are not employed by a corporation in any other role.

B) They should ideally bring independence to the board.

C) They should bring deep knowledge and a fresh perspective.

D) They have the working knowledge of a firm's operations and strategies.

Answer: D Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 65) Which of the following is a feature of the outside directors of a corporation?

A) They bring their skills and working knowledge of the firm's operations and strategies to the board.

B) They do not have to worry about losing their jobs if they offer opinions that the firm's executives might not want to hear.

C) They are usually the executives or managers of a firm.

D) They ensure that a firm's strategy serves the financial interests of all stakeholders.

Answer: B Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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66) Zygaton Corp. is a firm that offers its customers financial services. Which of the following members of its board of directors should ideally bring vast knowledge and a new perspective in order to ensure that the firm's strategy will serve the financial interests of the shareholders?

A) Javier, an employee B) Maria, an outside director C) Cataleya, a senior executive D) Esposito, a senior manager Answer: B Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 67) ________ is the right to buy a certain number of the corporation's shares at a specified future date for a specified price.

A) Pay for performance B) Stock-based compensation C) A stock grant D) A stock option Answer: D Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Knowledge Standard 1: AACSB || Analytic 68) A(n) ________ usually comes with restrictions that prohibit the sale of those shares for a specified period of time.

A) initial grant B) stock grant C) stock option D) tender offer Answer: B Diff: 1 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

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69) Monica is a senior interior designer who works at 360 Marks Inc. As part of her compensation package, she is entitled to 2,000 shares of the company at $30 each. In this scenario, the type of compensation offered can be termed as a(n) ________.

A) stock option B) stock grant C) tender offer D) initial grant Answer: B Diff: 3 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Application Standard 1: AACSB || Analytic 70) Which of the following statements is true about compensations and incentives?

A) Bonuses are paid when employees meet certain performance objectives.

B) Bonuses are always discretionary in nature.

C) Salary usually includes stock-based compensation.

D) Nondiscretionary compensations are given for any reason a principal desires.

Answer: A Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 71) ________ values are those values that define for an individual, group, or society things that are morally right or wrong.

A) Cultural B) Ethical C) Strategic D) Universal Answer: B Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

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72) Which of the following defines utilitarianism?

A) A good society creates the greatest good for the greatest number of people.

B) A good society creates the most freedom for people to act as they please.

C) A good society ensures a basic set of rights for its citizens.

D) In a good society, individuals care for each other, exhibit empathy with others, and focus on meaningful relationships.

Answer: A Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Knowledge Standard 1: AACSB || Analytic 73) The free market concept is most closely related to which philosopher's argument about ethical values?

A) A good society creates the greatest good for the greatest number of people.

B) A good society creates the most freedom for people to act as they please.

C) A good society ensures a basic set of rights for its citizens.

D) In a good society, individuals care for each other, exhibit empathy with others, and focus on meaningful relationships.

Answer: B Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Knowledge Standard 1: AACSB || Analytic 74) ________ is the pattern of behavioral assumptions that a given group has invented, discovered, or developed that have worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.

A) Culture B) Ethics C) Strategy D) Universalism Answer: A Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

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75) ________ is how things are done in any organization and is very powerful because it informs action without the need for supervision or permission from managers, executives, or the board.

A) Culture B) Ethics C) Strategy D) Universalism Answer: A Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Knowledge Standard 1: AACSB || Analytic 76) Which of the following statements is true of corporate culture?

A) An organization's culture, by itself, can be regarded as good.

B) Culture proves to be very weak because it cannot inform action without the need for supervision.

C) Put simply, culture is just how things are done in any organization.

D) It consists of behavioral assumptions that are considered inappropriate for organizational members.

Answer: C Diff: 2 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Comprehension Standard 1: AACSB || Analytic 77) Identify an accurate statement about corporate ethics and culture.

A) Cultures that promote ethical behavior allow people to deny the ethical dimension of their actions.

B) Culture pilots an organization by helping each individual manager decide what to do.

C) An organization's culture, by itself, is either good or bad.

D) The way people perceive and react to the ethical challenges they face as they do their jobs is rarely influenced by culture.

Answer: B Diff: 2 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

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78) A ________ is a formal declaration of a company's core values, business objectives, and ethical aspirations.

Answer: mission statement Diff: 2 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Comprehension Standard 1: AACSB || Analytic 79) ________ are those values that define for an individual, group, or society things that are morally right or wrong.

Answer: Ethical values Diff: 2 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Comprehension Standard 1: AACSB || Analytic 80) Who is a stakeholder of a business organization?

Answer: A stakeholder is anyone who can affect or is affected by the activities of a corporation.

Diff: 1 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Knowledge Standard 1: AACSB || Analytic 81) In a company, who are called agents?

Answer: Agents are individuals or groups hired to administer the property or resources of principals. The managers of a corporation are considered to be agents of the shareholders. The managers who act as the agents of the principals in operating the firm want to maximize their own utility. That may mean maximizing the profit of the corporation or it may mean engaging in behaviors that increase their income, leisure, power, status, or any other thing they may care about.

Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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82) Define ethical behavior.

Answer: Ethical behavior is that which promotes human freedom of expression and development.

Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Knowledge Standard 1: AACSB || Analytic 83) Explain the difference between the shareholder primacy model and the stakeholder model.

Answer: In the 1930s, two famous law professors, Adolf Berle and Merrick Dodd, held a very public argument about the purposes of the corporation. Professor Berle believed that the corporation should be run primarily for the benefit of the shareholders while Professor Dodd wrote that the corporation should be run for the benefit of the entire community. We know Berle's position today as the shareholder primacy model, and Dodd's as the stakeholder model.

The shareholder primacy model is the belief that a corporation should be run, primarily or exclusively, for the benefit of its shareholders. On the other hand, the stakeholder model is the belief that a corporation should be run for the benefit of its entire stakeholder set, with no group enjoying primacy in decision making.

Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic 84) Explain with examples how the engagement of a company with its key stakeholders can affect its overall performance and competitive advantage.

Answer: (Students' answers will vary.)

How a company engages with its key stakeholders and manages those relationships affects the firm's overall performance and competitive advantage. Many of the ways stakeholders interact with the firm are predictable and not difficult to understand. Other interactions, however, are less obvious and have longer-term consequences on a firm's performance and competitive advantage, as well as on how stakeholders benefit (or are harmed) by the business. Companies can, and should, audit their performance in relation to stakeholder groups on a regular basis.

Diff: 2 Section Reference: 1: The Purposes of the Corporation Learning Objective: 1: Discuss the purposes of a corporation, including the shareholder primacy model and the stakeholder model.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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85) Briefly describe agency problems. How can they destroy value in an organization?

Answer: The agency problem arises as consequence of the separation of ownership (shareholders/principals) and control (managers/agents) in the corporation. The shareholders of a corporation, also called the principals, want to maximize the return on the dollars they have put into the firm; they want the corporation managed in a way that maximizes revenue and minimizes cost, leaving the most profit.

Agency problems destroy value in two particular situations. First, when the principal's investments are sunk and difficult to recover and, second, when their ability to monitor and supervise the actions and decisions of the agents, the managers of the corporation, is limited.

Diff: 2 Section Reference: 2: Governance: Boards and Incentives Learning Objective: 2: Explain the role of the board of directors in governing the corporation and their duties to shareholders and other stakeholders.

Bloom code: Comprehension Standard 1: AACSB || Analytic 86) Describe two of the arguments used by participants of debates about ethics.

Answer: Philosophers have debated what constitutes ethics behavior for centuries. Debates about ethics are debates about what is right and wrong, but also which behaviors lead to the good or just society. Participants in these debates employ one of these arguments in making their case: 1) A good society creates the greatest good for the greatest number of people. Goodness is measured as utility, or the presence of pleasure and the absence of pain. Utilitarianism, the name for this position, suggests that we can calculate what's right by looking at the benefits created by the action and then subtracting out the costs. Utilitarian moral philosophy provides the foundation for economics. Milton Friedman, for example, wrote that the ethical responsibility of a business is to maximize profits for shareholders as the money they make creates the most utility.

2) The good society ensures a basic set of rights for its citizens. While utility is good, people have fundamental rights that cannot be violated or traded away and duties they cannot ignore.

This ethical tradition views people as ends in themselves and argues that it is immoral to use people in any way as merely a means to an end. For example, people have a right, and companies have a moral obligation, to provide full and fair information about the potential risks of products.

(Students' answers should include any two of the four arguments or ethical orientations.)

Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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87) Describe how style can help a company create a climate where ethical behavior becomes the expected norm.

Answer: The 7 S model identified shared values and style as the core of a company's culture.

These two elements can help a company create a climate where ethical behavior becomes the expected norm. Style comes last because it might be the most important of all the 7 Ss. The tone at the top matters, maybe more than any other factor! How individual executives behave provides the most important cue for employees to follow as they try and figure out how they should act at work. Enron's Jeff Skilling received such a long prison sentence in part because prosecutors alleged that his behavior created and drove the reckless culture of greed that led to the company's downfall. Moral strategic managers and executives act ethically and provide ethical leadership for others to follow.

Diff: 1 Section Reference: 3: Corporate Ethics Learning Objective: 3: Identify major ethical challenges managers face at each stage of the value chain.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.

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Strategic Management: Concepts and Cases, 5e (Dyer) Chapter 14 Strategy and Society 1) A ________ uses free-market principles and creates for-profit businesses with the goal of simultaneously creating economic value and social value.

A) angel investor B) investment manager C) social entrepreneur D) venture capitalist Answer: C Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Knowledge Standard 1: AACSB || Analytic 2) ________ value involves the simultaneous creation of value for the business and value for the larger community.

A) Economic B) Shared C) Social D) Unlimited Answer: B Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Knowledge Standard 1: AACSB || Analytic 3) ________ value focuses on the value creation for the business.

A) Economic B) Shared C) Social D) Unlimited Answer: A Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

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4) ________ value focuses on the creation of income and wealth for individuals and organizations.

A) Economic B) Shared C) Social D) Unlimited Answer: A Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Knowledge Standard 1: AACSB || Analytic 5) ________ value focuses on the value creation for the larger community.

A) Economic B) Shared C) Social D) Unlimited Answer: C Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Knowledge Standard 1: AACSB || Analytic 6) ________ value concerns improvements in individuals' lives and community well-being.

A) Economic B) Shared C) Social D) Unlimited Answer: C Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

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7) ________ value includes minimizing negative conditions such as violence and enabling positive outcomes like education.

A) Economic B) Shared C) Social D) Unlimited Answer: C Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Knowledge Standard 1: AACSB || Analytic 8) Peter, the founder of MilkWorld Inc., started his dairy company with the intent of creating a formidable supply-chain link and providing a lucrative source of income for the local dairy farmers in his country. Peter is most likely to be considered a(n) ________.

A) venture capitalist B) investment manager C) social entrepreneur D) angel investor Answer: C Diff: 3 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Application Standard 1: AACSB || Analytic 9) James started a restaurant chain, Foodizza Inc., and specifically hired unemployed youth from the ghettos in the vicinity of his restaurants, thereby providing them with means of livelihood.

James is most likely to be considered a(n) ________.

A) investment manager B) angel investor C) venture capitalist D) social entrepreneur Answer: D Diff: 3 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Application Standard 1: AACSB || Analytic

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10) Which of the following is an accurate definition of a social entrepreneur?

A) An individual or group that purchases, or receives, the outputs of an organization B) An individual or organization that makes customers value an organization's output less because it offers its own product or service C) An individual or organization that makes customers value an organization's output more because of its product or service D) An individual or organization that uses free market principles and creates for-profit businesses with the goal of creating value Answer: D Diff: 2 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Comprehension Standard 1: AACSB || Analytic 11) Jason, a visually impaired employee of Melony Inc., believes that his workplace has given him independence and self-confidence, thereby increasing his morale. Which of the following has been exemplified by Melony in this scenario?

A) Legal responsibility B) Social value C) Superordinate goal D) Capacity building Answer: B Diff: 3 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Application Standard 1: AACSB || Analytic 12) What is meant by social value?

A) It refers to the simultaneous creation of economic value for a business and social value for the larger community.

B) It refers to improvements in the noneconomic elements of individual's lives and community well-being.

C) It refers to the creation of income, wealth, and other economic outcomes for individuals and organizations.

D) It refers to the ability of an organization to consistently gather resources from key stakeholders.

Answer: B Diff: 2 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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13) Which of the following is true of social value?

A) Social value may be a source of strategic advantage.

B) Creating social value may decrease revenue through decreased customer loyalty.

C) Creating social value may be a way to spend more on costs.

D) Social value creation is critical for a business because its motive is to make a profit.

Answer: A Diff: 2 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Comprehension Standard 1: AACSB || Analytic 14) Stacy starts a day care center and hires unemployed mothers from poor economic backgrounds as babysitters. In this scenario, Stacy's initiative is most likely to be creating ________.

A) institutional change B) shared values C) economic responsibility D) joint ventures Answer: B Diff: 3 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Application Standard 1: AACSB || Analytic 15) Which of the following statements is true of shared values?

A) Profit and social welfare are substitutes that managers must trade off to create shared values.

B) Shared values entail transferring the ability to effectively perform tasks from one organization to another.

C) Shared values focus on the improvement of both the economic and social welfare of a firm.

D) Shared values focus solely on the income and wealth outcomes of an organization.

Answer: C Diff: 2 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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16) A ________ advantage means that an organization hopes to consistently garner resources from or provide services to donors, volunteers, students, or clients that allow them to fulfill their social mission over time.

A) sustainable shareholder B) sustainable stakeholder C) unending shareholder D) unending stakeholder Answer: B Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 17) In the context of the value net model, ________ purchase or receive outputs of the organization.

A) competitors B) complementors C) customers D) suppliers Answer: C Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 18) In the context of the value net model, ________ provide important inputs for the organization.

A) competitors B) complementors C) customers D) suppliers Answer: D Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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19) In the context of the value net model, a player is a ________ if customers value the organization's output less when another product is available.

A) competitor B) complementor C) customer D) supplier Answer: A Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 20) In the context of the value net model, a player is a ________ when customers value an organization's output more when the product is available.

A) competitor B) complementor C) customer D) supplier Answer: B Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 21) Gama Inc., a cell phone manufacturer, procures lithium batteries from Zipcharge Inc. These batteries are used in the smart phones manufactured by Gama. In the context of the value net model, Gama is most likely to be considered a ________.

A) supplier B) competitor C) principal D) customer Answer: D Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic

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22) John purchases a laptop from an electronics store for his own use without any intention to resell it. In the context of the value net model, John's purchase intention reflects that of a ________.

A) complementor B) customer C) strategic supplier D) competitor Answer: B Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic 23) Tim buys a new car to gift his son for his birthday. In the context of the value net model, Tim is most likely to be considered a ________.

A) competitor B) customer C) strategic supplier D) complementor Answer: B Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic 24) Emily works as a consultant in a firm that provides consulting and business solutions to global organizations to enhance their productivity and drive corporate performance and value. In the context of the value net model, Emily's firm is most likely to be considered a ________.

A) competitor B) principal investor C) supplier D) customer Answer: C Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic

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25) Inde Air Inc., a major airline, launches promotional schemes at regular intervals to increase its market share and counter the schemes launched by another airline, FlySky Inc. In the context of the value net model, which of the following best represents the relationship between Inde Air and FlySky? A) Suppliers B) Competitors C) Complementors D) Principal investors Answer: B Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic 26) JustHog Inc. and FoodLite Inc. are major fast-food chains. They attract a larger share of the fast-food market due to their quality, prompt service, and affordability. Due to the recent marketing initiatives of JustHog, FoodLite experienced a drop in its market share. In the context of the value net model, which of the following best represents the relationship between JustHog and FoodLite?

A) Competitors B) Customers C) Suppliers D) Complementors Answer: A Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic 27) Foodoid Inc., a fast-food restaurant, enters into a tie-up with SimplyBake Inc., a bakery chain, to procure croissants, garlic loafs, and other essential food ingredients. In the context of the value net model, SimplyBake assumes the role of a ________.

A) principal investor B) competitor C) complementor D) franchisor Answer: C Diff: 3 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Application Standard 1: AACSB || Analytic 9

28) Which of the following statements is true of the value net model?

A) It describes how an organization interacts with others in its environment to create value.

B) It treats a particular stakeholder as a "single-role player" to facilitate effective decision making.

C) It typically focuses on large-scale social problems that have proven difficult for governments or other social actors to solve.

D) It focuses on improving the value of each of the stakeholders in a value chain by assigning them rigid goals and tasks.

Answer: A Diff: 2 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 29) In the context of the value net model, an individual or organization that makes customers value an organization's output more because of its product or service is known as a ________.

A) competitor B) customer C) supplier D) complementor Answer: D Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 30) In terms of the value net, which of the following statements is true of complementors?

A) They are individuals or groups that purchase, or receive, the outputs of an organization.

B) They are individuals, groups, or organizations that provide important inputs for an organization.

C) They are individuals or organizations that make customers value an organization's output more because of its product or service.

D) They are activities of companies designed to further some social objective and that lie beyond the direct economic interests of the organization.

Answer: C Diff: 2 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 10

31) In the context of the value net, identify the definition of competitors.

A) Individuals or organizations that make customers value an organization's output less because it offers its own product or service B) Individuals, groups, or organizations that provide important inputs for an organization C) People who promote the good or well-being of others D) Social entrepreneurs who creates something new through the combination of diverse and different elements Answer: A Diff: 2 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 32) Corporate social responsibility refers to ________.

A) a model of value creation that describes how an organization interacts with others in its environment to create value B) the use of innovative organizations and business models to create social value C) activities of companies designed to further some social objective and that lie beyond the direct economic interests of the organization D) the ability of an organization to consistently gather resources from, or provide services to, key stakeholders such as donors, volunteers, students, or clients Answer: C Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic 33) Today, corporate social responsibility is known as ________.

A) Discrimination, Environment, and Inclusion (DEI) B) Diversity, Equity, and Inclusion (DEI) C) Environment, Society, and Governance (ESG) D) Environment, Strategy, and Globalization (ESG) Answer: C Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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34) Rended Inc., a publishing house, launches a unique initiative that involves educating children from poor economic backgrounds. For every product that a customer purchases, Rended would contribute $10 toward this cause. Which of the following best exemplifies Rended's initiative?

A) Incremental innovation B) Corporate social responsibility C) Competition response strategy D) Strategic alliance Answer: B Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 35) Ruth works for an electronics manufacturing company, Zeeway Inc., whose employees volunteer over 1 million hours per year on initiatives that include environmental conservation, economic empowerment, and literacy programs. Which of the following best represents Zeeway's initiative?

A) Incremental innovation B) Competition response strategy C) Corporate social responsibility D) Strategic alliance Answer: C Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 36) Softlink Inc., a global computer software company, is involved in unique development initiatives in low-income countries. As part of this program, it developed model villages in a low-income country to ensure self-reliance in healthcare, infrastructure, and employment. In this scenario, which of the following best exemplifies Softlink's initiative?

A) Corporate social responsibility B) Competitor response strategy C) Strategic alliance D) Incremental innovation Answer: A Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 12

37) ________ responsibility means that managers and all those who make up the firm obey the written and codified rules of the countries in which they operate.

A) Economic B) Ethical C) Legal D) Philanthropic Answer: C Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic 38) ________ responsibility binds managers and others to obey the unwritten but powerful standards, norms, and values that underlie social life.

A) Economic B) Ethical C) Legal D) Philanthropic Answer: B Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic 39) ________ responsibility implies that a firm has an obligation to give back in some way and to contribute to strengthening the fabric of its local communities as well as the larger society.

A) Economic B) Ethical C) Legal D) Philanthropic Answer: D Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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40) George Inc., a construction firm, bags a multi-billion dollar deal from the federal government for the purpose of infrastructural development. This deal resulted in a sustainable stakeholder advantage and an increase in the firm's annual turnover. Which of the following best describes the social obligation exemplified by George in this scenario?

A) Philanthropic responsibilities B) Ethical responsibilities C) Economic responsibilities D) Legal responsibilities Answer: C Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 41) Linz Inc., a global automobile manufacturing company, exports its automobiles to distributors in seven countries. The manufacturer incurs expenses of $1,000 per car as export duties and diligently pays its duties within the stipulated time frame. In this scenario, Linz is seen fulfilling its ________ responsibility.

A) philanthropic B) legal C) shared D) ethical Answer: B Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic

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42) Which of the following statements is true of the fundamental social responsibilities of a business?

A) In order to survive, a firm must primarily focus on fulfilling its ethical responsibility over other responsibilities.

B) In order to thrive and grow, a firm must prioritize its philanthropic responsibility above all other responsibilities.

C) Firms must fill their ethical responsibilities only in limited and specific ways that conform to the legal statutes in that country.

D) Philanthropic responsibility of a firm only appears as an obligation if the firm is viewed as an active member and contributing citizen of the community in which it operates.

Answer: D Diff: 2 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Comprehension Standard 1: AACSB || Analytic 43) Which of the following statements best defines philanthropy?

A) It involves creating new social systems to create large-scale change.

B) It involves acting in a way that promotes the good or well-being of others in the form of a gift.

C) It involves creating something by combining diverse and different elements into a new setting.

D) It involves transferring the ability to effectively perform tasks from one organization to another.

Answer: B Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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44) Which of the following social responsibilities implies that a firm has an obligation to give back in some way and contribute to strengthening the fabric of its local communities, as well as the larger society?

A) Legal responsibility B) Philanthropic responsibility C) Ethical responsibility D) Economic responsibility Answer: B Diff: 1 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Knowledge Standard 1: AACSB || Analytic 45) In terms of a firm's social obligations, which of the following is true of philanthropic responsibility?

A) It refers to a firm's obligation to abide by the unwritten ethical standards, norms, and values of the communities in which it operates.

B) It refers to a firm's obligation to generate economic profits.

C) It refers to a firm's obligation to obey the written and codified laws of the countries in which it operates.

D) It refers to a firm's obligation to contribute to the enhancement of the communities in which it operates.

Answer: D Diff: 2 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Comprehension Standard 1: AACSB || Analytic 46) Walter Inc., an engineering firm, follows stringent rules related to safety such as wearing helmets, sporting safety goggles, and dust masks while working on-site. In this scenario, which of the following responsibilities is fulfilled by Walter?

A) Hybrid responsibility B) Ethical responsibility C) Philanthropic responsibility D) Economic responsibility Answer: B Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 16

47) John works for Roth Inc., a mining firm, which strictly adheres to the employment rules as prescribed by the labor commission. The firm employs individuals only above the age of 23 for occupations that could pose safety hazards. In this scenario, which of the following social responsibilities is fulfilled by Roth?

A) Philanthropic responsibility B) Economic responsibility C) Legal responsibility D) Superordinate responsibility Answer: C Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 48) Kevin works for a consulting firm that strictly follows a 40 hours-per-week work schedule as prescribed in the employment terms laid out by the labor tribunal. In this scenario, Kevin's firm is diligently fulfilling its ________ responsibilities.

A) philanthropic B) hybrid C) legal D) superordinate Answer: C Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 49) Jacob, an automobile engineer, works at an automobile manufacturing firm that receives an order for 3,000 cars from a major client. This contract resulted in a high turnover and bonuses for its employees. Jacob's firm is fulfilling its ________ responsibility.

A) economic B) philanthropic C) legal D) superordinate Answer: A Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic

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50) Katie works for an electronics manufacturing company that contributes 10% of employees' performance-linked bonuses toward the education of children with autism. Which of the following social responsibilities is best reflected in this scenario?

A) Economic responsibility B) Legal responsibility C) Hybrid responsibility D) Philanthropic responsibility Answer: D Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 51) Tracy, an employee of an online retailing firm, is the member of the employee engagement committee in her firm and is entrusted with the task of organizing a cultural event. The proceeds of this cultural event will go toward providing free and affordable healthcare to the backward sections of the community. In this scenario, Tracy's firm is fulfilling its ________ responsibilities.

A) economic B) philanthropic C) institutional D) legal Answer: B Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 52) Elvis works as a dentist at Prince Inc., a premier dentist clinic. The clinic conducts free checkups every month in remote places of the country to create more awareness on good dental hygiene. Which of the following social responsibilities is best reflected in this scenario?

A) Economic responsibilities B) Philanthropic responsibilities C) Institutional responsibilities D) Legal responsibilities Answer: B Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic 18

53) Nick and Juliet work in an online retailing firm in Chicago. Nick believes that a company's primary social responsibility is economic in nature while Juliet believes that its primary responsibility is to contribute to the enhancement of the community in which it operates. Which of the following statements, if true, strengthens Nick's belief?

A) To thrive and grow, a firm must meet its philanthropic responsibilities.

B) Economic responsibility can be viewed as an obligation only if we view the firm as a contributing citizen to the communities in which it operates.

C) Unless a firm produces profitable products and becomes a sustainable contributor in society, all its other responsibilities fade away.

D) To survive a firm must meet its legal and ethical obligations before fulfilling the other obligations.

Answer: C Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Analysis Standard 1: AACSB || Analytic 54) Which of the following examples best represent an in-kind donation?

A) Amanda, a social activist, donates 1/10th of her annual income amount to a retirement home in her locality.

B) Stalin, a sales manager at a global consumer electronics firm, contributes $500 in cash toward the medical expenditure of his ailing colleague.

C) Nerden Inc., a food-processing unit, donates relief materials to victims of an earthquake in its country of operation.

D) Niron Inc., an online retailer, contributes 10% of its annual turnover to adopt model villages.

Answer: C Diff: 3 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Application Standard 1: AACSB || Analytic

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55) In-kind donation refers to ________.

A) changing the way people and groups think about problems working to create or change social institutions B) philanthropy accomplished as one organization transfers product, employee time, or other services to a recipient group C) the use of innovative organizations and business models to create social value D) individuals or groups that purchase, or receive, the outputs of an organization Answer: B Diff: 2 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Comprehension Standard 1: AACSB || Analytic 56) Which of the following is true of the Global Reporting Initiative?

A) It was founded in 2000 in California by a group of engineers.

B) It provides firms and stakeholders with an objective way to assess a firm's performance.

C) It does not hold firms accountable for their labor practices and compliance with human rights standards and goals.

D) It ignores dimensions such as energy use, biodiversity protection, and levels of emissions and waste.

Answer: B Diff: 2 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Comprehension Standard 1: AACSB || Analytic 57) Social entrepreneurship refers to ________.

A) changing the way people and groups think about problems and they work to create or change social institutions B) philanthropy accomplished as one organization transfers product, employee time, or other services to a recipient group C) the use of innovative organizations and business models to create social value D) individuals or groups that purchase, or receive, the outputs of an organization Answer: C Diff: 1 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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58) Which of the following statements is true of the skills of social entrepreneurs?

A) A social constructor agitates for change and focuses on designing more effective social systems.

B) A social engineer focuses primarily on developing new products or services with the intent of building capacity.

C) A social bricoleur is of primary importance in organizations focusing on capacity building.

D) A social constructor combines existing resources for value creation with the intent of institutional change.

Answer: C Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic 59) Jack and Michael work as strategic consultants in a consulting firm in London. Jack is of the opinion that organizations focused on institutional change are most likely to be led by social bricoleurs, while Michael believes that it is a social engineer who adds value to organizations focused on capacity building. Which of the following statements, if true, would weaken Jack's opinion?

A) Organizations focused on capacity building need a leader who is a social constructionist who can successfully combine diverse and different elements to create something new.

B) Social entrepreneurial organizations working to create larger, institutional changes succeed when led by a social engineer.

C) Social entrepreneurship that focuses on bringing new, social-value products or services to markets require the skills of a social constructionist.

D) Social entrepreneurship that focuses on institutional changes and innovative strategies which did not exist before requiring the skills of a social engineer.

Answer: B Diff: 3 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Analysis Standard 1: AACSB || Analytic

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60) Which of the following statements is true of institutional change?

A) Institutional change is most effective in organizations pursuing multiple goals of equal importance.

B) Institutional change makes customers value an organization's output more because of its product or service.

C) Institutional change entails transferring the ability to effectively perform tasks from one organization to another.

D) Institutional change agents typically focus on large-scale social problems that have proven difficult for governments or other social actors to solve.

Answer: D Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic 61) Robin, a social entrepreneur, founded the Center of Business Excellence, a not-profit organization, and Fydil Investments Inc., a profit-oriented firm. Robin's motive is to provide a focused solution to poverty by helping the poor with a desire to succeed at business. His knowledge and expertise gathered over the years from working on different assignments ensured sustainability of the new ventures. Which of the following types of entrepreneurships corresponds to the skill sets of Robin?

A) Sustainable stakeholder B) Social bricoleur C) Philanthropist D) Competitor Answer: B Diff: 3 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Application Standard 1: AACSB || Analytic

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62) Erina, an investment banker, quit her job to start her own financial institution to help the poor in her community who were trapped in a vicious cycle of debt to moneylenders. She began following a strategy that contradicted prevailing practice and provided small loans to poor women. Erina saw the potential to change long-held beliefs about gender imbalances through her social initiative. In this scenario, Erina best represents a social ________.

A) bricoleur B) complementor C) constructionist D) competitor Answer: C Diff: 3 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Application Standard 1: AACSB || Analytic 63) Which of the following statements best defines a social engineer?

A) A social entrepreneur who builds something that did not exist before B) A social entrepreneur who designs and creates new social systems to create large-scale change C) A social entrepreneur who creates something new through the combination of diverse and different elements D) A social entrepreneur who focuses primarily on capacity building and products or services Answer: B Diff: 1 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Knowledge Standard 1: AACSB || Analytic 64) Dominic works as a trainer in a content analyst firm, Revel Inc., which specializes in corporate training programs. He trains employees on the various skill sets required to perform their job effectively thereby resulting in the transfer of knowledge and skills. This is an example of ________.

A) incremental innovation B) corporate social responsibility C) institutional change D) capacity building Answer: D Diff: 3 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Application Standard 1: AACSB || Analytic 23

65) In terms of social entrepreneurship, which of the following is true of the role of social engineers?

A) They build something that did not exist before.

B) They develop new models, products, or services.

C) They agitate for change and design more effective social systems.

D) They combine existing resources to focus on value creation.

Answer: C Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic 66) Which of the following is true of social constructionists?

A) They are required by organizations that focus on capacity building.

B) They can create something by combining diverse and different elements into a new setting.

C) They design and then create more effective social systems to create large scale change.

D) They build something new and innovative that did not exist before.

Answer: D Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic 67) The base of the pyramid ________.

A) is the use of innovative organizations and business models to create social value B) refers to the situation when entrepreneurs strive to change the way people think C) refers to the transfer of skills and abilities from one organization to another D) describes those living in conditions of extreme poverty around the world Answer: D Diff: 2 Section Reference: 4. Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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68) Which of the following statements is true of the base of the pyramid environments?

A) They feature harsh climates including excessive heat.

B) Business disputes are resolved in courts.

C) The nearly absent corruption levels encourage progress.

D) Business registration is usually done promptly.

Answer: A Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic 69) Which of the following describes those living in conditions of extreme poverty around the world, usually defined as less than $2 per day?

A) Line of sight B) Value net C) Backward integration D) Base of the pyramid Answer: D Diff: 1 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Knowledge Standard 1: AACSB || Analytic 70) Identify a true statement about a hybrid organization.

A) It is an organization pursuing more than a single goal, and each goal has equal importance.

B) It is an organization that makes customers value its output less because it offers its own product or service.

C) It is an organization that makes customers value its output more because of its product or service.

D) It is an organization designed to further some social objective that lies beyond the direct economic interests of the organization.

Answer: A Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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71) Jude works for a food-processing unit that sells processed food at rates as low as 25% of its selling price to orphanages, old-age homes, missionaries, and charitable institutions. Jude's organization can be classified as a(n) ________.

A) incremental organization B) transactional organization C) hybrid organization D) traditional organization Answer: C Diff: 3 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Application Standard 1: AACSB || Analytic 72) ________ refers to the simultaneous creation of economic value and social value for the larger community in which a business operates.

Answer: Shared value Diff: 1 Section Reference: 1: Strategy and Social-Value Organizations Learning Objective: 1: Explain the difference between economic and social value.

Bloom code: Knowledge Standard 1: AACSB || Analytic 73) The ability of an organization to consistently gather resources from, or provide services to, key stakeholders such as donors, volunteers, students, or clients is referred to as ________.

Answer: sustainable stakeholder advantage Diff: 1 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Knowledge Standard 1: AACSB || Analytic 74) ________ entails transferring the ability to effectively perform tasks from one organization to another.

Answer: Capacity building Diff: 1 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Knowledge Standard 1: AACSB || Analytic

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75) ________ refers to a social entrepreneur who creates something new through the combination of diverse and different elements.

Answer: Social bricoleur Diff: 1 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Knowledge Standard 1: AACSB || Analytic 76) ________ means that entrepreneurs strive to change the way people and groups think about problems, and they work to create or change social institutions–from government policies to social values and norms.

Answer: Institutional change Diff: 1 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Knowledge Standard 1: AACSB || Analytic 77) Discuss the role of a social entrepreneur in the creation of shared value.

Answer: Social entrepreneurs use free market principles and create for-profit businesses with the goal of creating shared value, economic value for the business and social value for the larger community in which the business operates. Economic value focuses on the creation of income, wealth, and other economic outcomes for individuals and organizations. Social value, by contrast, concerns improvements in the noneconomic elements of individual's lives and community well-being. Social value includes minimizing negative conditions such as blight, oppression, pollution, and violence, as well as enabling positive outcomes such as education and literacy, mental and physical health, political voice and inclusion, and recreation and opportunities for self-expression.

Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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78) Discuss the four roles played by stakeholders in the value net.

Answer: Each stakeholder plays one, or more, of four roles in the value net. Customers purchase, or receive, the outputs of the organization. Suppliers provide important inputs for the organization. A player is a competitor if customers value the organization's output less when the competitive product is available. A cross-town university with a strong business school acts as a competitor because recruiters may perceive that it provides a better education. Those recruiters devalue your degree. Conversely, that university plays the role of complementor when customers (such as recruiters) value an organization's output more when that product is available.

Diff: 2 Section Reference: 2: The Tools of Strategy and the Creation of Social Value Learning Objective: 2: Use the value net to identify a social-value organization's key stakeholders and use that model to discuss opportunities for and threats to value creation.

Bloom code: Comprehension Standard 1: AACSB || Analytic 79) Discuss the four fundamental social responsibilities of a business.

Answer: First among the firm's fundamental social responsibilities of business is a firm's economic responsibility. Unless the firm produces profitable products and becomes a sustainable and ongoing contributor in society, all its other responsibilities fade away. To survive, a firm must meet its economic obligations, but to thrive and grow, the firm must meet both its legal and ethical obligations. Legal responsibility means that managers and all those who make up the firm obey the written and codified laws of the countries in which they operate. The obligation of ethical responsibility binds managers and others to obey the unwritten but powerful ethical standards, norms, and values that underlie social life.

The fourth obligation of the firm only appears as an obligation if we view the firm as an active member and contributing citizen of the communities in which it operates. Philanthropic responsibility implies that a firm has an obligation to give back in some way and contribute to strengthening the fabric of its local communities, as well as the larger society.

Diff: 2 Section Reference: 3: Strategy and Social Change Learning Objective: 3: Explain how economic-value organizations can create value through activities known as corporate social responsibility.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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80) Differentiate between institutional change and capacity building.

Answer: Capacity building entails transferring the ability to effectively perform tasks from one organization to another. Fundación Paraguay builds capacity in its students through the transfer of knowledge and skill through the San Francisco experience. The final type of social entrepreneurship is institutional change, which means that entrepreneurs strive to change the way people and groups think about problems, and they work to create or change social institutions– from government policies to social values and norms.

Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic 81) Differentiate between a social bricoleur and a social engineer.

Answer: Organizations focused on capacity building need a leader who is a social bricoleur, one who can successfully bricolage, a French word that means creating something by combining diverse and different elements, into a new setting. Social entrepreneurial organizations working to create larger, institutional changes succeed when led by a social engineer. Engineers design and then create more effective social systems to create large scale change.

Diff: 2 Section Reference: 4: Social Entrepreneurship Learning Objective: 4: Categorize the major focus areas of social entrepreneurship and the challenges unique to each focus.

Bloom code: Comprehension Standard 1: AACSB || Analytic

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