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Test Bank for Strategic Management and Competitive Advantage 3rd Edition by Barney and Hesterly Link full download: https://digitalcontentmarket.org/download/test-bank-for-strategic-management-andcompetitive-advantage-3rd-edition-by-barney-and/ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) One of the central questions that all strategic managers must address, regardless of the industry they work in, is "What is our competition going to do next?"

1) _______

2) There is complete consensus among strategic managers and academic researchers about what a "strategy" is.

2) _______

3) For the purposes of this book, a firm's strategy is defined as its theory about how to gain competitive advantages.

3) _______

4) A "good strategy" does not necessarily have to create a competitive advantage.

4) _______

5) The greater the extent to which a firm's assumptions and hypotheses accurately describe how the competition in the industry is likely to evolve, and how that evolution can be exploited to earn a profit, the more likely it is that a firm will gain a competitive advantage from implementing its strategies.

5) _______

6) It is usually possible to know for sure that a firm is choosing the right strategy.

6) _______

7) The strategic management process is a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy that generates competitive advantages.

7) _______

8) The second step in the strategic management process is the definition of a firm's mission.

8) _______

9) A firm's mission defines both what it wants to be in the long run and what it wants to avoid in the meantime.

9) _______

10) Mission statements often contain so many common elements that even if a firm's mission statement does not influence behavior throughout an organization, it is likely to have a significant impact on a firm's actions.

10) ______

11) Firms whose mission statement is central to all they do are known as missionary firms.

11) ______

12) Visionary firms earn substantially higher returns than average firms because they acknowledge that profit maximizing is their primary reason for existence.

12) ______

13) Mission statements that are very inwardly focused and are defined only with reference to the personal values and priorities of its founders and top managers can hurt a firm's performance.

13) ______

14) Objectives are the specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission.

14) ______

15) High quality objectives are tightly connected to the elements of a firm's mission but tend to be relatively difficulty to measure and track over time.

15) ______


16) Business level strategies are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously.

18) ______

19) Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy.

19) ______

20) In general, a firm has a competitive advantage when it is able to create more economic value than rival firms.

20) ______

21) The size of a firm's competitive advantage is the sum of the economic value a firm is able to create and the economic value rivals are able to create.

21) ______

22) A sustained competitive advantage is virtually permanent.

22) ______

23) Firms that create the same economic value as their rivals experience competitive parity.

23) ______

24) A firm's accounting performance is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheet statements.

24) ______

25) Applying accounting measures of competitive advantage for firms that are headquartered in different countries is not complicated by issues such as differences in accounting practices and exchange rates.

25) ______

26) Activity ratios are ratios with some measure of profit in the numerator and some measure of firm size or assets in the denominator.

26) ______

27) Liquidity ratios are ratios that focus on the firm's ability to meet its short-term financial obligations.

27) ______

28) When a firm earns above average accounting performance, it is said to enjoy competitive parity.

28) ______

29) A firm that earns below average accounting performance, performance that is less than the industry average, generally experiences a competitive disadvantage.

29) ______

30) The greatest disadvantage of accounting measures of competitive performance is that they are relatively difficult to compute.

30) ______

31) Economic measures of competitive advantage compare a firm's level of return to its costs of capital instead of to the average level of return to the industry.

31) ______

32) The cost of equity is equal to the interest a firm must pay its debt holders in order to induce those debt holders to lend money to the firm.

32) ______

33) The residual claimants' view of equity holders argues that the interests of equity holders and a firm's other stakeholders often collide.

33) ______

34) The correlation between economic and accounting measures of competitive advantage is generally low.

34) ______

35) Emergent strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented.

35) ______


36) Johnson & Johnson's introduction of "Johnson's Toilet and Baby Powder" as a result of customers' asking to purchase the talcum powder is an example of a planned strategy.

36) ______

37) Emergent strategies are only important when a firm fails to implement the strategic management process effectively.

37) ______

38) Firms with strategies that are unlikely to be a source of competitive advantage will rarely provide the same career opportunities as firms with strategies that do generate such advantages.

38) ______

39) Strategic choices are generally limited to very experienced senior managers in large corporations; in smaller and entrepreneurial firms, many employees end up being involved in the strategic management process.

39) ______

40) All firms have almost entirely emergent strategies.

40) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 41) A firm's ________ is defined as its theory about how to gain competitive advantages. 41) ______ A) mission B) strategy C) 22objectives D) vision 42) The sequential set of analyses and choices that can increase the likelihood that a firm will choose a strategy that generates competitive advantages is the A) strategic management process. B) organizational change process. C) mission statement process. D) goal setting process.

42) ______

43) A firm's ________ is its long-term purpose that defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime. A) goal B) mission C) objective D) vision

43) ______

44) Missions are often written down in the form of A) corporate objectives. C) organizational goals.

44) ______ B) mission statements. D) vision statements.

45) Firms whose mission is central to all they do are known as ________ firms. A) parity B) visionary C) legendary

45) ______ D) missionary

46) From 1926 to 1995, visionary firms earned ________ returns compared to firms that were not visionary firms. A) marginally lower B) substantially equivalent C) substantially lower D) substantially higher

46) ______

47) The mission statements of visionary firms

47) ______

A) suggest that profit maximizing is an important corporate objective and is their primary reason of existence. B) suggest that profit maximizing is their primary reason for existence. C) suggest that profit maximizing, while an important corporate objective, is not their primary reason for existence. D) suggest that profit maximizing is neither an important corporate objective nor their primary reason for existence. 48) Which of the following statements regarding firm mission is accurate? A) While some firms have used their missions to develop strategies that create significant competitive advantages, firm missions can hurt a firm's performance as well.

48) ______


B) It is very rare for firms to be able to use their missions to develop strategies that create significant competitive advantages, and most firm missions actually hurt their performance. C) Virtually all firms have used missions to develop strategies that create significant competitive advantages, while very few firms have used missions that can hurt their performance. D) Missions tend to have very little impact on a firm's ability to create significant competitive advantages. 49) ________ are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission. A) Objectives B) Visions C) Competitive Advantages D) Missions

49) ______

50) High quality objectives are those that are A) difficult to track over time. B) tightly connected to elements of a firm's mission. C) not quantitative. D) difficult to measure.

50) ______

51) By conducting a(n) ________, a firm identifies the critical threats and opportunities in its competitive environment. A) competitive analysis B) economic analysis C) external analysis D) internal analysis

51) ______

52) ________ helps a firm understand which of its resources and capabilities are likely to be sources of competitive advantage. A) Competitive analysis B) Internal analysis C) External analysis D) Comparative analysis

52) ______

53) Actions firms take to gain competitive advantages in a single market or industry are known as A) corporate level strategies. B) sustainable strategies. C) business level strategies. D) functional level strategies.

53) ______

54) Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as A) corporate level strategies. B) macro level strategies. C) business level strategies. D) functional strategies.

54) ______

55) ________ occurs when a firm adopts organizational policies and practices that are consistent with its strategy. A) Strategy formulation B) Strategic control C) Strategy implementation D) Organizational change

55) ______

56) When a firm is able to create more economic value than rival firms it is said to have a(n) A) strategic choice. B) comparative advantage. C) competitive advantage. D) economic advantage.

56) ______

57) The difference between the perceived benefits gained by a customer that purchases a firm's products or services and the full economic costs of these products or services is known as A) comparative value. B) accounting value. C) economic value. D) sustainable value.

57) ______


58) If TechnoGeek and VarsityBlue compete in the same market for the same customer and TechnoGeek generates $900 of economic value each time it sells a product or service while VarsityBlue generates $400 of economic value each time it sells a product or service, TechnoGeek has a competitive advantage of A) $360,000. B) $3,600. C) $500. D) $1,300.

58) ______

59) A competitive advantage that lasts a very short period of time is known as a ________ competitive advantage. A) transient B) sustained C) temporary D) perpetual

59) ______

60) Firms that create the same economic value as their rivals experience competitive A) superiority. B) parity. C) advantage. D) disadvantage.

60) ______

61) Firms that generate less economic value than their rivals experience a competitive A) disadvantage. B) advantage. C) parity. D) preference.

61) ______

62) In many ways, the difference between traditional economics research and strategic management research is that the former attempts to explain why ________, while the latter attempts to explain ________ A) competitive parity should not persist; why they should. B) competitive advantages should persist; when they can. C) competitive advantages should persist; why they should not. D) competitive advantages should not persist; when they can.

62) ______

63) The two types of measures of competitive advantage include A) accounting measures and strategic measures. B) qualitative measures and quantitative measures. C) accounting measures and economic measures. D) strategic measures and economic measures.

63) ______

64) A firm's ________ is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheet statements. A) sustainable performance B) strategic performance C) accounting performance D) economic performance

64) ______

65) ________ are ratios with some measure of profit in the numerator and some measure of firms' size or assets in the denominator. A) Profitability ratios B) Liquidity ratios C) Activity ratios D) Leverage ratios

65) ______

66) Ratios that focus on the level of a firm's financial flexibility, including its ability to obtain more debt, are known as A) activity ratios. B) leverage ratios. C) liquidity ratios. D) profitability ratios.

66) ______

67) Using ratio analysis, a firm earns ________ when its performance is greater than the industry average. A) above average accounting performance B) below average economic performance C) above average economic performance D) below average accounting performance

67) ______

68) The ________ is the rate of return that a firm promises to pay its suppliers of capital to induce

the m to


invest in the firm.

___ ___ A) cost of debt C) cost of capital

B) cost of parity D) cost of advantage

69) ________ measures of competitive advantage compare a firm's level of return to its cost of capital instead of to the average level of return in the industry. A) Sustainable B) Strategic C) Accounting D) Economic

69) ______

70) The percentage of a firm's total capital that is debt times the cost of debt plus the percentage of a firm's total capital that is equity times the cost of equity is the A) weighted average cost of capital. B) unweighted average cost of capital. C) weighted cost of capital. D) average cost of capital.

70) ______

71) If the risk free rate of return is 4%, the market rate of return is 9%, and a firm's beta is 2.0, what is the firm's cost of equity? A) 6 B) 14 C) 18 D) 30

71) ______

72) If a firm has total assets of $10 million, stockholder's equity of $6 million, a cost of equity of 10, and an after tax cost of debt of 5%, what is the firm's Weighted Average Cost of Capital? A) 7 B) 8 C) 1 D) 18

72) ______

73) A firm that earns its cost of capital is said to be earning A) above normal economic performance. B) normal accounting performance. C) below normal economic performance. D) normal economic performance.

73) ______

74) The view that equity holders only receive payment on their investment in a firm after all legitimate claims by a firm's other stakeholders are satisfied is known as the ________ view of equity holders. A) legitimate claimants B) residual claimants C) extraordinary claims D) stakeholder

74) ______

75) Theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented are known as A) ad hoc strategies. B) objective strategies. C) emergent strategies. D) planned strategies.

75) ______

76) The realized strategy of most firms tends to be A) a combination of both intended and emergent strategies. B) almost exclusively a reflection of their emergent strategy. C) almost exclusively a reflection of their intended strategy. D) reflective of neither the firms intended nor emergent strategy.

76) ______

77) Which of the following is a reason why it is important for students to study strategy and the strategic management process?

77) ______

A) While strategic choices are generally limited to very experienced senior managers in large organizations, in smaller and entrepreneurial firms many employees end up being involved in the strategic management process. B) It can be very important to a new hire's career success to understand the strategies of the firm that hired them and their place in implementing these strategies. C) Studying strategy and the strategic management process can give students tools to evaluate the strategies of firms that may employ them.


D) All of the above. 78) _____ strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented. A) Intended B) Realized C) Visionary. D) Emergent.

78) ______

79) Which type of ratios focus on the ability of a firm to meet its short-term financial obligations? A) leverage ratios B) activity ratios C) profitability ratios D) liquidity ratios

79) ______

80) One of the first scholars to examine the longevity of competitive advantage was A) Peter Roberts. B) Rich Houston. C) Geoffrey Waring. D) Dennis Mueller.

80) ______

81) Thermacorp is in the heating and cooling industry and has total assets of $20 million, with stockholders' equity of $15 million, an ROE of 17.3%, and a firm Beta of 1.6. If the risk free rate of return is 4 and the market rate of return is 10, what is the cost of equity? A) 19.6 B) 25.28 C) 13.6 D) 7.75

81) ______

82) Thermacorp's cost of equity is 13.6. If the after tax cost of debt is 4.6, what is the weighted average cost of capital? A) 11.35 B) 15.85 C) 11.2 D) 13.2

82) ______

83) Thermacorp's weighted average cost of capital is 11.35. If the average WACC in the heating and cooling industry is 19, Thermacorp can be said to be earning A) below normal economic performance. B) below normal accounting performance. C) above normal accounting performance. D) above normal economic performance.

83) ______

84) Thermacorp's 17.3% ROE is an example of a(n) ________ ratio. A) profitability B) liquidity C) leverage

84) ______ D) activity

85) If the average ROE in the heating and cooling industry is 10.1%, and Thermacorp's ROE is 17.3%, Thermacorp is said to have A) below average economic performance. B) above average economic performance. C) below average accounting performance. D) above average accounting performance.

85) ______

86) Green Frog is an environmentally friendly firm in the cosmetics industry that has decided to undertake a strategic planning project. They want to ensure that they perform the process correctly and so intend to start the process with the first step of the strategic planning process which is A) measuring performance. B) setting objectives. C) defining their business level strategy. D) crafting a mission statement.

86) ______

87) Green Frog is an environmentally friendly firm in the cosmetics industry. Even though Green Frog is environmentally friendly, the strategic planning team had decided that financial performance is one of the company's top priorities. Which of the following is the best example

87) ______

of an objective the company might use to help them achieve their goal of superior financial performance? A) Increasing profitability. B) Growth in earnings per share averaging 15% or better annually for the next five years. C) Improving product quality every quarter. D) Growing market share annually.


88) Green Frog is an environmentally friendly firm in the cosmetics industry. If during the strategic planning process Green Frog tried to determine the critical threats and opportunities in its competitive environment, it would be performing a(n) A) internal analysis. B) external analysis. C) economic analysis. D) WACC analysis.

88) ______

89) Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog undertook an analysis to help it understand which of its resources and capabilities are likely to be sources of competitive advantage and which are less likely to sources of such advantages they would be performing a(n) A) economic analysis. B) internal analysis. C) WACC analysis. D) external analysis.

89) ______

90) Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog were considering expanding beyond the cosmetics industry into pharmaceuticals in order to gain competitive advantages by operating in multiple markets and industries, this would be an example of which type of strategy? A) Business level strategy B) Functional level strategy C) Corporate level strategy D) Marketing strategy

90) ______

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 91) Define the term "strategy," discuss the set of assumptions and hypotheses that a strategy is based on and discuss what makes a good strategy. 92) Define the term "mission" and discuss how a firm's mission can both positively and negatively impact a firm's performance. 93) What are objectives, what role do they play in the strategic management process and what differentiates high quality objectives from low quality objectives. 94) Differentiate between business level and corporate level strategies and give examples of each. 95) Define strategy implementation and discuss three specific organizational policies and practices that are particularly important in implementing a strategy. 96) Discuss the nature of a sustainable competitive advantage. In your answer, identify when a firm has a competitive advantage, define the term "economic value" and distinguish between a temporary competitive advantage and a sustainable competitive advantage. 97) Identify two approaches to estimating a firm's competitive advantages and discuss the strengths and weaknesses of each. 98) Describe the difference between emergent and intended strategies. Why might firms employ an emergent strategy? 99) Why is it important to understand a firm's strategy, even if you are not a senior manager in a firm? 100) What is the residual claimants view of equity holders?


TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 102) In general, technological change creates opportunities, but not threats.

102) _____

103) The aging of the "baby boomer" generation in American society is an example of a demographic trend.

103) _____

104) Culture is the values, beliefs and norms that guide a behavior in a society, and culture is largely the same across the world.

104) _____

105) A severe recession that lasts for several years is known as a depression.

105) _____

106) In the structure-conduct-performance model, the term structure refers to industry structure, measured by such factors as the number of competitors in an industry.

106) _____

107) In the structure-conduct-performance model, the term performance refers solely to the performance of individual firms.

107) _____

108) In a perfectly competitive industry, there are large numbers of firms operating in the industry whose products and services are similar to each other, and it is not very costly for firms to enter into or exit these markets.

108) _____

109) The S-C-P model assumes that any competitive advantages a firm has in an industry must benefit society.

109) _____

110) According to the S-C-P model, attributes of the industry structure within which a firm operates define the range of options and constraints facing a firm.

110) _____

111) The five forces framework is based on the S-C-P model and identifies the five most common threats facing firms from their local competitive environment and the conditions under which these threats are more or less likely to be present.

111) _____

112) Within the five forces framework, when all five threats are very high competition in the industry begins to approach a monopoly.

112) _____

113) Monopolistically competitive industries consist of only a single firm.

113) _____

114) To a firm seeking competitive advantage, an environmental threat is any individual, group, or organization outside a firm that seeks to reduce the level of that firm's performance.

114) _____

115) The threat of entry in an industry depends on the cost of entry, and the cost of entry, in turn, depends upon the existence and "height" of barriers to entry.

115) _____

116) Diseconomies of scale exist in an industry when a firm's costs fall as a function of that firm's volume of production.

116) _____


117) Brand identification and customer loyalty serve as entry barriers because new entrants not only have to absorb the standard costs associated with starting production in a new industry, but also have to absorb the costs associated with overcoming incumbent firm's differentiation advantages.

117) _____

118) Proprietary technology is more important as a barrier to entry than is managerial know how.

118) _____

119) Learning-curve cost advantages are present when the cost of production falls with the cumulative volume of production.

119) _____

120) The threat of rivalry tends to be high in an industry when firms are able to meaningfully differentiate their products.

120) _____

121) In an industry, the products or services provided by a firm's rivals meet approximately the same customer needs in the same way as the products or services provided by the firm itself, but substitutes meet approximately the same customer needs but do so in different ways.

121) _____

122) A firm's suppliers pose a greater threat if the supplier's industry has a large number of firms, none of which dominate the supplying industry, than if the supplier's industry is dominated by a small number of firms.

122) _____

123) Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes.

123) _____

124) The threat of buyers is greater if the products or services that are being sold to buyers are standard and not differentiated than if the products sold to buyers are highly differentiated.

124) _____

125) If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage firm were to open its own diamond brokerage firm, this would be an example of forward vertical integration.

125) _____

126) In general, it is rarely the case that all five forces in the five forces framework will be equally threatening at the same time.

126) _____

127) Sophisticated software can enhance the value that customers receive from a personal computer. Therefore, software can be said to be a complementor of a personal computer.

127) _____

128) According to Bradenburger and Nalebluff, a firm's competitors help increase the size of a firm's markets while complementors divide this market among a set of firms.

128) _____

129) It is possible for a single firm to be a complementor of one firm and a competitor of another.

129) _____

130) An emerging industry is an industry in which a large number of small or medium-sized firms operate and no small set of firms has a dominant market share or creates dominant technologies.

130) _____

131) The major opportunity facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industry into a smaller number of firms.

131) _____

132) First movers that invest only in technology usually obtain sustained competitive advantages, even if they do not tie up strategically valuable resources in an industry before their full value is widely-understood.

132) _____


133) If you were to purchase a new Apple iPod, and were unable to use your previously downloaded library of digital music with your new iPod, this would be an example of a customer-switching cost you would incur to use Apple's product.

133) _____

134) Mature industries are characterized by elements such as slowing growth in total industry demand, a slowdown in increases in product capacity, and an overall increase in the profitability of firms in the industry.

134) _____

135) Product innovation is an effort to refine and improve a firm's current processes.

135) _____

136) A fragmented industry is an industry that has experienced an absolute decline in unit sales over a sustained period of time..

136) _____

137) A firm following a niche strategy in a declining industry reduces its scope of operations and focuses on narrow segments of the declining industry.

137) _____

138) Firms pursuing a harvest strategy in a declining industry do not expect to remain in the industry over the long term.

138) _____

139) The objective of divestment is to extract a firm from a declining industry..

139) _____

140) All divestments are caused by industry decline.

140) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 141) The ________ consists of broad trends in the context in which a firm operates that can have an impact on a firm's strategic choices. A) task environment B) micro-environment C) general environment D) internal environment

141) _____

142) All of the following are elements of the general environment except A) technological trends. B) industrial trends. C) demographic trends. D) cultural trends.

142) _____

143) ________ is/are the distribution of individuals in a society in terms of age, sex, marital status, income, ethnicity, and other personal attributes that may determine buying patterns. A) Technological trends B) Demographics C) Culture D) Economics

143) _____

144) The values, beliefs and norms that guide behavior in society are known as A) culture. B) economics. C) climate.

144) _____ D) demographics.

145) When activity in an economy is relatively low for a short period of time, the economy is said to be in a A) depression. B) boom. C) prosperous cycle. D) recession.

145) _____

146) Civil wars, political coups, terrorism, wars between countries, famines, and country or regional economic recessions are all examples of which element of the general environment? A) Culture B) Specific international events C) Economics D) Demographics

146) _____

147) In the S-C-P model, ________ refers to the strategies that firms in an industry implement.

147) _____


A) performance

B) structure

C) conduct

D) strategy

148) In a perfectly competitive industry

A) B) C) D)

148) _____

there are relatively few firms operating in the industry. the products and services sold by firms in the industry are very different from each other. it is not very costly for firms to exit the industry. it is very costly for firms to enter the industry.

149) Within the five forces framework, the five most common threats facing firms from their competitive environment include each of the following except A) substitutes. B) buyers. C) complementors. D) suppliers.

149) _____

150) Firms in industries characterized by ________ can expect to earn only competitive parity. A) monopoly B) monopolistic competition C) oligopoly D) perfect competition

150) _____

151) Which type of competition is characterized by a large number of firms, heterogeneous products and low cost of entry and exit? A) Oligopoly B) Monopoly C) Perfect competition D) Monopolistic competition

151) _____

152) Which type of competition is characterized by a small number of firms, homogeneous products and costly entry and exit? A) Monopoly B) Oligopoly C) Monopolistic competition D) Perfect competition

152) _____

153) A(n) ________ is any individual, group, or organization outside a firm that seeks to reduce the level of that firm's performance. A) competitive advantage B) environmental opportunity C) environmental equalizer D) environmental threat

153) _____

154) Firms that have either recently begun operations in an industry or that threaten to being operations in an industry soon are considered to be ________ in the five forces framework. A) barriers to entry B) buyers C) new entrants D) suppliers

154) _____

155) ________ exist when a firm's cost rise as a function of that firm's volume of production. A) Diseconomies of scale B) Learning cure effects C) Economies of scale D) Economies of scope

155) _____

156) All other things being equal, under which of the following would lead to lower barriers to entry in an industry? A) Products are highly differentiated in the industry. B) The existence of economies of scale in the industry. C) Raw materials are widely and readily available at a competitive price. D) Industry incumbents have learning-curve cost advantages.

156) _____

157) Frequent price cutting by firms in an industry, frequent introduction of new products by firms in an industry and intense advertising campaigns are indications of A) high threat of entry. B) high power of buyers. C) high threat of substitutes. D) high levels of rivalry.

157) _____


158) Rivalry tends to be high when A) when production capacity can be added in small increments. B) there are few firms in an industry and these firms tend to be unequal in size. C) firms are unable to differentiate their products. D) the industry growth rate is higher.

158) _____

159) The products or services provided by a firm's rivals meet ________ customer needs in ________ ways as the product provided by the firm itself. A) approximately the same; different B) approximately the same; the same C) different; different D) different; the same

159) _____

160) The products or services provided by a firm's substitutes meet ________ customer needs in ________ ways as the product provided by the firm itself. A) different; different B) different; the same C) approximately the same; the same D) approximately the same; different

160) _____

161) Which of the following statements regarding substitutes is accurate? A) In the extreme, substitutes can ultimately replace an industry's products or services.

161) _____

B) The importance of substitutes in reducing the profit potential in a wide variety of industries is decreasing. C) Substitutes place a floor on the prices firms in an industry can charge and on the profits firms in an industry can earn. D) Substitutes rarely impact the profitability that firm firms in an industry can earn. 162) ________ make a wide variety of raw materials, labor and other critical assets available to firms. A) Rivals B) Suppliers C) Buyers D) Substitutes

162) _____

163) Which if the following attributes makes suppliers a stronger threat? A) The supplier's industry is dominated by a small number of firms. B) When supplies are not able to enter into and begin competing in a firm's industry. C) When suppliers are threatened by substitutes. D) When the product or service provided by suppliers is not highly differentiated.

163) _____

164) Which of the following is the best example of forward vertical integration? A) A car company opening its own chain of video rental stores. B) A car company opening its own dealerships to sell its products directly to customers. C) A car company opening a plant to product motorcycles. D) A car dealership opening up its own automobile manufacturing plant.

164) _____

165) Buyers tend to have less power when A) the products or services being sold to buyers are standard and not differentiated. B) a firm has only one buyer, or a small number of buyers. C) they are not earning significant economic profits. D) the supplies they purchase are an insignificant portion of the costs of their final products.

165) _____

166) Overall, the average level of performance in an industry is likely to be highest when

166) _____

A) the threat level of rivalry, substitutes and new entrants is high, but the threat level of buyers and supplies is low. B) the threat level of all five forces is low. C) the threat level of all five forces is high. D) the threat level of rivalry, and substitutes is low, but the threat level of suppliers, buyers


and new

entrants is high.

167) If your customers value your products more when they have your product and another firm's product rather than when they have your product alone, the other firm is considered to be a A) rival. B) substitute. C) competitor. D) complementor.

167) _____

168) An industry in which a large number of small or medium-sized firms operate and no small set of firms has dominant market share or creates dominant technologies is known as a(n) ________ industry. A) fragmented B) mature C) consolidated D) emerging

168) _____

169) The major opportunity facing firms in fragmented industries is A) refining their current products and emphasizing an increase in service quality.

169) _____

B) the implementation of strategies that began to consolidate the industry into a smaller number of firms. C) developing new products and technologies. D) creating a first mover advantage through technological leadership. 170) ________ industries are newly created, or newly recreated industries formed by technological innovations, changes in demand, or the emergence of new customer needs. A) Mature B) Fragmented C) Declining D) Emerging

170) _____

171) The advantages that come to firms that make important strategic and technological decisions early in the development of an industry are known as ________ advantages. A) first-comer B) early-entrant C) first-mover D) competitive

171) _____

172) In general, first-mover advantages can arise from any of these sources except A) preemption of strategically valuable assets. B) technological leadership. C) using an imitative strategy to introduce improved versions of competitors new products. D) the creation of customer switching costs.

172) _____

173) Mature industries are characterized by A) a decrease in the amount of international competition. B) an increase in total industry demand. C) a slowdown in the introduction of new products or services. D) faster increases in production capacity.

173) _____

174) The most promising opportunity for a firm in a declining industry is to A) establish itself as a first mover in the post-shakeout industry. B) become a fast follower in the pre-shakeout industry. C) merge with another firm. D) become a market leader in the pre-shakeout industry.

174) _____

175) Firms that engage in a long, systematic phased withdrawal from an industry, extracting as much value as possible during the withdrawal period are following a(n) ________ strategy. A) niche B) expansion C) harvest D) divestment

175) _____

176) Industries in which a large number of small or medium-sized firms operate and no small set of firms has dominant market share or creates dominant technologies are called ________ industries. A) declining B) emerging C) fragmented D) mature

176) _____


177) ________ are advantages that come to firms that make important strategic and technological decisions early in the development of an industry. A) First-mover advantages B) Visionary advantages C) Comparative advantages D) Missionary advantages

177) _____

178) Consolidation strategy is a good option in what type of industry?. A) Emerging B) Mature C) Declining

178) _____ D) Fragmented

179) ________ valuable assets are resources required to successfully compete in an industry.. A) Strategically B) Domestically C) Pedestrian D) Globally

179) _____

180) _______ costs exist when customers make investments in order to use a firm's particular products or services. A) Competitive-switching B) Strategic-switching C) Customer-switching D) Resource-switching

180) _____

Hickory Divine is one of the leading manufacturers in the hardwood furniture industry. Hickory Divine has many small competitors, none of which controls a significant portion of the industry. Hickory, like most of the furniture manufacturers, sells its products to a broad variety of small furniture stores throughout the country, none of which represents a large percentage of Hickory's sales. When purchasing the products it uses for manufacturing its furniture, Hickory is able to choose from many suppliers since the wood it uses is an undifferentiated commodity, and Hickory is able to easily switch to any supplier that has the best price and delivery times. While growth in the hardwood furniture industry has historically been in the double digits, the industry growth rate has slowed considerably into the single digits, to approximately 5% in recent years; consumers have been purchasing less expensive furniture made of composite wood that is considerably less expensive than hardwood furniture, but that looks and functions very similarly once it is painted.

181) Based on the above description, the hardwood furniture industry can best be described as a(n) ________ industry. A) consolidated B) declining C) fragmented D) emerging

181) _____

182) The threat of rivalry in the hardwood furniture industry can best be described as

182) _____

A) low because of the slowing growth rate and the competition from composite wood furniture. B) high because of the numerous firms in the industry and the slowing growth rate C) moderate because the slowing growth rate offsets the numerous firms in the industry. D) low because of the numerous firms in the industry and the slowing growth rate. 183) The threat of suppliers in the hardwood furniture can best be described as A) low because there are a large number of suppliers selling an undifferentiated product.

183) _____

B) moderate because of the slowing growth rate in the industry and the commodity nature of the products produced by suppliers. C) moderate because the large number of suppliers is offset by the undifferentiated products they are selling. D) high because there are a large number of suppliers selling an undifferentiated product. 184) If Hickory Divine were to open its own chain of furniture stores, this would be an example of A) consolidation. B) complementors. C) backward vertical integration. D) forward vertical integration.

184) _____

185) In this example, composite wood furniture would be an example of A) substitutes. B) new entrants. C) rivals. D) complementors.

185) _____


186) The threat of buyers in this industry is best described as

186) _____

A) high because there are many suppliers, none of which represents a significant portion of the hardwood furniture industry's sales. B) low because there are many suppliers, none of which represents a significant portion of the hardwood furniture industry's sales. C) high because of the slow industry growth and the commodity nature of the suppliers. D) low because of the slow industry growth and the commodity nature of the suppliers. BidBuy is the world's leading online auction company. When BidBuy was founded ten years ago it was the first online auction company and it has been the leader since it was founded. Although there are other firms in the industry, BidBuy controls over 75% of the market in the United States, and three additional firms control another 20% of the U.S. market. One of the aspects of BidBuy that keeps users from changing to other online auction companies is the large user base BidBuy has built and a feedback rating system that allows buyers and sellers to rate their satisfaction with each other following each transaction. This allows users to build a reputation for honesty and trustworthiness. Sellers with a high feedback rating tend to receive more bids on their auctions and a higher price for their goods. To help facilitate payment transfers between buyers and sellers following successful online auctions, companies such as DollarDog have been founded and these companies have facilitated growth for BidBuy. Having attained a 75% market share in the U.S., BidBuy has begun expanding internationally opening its own sites in some countries and purchasing incumbents in others. In its international expansion BidBuy has allowed its individual companies to customize their offerings according to the needs and desires of the countries in which they operate and when these companies are successful, BidBuy works to transfer these successful capabilities throughout the firm. 187) Which of the following best describes the competition in the U.S. online auction industry? 187) _____ A) Monopolistic competition B) Perfect competition C) Monopoly D) Oligopoly 188) For BidBuy, services such as those offered by DollarDog that make BidBuy's services more valuable for customers who use the services of both companies are best described as A) complementors. B) suppliers. C) rivals. D) substitutes.

188) _____

189) Factors such as BidBuy's feedback rating that are valuable to the company's customers but which are not useful on other online auction sites are examples of A) customer-switching costs. B) complementors. C) substitutes. D) first mover advantages.

189) _____

190) BidBuy has a ________ advantage. A) comparative B) visionary

190) _____ C) first-mover

D) global

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 191) Identify the six inter-related elements that comprise a firm's general environment. 192) Identify and define the three elements of the S-C-P model. 193) Identify the five most common threats facing firms from their local competitive environment that are represented in the five forces framework, and discuss under what conditions firms in a specific industry are most likely to earn an above average profit and when they are to likely to earn a below average profit. 194) Identify the four types of competition, the attributes of each type and the expected performance under each. 195) Discuss the difference between a company's rivals and its substitutes and discuss the role substitutes play in an industry.


196) Describe the difference between a competitor and a complementor and identify the role complementors play in an industry. 197) Identify the four generic industry structures and the specific strategic opportunities in each of these industries. 198) Identify and clearly distinguish between the four strategic options available to firms in a declining industry. 199) What are customer-switching costs? 200) What is a harvest strategy?


ANSWER KEY 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33) 34) 35) 36) 37) 38) 39) 40) 41) 42) 43) 44) 45) 46) 47) 48) 49) 50) 51)

TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE FALSE FALSE TRUE TRUE FALSE TRUE FALSE FALSE TRUE TRUE FALSE FALSE TRUE TRUE FALSE FALSE TRUE FALSE TRUE FALSE TRUE FALSE FALSE FALSE TRUE FALSE FALSE TRUE TRUE FALSE B A B B B D C A A B C


52) 53) 54) 55) 56) 57) 58) 59) 60) 61) 62) 63) 64) 65) 66) 67) 68) 69) 70) 71) 72) 73) 74) 75) 76) 77) 78) 79) 80) 81) 82) 83) 84) 85) 86) 87) 88) 89) 90)

B C A C C C C C B A D C C A B A C D A B B D B C A D D D D C A A A D D B B B C

91) A firm's strategy is defined as its theory about how to gain competitive advantages. This theory is based on a set of assumptions and hypotheses about how competition in this industry is likely to evolve, and how that evolution can be exploited to earn a profit. To the extent that these assumptions and hypotheses accurately describe how competition in this industry actually evolves, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. Thus, a "good strategy" is a strategy that actually generates such advantages. 92) A firm's mission is its long-term purpose and it defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime. If a mission statement does not influence firm behavior, it is unlikely to have an impact on a firm's actions. However, visionary firms, or firms whose mission is central to all they do, tend to earn substantially higher returns than average over the long-run even though their mission statements suggest that profit maximization is not their primary reason for existence. However, missions that are inwardly focused and defined only with reference to the personal values and priorities of its founders or top managers, independent of whether or not those values and priorities are consistent with the economic realities facing a firm are not likely to be a source of competitive advantage.


93) Objectives are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission. High quality objectives are tightly connected to elements of a firm's mission and are relatively easy to measure and track over time. Low quality objectives either do not exist or are not connected to elements of a firm's mission, are not quantitative, are difficult to measure or difficult to track over time. 94) Business level strategies are actions firms take to gain competitive advantages in a single market or industry. The two most common business level strategies are cost leadership, such as Wal-Mart, and product differentiation, such as Macy's. Corporate level strategies are actions firms take to gain competitive advantages in multiple markets or industries simultaneously. Common corporate level strategies include vertical integration strategies, diversification strategies, strategic alliances strategies and merger and acquisition strategies. 95) Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy. Three specific organizational policies and practices are particularly important in implementing a strategy: a firm's formal organizational structure, its formal and informal management control systems, and employee compensation policies. 96) In general, a firm has a competitive advantage when it is able to generate more economic value than rival firms. Economic value is simply the difference between the perceived benefits gained by a customer that purchases a firm's products or services and the full economic cost of these products and services. A temporary competitive advantage is a competitive advantage that lasts a very short period of time while a sustained competitive advantage lasts much longer. 97) The two general approaches to estimating a firm's competitive advantage are measuring accounting performance and measuring economic performance. A firm's accounting performance is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheets and a firm's accounting performance is determined by comparing a firm's accounting ratios with other firms in the industry. The greatest measure of accounting measures of competitive advantage is that they are relatively easy to compute. The most significant drawback to accounting measures is that they do not consider a firm's cost of capital. Additionally, accounting measures can be difficult to compare across countries. Economic measures of competitive advantage compare a firm's level of return to its cost of capital instead of to the average level of return in the industry. The primary benefit of economic measures is that if a firm earns at least its cost of capital, it is satisfying two of its important stakeholders debt holders and equity holders. Disadvantages of economic measures include that it can be difficult to calculate a firm's cost of capital, especially for privately held firms, and economic measures may overstate the importance of debt and equity holders. 98) Intended strategies can best be described as a firm's theories of how to gain a competitive advantage that are developed as a result of the strategic management process. Intended strategies are developed when firms choose and implement their strategies exactly as described by the strategic management process. Alternately, emergent strategies are theories of how to gain a competitive advantage in an industry that emerge over time or that have been radically reshaped once they are implemented. Firms employ emergent strategies since some of the information needed to complete the strategic management process may not be available when firms are developing their intended strategies. 99) First, studying strategy and the strategic management process can give individuals the tools they need to evaluate the strategies of the firms that may hire them. Second, once an individual is working for a firm, understanding that firm's strategy, and their place in it, can be very important to their personal success since the expectations of how they perform their function will be impacted by the firm's strategy. Finally, while strategic choices are generally limited to very experienced managers in large organizations, in smaller and entrepreneurial firms, many employees end up being involved in the strategic management process. 100) The residual claimants view is that equity holders only receive payment on their investment in a firm after all legitimate claims by a firm's other stakeholders are satisfied. This view then, posits that maximizing returns to its equity holders, a firm is ensuring that its other stakeholders are fully compensated for investing in a firm. 101) TRUE 102) FALSE 103) TRUE 104) FALSE 105) TRUE 106) TRUE


107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117) 118) 119) 120) 121) 122) 123) 124) 125) 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157) 158)

FALSE TRUE FALSE TRUE TRUE FALSE FALSE TRUE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE FALSE TRUE FALSE TRUE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE FALSE FALSE TRUE TRUE TRUE FALSE C B B A D B C C C D D B D C A C D C


159) 160) 161) 162) 163) 164) 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 191)

B D A B A B D B D A B D C C C D D C A D A C C B A D A B D A A C The six inter-related elements of a firm's general environment include technological change, demographic trends, cultural trends, the economic climate, legal and political conditions and specific international events. 192) The three elements of the S-C-P model are structure which in this model refers to industry structure, measured by such factors as the number of competitors in an industry, the heterogeneity of products in an industry, and the cost of entry and exit in an industry, conduct, which refers to the strategies that firms in an industry implement and performance, which includes both the performance of individual firms and the performance of the economy as a whole. 193) The five threats that constitute the five forces framework include the threat of entry, the threat of rivalry, the threat of substitutes, the threat of suppliers, and the threat of buyers. When all five threats are low, competition begins to approach what economists call a monopoly, and firms are able to earn above average profits. Alternately when all give forces are very high, competition begins to approach perfect competition and the best firms can hope to earn is competitive parity. 194) The four types of competition include perfect competition, monopolistic competition, oligopoly and monopoly. Perfect competition is characterized by a large number of firms, homogeneous products, low cost entry and exit and firms in these industries can expect to earn only competitive parity. Monopolistic competition is characterized by a large number of firms, heterogeneous products, low cost entry and exit and firms in such industries can earn a competitive advantage. Oligopoly is characterized by a small number of firms, homogeneous products, and costly entry and exit, firms in such industries can earn a competitive advantage. Finally, monopoly is characterized by one firm and costly entry. Firms in such industries can earn a competitive advantage. 195) The products or services provided by a firm's rivals meet approximately the same customers needs in the same


ways products or services provided by the firm itself, while substitutes meet approximately the same customers needs as but do so in different ways. Substitutes place a ceiling on the prices firms in an industry can charge and on the the profits firms in an industry can earn. 196) A firm is a competitor if your customers value your product less when they have this other firm's product than when they have your product alone. On the other hand, another firm is a complementor if your customers value your products more when they have this other firm's product than when they have your product alone. It is possible for a firm to be a complementor for some firms and competitors for others and it is also possible for a single firm to be both a competitor and a complementor, especially in industries where it is important to create technological standards. 197) The four generic industry structures are fragmented industries, emerging industries, mature industries, and declining industries. Fragmented industries are industries in which a large number of small or medium-sized firms operate and no small set of firms has dominant market share or creates dominant technologies. The major opportunity facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industry into smaller firms. Emerging industries are newly created, or newly recreated industries formed by technological innovations, changes in demand, and the emergence of new customer needs. The opportunities that face firms in emerging industries fall into the general category of first-mover advantages or making important strategic and technological decisions early in the development of an industry. Industries begin to enter the mature stage when the rate of innovation in new products and technologies drops. Opportunities for firms in mature industries focus on a greater emphasis on refining a firm's current products, and emphasis on increasing the quality of service and a focus on reducing manufacturing costs and increased quality through process innovations. A declining industry is an industry that has experienced an absolute decline in unit sales over a sustained period of time. The major strategic options that face firms in this kind of industry are leadership, niche, harvest and divestment. 198) The four major strategic options available to firms in a declining industry are leadership, niche, harvest and divestment. One strategy is for a firm to position itself to become a market leader in the pre-shakeout industry by becoming the firm with the largest market share in that industry. The purpose of becoming the marker leader is to facilitate the exit of firms that are not likely to survive a shakeout. A firm following a niche strategy in a declining industry reduces its scope of operations and focuses on narrow segments of the declining industry. Firms pursuing a harvest strategy engage in a long, systematic, phased withdrawal, extracting as much value as possible during the withdrawal period. Finally, firms pursuing divestment extract a firm from the declining industry, but do so soon after a pattern of decline is established in an industry. 199) Customer-switching costs exist when customers make investments in order to use a firm's particular products or services. These investments tie customers to a particular firm and make it more difficult for customers to begin purchasing from other firms. 200) In a harvest strategy, which is usually employed in a declining industry, the firm engages in a long, systematic withdrawal, extracting as much value as possible during the withdrawal period. This can work if there is some value to harvest.

Test bank for strategic management and competitive advantage 3rd edition by barney and hesterly  

Product details Language: English ISBN-10: 0136094589 ISBN-13: 978-0136094586 9780136094586...

Test bank for strategic management and competitive advantage 3rd edition by barney and hesterly  

Product details Language: English ISBN-10: 0136094589 ISBN-13: 978-0136094586 9780136094586...

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