Technology Strategy for Managers and Entrepreneurs Scott A Shane Test Bank

Type:

Test Bank

Resource:

Technology Strategy for Managers and Entrepreneurs

Edition:

1st Edition

Author(s):

Scott A. Shane

CHAPTER 1 INTRODUCTION TRUE/FALSE QUESTIONS 1.

The reduction of costs and the improvement in quality of products made in lower wage countries have led to enhanced markets for firms in developed countries (False; Medium; p. 3; AACSB: Ethical understanding and reasoning ability; LO1)

2.

On average, product life cycles have been shortened because more companies are offering differentiated products.

(True; Medium; p. 3; AACSB: LO1)

3.

Microsoft’s Xbox 360 provides an excellent example of a company’s efforts to develop an innovative new product as part of its overall technology strategy.

(True; Medium; p. 2; AACSB: Reflective thinking skills; LO2)

4.

Technology can be effectively defined as the use of zeros and ones in digital form on computers.

(False; Medium; p. 4; LO1)

5.

Invention is the process of using knowledge to solve a problem.

(False; Medium; p. 5; LO1)

6.

Technological innovation is the use of knowledge to apply tools, materials, processes and techniques to come up with new solutions to problems.

(True; Medium; p. 6; LO2)

7.

Michael Dell’s approach to selling personal computers assembled from standard components direct to customers is an example of technology innovation.

(False; Medium; p. 6; AACSB: Reflective thinking skills; LO2)

8.

Technology innovation almost always comes from the knowledge of computer science.

(False; Medium; p. 6; AACSB: Reflective thinking skills; LO2)

9.

Economists have shown that much of the growth in gross domestic product comes from the use of technology to make more productive use of labor and capital.

(True; Medium; p. 7; AACSB: Reflective thinking skills; LO2)

10.

The impact from almost all technology innovation is positive.

(False; Medium; p. 7; AACSB: Reflective thinking skills; LO2)

11.

Process development is the anticipation and resolution of problems that arise in the production of a product (True; Medium; p. 8; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

1

12.

A technology strategy is the approach that a firm takes to obtain and use technology to achieve a new competitive advantage, or to defend an existing technology-oriented competitive advantage against erosion.

(True; Medium; p. 9; LO3)

13.

Technology strategy is different form overall business strategy in that business strategy involves the use of intellectual property management to capture financial returns to a much greater degree than technology.

(False; Medium; p. 9; LO4)

14.

Technology strategy is different form overall business strategy in that technology strategy has to deal much more with issues of uncertainty than general business strategy.

(True; Medium; p. 9; LO4)

15.

The study of technology innovation is largely centered in general strategy principles.

(False; Medium; p. 10; LO4)

16.

In the U.S., services now account for more than half the total gross domestic product.

(True; Medium; p. 11; LO5)

17.

Technology strategy is basically the same for both large established firms and small new companies.

(False; Medium; p. 11; LO5)

18.

Research and development intensity is much higher for small firms than for large ones.

(True; Medium; p. 12; AACSB: Reflective thinking skills; LO5)

19.

Developing an effective technology strategy includes making decisions about how to organize a company for innovation.

(True; Medium; p. 15; LO2)

MULTIPLE CHOICE 20.

Technology innovation has become a crucial part of most firms strategy because: a. technology innovation generates competitive advantage b. most firms produce only a few related products c. companies have been taking longer to introduce new products d. sales and profits from new products has been decreasing (a; Medium; p. 3 LO1)

21.

Which of the following would not be considered one of the reasons why companies have recently increased their level of technology innovation? a. to produce a greater variety of new products b. to introduce new products to market faster c. increase profit from established products d. generate competitive advantage (c; Medium; p. 3; LO1)

2

22.

Why are more companies in developed countries introducing new products at a faster pace and using technological innovation to reduce production costs? a. the licensing of technology to other companies has become an important revenue stream at many companies b. there has been significant growth in the formation of high technology startups c. more companies that once produced commodity products are now seeking to differentiate their offerings d. reduced costs and improved quality of products made in lower wage countries have posed a major challenge for firms in developing countries (d; Medium; p. 3; LO1)

23.

Why has the demand for individual entrepreneurs who create spin-off companies using technology developed at major corporations or universities been increasing? a. the leasing of technology to other companies has become an important revenue stream at many companies b. there has been significant growth in the formation of high technology startups c. more companies that once produced commodity products are now seeking to differentiate their offerings d. reduced costs and improved quality of products made in lower wage countries have posed a major challenge for firms in developed countries (b; Medium; p. 3; AACSB: Reflective thinking skills; LO1)

24.

When developing the Xbox 360, Microsoft faced all of the following strategic issues, except: a. the relationship between game and console makers b. the lack of significant economies of scale c. needs to develop the capabilities different from those needed in the software business d. development of a new supply chain (b; Medium; p. 2; AACSB: Reflective thinking skills; LO1)

25.

Which of the following strategic issues that Microsoft encountered when developing the Xbox 360 is best explained as benefiting from a reduction in cost per unit as production volume increases? a. economies of scale b. significant investment in research and development c. developing new supply channels d. managing contractual relationships with other companies (a; Medium; p. 2; LO1)

26.

Which of the following is an example of an important technology? a. information technology b. biologically-based technology c. mechanically-based technology d. all of the above are important (d; Medium; p. 4; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

3

27.

What is the best definition of mechanically-based technologies? a. the use of zeros and ones in digital form on computers b. technologies used to make pumps or valves c. technologies used to create new drugs or clean up pollution d. plan of action to achieve a particular goal (b; Medium; p. 4; LO2)

28.

What is the best definition of biologically-based technologies? a. the use of zeros and ones in digital form on computers b. technologies used to make pumps or valves c. technologies used to create new drugs or clean up pollution d. plan of action to achieve a particular goal (c; Medium; p. 4; LO2)

29.

What is the best definition of information-based technologies? a. the use of zeros and ones in digital form on computers b. technologies used to make pumps or valves c. technologies used to create new drugs or clean up pollution d. plan of action to achieve a particular goal (a; Medium; p. 4; LO2)

30.

The process of using knowledge to solve a problem is the best definition of: a. strategy b. technology c. innovation d. invention (c; Medium; p. 5; LO2)

31.

Discovery of a new idea is the best definition of: a. strategy b. technology c. innovation d. invention (d; Medium; p. 5; LO2)

32.

The use of knowledge to apply tools, materials, processes, and techniques to come up with new solutions is the best definition of: a. strategy b. technology innovation c. innovation d. invention (b; Medium; p. 6; LO2)

33.

Michael Dell’s approach to selling computers – selling personal computers assembled from standard components direct to customers – would most likely be considered: a. strategy b. technology innovation c. innovation d. invention (a; Medium; p. 6; AACSB: Reflective thinking skills; LO2)

4

34.

Alexander Fleming’s discovery of penicillin because a spore of mold, containing a sample of bacteria he was using, inhibited its growth is an example of: a. strategy b. technology innovation c. disruptive innovation d. process development (b; Medium; p. 6; AACSB: Reflective thinking skills; LO2)

35.

When Pfizer discovered Viagra as a solution to the problem of erectile dysfunction, they were testing drugs to treat angina. Pfizer’s discovery is an example of: a. strategy b. technology innovation c. disruptive innovation d. process development (b; Medium; p. 6; AACSB: Reflective thinking skills; LO2)

36.

Which of the following implications is important to understand how technology innovation relates to technology strategy? a. technology strategy does not have to be profitable b. there are many kinds of technology innovation c. there is not a direct one-to-one relationship between technology change and new products or processes d. all of the above are important to understand how technology innovation relates to technology strategy (d; Medium; p. 6; LO3)

37.

Which of the following best describes how there is not a direct, one-to-one, relationship between technology change and new products or processes? a.

ExxonMobil’s creation of speedpass b.

EZPass highway toll collection system c. inventory tracking systems in libraries d. all of the above are examples (d; Medium; p. 7; AACSB: Reflective thinking skills; LO2)

38.

Technology innovation is important because: a. it helps limit the creation of wealth for corporate shareholders b. it has a major impact on peoples’ lives c. it helps limit the creation of wealth for individual entrepreneurs d. all of the above are examples of why technology innovation is important (b; Medium; p. 7; AACSB: Reflective thinking skills; LO2)

39.

Increasing the life expectancy of humans through medical diagnostics and treatments is an example of which of the following benefits from technology innovation? a. technology innovation is an important source of value creation b. technology innovation has a tremendous economic impact c. technology innovation makes possible the formation and rapid growth of companies d. technology innovation has a major impact on lives of people (d; Medium; p. 7; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

5

40.

Economists demonstrating that much of the growth in gross domestic product comes from the use of technology to make more productive use of labor and capital provide an example of which benefit from technology innovation? a. technology innovation has a tremendous economic impact b. technology innovation makes possible the formation and rapid growth of companies c. technology innovation is an important source of value creation d. technology innovation has a major impact on lives of people (a; Medium; p. 7; AACSB: Reflective thinking skills; LO2)

41.

Which of the following reasons demonstrates why technology innovation is not always positive? a. social isolation b. increased time pressure c. inability to disconnect from work d. all of the above are examples of how technology innovation is not always positive (d; Medium; p. 7; LO2)

42.

Which of the following is an example of how technology innovation is not always positive? a. technology innovation has led to the formation and rapid growth of companies b. technology innovation allows for more efficient production of existing products and services c. technology innovation has created the need to constantly multi-task d. technology innovation has led to significant growth in gross domestic product (c; Medium; p. 7; LO2)

43.

T.J. Maxx and Marshalls attempt to gather customer information to enhance targeted marketing inadvertently leading to a loss of customer information to identify thieves and subsequently leading to the alienation of large numbers of customers is an example of which element of technology innovation? a. technology innovation can lead to adverse consequences b. technology innovation is an important source of value creation c. technology innovation has a tremendous economic impact d. technology innovation is an important source of wealth for individual entrepreneurs and corporate shareholders (a; Medium; p. 8; AACSB: Reflective thinking skills; LO2)

44.

Gillette’s development of the sensor razor is a good example of which statement? a. not all of the impact of technology innovation is positive b. process development is more important than product development as a source of competitive advantage c. technology innovation is an important source of value creation d. technology innovation has a profound effect on the creation of wealth for individual entrepreneurs and corporate shareholders (b; Medium; p. 8; AACSB: Reflective thinking skills; LO2)

6

45.

The anticipation and resolution of problems that arise in the production of a product is the best definition of: a. technology innovation b. process development c. innovation d. invention (b; Medium; p. 310; AACSB: Reflective thinking skills; LO1)

46.

The approach that a firm takes in obtaining and using technology to achieve a new competitive advantage is the best definition of: a. technology innovation b. technology strategy c. economy of scale d. invention (b; Medium; p. 9; LO1)

47.

How is technology strategy different from overall strategy? a. business strategy has to deal much more with issues of uncertainty than general technology strategy b. business strategy involves the use of intellectual property management to capture financial returns to a much greater degree than technology strategy c. technological change occurs in ways that influence the design of effective strategies, and create business dynamics that are different from those that exist when new technology is not important d. business strategy involves the creation of new products and services that are sometimes new to the world, which demand different mechanisms for assessing market needs and designing products than is the case with technology strategy (c; Medium; p. 9; LO3)

48.

How is technology strategy different from overall business strategy? a. organizations faced with a great deal of technical change need to organize, manage human resources, and design business models that are different from organizations that are not faced by technical change b. making decisions about technology projects requires the use of different decision making tools than is the case with non-technology projects c. technology change opens up opportunities for new high growth businesses in ways not possible in other settings d. all of the above demonstrate ways in which technology strategy is different from overall business strategy (d; Medium; p. 9; LO3)

49.

In order to become a successful technology strategist you need to: a. understand the sources of opportunity for technological innovation b. understand how to assess customer needs c. understand organizational form and structure d. all of the above need to be understood to become a successful technology strategist (d; Medium; p. 9; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

7

50.

Which of the following demonstrate the approach to technology strategy taken in the textbook? a. the book is inherently interdisciplinary b. the book discusses technology strategy in all types of businesses in all kinds of industries c. the book discusses technology strategy in service businesses as well as manufacturing businesses d. all of the above are approaches to technology strategy taken in the book (d; Medium; p. 10; LO4)

51.

Which of the following is true about technology innovation in service businesses? a. service businesses have less joint activity between companies and their customers b. goals are more difficult to measure in service organizations c. service businesses have outputs that can be maintained in inventory d. all of the above are true concerning technology innovation in service businesses (b; Medium; p. 10; LO5)

52.

In the U.S., what percentage of gross domestic product is attributable to service businesses? a.

87 percent b.

78 percent c.

68 percent d.

48 percent (c; Medium; p. 11; AACSB: Reflective thinking skills; LO6)

53.

What percent of total spending on research and development is accounted for in the public sector? a.

73 percent b.

62 percent c.

55 percent d.

30 percent (d; Medium; p. 11; LO6)

54.

What percentage of the private sector labor force in the U.S. in 2003 was funded by venture capitalist in 1970? a.

9.4 percent b.

15.5 percent c.

21.4 percent d.

40.5 percent (a; Medium; p. 11; LO6)

55.

Between 1970 and 2003, how many people were employed by start-up companies funded by venture capitalists? a.

5 percent b.

8 percent c.

11 percent d.

15 percent (c; Medium; p. 11; LO1)

8

56.

An effective technology strategy requires firms to capture all of the following except: a. the financial returns to the investment in research and development through effective decision making about the legal protection of intellectual property b. effective use of non-legal mechanisms to enhance imitation of other products c. use of a company’s capabilities to create competitive advantage d. understanding of the role of technical standards and increasing and decreasing returns (b; Medium; p. 13; LO6)

57.

Which of the following would not be considered a macro structural issue? a. the choice between contractual and vertically integrated modes of doing business b. identification of the appropriate contractual form (e.g. licensing, joint venture) c. explaining how to set up effective collaborative organizational arrangements d. all of the above are macro structural issues (d; Medium; p. 14; LO6)

58.

All of the following human resource issues are essential for effective innovation, except: a. the role of corporate culture in enhancing technological innovation b. ways to limit employee creativity c. management techniques specifically designed for research and development personnel d. all of the above are human resource issues that are essential for effective innovation (b; Medium; p. 14; LO1)

ESSAY QUESTIONS 59.

Define technology innovation and describe why it’s important.

(Difficult; pp. 4-5; AACSB: Reflective thinking skills; LO1)

60.

Describe why technology innovation is important.

(Difficult; pp. 5-8; AACSB: Reflective thinking skills; LO3)

61.

Describe how technology strategy is different from overall business strategy.

(Difficult; pp. 9-10; AACSB: Reflective thinking skills; LO4)

62.

Explain how technology strategy is conducted in start-up and large, established firms.

(Difficult; pp. 11-12; AACSB: Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

9

CHAPTER 2 TECHNOLOGY EVOLUTION TRUE/FALSE QUESTIONS 1.

The evolution of film technology provides a good example of the discontinuous nature of technology innovation.

(False; Medium; p. 17; LO1)

2.

By forecasting technology evolution, you can develop a strategy that considers the shifts in the nature of competition between firms.

(True; Medium; 18. ; LO1)

3.

Many researchers view technology advance as a process that begins when commercial products are adopted by a wide range of customers.

(False; Easy; p. 18; LO1)

4.

Paradigms are new advances made as researchers seek for answers to current technical problems building on prior knowledge that has accumulated.

(True; Medium; p. 19; LO1)

5.

The economic environment influences the rules of the society in which the technology advance takes place.

(False; Medium; p.19 ; LO1)

6.

Moore’s law predicted that the number of transistors that could be packed onto an integrated circuit at the minimum cost for the component would double every 10 years.

(False; Medium; p. 19; LO1)

7.

Incremental technology innovation involves small improvement to existing technologies.

(True; Medium; p. 21; LO1)

8.

The Pentium computer processor is an example of a radical technology (False; Difficult; p. 21; Reflective learning skills; LO1)

9.

Technology S-curves are graphical representation of the development of a new technology.

(True; Medium; p. 22; LO2)

10.

Initially performance improvements per unit of effort are great because there are many things that need to be learned while developing new technologies.

(False; Difficult; p. 22; LO2)

11.

Rapid improvements in technology tend to follow the identification of key drivers of performance.

(True; Medium; p. 22; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

10

12.

Emerging firms in and industry tend to be the ones to make incremental technological improvements.

(False; Medium; p.23 ; LO2)

13.

New technology is often developed to challenge the existing technology when the existing technology reaches the point of diminishing returns.

(True; Medium; p. 24; LO3)

14.

When first introduced, new technology is typically superior to existing technology on key dimensions such as quality, performance, and reliability.

(False; Medium; p. 24; LO3)

15.

Because new technology is a radical change from the existing technology, it has greater potential for performance improvement than the existing technology.

(True; Medium; p. 25; LO3)

16.

When S-curves shift, the new curve is generally above and to the right of the existing curve.

(False; Difficult; p. 25; LO3)

17.

Customers typically shift to a new technology in large numbers once the new technology improves to the point where it surpasses the old technology on the dimensions that customers’ value.

(True; Easy; p. 25; LO3)

18.

To introduce new technologies, incumbent firms typically have to write-off their investments in the old technology.

(True; Easy; p. 25; LO3)

19.

Cannibalization occurs when a firm sells a new product that takes sales form one of more of its existing products.

(True; Easy; p. 25; LO3)

20.

Managers at incumbent firms frequently create routines that obtain information about alternatives to their core technologies which least them to view new technologies positively.

(False; Difficult; p. 26; LO3)

21.

The S-curve can be used as a tool to predict when a company should invent is the development of a new technology.

(True; Easy; p. 27; LO4)

22.

Plots of technology S-curves will tell you when a company needs to make changes from an old technology to new technologies.

(False; Medium; p.27 ; LO4)

23.

Shifting too early to a new technology will likely saddle a company with a new technology that is inferior to the old one.

(True; Medium; p. 28; LO4)

11

24.

Existing technologies will often reach a point of diminishing returns long after a firm can offer a viable alternative based on a new technology.

(False; Difficult; p. 28; LO4)

25.

Typically, there is a high rate of new firm entry and a low rate of new firm exit in the fluid phase of the Abernathy-Utterback model.

(True; Medium; p. 28; LO5)

26.

The Abernathy-Utterback model predicts the patterns of industry evolution equally well in all manufacturing industries.

(False; Medium; p. 29; LO5)

27.

A radical technology is competence-destroying if it makes use of existing knowledge, skills, abilities, structure, design, production processes and plan and equipment.

(False; Medium; p. 35; LO7)

28.

According to the reverse product cycle model, service industries start with incremental innovation and move to radical innovation.

(True; Medium; p. 34; LO9)

29.

Eventually, new firms will invest in the development of new technologies because the potential for improvement of the new technologies is higher than the potential for improvement of the old technology.

(True; Medium; p. 39; LO9)

MULTIPLE CHOICE 30.

By forecasting technology evolution, you can develop a strategy that considers: a. the emergence of technologies b. changes in the dominant strategies and structures of other firms c. shifts in the nature of competition between firms d. all of the above (d; Easy; p. 18; LO1)

31.

Which force influences the nature of incentives created for technological advance? a. economic b. competitive c. political d. social (a; Medium; p. 19 LO1)

32.

Which force is most likely to influence the rules of the society in which the technological advance takes place? a. economic b. competitive c. political d. social (c; Medium; p. 19; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

12

33.

Fears, motivations and attitudes of people are most likely related to which force? a. economic b. competitive c. political d. social (d; Medium; p. 19; AACSB: Reflective thinking skills; LO1)

34.

Most technological innovation is: a. radical b. incremental c. fluid d. specific (b; Medium; p. 21; LO1)

35.

Which type of innovation involves fundamentally new ways of solving a problem? a. radical b. incremental c. fluid d. specific (a; Medium; p. 21; LO1)

36.

Which of the following would be considered an incremental innovation? a. all wheel drive vehicles b. aspirin c. medical diagnostic imaging d. video cassette recorders (a; Difficult; p. 22; AACSB: Reflective thinking skills; LO1)

37.

Which type of technological innovation requires fundamentally different strategies and organizational structures? a. radical b. incremental c. fluid d. specific (a; Medium; p. 22; LO1)

38.

Technology S-curves are graphic representations that compare: a. performance and cost b. performance and effort c. cost and effort d. profit and effort (b; Medium; p. 22; LO2)

39.

What is most likely to occur as you first begin to develop technology? a. very little performance improvement for each unit of effort b. rapid improvement for each unit of effort c. constant improvement for each unit of effort d. decreasing improvement for (a; Medium; p. 22; LO2)

13

40.

What is most likely to occur once the key drivers of performance have been identified? a. very little performance improvement for each unit of effort b. rapid improvement for each unit of effort c. constant improvement for each unit of effort d. decreasing improvement for each unit of effort (b; Medium; p. 23; LO2)

41.

What is most likely to occur once a firm has reached the upper portion of the S-curve? a. very little performance improvement for each unit of effort b. rapid improvement for each unit of effort c. constant improvement for each unit of effort d. decreasing improvement for each unit of effort (d; Medium; p. 23; LO3)

42.

How can the introduction of new technology be best depicted? a. a movement up the S-curve b. a movement down the S-curve c. a shift of the S-curve d. could be any of the above (c; Easy; p. 24; AACSB: Reflective thinking skills; LO3)

43.

What is one of the reasons incumbent firms are reluctant to introduce new technologies that shift the S-curve? a. they have very little invested in the existing technology b. they have no incentive to introduce the new technology c. managers at incumbent firms see the new technology as a threat d. the incumbent firms can’t improve the technology of their old technologies (b; Difficult; p. 25; LO3)

44.

When should a firm prepare for a technology shift by investing in the development of alternative technologies? a. at the bottom of the S-curve b. when first entering the intermediate portion of the S-curve c. when the firm has been in the intermediate portion of the S-curve for several years d. when the firm has reached the point of diminishing returns (a; Easy; p. 27; AACSB: Reflective thinking skills; LO4)

45.

What typically needs to occur before a new technology can “take off”? a. supportive technologies need to be created b. a need for the new product has to be identified c. focus on niche segments of the market that may be less profitable d. all of the above are required (d; Easy; p. 27; LO4)

46.

According to the Abernathy-Utterback model, what follows radical innovation? a. product innovation b. process innovation c. fluid phase d. specific phase (c; Medium; p. 29; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

14

47.

According to the Abernathy-Utterback model, when does only incremental innovation occur? a. product innovation b. process innovation c. fluid phase d. specific phase (d; Medium; p. 29; LO5)

48.

According to the Abernathy-Utterback model, what causes the cycle of innovation to repeat? a. radical innovation b. incremental innovation c. fluid phase d. specific phase (a; Medium; p. 29; LO5)

49.

What can be used to describe the creation of new goods and services sold to customers? a. process innovation b. product innovation c. radical innovation d. incremental innovation (b; Medium; p. 29; LO5)

50.

What is it called when technological innovation involves problem solving that improves the method of creating or delivering a product or service? a. process innovation b. product innovation c. radical innovation d. incremental innovation (a; Medium; p. 29; LO5)

51.

What type of innovation was exemplified when Boeing’s engineers figured out how to make the wings of the new Dreamliner aircraft out of a composite material in place of aluminum to make the plane lighter and more fuel efficient? a. process b. product c. fluid d. specific (a; Difficult; p. 29; AACSB: Reflective thinking skills; LO5)

52.

In what phase of an industry is there generally the most risk? a. process b. product c. fluid d. specific (c; Medium; p. 29; AACSB: Reflective thinking skills; LO5)

15

53.

What is most descriptive of the specific phase of an industry? a. production is relatively inefficient b. a variety of different production processes are used c. a dominant design emerges d. customers do not have clearly defined preferences (c; Difficult; p. 29; AACSB: Reflective thinking skills; LO6)

54.

In which phase of an industry does competition typically shift away form design uniqueness to production costs as firms focus on achieving production efficiencies with the common design? a. process b. product c. fluid d. specific (d; Medium; p. 30; LO6)

55.

What type of innovation is most likely to occur during the specific phase? a. process b. product c. fluid d. specific (a; Easy; p. 30; LO6)

56.

The personal computer industry provides a good example of: a. how the dominant type of innovation changes as an industry shifts from the fluid to specific phase b. how the dominant type of innovation changes as an industry shifts from the specific to fluid phase c. how the dominant type of innovation changes as an industry shifts from the fluid to the specific phase d. how the dominant type of innovation changes as an industry shifts from the specific to the fluid phase (a; Easy; p. 30; AACSB: Reflective thinking skills; LO6)

57.

According to the Abernathy-Utterback model, which phase is most favorable for new firms? a. process b. product c. fluid d. specific (c; Easy; p. 31; LO6)

58.

What is most likely to happen once a dominant design has been established? a. new firms can operate without adopting the same product as more experienced firms b. firms operate on a small scale to minimize technical uncertainty c. learning curves are weak d. organizational structures become more hierarchical and bureaucratic (d; Difficult; p. 31; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

16

59.

What is most likely to happen before a dominate design has been established? a. learning curves become pronounced b. organization structures become more hierarchical and bureaucratic c. firms operate on a small scale to minimize technical uncertainty d. new firms adhere to the standard product design (c; Difficult; p. 31; LO6)

60.

In which phase is there most likely to be the largest increase in the number of firms? a. process b. product c. fluid d. specific (c; Easy; p. 31; LO6)

61.

What is the most likely explanation why electric vehicles did not become popular in the early 1900s? a. they were lacking technical superiority b. mechanics felt they were too easy to work on c. gas powered cars became the dominant design d. they were easier to refuel than gas powered vehicles (c; Easy; p. 33; AACSB: Reflective thinking skills; LO6)

62.

Which researcher(s) modified the Abernathy and Utterback model by applying it to service businesses? a.

Barras b.

Tushman c.

Christensen d.

Henderson and Clark (a; Easy; p. 34; LO8)

63.

What model predicted that a different model of innovation operated in service industries? a. model of competence destroying and competence enhancing innovation b. model of value networks and disruptive innovation c. model of reverse product cycle theory d. model of architectural innovation (c; Medium; p. 34; LO8)

64.

What is most likely to occur in the second phase of the reverse product cycle theory? a. the adopted technology is employed to make existing services more efficient b. incremental improvements are most likely to occur c. the new technology is used to make the service more efficient d. the technology is used to create new services, making changes radical (c; Difficult; p. 34; LO8)

65.

What is most likely to occur in the third phase of the reverse product cycle theory? a. the adopted technology is employed to make existing services more efficient b. incremental improvements are most likely to occur c. the new technology is used to make the service more efficient d. the technology is used to create new services, making changes radical (d; Difficult; p. 34; LO8)

17

66.

Which model was developed after observing that, in some cases, incumbent firms had little trouble transitioning to new radical technologies? a. model of competence destroying and competence enhancing innovation b. model of value networks and disruptive innovation c. model of reverse product cycle theory d. model of architectural innovation (a; Medium; p. 35; LO8)

67.

A radical technology is ________________ if it makes use of exiting knowledge, skills, abilities, structures, design, production processes and plant and equipment, whereas, it is _____________________ if it undermines the usefulness of these things. a. radical; stable b. stable; radical c. competence-enhancing; competence-destroying d. competence-destroying; competence-enhancing (c; Medium; p. 35; LO8)

68.

Which modification to the Abernathy and Utterback model was developed after noticing that incumbent firms often failed to manage the transition from one technology to another? a. model of competence-destroying and competence-enhancing innovation b. model of value networks and disruptive-innovation c. model of reverse product cycle theory d. model of architectural innovation (d; Medium; p. 35; LO8)

69.

According to Henderson and Clark, which type of innovation changes the components from which the innovation is created but not the linkage between those components? a. radical b. stable c. modular d. architectural (c; Difficult; p. 36; AACSB: Reflective thinking skills; LO8)

70.

According to Henderson and Clark, which type of innovation is one that changes the linkages between the components but leaves the components intact? a. radical b. stable c. modular d. architectural (d; Difficult; p. 37; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

18

71.

According to Henderson and Clark, which of the following is a reason why firms often fail in the face of architectural innovation? a. incumbent firms often lack the right external linkages to gather information about a new technology architecture emerging in an industry b. firms often lack the capacity to recognize the value of information about architectural innovation that is presented to them c. even when incumbent firms recognize the value of architectural innovation, they often have difficulty making use of it because adopting an architectural innovation typically requires a company to restructure. d. all of the above are reasons why firms fail in the face of architectural innovation (d; Easy; p. 37; LO9)

72.

According to Henderson and Clark, what type of innovation would occur if core concepts were reinforced and linkages were unchanged? a. incremental b. modular c. architectural d. radical (a; Difficult; p. 37; AACSB: Reflective thinking skills; LO9)

73.

According to Henderson and Clark, what type of innovation would occur if core concepts were overturned and linkages were unchanged? a. incremental b. modular c. architectural d. radical (b; Difficult; p. 37; AACSB: Reflective thinking skills; LO9)

74.

According to Henderson and Clark, what type of innovation would occur if core concepts were reinforced and linkages were changed? a. incremental b. modular c. architectural d. radical (c; Difficult; p. 37; AACSB: Reflective thinking skills; LO9)

19

75.

What modification to the Abernathy and Utterback model resulted after it was noticed that incumbent firms were often the very firms that invented the radical new technologies that they were unable to adopt? a. model of competence-destroying and competence-enhancing innovation b. model of value networks and disruptive-innovation c. model of reverse product cycle theory d. model of architectural innovation (b; Medium; p. 38; LO9)

76.

The case of the radical new technology used in memory chips, magnetoresistive random access memory (MRAM), is a good example to which modification to the Abernathy and Utterback model? a. model of competence-destroying and competence-enhancing innovation b. model of value networks and disruptive-innovation c. model of reverse product cycle theory d. model of architectural innovation (b; Difficult; p. 38; AACSB: Reflective thinking skills; LO9)

ESSAY QUESTIONS 78.

Describe the evolutionary pattern of technological advance and development.

(Difficult; pp. 18-21; AACSB: Reflective thinking skills; LO1)

79.

Compare and contrast radical and incremental change.

(Difficult; pp. 21-22; AACSB: Reflective thinking skills; LO1)

80.

Define a technology S-curve, explain why it is important, describe what leads to a shift in the S-curve, and explain the pros and cons of using technology S-curves.

(Difficult; pp. 22-29; AACSB: Reflective thinking skills; LO2-LO4)

81.

Describe the Abernathy-Utterback model of technology innovation and describe the modifications that have been proposed to the model to increase its relevance.

(Difficult; pp. 29-40; AACSB: Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

20

CHAPTER 3 TECHNOLOGY ADOPTION AND DIFFUSION TRUE/FALSE QUESTIONS 1.

Early adopters are usually the first to enter a market for a new product.

(False; Medium; p. 48; AACSB: Reflective thinking skills; LO2)

2.

The early majority typically adopt a new technology product slightly before the average for the market.

(True; Medium; p. 49; LO2)

3.

The late majority usually adopt a product because they have no alternatives.

(False; Medium; p. 50; LO2)

4.

The normal distribution of adopters translates into an S-shaped pattern of demand growth over time because the bell curve shows the rate of adoption while the S-shaped curve shows the cumulative adoption.

(True; Difficult; p. 51; AACSB: Analytic skills; LO2)

5.

The take-off area or chasm in adoption of a new product is located between the innovators and the early adopters.

(False; Difficult; p. 53; AACSB: Reflective thinking skills; LO3)

6.

When crossing the chasm, you will need to focus on a vertical marketing strategy as compared to a horizontal marketing strategy.

(True; Difficult; p. 53; LO4)

7.

A beachhead strategy is usually most appropriate after a company has successfully crossed the chasm.

(False; Easy; p. 55; LO4)

8.

One of the reasons why it is difficult to forecast demand is that demand is linear over time.

(False; Medium; p. 57; LO5)

9.

If there are many innovators and few imitators, the resulting diffusion pattern looks more convex than S-shaped.

(True; Difficult; p. 57; AACSB: Reflective thinking skills; LO5)

10.

According to the bass diffusion model, if the rate of adoption by innovators was 0.20, and the rate of adoption by imitators was 0.50, the market size is 20 million and the cumulative number of adopters of the product was 10 million, the number of adopters in the year would be 4.5 million.

(True; Difficult; p. 59; AACSB: Analytic skills; LO8)

11.

The accuracy of the Bass model is much greater when economic shocks are occurring.

(False; Easy; p. 60; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

21

12.

The first step in completing the Delphi technique is picking an appropriate facilitator.

(True; Medium; p. 61; LO9)

13.

The amount of learning necessary to understand the benefits of a product will slow its rate of diffusion because people must understand the value of new products and services to adopt them.

(True; Medium; p. 62; LO9)

14.

When one technology is replaced by another that can achieve the same objective, the replacing technology is known as a compliment.

(False; Easy; p. 64; LO11)

15.

One reason why a substitution-based technology strategy is difficult to implement is that substitution is typically complete.

(False; Easy; p. 65; LO11)

16.

Without accurate estimates of the time horizon of substitution, it is virtually impossible to balance supply and demand for products based on the new technology.

(True; Medium; p. 66; AACSB: Reflective thinking skills; LO12)

MULTIPLE CHOICE 17.

What needs to be accomplished to formulate an effective technology strategy? a. understand the patterns of technology diffusion and customer adoption b. follow particular strategies to transition from innovators to the majority of the market c. accurately forecast the growth of demand for your products and services d. all of the above are required (d; Easy; p. 47; LO1)

18.

Most patterns of customer adoption of new technology follow which pattern? a. positively skewed b. negatively skewed c. normally distributed d. leptokurtic (c; Medium; p. 48; AACSB: Analytic skills; LO2)

19.

Which group of adopters comes first? a. early adopters b. early majority c. laggards d. innovators (d; Easy; p. 48; LO2)

20.

Which group of adopters follows the late majority? a. innovators b. early adopters c. early majority d. laggards (d; Easy; p. 48; LO2)

22

21.

Which group of adopters is typically between one and two standard deviations before the mean? a. innovators b. early adopters c. early majority d. laggards (b; Difficult; p. 48; AACSB: Analytic skills; LO2)

22.

Which group of adopters is most likely to be intrigued by technology and eager to explore it? a. innovators b. early adopters c. early majority d. late majority (a; Easy; p. 49; LO2)

23.

Which portion of the market is most likely willing to pay a lot of money for new technology products and services? a. early adopters b. early majority c. innovators d. laggards (c; Easy; p. 49; LO2)

24.

As a group, what is the relative size of early adopters? a. smaller than innovators b. larger than innovators c. about the same as innovators d. depends on the product (b; Medium; p. 49; AACSB: Reflective thinking skills; LO2)

25.

Being successful with which group is an indication that the product will be successful with the majority of the market? a. innovators b. early majority c. early adopters d. late majority (c; Medium; p. 49; LO2)

26.

Which segment of the market tends to adopt a new technology product slightly before the average for the market? a. innovators b. early adopters c. early majority d. late majority (c; Medium; p. 49; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

23

27.

Which segment of the market comes before the average of the market and is most likely to want to see a whole product solution and a value proposition before buying? a. innovators b. early adopters c. laggards d. early majority (d; Medium; p. 50; LO2)

28.

Which segment of the market tends to adopt technology only after strong evidence shows that the value of adoption is greater than the cost of adoption and that other customers have adopted the technology successfully? a. innovators b. late majority c. early majority d. early adopters (b; Medium; p. 50; LO2)

29.

For which segment of the market would it be most important to develop an advertising message emphasizing the reliability and low cost of the product? a. innovators b. early majority c. late majority d. laggards (d; Medium; p. 50; AACSB: Reflective thinking skills; LO2)

30.

Individuals in which group will often only adopt a product when the alternatives to adoption are no longer available? a. laggards b. late majority c. early majority d. early adopters (a; Easy; p. 50; LO1)

31.

Why is understanding the typical pattern of adoption of new products and services important? a. different groups of customers adopt new products at basically the same time b. the distribution provides important information about the right promotional strategy c. indicates that a constant pricing strategy can be utilized d. helps to estimate supply growth over time (b; Difficult; p. 51; AACSB: Reflective thinking skills; LO2)

32.

Which segment of the market would be least sensitive to the price of your product? a. innovators b. early majority c. late majority d. laggards (a; Easy; p. 51; LO2)

24

33.

How is the S-shaped cumulative adoption curve created? a. first derivative of the bell curve b. second derivative of the bell curve c. integral of the bell curve d. the bell curve and S-shaped curve are identical (c; Difficult; p. 51; AACSB: Analytic skills; LO2)

34.

What can be told about the financial attractiveness of a market by examining the cumulative adoption S-curve? a. in the first stage of the product life cycle, revenues are high and costs are low, making profits high b. in the second stage revenues are rising faster than costs and profit margins increase c. in the third stage revenues and costs fall leading to increased profit d. in the third stage revenues increase faster than costs leading to increase profits (b; Difficult; p. 52; AACSB: Reflective thinking skills; LO2)

35.

What is most likely to be occurring if new customers are focused on the value proposition from purchasing your product or service or care a lot about ancillary attributes of your product package? a. you are entering the early innovation stage b. you are reaching the take-off stage c. you are entering the decline stage d. it is impossible to tell (b; Medium; p. 53; AACSB: Reflective thinking skills; LO3)

36.

As discussed by Geoffrey Moore, where is the chasm located? a. between innovators and early adopters b. between early adopters and early majority c. between early majority and late majority d. between late majority and laggards (b; Difficult; p. 54; LO3)

37.

What type of marketing strategy involves focusing on customers in a single industry? a. vertical b. horizontal c. integrative d. specialized (a; Easy; p. 53; LO1)

38.

What type of marketing strategy involves serving customers in multiple industries at the same time? a. vertical b. horizontal c. integrative d. specialized (b; Easy; p. 53; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

25

39.

Why is it important to estimate the demand for your new products or services? a. helps you to avoid underproduction b. helps to project future costs in business based on economies of scale c. helps to determine payback on your investment d. all of the above are important (d; Easy; p. 56; LO5)

40.

What term refers to the rate at which a new technology product becomes adopted by potential users? a. innovation b. dispersion c. diffusion d. integration (c; Medium; p. 57; LO6)

41.

Which of the following are customers who learn about new products from sources other than previous users? a. adopters b. laggards c. innovators d. imitators (c; Medium; p. 57; LO7)

42.

Which of the following are customers who learn about new products from previous users? a. adopters b. laggards c. innovators d. imitators (d; Medium; p. 57; LO1)

43.

The distribution of innovators and imitators generally result in a dispersion curve with the following shape. a. normally distributed b. positively skewed c. leptokurtic d.

S-shaped (d; Easy; p. 57; LO7)

44.

What shape will a diffusion pattern look like if there are many innovators and few imitators? a.

S-shaped b. concave c. convex d. normally distributed (c; Difficult; p. 57; AACSB: Reflective thinking skills; LO7)

45.

What is the most likely shape of the diffusion pattern for cable television? a.

S-shaped b. concave c. convex d. normally distributed (c; Difficult; p. 58; AACSB: Reflective thinking skills; LO7)

26

46.

What is the most likely shape of the diffusion pattern for CT scanners? a.

S-shaped b. concave c. convex d. normally distributed (a; Difficult; p. 58; AACSB: Reflective thinking skills; LO7)

47.

What is the most common method to determining the size of the market for new products? a. diffusion curves b.

Bass model c.

Delphi technique d. looking up the size of a similar market and using those number to estimate the size of the target model (d; Difficult; p. 58; AACSB: Reflective thinking skills; LO7)

48.

What is the least accurate method of determining the size of the market for new products? a. diffusion curves b.

Bass model c.

Delphi technique d. looking up the size of a similar market and using those numbers to estimate the size of the target market (d; Difficult; p. 58; AACSB: Reflective thinking skills; LO7)

49.

Which of the following would be considered a quantitative method for determining the size of the market for new products? a.

Delphi technique b.

Bass model c. focus groups d. looking up the size of a similar market and using those numbers to estimate the size of the target market (b; Medium; p. 59; LO8)

50.

Which model for estimating the demand of a new market predicts diffusion patterns as a function of the size of the market, the rate of adoption by innovators and imitators, and the proportion of adopters in the previous time period? a.

Delphi technique b.

Bass model c. product diffusion models d. looking up the size of a similar market and using those numbers to estimate the size of the target market (b; Easy; p. 59; AACSB: Analytic skills; LO8)

51.

According to the Bass diffusion model, what would the number of adopters in the year be if the rate of adoption by innovators is 0.10 and the rate of adoption by imitators is 0.50, the market size is 20 million, and no one has yet adopted the product? a.

500,000 customers b.

1,000,000 customers c.

2,000,000 customers d.

5,000,000 customers (c; Difficult; p. 59; AACSB: Analytic skills; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

27

52.

According to the Bass diffusion model, what would the number of adopters in the year be if the rate of adoption by innovators is 0.10 and the rate of adoption by imitators is 0.50, the market size is 20 million, and 5 million customers have adopted the product? a.

375,000 customers b.

1,500,000 customers c.

2,500,000 customers d.

3,375,000, customers (d; Difficult; p. 59; AACSB: Analytic skills; LO8)

53.

Which of the following is not a limitation with the Bass diffusion model? a. the accuracy of the model declines as you get further away in time from the initial adoption point b. the accuracy of the model is much lower when competing technologies are being introduced c. the model assumes that the diffusion of a technology product depends on only supply-side factors d. the accuracy of the model is much lower when economic shocks are occurring (c; Difficult; p. 60; LO8)

54.

For which product would the Bass model be most accurate? a. automobiles b. homes c. planes d. washing machines (d; Difficult; p. 60; AACSB: Reflective thinking skills; LO8)

55.

What is the first step when conducting the Delphi Technique? a. identify an expert group b. pick a facilitator c. create an initial list of criteria d. identify preferences and constraints (b; Medium; p. 61; LO9)

56.

When conducting the Delphi Technique, what should be completed immediately after you have the experts rank criteria? a. estimate the mean and standard deviation b. have panel re-rank the newly ordered criteria c. analyze the results and return them to the panel d. repeat the ranking process until stability in the rankings is achieved (a; Difficult; p. 61; LO9)

57.

Which of the following is not a weakness associated with the Delphi Technique? a. the method is sensitive to the precision of the questions that you ask b. the method is sensitive to variance in the expertise of the respondents c. the method is not useful in a variety of settings d. the validity of the technique is limited by the intervention of unexpected events (c; Difficult; p. 61; AACSB: Reflective thinking skills; LO9)

28

58.

Why is it difficult to formulate a strategy that incorporates the value of substitutions? a. substitution is not affected by political actions b. new companies usually have an advantage in the real of political power c. substitution typically takes the same time in different industries d. substitution is typically only partial (d; Difficult; p. 65; LO11)

59.

For which products did it take the longest time to reach 90 percent substitution? a. plastic/natural leather b. animal/detergent soap c. organic/inorganic pesticides d. synthetic/natural rubber (d; Difficult; p. 66; LO12)

60.

For which products did it take the shortest time to reach 90 percent substitution? a. plastic/natural leather b. animal/detergent soap c. organic/inorganic pesticides d. synthetic/natural rubber (b; Difficult; p. 66; LO12)

61.

By forecasting technology evolution, you can develop a strategy that considers: a. the emergence of technologies b. changes in the dominant strategies and structures of other firms c. shifts in the nature of competition between firms d. all of the above (d; Easy; p. 66; AACSB: Reflective thinking skills; LO1)

ESSAY QUESTIONS 62.

Discuss the various groups in the different sections of the adoption bell curve. Also, explain how the adoption bell curve can be transferred into an S-shaped curve.

(Difficult; pp. 47-52; AACSB: Reflective thinking skills; LO1, LO2)

63.

Explain what is meant by “crossing the chasm.” Also, discuss how the chasm can best be crossed.

(Medium; pp. 52-55; AACSB: Reflective thinking skills; LO3, LO4)

64.

Discuss how the Bass diffusion model can be used to estimate demand. What are the limitations to using the model?

(Difficult; pp. 59-60; AACSB: Reflective thinking skills; LO8)

65.

Outline the process used to use the Delphi Technique. What are the limitations to using the model?

(Easy; pp. 61-62; AACSB: Reflective thinking skills; LO9)

66.

Explain the importance to understanding both complementary and substitute products when the diffusion of new products and services.

(Medium; pp. 63-66; AACSB: Reflective thinking skills; LO10, LO11)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

29

CHAPTER 4 SOURCES OF INNOVATION TRUE/FALSE QUESTIONS 1.

Technology change is one of the most important triggers of technological innovation.

(True; Easy; p. 73; LO1)

2.

More than 10 percent of all newly patented inventions lead to a commercial product or service.

(False; Easy; p. 73; LO1)

3.

General purpose technologies are particularly important to innovation by new firms because these technologies permit strategic flexibility (True; Medium; p. 75; LO2)

4.

Regulation often opens up opportunities by altering people’s preferences and by creating demand for products that had not existed before.

(False; Medium; p. 77; Reflective thinking skills; LO2)

5.

Opportunities for innovation are often the result of a combination of technological, political, regulatory, social and demographic changes.

(True; Medium; p. 78; Reflective thinking skills; LO2)

6.

Mathematics and computer science hold the greatest share of federal funding for research.

(False; Medium; p. 80; LO3)

7.

The Bayh-Dole Act of 1980 gave individuals the rights to license inventions that resulted from federally funded programs.

(False; Medium; p. 82; Reflective thinking skills; LO3)

8.

Applied research is conducted in an effort to understand the technical or scientific principles in a field.

(False; Medium; p. 83; Reflective thinking skills; LO5)

9.

Development is the effort to use technical knowledge to produce something of commercial use.

(True; Easy; p. 84; LO5)

10.

Microsoft spent more than any other company on R&D in 2003.

(True; Easy; p. 84; LO5)

11.

Of the total amount spent on R&D, over 70% is spent by colleges and universities (False; Medium; p. 84; LO5)

12.

As a percentage of sales, the chemicals industry spends more on R&D than any other industry.

(True; Medium; p. 85; Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

30

13.

Absorptive capacity allows companies to use information from customers, suppliers, and even competitors to develop new products and services, or new ways of making them.

(True; Medium; p. 86; LO5)

14.

One of the benefits of R&D is that it locks companies into particular strategies.

(False; Difficult; p. 87; Reflective thinking skills; LO5)

15.

Requiring your research and development laboratories to use different facilities is an example of a procedure that could be used to encourage productive links between research and development.

(False; Easy; p. 88; LO5)

16.

Amazon.com’s effort to sell books on the Internet is an example of an innovation which occurred in response to the development of a new technology – the Internet – that took the form of a new method of production.

(False; Difficult; p. 90; Reflective thinking skills; LO6)

17.

The substitution of ceramic composites for metals in the production of motor vehicles is an example of an innovation that took the form of new materials.

(True; Difficult; p. 90; Reflective thinking skills; LO6

18.

Technology innovation in nonassembled products is most likely to take the form of improved materials, product performance, processes, or production scale.

(True; Medium; p. 91; LO7)

MULTIPLE CHOICE 19.

Opportunities to create new products and processes typically emerge from changes in which of the following? a. technology b. politics and regulation c. social and demographic factors d. all of the above (d; Easy; p. 72; LO1)

20.

What percent of newly patented inventions ever lead to a commercial product or service? a. less than 5 percent b. between 5 and 10 percent c. between 10 and 20 percent d. more than 20 percent (a; Medium; p. 73; LO1)

21.

What types of technology are used along with the focal technology? a. supplementary technologies b. fixed technologies c. complementary technologies d. variable technologies (c; Medium; p. 74; LO2)

31

22.

Which of the following is not an attribute of technological change associated with subsequent innovation? a. the magnitude of the change b. the commercial viability of the change c. the specificity of the change d. all of the above are attributes (c; Difficult; p. 75; LO2)

23.

If a technology makes possible the creation of a wide range of new products, it would most likely be considered? a. general purpose technology b. supplementary technology c. complementary technology d. fixed technology (a; Medium; p. 75; AACSB: Reflective thinking skills; LO2)

24.

Which factor for change would most likely be impacted by deregulation of an industry? a. technological b. political and regulatory c. social d. demographic (b; Easy; p. 76; LO1)

25.

The increasing number of women in the workforce would most likely be classified as a change in which factor? a. technological b. political and regulatory c. social and demographic d. all of the above (c; Easy; p. 77; AACSB: Reflective thinking skills; LO2)

26.

The creation of a market for products that mask body odor is a result of a change in which trend? a. technological b. political c. social d. demographic (c; Easy; p. 78; AACSB: Reflective thinking skills LO2)

27.

The creation of Welcabs – specially designed cars with wheelchair ramps and special seats that make it easier for the elderly to get in and out – were a result of a change in which trend? a. political b. regulatory c. social d. demographic (d; Medium; p. 78; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

32

28.

Most opportunities for innovation are often a result of a change in which factor? a. technological b. political and regulatory c. social and demographic d. a combination of factors (d; Medium; p. 78; AACSB: Reflective thinking skills; LO2)

29.

The startup of iFly – an air taxi service allowing corporate travelers to fly in small planes between local airports – was a result of a change in which factor? a. technological b. political and regulatory c. social and demographic d. a combination of the above factors (d; Medium; p. 78; AACSB: Reflective thinking skills; LO2)

30.

Of the different entities that undertake technological innovation, which source accounts for most of the innovation? a. companies b. individuals c. universities d. government agencies (a; Medium; p. 79; LO3)

31.

Which field has the largest share of federal funding? a. engineering b. physical sciences c. life sciences d. mathematics and computer sciences (c; Difficult; p. 80; LO3)

32.

Which of the following fields has the largest share of federal funding? a. social sciences b. engineering c. environmental sciences d. physical sciences (b; Difficult; p. 80; LO3)

33.

In what year was there the greatest utilization of Cooperative Research and Development Agreements? a.

1985 b.

1990 c.

1995 d.

2000 (c; Medium; p. 81; LO4)

33

34.

According to a recent study, what percent of all new products would not have been developed in a timely manner if it were not for academic research? a.

11 percent b.

25 percent c.

31 percent d.

45 percent (a; Medium; p. 81; LO4)

35.

How did the Bayh-Dole Act of 1980 assist in increasing innovation? a. allowed companies to directly patent their inventions b. allowed individuals to work with universities to license their inventions c. allowed universities the rights to federally funded inventions d. it allowed all of the above (c; Difficult; p. 82; LO4) e.

The first step in the process model underlying investment in R&D is: a. technological invention b. technological innovation c. investment in R&D d. new or improved products or processes (c; Medium; p. 83; AACSB: Reflective thinking skills; LO5)

36.

37.

Which of the following has to come before technological invention in the process model underlying investment in R&D? a. technology innovation b. new or improved products or processes c. investment in R&D d. all of the above precede technological invention (c; Medium; p. 82; LO5)

38.

In the model underlying investment in R&D, which step follows technological invention? a. investment in R&D b. technological innovation c. value created and captured d. new or improved products or processes (a; Medium; p. 82; LO5)

39.

Which type of research is conducted in an effort to understand the technical or scientific principles in a field? a. applied research b. basic research c. quantitative research d. qualitative research (b; Medium; p. 82; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

34

40.

When scientists were conducting research that let to the discovery of the transistor, what type of research were they engaged in? a. basic b. applied c. developmental d. descriptive (a; Difficult; p. 84; AACSB: Reflective thinking skills; LO5)

41.

What type of research is conducted in an effort to understand technical or scientific principles with a specific commercial goal in mind? a. basic b. applied c. developmental d. descriptive (b; Medium; p. 84; LO5)

42.

When engineers were conducting research on the transistor to develop a new type of radio receiver that could be used with it, what type of research were they engaged in? a. developmental b. descriptive c. basic d. applied (d; difficult; p. 84; AACSB: Reflective thinking skills; LO5)

43.

What type of research uses technical knowledge to produce something of commercial use? a. basic b. applied c. developmental d. descriptive (c; Medium; p. 84; LO5)

44.

What type of research would engineers be conducting if they used technical knowledge to produce something of commercial use? a. basic b. applied c. descriptive d. developmental (d; Medium; p. 84; AACSB: Reflective thinking skills; LO5)

45.

Approximately how much is spent annually on R&D? a. $30 million b. $300 million c. $30 billion d. $300 billion (d; easy; p. 84; LO5)

35

46.

What percent of the total amount spent on R&D is accounted for by industry? a.

5% b.

8% c.

16% d.

71% (d; easy; p. 84; LO5)

47.

What percent of the total amount spent on R&D is accounted for by the federal government? a.

5% b.

8% c.

16% d.

71% (b; easy; p. 84; LO5)

48.

What percent of the total amount spent on R&D is accounted for by colleges and universities? a.

5% b.

8% c.

16% d.

71% (c; Medium; p. 84; LO5)

49.

What percent of the total amount spent on R&D is accounted for by nonprofit organizations? a.

5% b.

8% c.

16% d.

71% (a; Medium; p. 83; AACSB: Reflective thinking skills; LO5)

50.

Which company spent the most on R&D as a percentage of sales in 2003? a.

Ford Motor b.

Daimler Chrysler c.

Microsoft d.

Intel (c; Difficult; p. 84; LO5)

51.

Which company spent the least on R&D as a percentage of sales in 2003? a.

General Motors b.

IBM c.

Johnson & Johnson d.

Motorola (a; Difficult; p. 84; LO5)

52.

What is the average R&D intensity of all industries? a.

0.3 percent b.

3.2 percent c.

6.3 percent d.

10.2 percent (b; Difficult; p. 85; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

36

53.

Which industry has the highest level of R&D intensity? a.

Finance, insurance, and real estate b.

Petroleum and coal products c.

Professional, scientific, and technical services d.

Electrical equipment, appliances, and components (c; Medium; p. 85; LO5)

54.

Which industry has the lowest level of R&D intensity? a.

Utilities b.

Petroleum and coal products c.

Professional, scientific, and technical services d.

Electrical equipment, appliances, and components (a; Medium; p. 85; AACSB: Reflective thinking skills; LO5)

55.

Which of the following is not a benefit associated with R&D? a. creates products and services that meet customer needs b. locks companies into particular strategies c. creates a strong intellectual property position d. differentiates products form those of competitors (b; Difficult; p. 87; AACSB: Reflective thinking skills; LO6)

56.

Which of the following is not a cost associated with R&D? a. is difficult to appropriate the returns b. locks companies into particular strategies c. creates a strong intellectual property position d. is highly uncertain and does not yield high average financial returns (c; Difficult; p. 87; AACSB: Reflective thinking skills; LO6)

57.

Which of the following polices could be used to encourage productive links between research and development? a. having different laboratories for researchers and product development b. giving researchers incentives to develop new products c. exposing basic researchers to development d. giving development personnel incentives to develop new products (c; Difficult; p. 88; LO6)

58.

Which form of innovation would be most closely associated with using the Internet to develop online pet food sales? a. new product or service b. new way of organizing c. new market d. new method of production (b; Difficult; p. 90; AACSB: Reflective thinking skills; LO7)

59.

Which form of innovation would be most closely associated with using genetic engineering to develop synthetic insulin? a. new product or service b. new way of organizing c. new market d. new method of production (a; Medium; p. 90; AACSB: Reflective thinking skills; LO7)

37

60.

Which form of innovation would be most closely associated with using computers to automate a factory? a. new product or service b. new way of organizing c. new market d. new method of production (d; Medium; p. 90; AACSB: Reflective thinking skills; LO5)

61.

Technological innovation in nonassembled products is most likely to take the form of: a. improved materials b. product performance c. production scale d. all of the above (d; Easy; p. 91; LO5)

ESSAY QUESTIONS 62.

Identify and discuss the three major sources of opportunities for innovation.

(Difficult; pp. 73-79; AACSB: Reflective thinking skills; LO2)

63.

What are the various entities that undertake technological innovation? Describe the various types of innovation explored by each group.

(Difficult; pp. 79-83; AACSB: Reflective thinking skills; LO3)

64.

Outline the differences between basic research, applied research, and development.

(Difficult; pp. 83-84; AACSB: Reflective thinking skills; LO4)

65.

Explain why companies invest in R&D. Also explain the costs associated with R&D. (Difficult; pp. 85-87; AACSB: Reflective thinking skills; LO5)

66.

Describe different polices that could be instituted to encourage productive links between research and development (Difficult; pp. 88-89; AACSB: Reflective thinking skills; LO6)

67.

Discuss why the different forms that innovation can track matter for a company’s technology strategy.

(Difficult; pp. 90-91; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

38

CHAPTER 5 SELECTING INNOVATION PROJECTS TRUE/FALSE QUESTIONS 1.

Any innovation opportunity that generates a positive financial return is worth pursuing because it adds to the companies net worth.

(False; Medium; p. 98; AACSB: Reflective thinking skills; LO1)

2.

Fixed costs are costs that are independent of your level of production.

(True; Easy; p. 98; LO1)

3.

Qualitative decision-making tools compare projects on the basis of scales or words.

(True; Medium; p. 100; LO2)

4.

The first step in the analytical hierarchy process is to calculate the priority vectors for each dimension.

(False; Easy; p. 103; Reflective thinking skills; LO3)

5.

The net present value estimates the rate of return on a project, given the level of expenditure and the timing and amount of cash inflows and outflows.

(False; Difficult; p. 103; LO4)

6.

At a 10 percent discount rate, a project that generates $1,000,000 a year for three years would have a net present value of $2,486,852.

(True; Difficult; p. 103; AACSB: Analytic skills; LO4)

7.

If you were to recalculate the net present value of a project with a higher discount rate, the resulting net present value would be higher.

(False; Difficult; p. 103; Reflective thinking skills; LO4)

8.

The internal rate of return is the discount rate that yields a net present value of zero.

(True; Medium; p. 104; Reflective thinking skills; LO4)

9.

If the rate on U.S. treasury securities, with a term similar to your project is greater than the internal rate of return for the project, the project most likely should be undertaken.

(False; Medium; p. 105; Reflective thinking skills; LO5)

10.

An advantage associated with discounted cash flow calculations is that they incorporate many important nonfinancial factors that influence decisions, such as the reaction of competitors, the relationship of one part of the business to another, or organizational learning.

(False; Medium; p. 105; LO4)

11.

Options have positive value if the expected cash flow from making the investment is more than the value of maintaining the option.

(False; Difficult; p. 106; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

39

12.

Real options help to maintain flexibility and avoid committing valuable resources to infeasible alternatives.

(True; Medium; p. 106; Reflective thinking skills; LO5)

13.

In general, real-options analysis generates a larger value than discounted cash flow analysis if the magnitude of the outcome is large relative to the magnitude of the investment.

(True; Medium; p. 108; LO5)

14.

Decision trees are a way to create a probability distribution of outcomes through the use of computer software that experiments with randomly selected values of inputs.

(False; Difficult; p. 109; Reflective thinking skills; LO7)

15.

Scenario analyses provide a visual representation of decisions and their effects on outcomes, costs and risks.

(False; Medium; p. 109; LO7)

16.

When companies develop multiple products, they often use portfolio management tools to make decisions about innovation.

(True; Easy; p. 111; LO8)

17.

Portfolio models take a wide variety of forms, including pie charts and bubble diagrams and are always based on quantitative data.

(False; Medium; p. 111; LO8)

18.

A breakthrough project would be one with a high degree of process change and a low degree of product change.

(True; Medium; p. 112; AACSB: Reflective thinking skills; LO8)

MULTIPLE CHOICE 19.

What type of uncertainty are companies facing when they need to choose between different innovation projects based on the value that can be captured from successful innovation? a. technical uncertainty b. financial uncertainty c. market uncertainty d. competitive uncertainty (d; Difficult; p. 97; AACSB: Reflective thinking skills; LO1)

20.

Which of the following is a way researches have identified as a strategic action to manage the uncertainty with innovation? a. minimizing flexibility b. seeking stable returns c. reallocating uncertainty to others d. maximizing investment (c; Medium; p. 98; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

40

21.

As part of which strategic action should you minimize your investment in nonsalvageable assets? a. seeking high returns b. minimizing investment c. maintaining flexibility d. reallocating uncertainty to others (b; Medium; p. 98; AACSB: Reflective thinking skills; LO1)

22.

As part of which strategic action should you begin your operations on a small scale? a. seeking high returns b. minimizing investment c. maintaining flexibility d. reallocating uncertainty to others (b; Difficult; p. 98; AACSB: Reflective thinking skills; LO1)

23.

What costs are independent of your level of production? a. total costs b. fixed costs c. labor costs d. variable costs (b; Difficult; p. 98; LO1)

24.

What costs are dependent on the level of production of your good or service? a. total costs b. fixed costs c. labor costs d. variable costs (d; Difficult; p. 98; LO1)

25.

Loan payments on a commercial building would be classified as which type of cost? a. total costs b. labor costs c. fixed costs d. variable costs (c; Medium; p. 98; AACSB: Reflective thinking skills; LO1)

26.

Given the following information, what is the contribution margin per unit?

Salary Fixed costs Variable costs Sales price

$200,000 $100,000 $ 100 per item $ 150 per item

a. $50 b. $150 c. $6,000 d. $12,000 (a; Medium; p. 99; AACSB: Analytic skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

41

27.

Given the following information, what is the breakeven level of sales?

Salary Fixed costs Variable costs Sales price

$200,000 $100,000 $ 100 per item $ 150 per item

a.

50 b.

150 c.

6,000 d.

12,000 (c; Medium; p. 99; AACSB: Analytic skills; LO1) 28.

What type of decision-making tool compares projects on the basis of scales or words? a. qualitative b. quantitative c. comparative d. scoring (a; Easy; p. 100; LO2)

29.

What type of decision-making tool evaluates projects based on the basis of numerical calculations? a. qualitative b. quantitative c. comparative d. scoring (b; Easy; p. 100; LO2)

30.

What is the best explanation of comparative decision-making tools? a. tools that compare projects on the basis of scales or words b. tolls that evaluate projects based on the basis of numerical calculations c. tools that pit projects against each other d. tools that compare projects against standard scales (c; Medium; p. 100; LO2)

31.

What is the best explanation of scoring model? a. tools that compare projects on the basis of scales or words b. tolls that evaluate projects based on the basis of numerical calculations c. tools that pit projects against each other d. tools that compare projects against standard scales (d; Medium; p. 100; LO2)

32.

If you are evaluating projects on whether or not they meet specific criteria, what type of scoring model are you most likely using? a. analytic hierarchy process b. net present value c. internal rate of return d. checklist (d; Medium; p. 100; AACSB: Analytic skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

42

33.

Which decision-making tool breaks a problem down into a series of different criteria and choices? a. analytic hierarchy process b. net present value c. internal rate of return d. checklist (a; Medium; p. 101; LO3)

34.

What decision-making tool starts with a decision maker making pair-wise comparisons of the importance of each dimension versus another on a scale of 0 to 10? a. analytic hierarchy process b. net present value c. internal rate of return d. checklist (a; Medium; p. 102; LO3)

35.

Given the following table of dimension weights, what is the priority vector for dimension A? Dimension

A

B

C

A

1.0

3.0

4.0

B

0.5

1.0

7.0

C

0.3

0.2

1.0

a. .54 b. .60 c.

1.80 d.

2.67 (a; Difficult; p. 103; AACSB: Analytic skills; LO3) 36.

Given the following table of dimension weights, what is the priority vector for dimension B? Dimension

A

B

C

A

1.0

3.0

4.0

B

0.5

1.0

7.0

C

0.3

0.2

1.0

a. .50 b. .36 c.

1.40 d.

1.00 (b; Difficult; p. 103; AACSB: Analytic skills; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

43

37.

Given the following table of dimension weights, what is the most important dimension?

Dimension

A

B

C

A

1.0

3.0

4.0

B

0.5

1.0

7.0

C

0.3

0.2

1.0

a.

A b.

B c.

C d. can not tell from the information provided (a; Difficult; p. 103; AACSB: Analytic skills; LO3) 38.

Given the following table of dimension weights, what is the least important dimension?

Dimension

A

B

C

A

1.0

3.0

4.0

B

0.5

1.0

7.0

C

0.3

0.2

1.0

a.

A b.

B c.

C d. can not tell from the information provided (c; Difficult; p. 103; AACSB: Analytic skills; LO3) 39.

When using the analytical hierarchy process of decision making, what is the weighted average of each attribute called? a. inconsistency ratio b. priority vector c. net present value d. real option (b; Medium; p. 103; LO3)

40.

What quantitative method for evaluating innovative projects estimates the value of a project today given the amount and timing of cash outflows and inflows and the discount rate? a. analytical hierarchy process b. real options c. net present value d. internal rate of return (c; Medium; p. 103; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

44

41.

What quantitative method for evaluating innovative projects estimates the rate of return on a project given the level of expenditure and the timing and amount of cash inflows and outflows? a. analytical hierarchy process b. real options c. net present value d. internal rate of return (d; Medium; p. 103; LO4)

42.

Given the following stream of cash flows assuming a current discount rate of 10 percent, what is the net present value of the project?

Year 1 2 3

Cash Inflow $ 500,000 $ 750,000 $1,000,000

a.

1,000,000 b.

1,825,695 c.

2,137,980 d.

2,250,000 (b; Difficult; p. 104; AACSB: Analytic skills; LO4) 43.

Given the following stream of cash flows assuming a current discount rate of 5 percent, what is the net present value of the project?

Year 1 2 3

Cash Inflow $ 500,000 $ 750,000 $1,000,000

a.

1,000,000 b.

1,877,443 c.

2,020,300 d.

2,250,000 (c; Difficult; p. 104; AACSB: Analytic skills; LO4) 44.

Given the following stream of cash flows assuming a current discount rate of 10 percent, if the initial investment were $1.8 million, what is the payback period?

Year 1 2 3

Cash Inflow $ 500,000 $ 750,000 $1,000,000

a.

1 year b.

2 years c.

3 years d. longer than 3 years (c; Difficult; p. 104; AACSB: Analytic skills; LO4) Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

45

45.

When calculating the net present value of an innovative project and you decide to lower the discount rate, what would happen to the net present value? a. it would increase b. it would decrease c. it wouldn’t change d. it’s impossible to tell with the information provided (a; Difficult; p. 104; AACSB: Reflective thinking skills; LO4)

46.

What is the internal rate of return on the following income stream?

Year 0 1 2 3

Income Stream ($500,000) $200,000 $200,000 $400,000

a.

5 percent b.

10 percent c.

15 percent d.

20 percent (b; Difficult; p. 105; AACSB: Analytic skills; LO4) 47.

Given the following income stream, if the rate of return on a three-year U.S. Treasury note was currently 5 percent, what decision would you make about the possible investment?

Year 0 1 2 3

Income Stream ($500,000) $200,000 $200,000 $400,000

a. it would most likely be a poor investment b. it would most likely be a good investment c. it could be positive or negative d. there is not enough information to be able to judge (b; Difficult; p. 105; AACSB: Analytic skills; LO4) 48.

Which decision making tool that provides the right but not the obligation to make a future investment? a. analytical hierarchy process b. net present value c. internal rate of return d. real options (d; Medium; p. 106; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

46

49.

Which decision-making tool limits decision making to information known at the stage at which the decision is being made? a. analytical hierarchy process b. net present value c. real options d. internal rate of return (c; Medium; p. 106; LO5)

50.

Which tool for making decisions about innovation projects provides a representation of investments under different assumptions about key factors that influence those investments? a. analytical hierarchy process b. net present value c. real options d. scenario analysis (d; Medium; p. 109; LO5)

51.

What decision-making tool provides a way to create a probability distribution of outcomes through the use of computer software that experiments with randomly selected values of inputs? a. analytical hierarchy process b. net present value c.

Monte Carlo simulation d. decision trees (c; Medium; p. 109; LO5)

52.

What decision-making tool provides a visual representation of decisions and their effects on outcomes, cost, and risks? a. analytical hierarchy process b. internal rate of return c.

Monte Carlo simulation d. decision trees (d; Easy; p. 109 LO7)

53.

Which decision-making tool provides a quantitative evaluation of a choice that is based on the value and probability of outcomes, and accounts for the influence of staged decision making on risk? a. analytical hierarchy process b. internal rate of return c.

Monte Carlo simulation d. decision trees (d; Medium; p. 110; AACSB: Reflective thinking skills; LO7)

54.

What is the most important portfolio management tool? a. pie charts b. project maps c. bubble diagrams d. bar charts (b; Medium; p. 111; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

47

55.

Project maps show the placement of projects into what category? a. derivative projects b. platform projects c. breakthrough projects d. all of the above (d; Easy; p. 110; LO8)

56.

Which project map category would include efforts that extend existing projects? a. derivative projects b. platform projects c. creative projects d. breakthrough projects (a; Medium; p. 111; LO8)

57.

Which project map category would include efforts based on fundamentally new ideas? a. derivative projects b. platform projects c. creative projects d. breakthrough projects (d; Medium; p. 111; LO8)

58.

Which project map category would include efforts to create new product families? a. derivative projects b. platform projects c. creative projects d. breakthrough projects (b; Medium; p. 111; LO8)

59.

If you were looking to maximize profits form your R&D investments, in which area would you be most likely to allocate more resources? a. derivative projects b. platform projects c. creative projects d. breakthrough projects (a; Difficult; p. 105; AACSB: Reflective thinking skills; LO8)

60.

If you wanted to accelerate growth, in which area would you be most likely to allocate more resources? a. derivative projects b. platform projects c. breakthrough projects d. either platform or breakthrough projects (d; Difficult; p. 111; AACSB: Reflective thinking skills; LO8)

ESSAY QUESTIONS 61.

Discuss the various strategic actions that can be undertaken to manage the uncertainty associated with innovation.

(Difficult; pp. 97 - 100; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

48

62.

Describe the various tools available to assist in making choices about innovation project.

(Difficult; pp. 100-101; AACSB: Reflective thinking skills; LO2)

63.

Explain the step required to conduct the analytic hierarchy process of decision making.

Describe how the results from the process can be used to make an informed decision.

(Difficult; pp. 101-103; AACSB: Reflective thinking skills; LO3)

64.

Define and distinguish between net present value and the internal rate of return. What are some common problems associated with analyses based on discounted cash flows.

(Difficult; pp. 103-106; AACSB: Reflective thinking skills; LO4)

65.

Under what circumstances would a real-option analysis be preferable to a discounted cash flow analysis?

(Difficult; pp. 106-108; AACSB: Reflective thinking skills; LO5)

66.

Explain why companies need to manage product portfolios.

(Difficult; pp. 111-112; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

49

CHAPTER 6 CUSTOMER NEEDS TRUE/FALSE QUESTIONS 1.

When companies ask customers about their needs and then develop products and services to meet those needs, innovation is called market push.

(False; Medium; p. 119; LO1)

2.

Technology-push innovations are often based on radical technological changes that open up new markets, rather than on incremental technological changes within existing markets.

(True; Easy; p. 120; LO1)

3.

Understanding customer needs is a central part of developing new technology products or services because customers don’t purchase product attributes – they purchase the satisfaction of their needs.

(True; Medium; p. 121; LO2)

4.

The best clue to determine if customers have unsolved problems or problems that could be solved in a better way are provided by putting yourself in the customers’ shoes and seeing if you have a need for the product.

(False; Easy; p. 122; AACSB: Reflective thinking skills; LO2)

5.

Companies often fail to accurately assess customer needs because they often underestimate what they already know about customer needs.

(False; Medium; p. 123; AACSB: Reflective thinking skills; LO3)

6.

Prospect theory has shown that people value losses at two to three times the level of gains.

(True; Medium; p. 124; LO3)

7.

Companies need to only consider the interests of the most influential stakeholders that influence customers’ buying decisions when developing a new product or service.

(False; Medium; p. 125; AACSB: Reflective thinking skills; LO4)

8.

If a company prices its product as high as possible in order to earn the highest profit, they are most likely engaged in price skimming.

(True; Medium; p. 128; AACSB: Reflective thinking skills; LO5)

9.

If you overestimate how many units your company will produce, your per unit price will be too low for your costs and your company will not make as much money as projected.

(True; Difficult; p. 129; AACSB: Reflective thinking skills; LO5)

10.

Versioning is the process of offering components to customers for purchase as a group, usually for less than the price of components separately.

(False; Medium; p. 130; LO5)

11.

A homogeneous market is one in which customers fall into a small number of groups on the basis of their needs.

(False; Medium; p. 132; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

50

12.

Market segmentation is the process of dividing a market into groups which have common needs.

(True; Easy; p. 132; LO6)

13.

Market research involves the process of gathering and analyzing information about customer needs, preferences for products, and purchasing decisions.

(True; Easy; p. 134; LO7)

14.

Research has shown that using traditional market research techniques to gather information about new-to-the-world products almost always creates problems.

(True; Medium; p. 135; LO8)

15.

With ethnography, information is solicited only from people who are so unhappy with existing products that they are trying to develop products to meet their own needs.

(False; Medium; p. 137; LO8)

16.

One advantage of focus groups is that they are relatively inexpensive for the amount of information they provide.

(False; Easy; p. 138; LO8)

17.

Since it is difficult to assemble a focus group that is representative of a larger population it is extremely difficult for researchers to generalize from focus group data.

(True; Medium; p. 139; LO8

18.

Established companies have an advantage over new companies when the market and customer preferences for the innovation are well known.

(True; Difficult; p. 139; Reflective thinking skills; LO9)

MULTIPLE CHOICE 19.

What type of innovation is driven by customer needs? a. market push b. technology push c. market pull d. technology pull (c; Medium; p. 119 LO1)

20.

If a company would respond to customers’ desires by developing a line of clothing with built-in music players, the company’s innovation would be classified as: a. market push b. technology push c. market pull d. technology pull (c; Medium; p. 119; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

51

21.

If a company is inventing new technology in the pursuit of the technological advance itself, it would be responding to which force? a. market push b. technology push c. market pull d. technology pull (b; Medium; p. 120; LO1)

22.

Developing the technology for an innovation is the first step in which type of innovation? a. market push b. technology push c. market pull d. technology pull (b; Medium; p. 120; AACSB: Reflective thinking skills; LO1)

23.

When 3M developed thin plastic film with microlouvers they did not have a commercial application in mind. Innovation of this type would be classified as: a. market pull b. technology pull c. market push d. technology push (d; Difficult; p. 20; AACSB: Reflective thinking skills; LO1)

24.

Which of the following characteristics tends to differentiate technology-push innovations from market-pull innovations? a. the innovations are developed with the guidance from customer needs b. innovations are based on incremental technological changes c. innovations require a short period of development during which they are adapted to fit market needs d. innovations face slow customer adopting given an absence of a problem in the marketplace that the technology can solve (d; Difficult; p. 121; AACSB: Reflective thinking skills; LO1)

25.

Which of the following questions helps to determine if customers need a product or service that your company’s thinking of developing? a. do customers have a problem that no existing product or service solves b. is your solution to the problem significantly better than existing alternatives c. both questions are important d. neither question is important (c; Easy; p. 122; LO2)

26.

What is the best way to determine if customers have unsolved problems or problems that could be solved in a better way by a new product? a. listening to customer complaints b. customers expressing an unfulfilled wish c. to put yourself in the customers’ shoes d. all of the above are equally effective (a; Difficult; p. 122; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

52

27.

What would be a reason why companies often fail to assess the needs of a customer? a. product developers tend to be strong believers in the value of the products that they are developing b. product developers often fail to gather information about customer needs because they often underestimate what they already know c. all customer needs can be discovered by talking to customers d. developers often know which customers to ask about their needs (a; Medium; p. 123; AACSB: Reflective thinking skills; LO3)

28.

What would be a reason why companies often fail to assess the needs of a customer? a. product developers tend to be strong believers in the value of the products that they are developing b. companies have structures or processes that make it difficult for them to collect information from customers c. needs change over time d. all of the above are reasons (d; Easy; p. 123; AACSB: Reflective thinking skills; LO3)

29.

Which theory helps to explain why new products must offer benefits to customers that are significantly greater than those offered by existing alternatives? a. ethnography b. penetration pricing theory c. prospect theory d. sampling frame theory (c; Easy; p. 124; LO4)

30.

According to prospect theory, how much better do the benefits of the new product have to be in order for a customer to adopt in? a. one times b. two to three times c. five to ten times d. ten to twenty times (b; Medium; p. 124; LO4)

31.

Why is developing a profitable product difficult? a. you have to figure out a level of sales at which you can make money b. you have to estimate future costs c. you have to estimate future profits d. all of the above are difficult (d; Medium; p. 127; LO5)

32.

What pricing theory includes setting a high price to earn the highest possible profit? a. lead user pricing b. price skimming c. penetration pricing d. bundling (b; Medium; p. 128; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

53

33.

What pricing theory includes setting a low price to get the highest possible market share? a. lead user pricing b. price skimming c. penetration pricing d. bundling (c; Medium; p. 128; AACSB: Reflective thinking skills; LO5)

34.

If you need to introduce a product to a large market and there was the opportunity to raise prices in the future, what pricing strategy would be most effective? a. lead user pricing b. price skimming c. penetration pricing d. bundling (c; Medium; p. 128; AACSB: Reflective thinking skills; LO5)

35.

What pricing strategy was PayPal using when it paid its customers to use its online payment system initially because it knew that if customers adopted its service, it would be hard for competitors to dislodge it, and it could raise prices later? a. penetration pricing b. price skimming c. bundling d. lead user pricing (a; Difficult; p. 128; AACSB: Reflective thinking skills; LO5)

36.

Which of the following factors needs to be considered when setting a pricing strategy? a. the timing of market entry b. the nature of the market into which you are selling c. how products are paid for in your industry d. all of the above (d; Easy; p. 128; LO1)

37.

For which pricing factor do you need to consider the relationship between the price of a product and customer adoption patterns? a. the timing of market entry b. the nature of the market into which you are selling c. how products are paid for in your industry d. the company’s cost structure (a; Medium; p. 128; AACSB: Reflective thinking skills; LO5)

38.

For which pricing factor do you need to remember that even totally new products are limited in their price range because customers will substitute related products if the price of the new product is not within the expected range? a. the timing of market entry b. the nature of the market into which you are selling c. how products are paid for in your industry d. the company’s cost structure (b; Difficult; p. 129; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

54

39.

If prices are routinely discounted for your product, which factor needs particular attention when setting the price? a. the timing of market entry b. the nature of the market into which you are selling c. how products are paid for in your industry d. the company’s cost structure (c; easy; p. 129; LO5)

40.

For which pricing factor is it critically important to understand the relationship between fixed and variable costs? a. the timing of market entry b. the nature of the market into which you are selling c. how products are paid for in your industry d. the company’s cost structure (d; Easy; p. 129; LO5)

41.

What pricing strategy involves offering different forms of a product of different quality at different prices to different sets of customers based on their needs? a. bundling b. lead user pricing c. versioning d. price skimming (c; Medium; p. 129; AACSB: Reflective thinking skills; LO5)

42.

Which pricing strategy involves offering components to customers for purchase as a group, usually for less than the price of components separately? a. bundling b. lead user pricing c. versioning d. price skimming (a; Medium; p. 130; LO5)

43.

If you have a product where one component is purchased once and another component is purchased repeatedly, under which pricing strategy would you probably want to price the nonrepeat component low to encourage customers to make an initial purchase into your system? a. bundling b. lead user pricing c. versioning d. price skimming (a; Medium; p. 131; AACSB: Reflective thinking skills; LO5)

44.

Under what factor is market segmentation particularly helpful? a. when the technology underlying the product or service is effective in solving most customers’ problems b. the importance of the solution that the company can provide is consistent across groups of customers c. the organization has the ability to serve all of the market at once d. competitors respond differently to efforts to sell to different groups of customers (d; Difficult; p. 133; AACSB: Reflective thinking skills; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

55

45.

Why is market research useful? a. it identifies potential customers and the market segments that are most interested in a product or service b. it specifies the product features that customers prefer c. it identifies the factors that influence customer purchasing decisions d. all of the above (d; Easy; p. 134; LO7)

46.

When a researcher is obtaining information specifically for a research project, they are collecting: a. primary data b. secondary data c. deductive data d. inductive data (a; Easy; p. 134; AACSB: Reflective thinking skills; LO7)

47.

What approach do you need to rely on more when conducting market research on new-tothe-world products? a. primary b. secondary c. deductive d. inductive (d; Medium; p. 119; AACSB: Reflective thinking skills; LO1)

48.

When should you consider an iterative approach to market research? a. when the risk of new product failure is low and the cost of obtaining inaccurate feedback is low b. when the risk of new product failure is high and the cost of obtaining inaccurate feedback is low c. when the risk of new product failure is low and the cost of obtaining inaccurate feedback is high d. when the risk of new product failure is high and the cost of obtaining inaccurate feedback is high (c; Difficult; p. 136; AACSB: Reflective thinking skills; LO8)

49.

Which method of collecting data involves the description of a group and its activities based on observation and participation? a. surveys b. ethnography c. lead user technique d. all of the above (b; Medium; p. 136; LO8)

50.

Which method of collecting data is particularly useful for gathering information about customer needs for new-to-the-world products? a. surveys b. focus groups c. lead user techniques d. ethnography (c; Medium; p. 137; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

56

51.

Which method of collecting data solicits information only from people who are so unhappy with existing products that they are trying to develop products to meet their won needs? a. surveys b. focus groups c. lead user techniques d. ethnography (c; Medium; p. 137; AACSB: Reflective thinking skills; LO8)

52.

Which method of collecting data involves discussion sessions of between eight and twelve individuals, who meet for two to three hours to discuss their needs, preferences for different product features, or interest in new products and services? a. surveys b. focus groups c. lead user techniques d. ethnography (b; Easy; p. 138; LO8)

53.

What is a disadvantage of focus groups? a. participants are more likely to answer all of the questions asked b. they have low response rates c. people prefer to complete surveys as compared to attend focus groups d. all of the above are disadvantages (a; Difficult; p. 138; LO8)

54.

Which of the following is an advantage of focus groups? a. they are relatively inexpensive for the amount of information they provide b. they have high response rates c. data obtained from focus group participants are independent of the views of other focus group members d. it is easy to assemble a focus group that is representative of a larger population (b; Medium; p. 139; LO8)

55.

For which method of data collection do you attempt to gather information from a portion of the population in order to make inferences about the population? a. focus groups b. ethnography c. surveys d. lead user technique (c; Easy; p. 1139; LO8)

56.

What term refers to the targeted group of respondents that represents the population about which you seek to gather information? a. census b. beta group c. prototype d. sample frame (d; Easy; p. 119; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

57

57.

Which approach to market research has the advantage of getting information from customers who cannot articulate their needs? a. iterative approaches b. ethnography c. lead user method d. focus groups (b; Medium; p. 140 LO8)

58.

Providing open-ended information from a group with high response rates is an advantage of which method? a. focus groups b. survey research c. lead user method d. ethnography (a; Medium; p. 140; LO8)

59.

Which approach to market research has the advantage of getting information relatively cheaply from a representative sample? a. iterative approaches b. ethnography c. focus groups d. survey research (d; Medium; p. 140; LO8)

60.

If you were looking to get information from customers very interested in adopting your new product, you would most likely use which approach to market research? a. iterative approaches b. ethnography c. lead user method d. focus groups (c; Medium; p. 140; LO8)

61.

If you really needed to get useful information from customers in a new market, which approach to market research would you be most likely to use? a. iterative approaches b. ethnography c. lead user method d. focus groups (a; Medium; p. 140; LO8)

62.

Which approach to market research has the disadvantage of focusing on the needs of a very select part of the market? a. iterative approaches b. ethnography c. lead user analysis d. focus groups (c; Medium; p. 140; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

58

63.

Under which approach to market research would you likely hurt the company’s reputation if the product fails? a. ethnography b. iterative approaches c. focus groups d. lead user analysis (b; Medium; p. 140; LO8)

ESSAY QUESTIONS 64.

Describe and contrast technology push and market pull innovation.

(Difficult; pp. 119-121; AACSB: Reflective thinking skills; LO1)

65.

Define a customer need and describe the process you would follow to identify what a customer needs.

(Difficult; pp. 121-123; AACSB: Reflective thinking skills; LO2)

66.

Explain why it is difficult to identify customer needs.

(Difficult; p. 123; AACSB: Reflective thinking skills; LO3)

67.

Describe the difference between price skimming and penetration pricing. Provide examples of when you may want to use each strategy.

(Difficult; pp. 128-129; AACSB: Reflective thinking skills; LO5)

68.

Explain bundling as a pricing strategy. Under what situations would you consider using a bundling strategy?

(Difficult; p. 130-131; AACSB: Reflective thinking skills; LO5)

69.

Explain why market segmentation is particularly helpful for new products and services (Difficult; pp. 132-133; AACSB: Reflective thinking skills; LO6)

70.

Define market research and explain how it is valuable to companies.

(Difficult; 7. 134; AACSB: Reflective thinking skills; LO7)

71.

Define and explain the advantages and disadvantages associated with ethnography, lead user method, focus groups, and survey research.

(Difficult; pp. 135-139; AACSB: Reflective thinking skills; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

59

CHAPTER 7 PRODUCT DEVELOPMENT TRUE/FALSE QUESTIONS 1.

All product development efforts influence the way in which firms are organized and compete.

(True; Easy; p. 146; LO1)

2.

Increasing product cycle time helps companies by increasing the amount of time that your products can be on the market before becoming obsolete.

(False; Easy; p. 146; LO3)

3.

Concurrent development helps to reduce cycle time because it requires you to complete each step in the development process before you start subsequent steps.

(False; Medium; p. 147; LO6)

4.

Concurrent development may be risky by undertaking steps of the development process before completing the prior stages of the process.

(True; Medium; p. 148; AACSB: Reflective thinking skills; LO6)

5.

Modularity is the degree to which a complex product can be built from smaller components.

(True; Medium; p. 148; AACSB: Reflective thinking skills; LO7)

6.

Although potentially beneficial, modularity can increase your cost of product development.

(False; Medium; p. 149; LO7)

7.

A disadvantage of modularity is that is does not work well unless you can define technical standards that ensure that different components interface correctly.

(True; Medium; p. 150; Reflective thinking skills; LO7)

8.

A product platform is a common technological base to which different features are added, to create a family of products, each targeted at different customers.

(True; Easy; p. 151; LO7)

9.

A cost associated with product platforms is that lower-level products have to be under designed so that they can share systems and components with higher-level products.

(False; Medium; p. 152; LO7)

10.

The Kano method describes a statistical tool that allows someone to assess the relative importance to customers of different product features and to identify the best combination of features to meet their needs.

(False; Medium; p. 53; LO2)

11.

The Kano method differs from conjoint analysis because data is gathered from potential customers about how both the presence and absence of a product feature affects their satisfaction.

(True; Medium; p. 156; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

60

12.

Indifferents are those attributes whose lack of functionality decreases satisfaction and presence of functionality increases satisfaction.

(False; Medium; p. 156; AACSB: Reflective thinking skills; LO2)

13.

A positioning concept test presents the product concept along with mock advertisements.

(True; Medium; p. 158; LO2)

14.

Through the effective use of product development tools, more than half of all new products introduced to the market generate positive economic returns.

(False; Difficult; p. 159; Reflective thinking skills; LO4)

15.

Design for manufacturing helps to ensure that new products don’t fail late in the development process when the cost of failure is very high.

(False; Difficult; p. 159; LO4)

16.

The house of quality helps make your designs coherent by showing the complementary changes that need to be made to satisfy customers or to create a competitive product.

(True; Medium; p. 160; LO4)

17.

Prototyping helps firms to gather accurate information from their customers about their product preferences by providing a focal point for discussion of the product’s design.

(True; Easy; p. 162; LO4

18.

A disadvantage of stage gates is that it increases the possibility of undertaking activities for which insufficient information about upstream stages has been gathered.

(False; Medium; p. 164; LO5)

MULTIPLE CHOICE 19.

Which of the following statements best describes the opening vignette about Apple Computer’s introduction of the first personal digital assistant (PDA)? a. most products are successful if enough research is conducted first b. innovative products are usually successful c. supporting technologies are necessary for products to be successful d. unnecessary features are important to include to introduce new products (c; Difficult; p. 145; AACSB: Reflective thinking skills; LO1)

20.

What can be defined at the creation of new products by companies? a. product cycle time b. product development c. modularity d. prototypes (b; Medium; p. 146; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

61

21.

What can be defined as a measure of how long it takes companies to develop new products or services? a. concurrent development b. product platforms c. product development d. product cycle time (d; Easy; p. 146; LO1)

22.

How do reduced product cycles help companies? a. decreases the amount of time that a product can be on the market before becoming obsolete b. slows the development of product adaptations c. decreases the likelihood that market conditions and customer needs will be the same when the product is introduced as when product development was initiated d. delays product development efforts until more is learned about markets (d; Difficult; p. 147; AACSB: Reflective thinking skills; LO1)

23.

Which of the following polices would be least likely to reduce product development time without reducing the quality of product attributes? a. interdependent product development efforts b. strong senior management support for rapid product development c. experienced product development teams d. focused project teams (a; Difficult; p. 147; AACSB: Reflective thinking skills; LO1)

24.

If while developing a new product, you were undertaking some product development steps simultaneously rather than sequentially, you would most likely be using: a. modularity b. product platforms c. concurrent development d. conjoint analysis (c; Medium; p. 145; AACSB: Reflective thinking skills; LO1)

25.

What can be defined as the degree to which a complex product can be built from smaller components that can be created independently, but function together? a. platforms b. modularity c. concept testing d. prototyping (b; Medium; p. 148; LO1)

26.

What is a benefit of modularity? a. makes it possible to undertake very complex product development efforts b. permits the customization of products to customer needs c. allows you to lower production development costs d. all of the above (d; Easy; p. 149; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

62

27.

What approach did Microsoft shift to when developing Vista in order to make it easier to add new features? a. modularity b. concept testing c. prototyping d.

Kano (a; Difficult; p. 149; AACSB: Reflective thinking skills; LO1)

28.

When products are modular, what type of company is most likely to win competitive battles? a. the most innovative ones b. the least innovative ones c. the most efficient ones d. the least efficient ones (c; Difficult; p. 150; AACSB: Reflective thinking skills; LO1)

29.

Research has shown that modularity makes the most sense when: a. a product is composed of components that are very similar to each other b. customer demand is homogeneous c. the pace of technological change is high d. all of the above (c; Difficult; p. 151; AACSB: Reflective thinking skills; LO1)

30.

What is a common technological base to which different features are added, to create a family of products, each targeted at different customers? a. modularity b. component c. platform d.

Kano (c; Easy; p. 151; LO1)

31.

Which of the following would not generally be considered a benefit of product platforms? a. they allow you to offer greater variety to customers without straining organizational efficiencies b. they permit you to reduce your costs c. they help you to reach the broad market d. they shorten the product cycle time (b; Medium; p. 152; LO1)

32.

Which of the following is a cost associated with product platforms? a. products created off a product platform are more distinctive b. need less cross-functional coordination c. lower-level products have to be over designed so they can share systems and components with higher-level prices d. all of the above are costs associated with product platforms (c; Medium; p. 152; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

63

33.

Given the advantages and disadvantages associated with product platforms, what is the ideal condition for using them? a. dynamic industry that is capital intensive b. dynamic industry that is not capital intensive c. static industry that is capital intensive d. static industry that is not capital intensive (a; Difficult; p. 152; AACSB: Reflective thinking skills; LO1)

34.

Which method allows you to assess the relative importance to customers of different product features and to identify the best combination of features to meet their needs? a.

Kano method b. perceptual map c. concept testing d. conjoint analysis (c; Difficult; p. 153; LO2)

35.

Which method typically uses a factorial design? a. perceptual map b. concept testing c. conjoint analysis d. all of the above use factorial designs (c; Difficult; p. 154; AACSB: Analytic skills; LO2)

36.

If you were working for Michelin and you were interested in determining how much your brand name affects the likelihood that customers would buy your mountain bike tires as compared to one of your competitors, you could use with of the following procedures? a. conjoint analysis b.

Kano method c. perceptual map d. all of the above could be used (d; Medium; p. 154; AACSB: Reflective thinking skills; LO2)

37.

Which of the following is not a limitation associated with conjoint analysis? a. it can only be conducted if a product or service can be specified as a collection of independent attributes b. doesn’t assess the relative importance to customers of different products features c. respondents must be familiar enough with the product category to express their preferences d. need to know what product attributes are salient to potential customers (b; Difficult; p. 156; AACSB: Reflective thinking skills; LO2)

38.

If you did not feel that the relationship between product features and the satisfaction of customer needs was linear, you would want to use which of the following methods? a.

Kano method b. conjoint analysis c. factorial analysis d. all of the above could be used (a; Medium; p. 156; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

64

39.

Which method differentiates product attributes into must haves, delighters, linear satisfiers, and indifferents? a. conjoint analysis b. perceptual maps c.

Kano method d. concept testing (c; Easy; p. 156; LO2)

40.

Which attribute is defined as one that does not provide any additional satisfaction to customers as performance becomes more functional but whose absence makes customers dissatisfied? a. must haves b. delighters c. linear satisfiers d. indifferents (a; Medium; p. 157; LO2)

41.

Which product attribute is defined as one whose lack of functionality does not make customers dissatisfied, but whose presence will add satisfaction? a. must haves b. delighters c. linear satisfiers d. indifferents (b; Medium; p. 157; LO2)

42.

Which product attribute is defined as one whose functionality has no effect on satisfaction either positively or negatively? a. must haves b. delighters c. linear satisfiers d. indifferents (c; Medium; p. 157; LO2)

43.

Which product attribute is defined as one whose lack of functionality decreases satisfaction and presence of functionality increases satisfaction? a. must haves b. delighters c. linear satisfiers d. indifferents (d; Medium; p. 157; LO2)

44.

Which of the following methods provides a visual display of the perceptions of customers about the different features of competing products? a. concept testing b. conjoint analysis c.

Kano method d. perceptual mapping (d; Easy; p. 158; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

65

45.

Which method would tell you whether one product is perceived as better than another at meeting customer’s needs, and what features would need to be changed for your new product to be perceived as better than those of your competitors? a. concept testing b. perceptual mapping c.

Kano method d. conjoint analysis (b; Easy; p. 158; LO2)

46.

For which procedure are customers presented with a new product and are observed for, or asked for, their reaction? a. perceptual mapping b.

Kano method c. concept testing d. conjoint analysis (c; Easy; p. 158; LO2)

47.

Which variety of concept test presents the product concept along with mock advertisements? a. positioning concept test b. perceptual concept test c. core idea concept test d. all of the above (a; Medium; p. 158; AACSB: Reflective thinking skills; LO2)

48.

Which variety of concept test presents the product concept along with mock advertisements? a. positioning concept test b. perceptual concept test c. core idea concept test d. all of the above (c; Medium; p. 158; AACSB: Reflective thinking skills; LO2)

49.

What percent of all new products introduced to the market generates negative economic returns? a. less than 10 percent b. between 20 and 30 percent c. between 30 and 40 percent d. more than 50 percent (d; Medium; p. 159; LO2)

50.

Which product development tool helps to ensure that your new products don’t fail late in the development process? a.

Web-based tools b. prototyping and stage gates c. house of quality d. design for manufacturing (b; Medium; p. 159; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

66

51.

Which product development tool helps you to ensure that your new product has the features that your market research indicted that customers’ value? a.

Web-based tools b. prototyping c. house of quality d. design for manufacturing (c; Medium; p. 159; LO4)

52.

Which product development tool helps you to ensure that you can actually manufacture any new products that you design? a.

Web-based tools b. stage gates c. house of quality d. design for manufacturing (d; Easy; p. 159; LO4)

53.

Which product development tool creates a visual matrix that compares weighted product attributes with weighted customer needs providing a basis for an improved conversation between marketing and design personnel. a.

Web-based tools b. prototyping c. house of quality d. design for manufacturing (c; Difficult; p. 160; AACSB: Reflective thinking skills; LO4)

54.

Which of the following is a reason why the house of quality product development tool is valuable in a wide variety of product development settings? a. it helps to make trade-offs between product attributes in an informed manner b. it helps make designs coherent by showing the complementary changes that you need to make to satisfy customers c. allows the voice of customers to be carried through to manufacturing d. all of the above (d; Easy; p. 160; LO4)

55.

Which product development tool involves minimizing the losses that come from failed efforts to develop products that work or meet customer needs? a.

Web-based tools b. prototyping c. house of quality d. design for manufacturing (b; Easy; p. 162; LO4)

56.

Which product development tool is most likely to increase the chance that a product will fail earlier rather than later? a. prototyping b. web-based tools c. house of quality d. design for manufacturing (a; Difficult; p. 162; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

67

57.

Which product development tool typically takes the form of computer simulations? a.

Web-based tools b. house of quality c. prototyping d. design for manufacturing (c; Easy; p. 162; AACSB: Reflective thinking skills; LO4)

58.

What step typically comes first in the product development process? a. test pilot b. identify opportunity c. test market d. design product (b; Easy; p. 162; LO4)

59.

Which product development tool provides a decision tree that permits evaluation of the option to continue a project at particular milestones? a.

Web-based tools b. stage gates c. house of quality d. design for manufacturing (b; Easy; p. 163; LO5)

60.

With which product development tool are you required to make a “go” or “no-go” decision at different milestones? a. design for manufacturing b. house of quality c.

Web-based tools d. stage gates (d; Medium; p. 163; AACSB: Reflective thinking skills; LO4)

61.

What is the typical first stage in the stage gate product development process? a. idea screening b. building a business case c. design and development d. product verification and validation (a; Medium; p. 164; LO4)

62.

For which product development tool is there a set of rules that structures the new product design process to make products easier to manufacture, thereby reducing costs and improving quality? a.

Web-based tools b. design for manufacturing c. house of quality d. stage gates (b; Easy; p. 164; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

68

ESSAY QUESTIONS 63.

Define product cycle time and explain how reducing product cycle times can be beneficial to a company.

(Difficult; pp. 146-147; AACSB: Reflective thinking skills; LO3)

64.

Describe the process of concurrent development and indicated how it can be used to help reduce product cycle time.

(Difficult; pp. 147-148; AACSB: Reflective thinking skills; LO6)

65.

Define and distinguish between modularity and product platforms. Explain the advantages and disadvantages of each.

(Difficult; pp. 148-153; AACSB: Reflective thinking skills; LO7)

66.

Compare and contrast conjoint analysis and the Kano method. Explain the situations in which each tool should be used.

(Difficult; pp. 153-157; AACSB: Reflective thinking skills; LO2)

67.

Define concept testing. Describe the differences between a positioning concept test and a core idea concept test.

(Difficult; pp. 158-159; AACSB: Reflective thinking skills; LO2)

68.

Compare and contrast the various product development tools (e.g. Web-based tools, house of quality, prototyping, stage gates, and design for manufacturing).

(Difficult; pp. 160-165; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

69

CHAPTER 8 PATENTS TRUE/FALSE QUESTIONS 1.

A study by Edwin Mansfield showed that, on average, one-third of new products can be imitated in six months or less.

(True; Medium; p. 173; LO1)

2.

It is illegal to hire employees from one company as a way to learn what they know about your products and processes.

(False; Medium; p. 173; AACSB: reflective thinking skills; LO1)

3.

A utility patent is a government-granted monopoly that precludes other form using an invention for 15 years in exchange for the inventor’s disclosure about how the invention works.

(False; Medium; p. 174; LO2)

4.

Because they are not embodied in physical form, most services are difficult to patent.

(True; Easy; p. 175; LO2)

5.

You cannot patent laws of nature or any substances that appear naturally such as chemical element.

(True; Easy; p. 175; AACSB: Reflective thinking skills; LO2)

6.

In order for the USPTO to view an invention as useful, it has to have commercial value.

(False; Medium; p. 177; LO2)

7.

The United States awards patents to the first party to invent something, not to the first inventor to file for a patent.

(True; Medium; p. 177; LO2)

8.

In some cases, showing an invention to your friends might constitute public disclosure and negate your chances of receiving a patent.

(False; Medium; p. 83; Reflective thinking skills; LO2)

9.

Due to the expansion of what is patentable, the process of getting a patent is more efficient than it used to be.

(False; Medium; p. 179; AACSB: Reflective thinking skills; LO5)

10.

A design patent is given only for engineered plants that are reproduced asexually.

(False; Easy; p. 180; LO3)

11.

The specification of a patent identifies a particular feature or combination of features that are protected by the patent.

(False; Difficult; p. 180; LO4)

12.

Patents with very broad claims are often more difficult for the patent holder to enforce.

(True; Medium; p. 181; Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

70

13.

If an examiner disallows an initial patent application, the inventor can ask the Board of Examiners to consider the issue (False; Difficult; p. 183; LO4)

14.

Only inventors can apply for, and be awarded patents.

(True; Easy; p. 183; LO4)

15.

Building a picket fence of patents is the process of keeping an inventor from using his or her invention by patenting around it.

(False; Medium; p. 184; LO4)

16.

Patent infringement occurs if another invention does substantially the same thing, in the same way with the same result as a patented invention.

(True; Easy; p. 184; LO4)

17.

If a patent infringement is deemed to be willful, the court will impose triple damages.

(True; Easy; p. 186; LO4)

18.

Patent trolls are start-up companies whose business model is to buy up patents and seek royalties through licensing.

(True; Easy; p. 187; LO4)

19.

Under certain circumstances, patents can be an important barrier to imitation and a powerful mechanism to capture the return to innovation.

(True; Easy; p. 188; LO4)

20.

Blocking others is the main reason given by companies why they patent their inventions.

(False; Easy; p. 188; LO4)

21.

Sometimes other firms can invent around someone else’s patent by coming up with something that accomplishes the same goal as the patented invention without violating the claims of the patent.

(True; Medium; p. 189; LO4)

22.

Patents tend to be more effective in industries in which the core technology is mechanical or electrical and less effective in industries in which the core technology is biological or chemical.

(False; Medium; p. 191; AACSB: Reflective thinking skills; LO4)

MULTIPLE CHOICE 23.

The study completed by Richard Levin and his colleagues showed that, about half the time the average unpatented new product can be duplicated at what percent of the cost of the original development? a. around 90 percent b. around 75 percent c. around 60 percent d. around 50 percent (d; Medium; p. 173; AACSB: Reflective thinking skill; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

71

24.

Which of the following is a typical way companies can figure out how to imitate your new product? a. reverse engineering b. hiring your employees c. looking at public documents d. all of these can be used (d; Medium; p. 174; LO1)

25.

How long do utility patents protect an invention? a.

7 years b.

10 years c.

20 years d.

25 years (c; Medium; p. 174; LO2)

26.

When were patents first used? a.

1200s b.

1800s c.

1900s d.

1950s (b; Medium; p. 174; AACSB: Reflective thinking skill; LO2)

27.

Which article of the Constitution of the U.S. protects the right of citizens to apply for patents? a.

Article 1 b.

Article 3 c.

Article 13 d.

Article 21 (a; Easy; p. 174; LO2)

28.

What has happened to the number of patents granted by the U.S. Patent and Trademark Office since 1983? a. decreased by 5.7 percent b. increased by 5.7 percent c. decreased by 12.5 percent d. increased by 12.5 percent (b; Medium; p. 175; LO2)

29.

Approximately how many patent applications are made to the U.S. Patent and Trademark Office each year? a.

50,000 b.

200,000 c.

350,000 d.

500,000 (c; Medium; p. 175; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

72

30.

Approximately how many patents are awarded each year? a.

50,000 b.

200,000 c.

350,000 d.

500,000 (b; Medium; p. 175; LO2)

31.

Approximately how much is spent each year to obtain U.S. patents? a. less than $2 million b. around $5 million c. around $1 billion d. over $5 billion (d; Medium; p. 175; LO2)

32.

Approximately what percentage of patent applications get awarded? a. less than 20 percent b. around 40 percent c. around 60 percent d. over 75 percent (c; Medium; p. 175; AACSB: Analytic skills; LO2)

33.

Which of the following cannot be patented? a. mechanisms for exploiting ideas b. services c. laws of nature d. none of these can be patented (c; Medium; p. 173; AACSB: Reflective thinking skill; LO2)

34.

You can’t get a utility patent for new or improved products and process for which of the following things? a. a chemical reaction b. a machine c. an article of manufacture d. laws of nature (c; Difficult; p. 176; AACSB: Reflective thinking skill; LO2)

35.

What is required for a patent to be granted? a. it must be novel b. it must be obvious c. it must be of commercial value d. all of the above are required (a; Difficult; p. 177; LO1)

36.

Why was J.M. Smucker Co. patent application for its method of applying filling to its Uncrustables sandwich denied? a. it wasn’t novel b. it wasn’t unobvious c. it wasn’t useful d. for all of these reasons (b; Medium; p. 173; AACSB: Reflective thinking skill; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

73

37.

The first-to-invent rule applies to which situation? a. patents are awarded to the first inventor to file for a patent b. patents are awarded to the first party to invent something c. patents are awarded to the first inventor to file once commercial value of something is demonstrated d. patents are warded to the first party to demonstrate the commercial value of something (b; Difficult; p. 177; LO2)

38.

What need to be done to preserve nondisclosure of a patent application? a. the product can not be advertised b. the product can not be included in a press release c. showing your invention to a friend d. all of the above would violate nondisclosure (d; Medium; p. 178; AACSB: Reflective thinking skill; LO2)

39.

Which of the following can be patented? a. genetically engineered mice b. human genetic sequences c. mathematical formulas applied to a structure d. all of the above can be patented (d; Easy; p. 179; AACSB: Reflective thinking skill; LO5)

40.

What has occurred because of the expansion in what is patentable? a. the expansion into genetically engineered organisms has raised questions about whether patents block follow-on research b. the process of getting a patent has become more efficient c. there has been a decrease in the amount of overlapping patents d. the expansion into business method patents has reduced questions about the degree to which innovation is being hindered by property rights (a; Medium; p. 180; AACSB: Reflective thinking skill; LO5)

41.

Which type of patent protects the appearance of a product? a. utility patent b. design patent c. plant patent d. the appearance of a product can not be patented (b; Medium; p. 180; AACSB: Reflective thinking skill; LO3)

42.

Which type of patent protects engineered plants that are reproduced asexually? a. utility patent b. design patent c. plant patent d. engineered plants cannot be patented (c; Medium; p. 180; AACSB: Reflective thinking skill; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

74

43.

Which type of patent would be used to patent the idea of fast-food restaurant drive-through window? a. utility patent b. design patent c. plant patent d. the idea cannot be patented (d; Difficult; p. 180; AACSB: Reflective thinking skill; LO3)

44.

Which part of a patent describes how the invention works? a. design b. thicket c. specification d. set of claims (c; Easy; p. 180; LO4)

45.

Which part of a patent includes statements that identify a particular feature or combination of features that are protected by the patent? a. design b. thicket c. specification d. set of claims (d; Easy; p. 180; LO1)

46.

What type of patent is a basic patent in a technical areas on which a wide range of inventions are built? a. utility patent b. design patent c. pioneering patent d. plant patent (c; Medium; p. 181; LO3)

47.

What type of patent did NEC receive for its carbon nanotubes which are being used for fuel cell batteries in notebook computers, transistors, wide-screen televisions, and sensors? a. utility patent b. pioneering patent c. design patent d. plant patent (b; Difficult; p. 181; AACSB: Reflective thinking skill; LO3)

48.

Which type of patent has the lowest possible number of claims that can be filed? a. utility patent b. design patent c. pioneering patent d. all types of patents have the same number of eligible claims (b; Medium; p. 173; AACSB: Reflective thinking skill; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

75

49.

What is the first step an inventor has if a patent examiner denies a claim? a. file a response to the examiner and have the response evaluated b. appeal to the Board of Patent Appeals for a conference with a senior patent examiner c. ask the Board of Examiners to consider the issue d. the inventor doesn’t have any recourse (a; Medium; p. 183; AACSB: Reflective thinking skill; LO4)

50.

What are the set of patents that are obtained to offer protection around a core invention called? a. patent trolls b. pioneering patents c. picket fences d. bracketing (c; Medium; p. 184; LO4)

51.

What was Gillette engaged in when they obtained 22 different patents to protect the Sensor razor, including patents on the blades, the handle design, and the packaging container? a. using patent trolls b. developing a pioneering patent c. building a picket fence d. using bracketing (c; Difficult; p. 184; AACSB: Reflective thinking skill; LO4)

52.

What is the process of keeping an inventor from using his or her invention by patenting around it called? a. patent trolling b. pioneer patenting c. picket fences building d. bracketing (d; Medium; p. 184; LO4)

53.

What would you be doing if one of your competitors invented a filament for a new higher intensity light and you patented ancillary inventions, such as a new bulb, new housing, new connections, and a new shade with the intention of keeping your competitor from using their new invention? a. patent trolling b. pioneer patenting c. picket fence building d. bracketing (d; Difficult; p. 184; AACSB: Reflective thinking skill; LO4)

54.

What is it called with someone to whom you have not licensed your invention makes, uses, sells, or imports something covered by the claims or your patent? a. infringement b. patent trolling c. bracketing d. picket fence building (a; Easy; p. 184; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

76

55.

What would it be called if you created a new bicycle wheel that was a different size than a patented wheel but performed the same function in a similar manner to the patented wheel? a. injunction b. infringement c. bracketing d. patent trolling (b; Medium; p. 185; AACSB: Reflective thinking skill; LO3)

56.

What would it be called if you created a fuel cell powered car that performed basically the same function as an internal combustion engine? a. committing an product that could be subject to injunction b. infringing on a the previous patent c. creating a bracket around a previous patent d. developing a product eligible for a utility patent (d; Difficult; p. 185; AACSB: Reflective thinking skill; LO3)

57.

Under what circumstance can a patent be declared invalid? a. if the invention is deemed obvious to people trained in the relevant technical art b. if the patent holder is shown to have publicly disclosed the patent application c. if the patent holder sold the invention more than one year before filing the patent application d. the patent would be invalid under all of these conditions (d; Medium; p. 185; AACSB: Reflective thinking skill; LO4)

58.

If an infringement is determined to be not deliberate, the penalty is typically: a. an amount equal to what would have been paid if the product had been licensed b. twice the amount of what would have been paid if the product had been licensed c. three times the amount of what would have been paid if the product had been licensed d. ten times the amount of what would have been paid if the product had been licensed (a; Medium; p. 186; AACSB: Reflective thinking skill; LO4)

59.

If an infringement is determined to be willful, the penalty is typically: a. an amount equal to what would have been paid if the product had been licensed b. twice the amount of what would have been paid if the product had been licensed c. three times the amount of what would have been paid if the product had been licensed d. ten times the amount of what would have been paid if the product had been licensed (c; Medium; p. 186; AACSB: Reflective thinking skill; LO4)

60.

What would you call it if a start-up company’s business model was to buy up patents and seek royalties through licensing the patents? a. pioneer patenting b. patent trolling c. picket fencing d. patent infringing (b; Medium; p. 187; AACSB: Reflective thinking skill; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

77

61.

What is the main strategy of a patent troll? a. litigation b. bankruptcy c. bracketing d. building picket fences (a; Easy; p. 187; LO4)

62.

Which of the following is not an advantage of patenting? a. legal protection b. nondisclosure c. barrier to imitation d. value chain leverage (b; Difficult; p. 189; AACSB: Reflective thinking skill; LO4)

63.

What advantage of patenting is a result of a patent being a verifiable source of competitive advantage? a. value chain leverage b. raising funds c. markets for knowledge d. legal protection (b; Difficult; p. 188; AACSB: Reflective thinking skill; LO4)

64.

What was given as the top reason given by companies for patenting? a. blocking others b. preventing lawsuits c. licensing d. preventing copying (d; Medium; p. 188; LO4)

65.

Of the following, what reason did companies give as the least important for patenting? a. blocking others b. preventing lawsuits c. licensing d. preventing copying (c; Medium; p. 188; LO4)

66.

If a firm comes up with something that accomplishes the same goal as a patented invention without violating the claims of the patent, they are said to be: a. inventing around b. bracketing c. licensing d. picket fencing (a; Medium; p. 189; AACSB: Reflective thinking skill; LO4)

67.

What is not a disadvantage associated with patenting? a. not always effective at deterring imitation b. facilitates markets for knowledge c. disclosure not always work the 20-year monopoly d. sometimes cannot be enforced (b; Difficult; p. 191; AACSB: Reflective thinking skill; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

78

68.

Which industry enjoys the greatest effectiveness of product patents? a. organic chemicals b. inorganic chemicals c. aircraft and parts d. drugs (d; Medium; p. 192; LO4)

69.

Which industry has the lowest effectiveness when it comes product patents? a. organic chemicals b. inorganic chemicals c. aircraft and parts d. drugs (c; Medium; p. 192; LO4)

ESSAY QUESTIONS 70.

Explain why intellectual property protection is important for companies.

(Difficult; pp. 172-174; AACSB: Reflective thinking skills; LO2)

71.

Define a patent and describe what is patentable and what is not.

(Difficult; pp. 174-176; AACSB: Reflective thinking skills; LO2)

72.

Discuss what is required in order for a patent application to be deemed novel, nonobvious, and useful.

(Difficult; pp. 177; AACSB: Reflective thinking skills; LO2)

73.

Describe the various parts of a patent and explain what they protect.

(Difficult; pp. 180-182; AACSB: Reflective thinking skills; LO3)

74.

Describe how to effectively use patents. Specifically discuss how picket fences, brackets, litigation, and patent trolls can be used effectively (Difficult; pp. 184-187; AACSB: Reflective thinking skills; LO4)

75.

Explain the advantages and disadvantages of patenting.

(Difficult; pp. 188-191; AACSB: Reflective thinking skills; LO4)

76.

Explain why the effectiveness of patents varies by industry.

(Difficult; pp. 191-192; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

79

CHAPTER 9 TRADE SECRETS, TRADEMARKS, AND COPYRIGHTS TRUE/FALSE QUESTIONS 1.

It is virtually impossible to keep something secret by trying to keep it secret.

(False; Medium; p. 198; LO1)

2.

Secrecy works best when the information that is being kept secret involves tacit knowledge.

(True; Easy; p. 199; LO1)

3.

The less observable-in-use a product is the less it can be kept secret.

(False; Medium; p. 200; LO2)

4.

In the United States, trade secrets are governed primary through the Uniform Trade Secrets Act. (True; Easy; p. 200; LO2)

5.

In order to have a trade secret, the information must have some economic value.

(True; Medium; p. 201; LO2)

6.

Frequently trade secrets offer a longer time horizon of protection than a patent.

(True; Medium; p. 201; AACSB: Reflective thinking skills; LO2)

7.

Patents are better than trade secrets when the product cycle is short.

(False; Medium; p. 202; AACSB: Reflective thinking skills; LO2)

8.

Nondisclosure agreements bar employees from working for competitors for a period of time after their employment has ended.

(False; Medium; p. 203; LO4)

9.

Unless a company has the employee sign over their rights to intellectual property created during their employment, the rights to the technology reside with the employee.

(True; Easy; p. 204; AACSB: Reflective thinking skills; LO4)

10.

A copyright is a legal protection given to the authors of original literary, musical works, or name.

(False; Difficult; p. 207; LO5)

11.

Copyrights give the right to sue to collect damages if someone else infringes the copyright from the time the work was created until 70 years after the author’s death.

(True; Easy; p. 207; LO5)

12.

If the court determines that the infringement on your copyright was intentional, you can collect triple the value of your loss as damages.

(True; Easy; p. 209; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

80

13.

The Digital Millennium Copyright Act requires that all digital recording devices include a Serial Copy Management System.

(False; Medium; p. 210; LO6)

14.

A trade or service mark can be obtained on any word, number, symbol, phrase, color, design, or even smell that distinguishes the products and services of one company form those of another.

(True; Medium; p. 213; LO7)

15.

In order to obtain a trademark you are required to file an application with the U.S. Patent and Trademark Office.

(False; Medium; p. 214; AACSB: Reflective thinking skills; LO8)

16.

Cancellation of a trademark occurs when someone else can show that the owner of the mark has stopped using it.

(False; Medium; p. 215; LO7)

17.

Domain names must be registered by the Internet Corporation for Assigned Names and Numbers.

(True; Easy; p. 216; LO7)

18.

In 2006, there over 5 billion domain names in use.

(False; Medium; p. 217; LO7)

19.

There is no such thing as an international copyright, trademark, or patent.

(True; Medium; p. 218; LO9)

20.

The U.S. is the country with the most patent applications in 2006.

(False; Medium; p. 219; LO9)

21.

The Madrid Protocol gives any individual who is a resident or citizen of one of the 70 signatories to the agreement the ability to file for international registration in as many of the signatory countries as they want through their home country’s patent and trademark office.

(True; Medium; p. 221; LO9)

22.

The Patent Cooperation Treaty makes uniform at 20 years the length of patents in all signatory countries.

(False; Medium; p. 221; LO9)

MULTIPLE CHOICE 23.

Under which of the following situations would efforts to mitigate imitation by keeping information about a new product or service secret work best? a. if several people know the information necessary to imitate your product or service b. it the new product or service is complex c. when the information that is being kept secret does not involve tacit knowledge d. all of the above are correct (b; Medium; p. 199; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

81

24.

If you have knowledge about how to do something that is not documented in written form, you possess: a. codified knowledge b. elicit knowledge c. observable-in-use knowledge d. tacit knowledge (d; Medium; p. 200; LO2)

25.

For what area does secrecy work least well? a. products b. material c. processes d. inputs (a; Medium; p. 200; AACSB: Reflective thinking skills; LO2)

26.

What can be defined as information including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value, actual or potential from not being generally known, and not being readily ascertainable by proper means by other persons? a. secrets b. trade secrets c. patents d. trademark (b; Easy; p. 200; LO3)

27.

Which of the following can be a trade secret? a. manufacturing process b. chemical process c. food recipe d. all of the above can be a trade secret (d; Easy; p. 200; LO3)

28.

What condition needs to be met for the courts to hold that something is a trade secret? a. the information must be known to people outside of your company b. the information by itself does not have any economic values c. you take reasonable measures to keep the information secret d. the information must not generate a competitive advantage (c; Medium; p. 201; LO3)

29.

Kentucky Fried Chicken’s recipe for fried chicken has not been copied because the recipe is: a. patented b. copyrighted c. trademarked d. a trade secret (d; Medium; p. 201; AACSB: Reflective thinking skills; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

82

30.

What is required to meet the requirement for a trade secret that reasonable measures be taken to keep the information secret? a. limit access to the information to people who need it b. have the personnel with access to the information agree, in writing, to keep it secret c. limit access to nonemployees to your facilities d. all of the above (d; Easy; p. 201 LO3)

31.

What is a reason why you may choose secrecy as a strategy? a. trade secrets offer a shorter time horizon of protection b. don’t want to risk the independent discovery and exploitation of your invention c. you have a product for which secrecy is particularly effective d. don’t want to adopt secrecy policies (c; Medium; p. 201; AACSB: Reflective thinking skills; LO3)

32.

Under which situation are trade secrets better than patents? a. when the patent would be narrow b. when reverse engineering is possible c. when the market life of a product is close to 20 years d. when it is easy to identify a trade secret (a; Difficult; p. 202; AACSB: Reflective thinking skills; LO3)

33.

Under which situation are patents better than trade secrets? a. the secret cannot be patented b. the product cycle is short c. the patent would be narrow d. reverse engineering is possible (d; Difficult; p. 202; AACSB: Reflective thinking skills; LO3)

34.

What is a legal document in which a person agrees not to make private information public? a. nondisclosure agreement b. trademark c. noncomplete agreement d. copyright (a; Medium; p. 203; LO4)

35.

What is required for a nondisclosure agreement to be defendable? a. must be of a limited length b. must have a limited geographic breadth c. must bar the employee from working for other companies d. must provide some form of compensation (d; Medium; p. 203; LO4)

36.

Wal-Mart sued Drugstore.com and the venture capital firm Kleiner Perkins when Drugstore.com hired former Wal-Mart employees who had developed Wal-Mart’s system for Internet retailing because they felt which of the following was violated? a. patent b. nondisclosure agreement c. noncompete agreement d. copyright (b; Difficult; p. 203; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

83

37.

What is a legal document that bars a person from working for a competitor for a period of time after his or her employment has ended? a. nondisclosure agreement b. copyright c. noncompete agreement d. trademark (c; Medium; p. 204; LO4)

38.

What is required for a noncompete agreement to be enforceable? a. the agreement must specify legitimate uses for the information b. the agreement must state what must be done with any documents or materials that are transferred to the employee during and after employment c. the agreement must provide some form of consideration d. all of the above are required (c; Difficult; p. 204; LO4)

39.

The lesson to be learned from the example provided in the text about the large medical company in Minnesota is: a. copyrights can be effective at protecting a company’s innovations b. it is easy to circumvent patents c. noncompete and nondisclosure agreements can impede innovation d. trade secrets are more effective for a longer time than patents (c; Difficult; p. 206; AACSB: Reflective thinking skills; LO4)

40.

What is a legal protection given to the authors of original literary, musical, or artistic work called? a. nondisclosure agreement b. copyright c. noncompete agreement d. trademark (b; Medium; p. 207; LO5)

41.

Which of the following cannot be copyrighted? a. plays b. databases c. names d. pantomimes (c; Difficult; p. 207; LO5)

42.

What is required in order to receive a copyright? a. must be legal b. must be novel c. must be tangible d. all of the above are required (c; Medium; p. 207; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

84

43.

Which of the following can be copyrighted? a. discovery b. slogan c. calendar d. sculpture (d; Difficult; p. 207; LO5)

44.

How is a copyright obtained? a. putting intellectual property into tangible form b. apply from the U.S. Patent and Trademark Office c. recording something on a CD d. all of the above are ways to obtain a copyright (d; Easy; p. 207; LO6)

45.

How long is the statute of limitation on infringements of copyrights? a.

3 years b.

5 years c.

7 years d. there is no statute of limitations (b; Medium; p. 209; LO5)

46.

What were copyrights originally intended to protect? a. sound recordings b. written documents c. computer software d. images (b; Easy; p. 210; LO5)

47.

Why are more computer software companies using very restrictive end user license agreements? a. to protect patents b. protect noncompete agreements c. to deter illegal copying and distribution d. maintain trade secrets (c; Medium; p. 210; AACSB: Reflective thinking skills; LO5)

48.

Which act requires that all digital recording devices include a Serial Copy Management System? a.

Audio Home Recording Act b.

Digital Millennium Copyright Act c.

Trade-Related Aspects of Intellectual Property Rights Act d.

Patent Cooperation Act (a; Medium; p. 210; LO5)

49.

Which act made it illegal to circumvent a technological device that is used to prevent duplication of copyrighted material? a.

Audio Home Recording Act b.

Digital Millennium Copyright Act c.

Trade-Related Aspects of Intellectual Property Rights Act d.

Patent Cooperation Act (b; Medium; p. 210; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

85

50.

What part of a computer software program can copyrights be used to protect? a. mathematical formula b. mathematical equations c. ideas behind mathematical equations d. source code (d; Easy; p. 211; LO5)

51.

How long does copyright protection last? a.

7 years b.

20 years c.

70 years after the author’s death d. indefinitely (c; Easy; p. 212; LO5)

52.

Which of the following is a device to identify the provider of a product or service? a. copyright b. domain name c. trademark d. patent (c; Easy; p. 213; LO7)

53.

Which of the following offers the least intellectual property protection? a. patent b. copyright c. trade secret d. trademark (d; Difficult; p. 213; LO7)

54.

Which of the following can not be trademarked? a.

Porsche AG use of 911 b.

Nike’s swoosh symbol c. a realtor’s use of house in their name d.

Entrepreneur Magazine’s use of entrepreneur in its name (c; Medium; p. 213; AACSB: Reflective thinking skills; LO7)

55.

What is required to obtain a trademark? a. send an application to the USPTO b. payment of a fee c. complete a drawing of the mark d. all of the above are required (d; Easy; p. 214; LO8)

56.

If not renewed, how long does the ownership of a trade or service mark last? a.

3 years b.

5 years c.

10 years d.

20 years (c; Medium; p. 215; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

86

57.

How long after a trademark is issued does an affidavit need to be filed attesting that the mark is still in use? a.

5 years b.

10 years c.

20 years d. an affidavit does not need to be filed (a; Medium; p. 215; LO7)

58.

How can trade or service marks be invalidated? a. through cancellation proceedings b. through abandonment c. through generic meaning d. all of the above (d; Easy; p. 215; LO8)

59.

Why does Bayer work hard to ensure that Aspirin is not used to refer to all pain medications? a. to maintain their patent b. to maintain their copyright c. to maintain their trademark d. to maintain their servicemark (c; Easy; p. 215; AACSB: Reflective thinking skills; LO7)

60.

What are names used on Web sites to identify an organization providing a good or service? a. trade secrets b. domain names c. copyrights d. trademarks (b; Easy; p. 216; LO7)

61.

About how many domain names were in use in 1994? a. none b.

30,000 c.

10,000,000 d.

50,000,000 (b; Medium; p. 217; LO7)

62.

About home many domain names were there in 2006? a.

500,000 b.

5,000,000 c.

50,000,000 d.

5,000,000,000 (c; Medium; p. 217; LO7)

63.

Which of the following policies regarding intellectual property are the same across different countries? a. first to invent b. disclosure c. requirement to manufacture d. all of the above are different in different cultures (d; Easy; p. 219; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

87

64.

Research has revealed what type of relationship between the strength of intellectual property protection in countries and their level of per capita income? a. positive correlation b. negative correlation c. no relationship d. inverse relationship (a; Medium; p. 199; AACSB: Analytic skills; LO8)

65.

Which agreement set a minimum level of copyright protection that has to be provided in signatory countries? a.

Berne Convention b.

Madrid Protocol c.

European Patent Convention d.

Patent Cooperation Treaty (a; Medium; p. 221; LO8)

66.

Which agreement requires the same level of protection to be provided both to citizens and noncitizens? a.

Berne Convention b.

Madrid Protocol c.

European Patent Convention d.

Patent Cooperation Treaty (a; Medium; p. 221; LO8)

67.

Which agreement provides any individual who is a resident or citizen of one of the 70 signatories to the agreement the ability to file for international al registration in as many of the signatory countries as they want through their home country’s patent and trademark office? a.

Berne Convention b.

Madrid Protocol c.

European Patent Convention d.

Patent Cooperation Treaty (b; Medium; p. 221; LO8)

68.

Which agreement allows an inventor to apply for patents in all participating European countries through a single application? a.

Paris Convention b.

Madrid Protocol c.

European Patent Convention d.

Patent Cooperation Treaty (c; Medium; p. 221; LO8)

69.

Which agreement prohibits the provision of differential patent rights to citizens of a country, establishes priority in patent applications, and allows you to disclose your invention to file for another country’s patents? a.

Paris Convention b.

Madrid Protocol c.

European Patent Convention d.

Patent Cooperation Treaty (a; Medium; p. 221; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

88

70.

Which agreement allows inventors in the 100 signatory countries to apply for patent protection in one country and preserve the right to apply for patent protection in all other signatory countries for 30 months? a.

Paris Convention b.

Trade-Related Aspects of Intellectual Property Rights Agreement c.

European Patent Convention d.

Patent Cooperation Treaty (d; Medium; p. 221; LO8)

71.

Which agreement makes uniform the length of patents in all signatory countries? a.

Paris Convention b.

Trade-Related Aspects of Intellectual Property Rights Agreement c.

European Patent Convention d.

Patent Cooperation Treaty (b; Medium; p. 221; LO8)

72.

Which agreement requires all signatory countries to provide patents on chemical and pharmaceutical products? a.

Paris Convention b.

Trade-Related Aspects of Intellectual Property Rights Agreement c.

European Patent Convention d.

Patent Cooperation Treaty (b; Medium; p. 221; LO8)

73.

Which agreement requires all signatory countries to restrict mandatory licensing? a.

Paris Convention b.

Trade-Related Aspects of Intellectual Property Rights Agreement c.

European Patent Convention d.

Patent Cooperation Treaty (b; Medium; p. 221; LO8)

ESSAY QUESTIONS 74.

Explain how secrecy can be used as a strategy. When can it be most effective?

(Difficult; pp. 198-202; AACSB: Reflective thinking skills; LO1)

75.

What are nondisclosure and noncompete agreements? Why are they important in enforcing trade secrets?

(Difficult; pp. 203-204; AACSB: Reflective thinking skills; LO4)

76.

Define a copyright and explain what can and cannot be copyrighted.

(Difficult; pp. 207; AACSB: Reflective thinking skills; LO5)

77.

Describe the recent developments that have been taken to strengthen copyrights.

(Difficult; pp. 210-211; AACSB: Reflective thinking skills; LO5)

78.

Define a trademark and explain how they can be used to benefit a company.

(Difficult; pp. 88-89; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

89

79.

Explain the international differences in how intellectual property is protected. Also discuss the major international agreements on copyrights, trademarks, and patents that have facilitated the international protection of intellectual property.

(Difficult; pp. 218-222; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

90

CHAPTER 10 CAPTURING VALUE FROM INNOVATION TRUE/FALSE QUESTIONS 1.

Most non-legal barriers to imitation are more effective at deterring innovation than legal barriers.

(True; Medium; p. 228; LO1)

2.

R&D managers indicated that lead time was the most effective way to deter imitation of processes.

(False; Medium; p. 229; AACSB: Reflective thinking skills; LO2)

3.

One way to deter imitation and appropriate the returns to your investment in innovation is by obtaining control over the key resources needed to create and sell your product or service.

(True; Easy; p. 229; LO3)

4.

Control of human resources can be one way to gain control over resources as a barrier to imitation.

(True; Medium; p. 230; AACSB: Reflective thinking skills; LO3)

5.

Controlling resources is most effective at deterring imitation when the key resources are abundant and also a rival good.

(False; Medium; p. 230; AACSB: Reflective thinking skills; LO3)

6.

Reputation as a way to deter imitation matters more in industries that serve consumers than industries that serve businesses.

(True; Difficult; p. 231; AACSB: Reflective thinking skills; LO6)

7.

When attempting to deter imitation through exploiting economies of scale, you seek to gain control over the operation and compatibility of a product or service (False; Medium; p. 232; LO7)

8.

In general, economies of scale provide more of a barrier to imitation for large established firms.

(True; Easy; p. 233; LO4)

9.

A learning curve is a graphical depiction of how well someone does at something as a function of the number of times that they have done it (True; Easy; p. 233 LO5)

10.

Learning that is based on tacit knowledge is less proprietary than learning that is easily codified.

(False; Difficult; p. 234; AACSB: Reflective thinking skills; LO5)

11.

The learning curve is a much better mechanism to appropriate the returns to investment in innovation for new companies than for established ones.

(False; Easy; p. 234; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

91

12.

Several studies have shown that first movers often are able to obtain a higher market share and earn higher profits than later entrants.

(True; Medium; p. 235; LO8)

13.

Being a first mover makes it more difficult to exploit switching costs.

(False; Medium; p. 235; AACSB: Reflective thinking skills; LO8)

14.

As a late mover, you can benefit from the ability to free ride on the investments that the first mover makes in creating supply infrastructure and distribution channels.

(True; Easy; p. 236 LO8)

15.

As a first mover, your entry into the market is often better timed to take advantage of the development of complementary technology.

(False; Medium; p. 237; AACSB: Reflective thinking skills; LO8)

16.

You are better off being a first mover in advertising-intensive industries, and industries in which customer learn very little or vey slowly about new products.

(True; Difficult; p. 237; LO8)

17.

You are better off being a late mover in industries where network externalities exist.

(False; Medium; p. 238; LO8)

18.

Teece’s model is designed to help figure out when you are better off being an imitator and developing new products, and when you are better off being an innovator and letting your competitors develop them.

(False; Difficult; p. 239; LO9)

19.

Teece’s model is based on the idea that imitators are more successful than innovators when innovations are easy to imitate, a dominant design has emerged in an industry, and imitators control the key complementary assets in the industry.

(True; Easy; p. 240; LO9)

20.

To succeed in industries in which the imitation of new products and services is easy, and convergence on a dominant design has occurred, innovators need to gain control over complementary assets quickly.

(True; Medium; p. 241; AACSB: Reflective thinking skills; LO9)

21.

Complementary assets are specialized if they do not need to be modified to fit the innovation.

(False; Medium; p. 241; AACSB: Reflective thinking skills; LO9)

22.

You are better off being an innovator if a dominant design exits.

(False; Medium; p. 242; AACSB: Reflective thinking skills; LO9)

23.

You are better off being an imitator if complementary assets are important and specialized.

(True; Medium; p. 242; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

92

MULTIPLE CHOICE 24.

Which of the following would be a legal way that companies appropriate the return to investment in innovation? a. developing brand name reputation b. developing trade secrets c. controlling key resources d. taking advantage of economies of scale (b; Easy; p. 228; LO1)

25.

Which is a reason why you would want to use a non-legal barrier to imitation? a. legal barriers to imitation cannot be obtained for many products and services b. most non-legal barriers to imitation are more effective at deterring innovation than legal barriers c. the degree of protection provided by legal mechanisms in certain technical areas are uncertain d. all of the above are reasons (d; Easy; p. 229; AACSB: Reflective thinking skills; LO2)

26.

What is not a reason why you would want to use a non-legal barrier to imitation? a. legal and non-legal barriers are mutually exclusive b. technological change has weakened the value of the legal barriers to imitation in many high-technology industries c. legal barriers to imitation cannot be obtained for many products and services d. all of the above are reasons (a; Medium; p. 228; AACSB: Reflective thinking skills; LO2)

27.

What is the top reason given by R&D managers why they believe that different barriers to imitation are effective for products? a. secrecy b. patents c. lead time d. complementary assets in manufacturing (c; Difficult; p. 229; LO2)

28.

What is the top reason given by R&D managers why they believe that different barriers to imitation are effective for processes? a. secrecy b. patents c. lead time d. complementary assets in manufacturing (a; Difficult; p. 229; AACSB: Reflective thinking skills; LO2)

29.

What key resource are you controlling if you seek to gain control over shelf space in supermarkets? a. manufacturing facility b. distribution channel c. key input d. key output (b; Easy; p. 229; AACSB: Reflective thinking skills; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

93

30.

What key resource are you controlling if you seek to gain control over part of the communication spectrum? a. manufacturing facility b. distribution channel c. key input d. key output (c; Medium; p. 229; AACSB: Reflective thinking skills; LO3)

31.

What key resource are you controlling if you seek to gain control over a billion-dollar semiconductor lab? a. manufacturing facility b. distribution channel c. key input d. key output (a; Medium; p. 229; AACSB: Reflective thinking skills; LO3)

32.

Which of the following would not be considered a key resource that could be used to control imitation? a. natural resources b. human resources c. physical resources d. all of the above could be key resources used to control imitation (d; Medium; p. 230; AACSB: Reflective thinking skills; LO3)

33.

Under which situation would controlling resources be most effective at deterring imitation? a. when the key resources are rare and also a rival good b. when the key resources are abundant and also a rival good c. when the key resources are rare and also a complementary good d. when the key resources are abundant and also a complementary good (a; Difficult; p. 230; AACSB: Reflective thinking skills; LO3)

34.

Which is a non-legal barrier to imitation of your innovation if you were developing an embedded practice of providing high quality customer service? a. controlling key resources b. creating a brand name reputation c. establishing architectural control d. exploiting economies of scale (b; Easy; p. 231; AACSB: Reflective thinking skills; LO4)

35.

In which industry would establishing a reputation work best at controlling imitation? a. fabric manufacturer b. lumber yard c. toy manufacture d. all of the above (c; Medium; p. 231; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

94

36.

What non-legal barrier to imitation involves control over the operation and compatibility of a product or service? a. controlling key resources b. obtaining architectural control c. moving up the learning curve d. exploiting first mover advantage (b; Medium; p. 232; LO4)

37.

What non-legal barrier to imitation involves the reduction in unit costs that occurs as production volume increases? a. exploiting economies of scale b. controlling key resources c. obtaining architectural control d. moving up the learning curve (a; Medium; p. 232; LO4)

38.

In general, economies of scale provide more of a barrier to imitation for which type of firm? a. small new firms b. small established firms c. large new firms d. large established firms (d; Medium; p. 233; LO4)

39.

In which of the following industries would the learning curve be a stronger deterrent to imitation? a. computer networking b. bridge design c. aerospace d. computer assembly (c; Medium; p. 234; AACSB: Reflective thinking skills; LO5)

40.

How can being a first mover help you to appropriate the returns to investment in innovation? a. you are more likely to obtain control over key resources b. you can target the best customers in a market c. you can exploit switching costs d. all of the above (d; Easy; p. 235; LO8)

41.

Which of the following is not a form of switching costs? a. expense necessary to purchase a replacement product b. psychological expense c. time spent learning the new system d. breaking contractual arrangements (b; Difficult; 235; LO8)

42.

What is usually associated with being the first mover? a. low market share and lower profits b. low market share and higher profits c. high market share and lower profits d. high market share and higher profits (d; Medium; p. 235; AACSB: Reflective thinking skills; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

95

43.

What type of switching cost is restricting customers form switching from Apple to Microsoft as a supplier of graphics software? a. expense necessary to purchase a replacement product b. psychological expense c. time spent learning the new system d. breaking contractual arrangements (a; Medium; p. 235; AACSB: Reflective thinking skills; LO8)

44.

What type of switching cost is being incurred when cellular telephone companies require their customers to pay stiff penalties if they change carriers? a. expense necessary to purchase a replacement product b. psychological expense c. expenses of breaking contractual arrangements d. time spent learning new systems (c; Medium; p. 236; AACSB: Reflective thinking skills; LO8)

45.

What percent of first movers were successful in bringing their product to market? a.

27 percent b.

47 percent c.

57 percent d.

67 percent (b; Medium; p. 236; LO8)

46.

What would be considered an advantage of being the late mover into a market? a. you benefit from the ability to free ride on the investments that the first mover makes in creating supply infrastructure and distribution channels b. you can design products that correct the mistakes that the first mover made in meeting customer demand c. you can leapfrog ahead of the first mover’s technology d. all of the above (d; Easy; p. 236; LO8)

47.

When DEKA Research developed its IBOT wheelchair, it had to create its own ball bearing because no other company could supply it. What late mover advantage could be realized after other suppliers figured out how to create the ball bearings? a. benefit from the ability to free ride on investments that the first mover makes in creating supply infrastructure and distribution channels b. design of products that corrects the mistakes that the first mover made in meeting customer demand c. leapfrogging ahead of the first mover’s technology d. benefit from the investments in R&D that the first mover has made (a; Difficult; p. 237; AACSB: Reflective thinking skills; LO8)

48.

Which company was a first mover that was not successful? a.

IBM and the mainframe computer b.

Google and the internet search engine c.

Xerox and the fax machine d.

Canon and the 35 mm camera (c; Medium; p. 237; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

96

49.

Which of the following was a successful company that was not a first mover? a.

Nintendo and the video game b.

Amazon.com and online bookselling c.

Kodak and the 8 mm video camera d.

Netscape and the Web browser (b; Medium; p. 237; LO8)

50.

In which situation would a first mover benefit most? a. industries in which products and services are inexpensive and infrequently purchased b. industries in which products require distributors to hold small stocks and few additional parts c. in industries where network externalities exist d. in industries were patents are ineffective (c; Medium; p. 239; AACSB: Reflective thinking skills; LO8)

51.

If when selling MP3 players a company reduces its defect rate and has higher quality products than its competitors, what mechanism is being used to control the returns from investment? a. control over resources b. reputation c. first mover advantage d. learning curve (d; Difficult; p. 238; AACSB: Reflective thinking skills; LO8)

52.

When offering a computer operating system that allows a company to determine which products are compatible and which are not, which mechanism is being used to control the returns from investment? a. architectural control b. reputation c. learning curve d. economies of scale (a; Medium; p. 238; AACSB: Reflective thinking skills; LO8)

53.

According to Teece’s Model, what situation would indicate that imitators would be more successful than innovations? a. when innovators are difficult to imitate b. a dominant design has not emerged c. imitators control key complementary assets in the industry d. all of the above (c; Medium; p. 240; LO9)

54.

What is the first step in Teece’s model? a. look at complementary assts b. look at patents and trade secrets c. look at operating systems d. look at the dominant design (b; Medium; p. 240; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

97

55.

If it is very easy to get around patents in an industry, what do you need to focus on when determining to either innovate or imitate? a. if a dominant design has been established b. is it possible to control complementary assets c. is it possible to improve the overall operating system d. is it possible to control inputs (a; Difficult; p. 241; AACSB: Reflective thinking skills; LO9)

56.

If an industry has already converged on a dominant design and new products are easily imitated, what should you focus on to improve your chances for success? a. patents and trademarks b. improvement in the operating system c. control over inputs d. all of the above should be focused on (c; Difficult; p. 241; AACSB: Reflective thinking skills; LO9)

57.

When will contracting for manufacturing and marketing assets be an effective way to gain control over inputs? a. when the assets are generic b. when the assets are specialized c. either type of assets will work d. neither type of assets will work (a; Easy; p. 241; LO9)

58.

Under which situation would being an innovator be most successful? a. patents and trade secrets are not effective b. a dominant design exists c. complementary assets are unimportant and generic d. an innovator would be best in all these situations (c; Difficult; p. 242; AACSB: Reflective thinking skills; LO9)

59.

Under which situation would being an imitator work best? a. patents and trade secrets are effective b. a dominant design exists c. complementary assets are unimportant and generic d. an imitator would be best in all these situations (b; Difficult; p. 242; AACSB: Reflective thinking skills; LO9)

ESSAY QUESTIONS 60.

Explain why both legal and non-legal barriers to imitation are important for protecting innovations.

(Difficult; pp. 228-229; AACSB: Reflective thinking skills; LO1)

61.

Explain how controlling key resources can be used as an effective way to deter imitation and appropriate the returns in innovation.

(Difficult; pp. 229-231; AACSB: Reflective thinking skills; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

98

62.

Explain how establishing a reputation can be used as an effective way to deter imitation and appropriate the returns in innovation.

(Difficult; pp. 231-232 AACSB: Reflective thinking skills; LO6)

63.

Define economies of scale and describe how it can be used to deter imitation.

(Difficult; pp. 232-233; AACSB: Reflective thinking skills; LO4)

64.

Explain when and how moving up the learning curve will allow you to appropriate the returns to innovation.

(Difficult; pp. 233-235; AACSB: Reflective thinking skills; LO6)

65.

Define and distinguish between first mover and late mover advantages. Under what circumstance would there be an advantage to being either a first or late mover?

(Difficult; pp. 235-238; AACSB: Reflective thinking skills; LO7)

66.

Explain the main objective of Teece’s Model. Explain, according to the model, when a company would be better off being an imitator or a innovator.

(Difficult; pp. 239-242; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

99

CHAPTER 11 COMPETITIVE ADVANTAGE IN HIGH-TECH INDUSTRIES TRUE/FALSE QUESTIONS 1.

Buyer power measures the degree of power that customers have over companies in the industry.

(True; Easy; p. 251; LO2)

2.

When determining the rivalry among existing firms, you need to examine the industry growth rate.

(False; Medium; p. 252; AACSB: Reflective thinking skills; LO2)

3.

The threat of substitutes is high if alternative products and services will not serve the same function as well as existing products and services.

(False; Medium; p. 252; AACSB: Reflective thinking skills; LO2)

4.

The degree of rivalry is high if products are commodities and cannot be easily differentiated.

(True; Medium; p. 252; AACSB: Reflective thinking skills; LO2)

5.

The value chain is a description of activities that are used to produce and deliver a product to customers.

(True; Easy; p. 253; LO3)

6.

New firms tend to perform better in industries in which manufacturing and marketing account for most of the value added.

(False; Medium; p. 254; AACSB: Reflective thinking skills; LO4)

7.

In creatively destructive industries, entrepreneurs enter with new firms; challenge established firms on the basis on new ideas; disrupt the old ways of production, organization, and distribution; and replace the old firms.

(True; Medium; p. 254; LO5)

8.

Telecommunications is an industry in which the process of creative destruction tends to be found.

(False; Medium; p. 254; AACSB: Reflective thinking skills; LO5)

9.

Computer and office equipment start-ups had the greatest percentage of new firms, entered the market between 1982 and 2000, which became Inc. 500 firms.

(True; Easy; p. 255; LO6)

10.

New firms tend to be better at innovation in industries that are not capital intensive.

(True; Medium; p. 255; LO6)

11.

New firms have an advantage relative to established forms in more advertising intensive industries.

(False; Medium; p. 256; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

100

12.

Concentration is a measure to the market share that is typically held by the top-ten firms in an industry.

(False; Difficult; p. 256; LO6)

13.

Overall the average firm size within industries rose between 1980 and 1983.

(False; Difficult; p. 257; AACSB: Reflective thinking skills; LO6)

14.

A sustainable competitive advantage is a way of generating economic value that is difficult for other firms to replicate, purchase, or replace, and that persists over time.

(True; Easy; p. 258; LO7)

15.

Capabilities are skills and abilities used to provide the products that generate value.

(True; Easy; p. 258; LO7)

16.

Whether your company uses a socially complex approach to making products will depend on tacit knowledge where the relationship between cause and effect is not well understood.

(False; Medium; p. 260; AACSB: Reflective thinking skills; LO8)

17.

Core competencies in infrastructure management are created by joining supply chain management, inventory logistics, and information technology.

(True; Medium; p. 261; AACSB: Reflective thinking skills; LO8)

18.

Because companies develop core rigidities, established firms often have advantages over new ones.

(False; Difficult; p. 262; AACSB: Reflective thinking skills; LO9)

19.

Strategic dissonance is the situation that occurs when the intent and action of entrepreneurs and managers gets aligned.

(False; Easy; p. 263; LO10)

20.

A good process for helping to reduce strategic dissonance would be developing a willingness to invest organizational resources that were accumulated during periods of alignment in making changes to the company’s strategy and competencies, and a process for making that happen.

(True; Easy; p. 263; AACSB: Reflective thinking skills; LO10)

MULTIPLE CHOICE 21.

In general, what is required for a company to be successful? a. develop the capabilities to transform resources into valuable products and services b. create competitive advantage relative to business rivals c. develop the capabilities to transform resources into valuable products and services d. all of the above (d; Medium; p. 250; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

101

22.

When a company is analyzing an industry, which factor would lead the company to believe that they have low buyer power? a. cannot integrate forward into production b. face high costs to switching suppliers c. offer supplies that add little value to later stages d. capital cost are large (b; Difficult; p. 251; AACSB: Reflective thinking skills; LO2)

23.

When a company is analyzing an industry, which factor would lead the company to believe that they have low supplier power? a. cannot integrate backward to supply themselves b. there are few alternative products and services available c. offer supplies that add little value to later stages in the production process d. the number of firms in the industry are large (c; Difficult; p. 251; AACSB: Reflective thinking skills; LO2)

24.

Which industry had the highest profit as a percentage of sales for manufacturing industries during 2001-2005? a. beverage and tobacco products b. chemicals c. food d. computer and electronic products (a; Difficult; p. 251; AACSB: Reflective thinking skills; LO2)

25.

Which industry had the lowest profit as a percentage of sales for manufacturing industries during 2001-2005? a. beverage and tobacco products b. chemicals c. food d. computer and electronic products (d; Difficult; p. 251; AACSB: Reflective thinking skills; LO2)

26.

When a company is analyzing an industry, which factor would lead the company to believe the threat of substitutes is low? a. if economies of scale and switching costs are high b. there are many alternative products and services available c. products and services will not serve the same function as well as existing products and services d. the price-value trade-off for the alternative is very good (c; Difficult; p. 252; AACSB: Reflective thinking skills; LO2)

27.

When a company is analyzing an industry, which factor would lead the company to believe the threat of new entrants is low? a. economics of scale and switching costs are low b. learning curves are steep c. brand name reputation is weak d. key resources are abundant (b; Difficult; p. 252; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

102

28.

When a company is analyzing an industry, which factor would lead the company to believe that the degree of rivalry is high? a. growth of sales is low b. products are commodities and can be differentiated easily c. the number of firms in the industry is small d. there are few alternative products available (a; Difficult; p. 251; AACSB: Reflective thinking skills; LO2)

29.

Under which of Porter’s five forces do you need to consider exit barriers? a. threat of new entrants b. rivalry among existing firms c. threat of substitute products d. determination of supplier power (b; Medium; p. 252; LO2)

30.

Under which of Porter’s five forces do you need to consider product differentiation? a. threat of new entrants b. threat of substitute products c. rivalry among existing firms d. determination of buyer power (c; Medium; p. 252; LO2)

31.

Under which of Porter’s five forces do you need to consider switching costs to buyers? a. threat of new entrants b. determination of buyer power c. determination of supplier power d. threat of substitute products (d; Difficult; p. 252; LO2)

32.

Under which of Porter’s five forces do you need to consider sellers’ threat of forward integration? a. threat of new entrants b. determination of supplier power c. determination of buyer power d. threat of substitute products (c; Medium; p. 252; LO2)

33.

Under which of Porter’s five forces do you need to consider the industry growth rate? a. threat of new entrants b. determination of supplier power c. determination of buyer power d. rivalry among existing firms (a; Medium; p. 252; AACSB: Reflective thinking skills; LO2)

34.

What is the description of activities that are used to produce and deliver a product to customers called? a. concentration rate b. value chain c. core rigidities d. core competencies (b; Easy; p. 253; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

103

35.

In the wireless phone business, which element of the value chain would be occupied by companies like Cingular and Nextel? a. wireless platforms b. handset manufactures c. content providers d. wireless operators (d; Medium; p. 253; AACSB: Reflective thinking skills; LO3)

36.

In the wireless phone business, which element of the value chain would be occupied by companies like CNN and Disney? a. wireless platforms b. application providers c. content developers d. wireless operators (c; Medium; p. 253; AACSB: Reflective thinking skills; LO3)

37.

How will examining the value chain help you with your technology strategy? a. help to figure out where most of the value added is created in an industry b. help to determine whether it makes sense to focus on a different stage of the value chain if the locus of value creation in an industry changes c. offers insight into whether new or established firms will be more effective at innovation d. all of the above (d; Easy; p. 253; LO4)

38.

What would be likely to found in an industry that operates through dynamics of creative destruction? a. established firms defend their old ways of production, organization, and distribution b. new firms tend to fail c. old firms are replaced d. all of the above (c; Medium; p. 254; LO5)

39.

Which industry is most likely to operate under a regime of creative destruction? a. organic chemicals b. telecommunications c. computer disk drives d. all of the above (c; Medium; p. 254; LO5)

40.

Which industry is most likely to operate under a regime of creative accumulation? a. telecommunications b. chemical processes c. machine tools d. lighting (a; Medium; p. 254; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

104

41.

Which industry is most likely to operate under a regime of creative accumulation? a. organic chemicals b. telecommunications c. electronics d. all of the above (d; Medium; p. 254; LO4)

42.

Which industry had the highest proportion of new firms between 1982 and 2000 that became Inc. 500 firms? a. video tape rental b. legal services c. computer and office equipment d. drugs (c; Easy; p. 255; LO5)

43.

Which industry had the lowest proportion of new firms between 1982 and 2000 that became Inc. 500 firms? a. video tape rental b. legal services c. computer and office equipment d. drugs (a; Medium; p. 255; LO5)

44.

What is the measure of the importance of capita as opposed to labor in the production process called? a. return on equity b. labor intensity c. capital intensity d. return on assets (c; Easy; p. 255; LO6)

45.

Why are new firms at a disadvantage in industries that are capital intensive? a. they lack internal cash flow b. capital from financial markets is less expensive than internally generated cash flow c. the greater the amount of capital required the less the risk premium d. all of the above (a; Easy; p. 256; AACSB: Reflective thinking skills; LO6)

46.

What generally happens when advertising is initially introduced? a. significant effect b. diminishing effect c. no effect d. little effect (d; Easy; p. 256; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

105

47.

What is the measure of the market share that is held by the largest companies in an industry called? a. concentration b. capital intensity c. industry intensity d. industry complexity (a; Medium; p. 256; LO6)

48.

How many firms are typically used in determining an industry’s concentration rate? a.

2 b.

4 c.

10 d. top 10 percent (b; Medium; p. 256; LO6)

49.

New firms are typically better innovators in which of the following situations? a. concentrated b. advertising intensive c. small size d. capital intensive (c; Easy; p. 256; AACSB: Reflective thinking skills; LO6)

50.

Which industry has the largest average firm size? a. construction b. transportation, communications, and public utilities c. retail trade d. manufacturing (d; Medium; p. 252; AACSB: Reflective thinking skills; LO6)

51.

Which industry has the smallest average firm size? a. agriculture b. mining c. manufacturing d. retail trade (a; Medium; p. 257; LO6)

52.

Which industry had the most significant decline in average firm size from 1980 to 1993? a. wholesale trade b. retail trade c. manufacturing d. finance, insurance, and real estate (c; Medium; p. 257; LO6)

53.

Which industry had the most significant increase in average firm size from 1980 to 1983? a. manufacturing b. transportation, communications, and public utilities c. construction d. all of these firms had reductions in average firm size (d; Difficult; p. 257; AACSB: Reflective thinking skills; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

106

54.

What is a way of generating economic value that is difficult for other firms to replicate, purchase, or replace, and that persists over time called? a. resource b. capability c. sustainable competitive advantage d. strategic competency (c; Easy; p. 258; LO8)

55.

What are the skills and abilities used to provide the products that generate value called? a. resources b. capabilities c. sustainable competitive advantage d. strategic competency (b; Medium; p. 258; LO8)

56.

What are the assets that a firm employs in its efforts to generate economic value called? a. resources b. capabilities c. sustainable competitive advantage d. strategic competency (a; Medium; p. 258; LO8)

57.

Which of the following is a category of resources that you use to create and deliver products to generate economic value? a. tangible b. intangible c. human d. all of the above (d; Easy; p. 258; LO8)

58.

Under which category of resources would you classify financial reporting systems? a. tangible b. intangible c. human d. all of the above (a; Medium; p. 259; AACSB: Reflective thinking skills; LO8)

59.

Under which category of resources would you classify trade secrets? a. tangible b. intangible c. human d. all of the above (b; Medium; p. 259; AACSB: Reflective thinking skills; LO8)

60.

Under which category of resources would you classify employee knowledge? a. tangible b. intangible c. human d. all of the above (c; Medium; p. 259; AACSB: Reflective thinking skills; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

107

61.

When transforming resources into products what is not required in order for your business to develop a competitive advantage? a. they are valuable b. they are easy to imitate c. they are nonsubstitutable d. they are durable (b; Medium; p. 259; LO8)

62.

Which capability is most likely to reside in an organization’s processes? a. marketing b. skills c. knowledge d. ability (a; Easy; p. 260; LO8)

63.

What approach to making products is most likely to rely on tacit knowledge where the relationship between cause and effect is not well understood? a. strategic dissonance b. socially complexity c. core rigidity d. causal ambiguity (b; Medium; p. 260; LO8)

64.

What approach to making products is most likely to rely on tacit knowledge where the approach requires the interactions of multiple people in complex ways? a. strategic dissonance b. social complexity c. core rigidity d. causal ambiguity (b; Medium; p. 260; LO8)

65.

How can you create the capability to innovate in a technology-intensive industry? a. have access to resources that can be transformed into innovative products and services b. make a systematic investment in the management, technical and other skills that help you to understand different technical areas c. establish the right organizational boundaries d. all of the above (d; Easy; p. 261; LO8)

66.

What are the capabilities that are used to generate values across many firm activities called? a. sustainable competitive advantage b. resources c. core competency d. capabilities (c; Medium; p. 261; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

108

67.

If your company had a core competency of developing and bringing together advertising, what would it be classified as? a. persuading customers b. infrastructure management c. technology development d. manufacturing (a; Medium; p. 261; AACSB: Reflective thinking skills; LO8)

68.

If your company had a core competency of inventory logistics, what would it be classified as? a. persuading customers b. infrastructure management c. technology development d. manufacturing (b; Medium; p. 261; AACSB: Reflective thinking skills; LO8)

69.

If your company had a core competency of combining basic research, what would it be classified as? a. persuading customers b. infrastructure management c. technology development d. manufacturing (c; Medium; p. 261; AACSB: Reflective thinking skills; LO8)

70.

If your company had a core competency of quality control, what would it be classified as? a. persuading customers b. infrastructure management c. technology development d. manufacturing (d; Medium; p. 261; AACSB: Reflective thinking skills; LO8)

71.

What is the inability to do new things outside of the firm’s core competencies called? a. social rigidity b. core rigidity c. strategic rigidity d. causal rigidity (b; Easy; p. 262; LO9)

72.

What is the situation that occurs called when the intent and action of entrepreneurs and managers get misaligned? a. sustainable competitive advantage b. core rigidity c. strategic dissonance d. social complexity (c; Medium; p. 258; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

109

ESSAY QUESTIONS 73.

List and define Porter’s five forces. How can each force be used in assessing the attractiveness of an industry?

(Difficult; pp. 251-253; AACSB: Reflective thinking skills; LO2)

74.

Define a value chain and explain how the value chain can help you with your technology strategy.

(Difficult; pp. 253-254; AACSB: Reflective thinking skills; LO3)

75.

Compare and contrast the regimes of creative destruction and creative accumulation. Explain why examining the innovation regime is important for entrepreneurs when determining whether or not to enter an industry.

(Difficult; pp. 254-255; AACSB: Reflective thinking skills; LO5)

76.

Identify and explain how the industry conditions of capital intensity, advertising, concentration, and the average size of firms can pose an impediment to new firms when attempting to enter a market.

(Difficult; pp. 255-258; AACSB: Reflective thinking skills; LO6)

77.

Describe why resources are so important to a company’s success. Also define and distinguish between tangible, intangible, and human resources.

(Difficult; pp. 88-89; AACSB: Reflective thinking skills; LO8)

78.

Define what a core competency is and why it is important for a company. Explain how core competencies can sometimes lead to core rigidity.

(Difficult; pp. 261-262; AACSB: Reflective thinking skills; LO9)

79.

Explain strategic dissonance and identify ways that you can limit the possibility of strategic dissonance from developing.

(Difficult; pp. 262-263; AACSB: Reflective thinking skills; LO10)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

110

CHAPTER 12 TECHNICAL STANDARDS TRUE/FALSE QUESTIONS 1.

Technical standards are specifications to ensure that different components of the same system are compatible.

(True; Easy; p. 272; LO1)

2.

In computers, different standards are in place for hardware, printers, software, memory chips, and peripheral devices produced by different companies.

(False; Medium; p. 272; AACSB: Reflective thinking skills; LO2)

3.

Many argue that the all-steel body in automobiles emerged as a dominant design out of chance occurrence.

(True; Medium; p. 273; AACSB: Reflective thinking skills; LO2)

4.

The government can influence the adoption of technical standards by becoming an early adopter and creating a large installed base for a particular variant.

(True; Medium; p. 273; AACSB: Reflective thinking skills; LO2)

5.

The best technology usually becomes the industry standard.

(False; Medium; p. 274; LO3)

6.

The QWERTY keyboard became the industry standard because it was the best technology.

(False; Medium; p. 274; AACSB: Reflective thinking skills; LO2)

7.

Because systemic products are composed of components that need to be used with other components, having a common standard is important in ensuring that components produced by different companies can be used together.

(True; Easy; p. 275 LO3)

8.

Standardization enhances customer adoption because it hinders the creation of complementary products.

(False; Medium; p. 275; AACSB: Reflective thinking skills; LO3)

9.

Where technical standards exist, your company will have a tremendous advantage and the potential to earn high profits if your proprietary technology is the industry standard.

(True; Easy; p. 276; LO4)

10.

One way to enhance your chances of winning a standards battle is to make your product backward compatible.

(True; Medium; p. 277; LO4)

11.

It is possible to manage customer expectations by making pronouncements about the size of your installed base.

(True; Easy; p. 277; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

111

12.

An advantage associated with preannouncements is that they provide information to competitors who may accelerate their development of competing products.

(False; Medium; p. 278; AACSB: Reflective thinking skills; LO4)

13.

You would be better off if you can make your technology work equally well with multiple standards so that your firm will not be greatly disadvantaged if one standard emerges rather than another.

(True; Difficult; p. 279; AACSB: Reflective thinking skills; LO4)

14.

If you lose a standards battle, your only real option is to exit the market.

(False; Easy; p. 279; LO5)

15.

If you lose a standards battle and conform to the industry standard you could benefit by having a larger target market.

(True; Medium; p. 279; AACSB: Reflective thinking skills; LO5)

16.

If the market is young and most of the customers are in the late majority, then you should differentiate your product form existing technical standards.

(False; Medium; p. 280; AACSB: Reflective thinking skills; LO6)

17.

To increase your customers’ switching costs and reduce their likelihood of changing suppliers, you could make your products or services incompatible with the alternatives offered by your competitors.

(True; Medium; p. 281; AACSB: Reflective thinking skills; LO7)

18.

An open standard is one in which specifications are know by other companies.

(True; Medium; p. 282; LO7)

19.

Using a closed standard demonstrates to your competitors how your technology works, making it easier for them to imitate it.

(False; Medium; p. 283; LO7)

20.

Nonproprietary open standards may benefit companies by making their products better for customers.

(True; Medium; p. 283; LO10)

21.

With an open standard you incur the risk that licensees might change your technology in a way that makes it unnecessary for them to pay you royalties.

(True; Medium; p. 283; AACSB: Reflective thinking skills; LO10)

MULTIPLE CHOICE 22.

Introduction of the DIVX by Circuit City was done as an attempt to: a. supplement the DVD format b. enhance the DVD format c. establish a new standard d. all of the above (c; Medium; p. 271; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

112

23.

What are the specifications to ensure that different components of the same system are compatible called? a. installed base b. component c. condition d. requirement (d; Easy; p. 272; LO1)

24.

What was the computer industry attempting to do when they worked toward having hardware, printers, software, memory chips and peripheral devices produced by different companies all work together? a. develop an installed base b. develop standards c. develop components d. develop requirements (b; Easy; p. 272; AACSB: Reflective thinking skills; LO1)

25.

Which element of house wiring complies with a technical standard? a. voltage b. amperage c. the electrical outlet d. all of the above (d; Medium; p. 271; AACSB: Reflective thinking skills; LO1)

26.

What is a reason why technical standards and dominant designs develop? a. chance occurrence b. the nature of technology c. government imposition d. all of the above (d; Easy; p. 273; LO2)

27.

Which mechanism for the development of a technical standard was in effect when the International Telecommunication Union created the H.320 standard for video conferencing? a. government imposition b. government involvement c. trade association involvement d. competition between firms (c; Medium; p. 271; AACSB: Reflective thinking skills; LO2)

28.

Which mechanism for the development of a technical standard was in effect when nylon and polyester emerged as the dominant designs in synthetic fiber? a. nature of technology b. chance occurrence c. government imposition d. competition between firms (a; Medium; p. 272; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

113

29.

What mechanism for the development of a technical standard was in effect in the recent battle over developing a standard for HDTV? a. nature of technology b. government involvement c. competition between firms d. government imposition (b; Difficult; p. 273; AACSB: Reflective thinking skills; LO2)

30.

Which mechanism for the development of a technical standard was in effect when the allsteel body in automobiles emerged as the dominant design? a. government imposition b. competition between firms c. trade association involvement d. chance occurrence (d; Medium; p. 272; AACSB: Reflective thinking skills; LO2)

31.

Which mechanism for the development of a technical standard was in effect when the European Union adopted the GSM wireless telephony standard? a. nature of technology b. competition between firms c. government imposition d. trade association involvement (c; Difficult; p. 271; AACSB: Reflective thinking skills; LO2)

32.

Which mechanism for the development of a technical standard was in effect when Sony and Philips worked together on developing a standard for compact disk technology? a. nature of technology b. competition between firms c. chance occurrence d. cooperation between firms (d; Easy; p. 273; AACSB: Reflective thinking skills; LO2)

33.

What is a reason why the best technology does not always become the industry standard? a. government mandate b. strategic actions of firms c. social support for a particular alternative d. all of the above (d; Easy; p. 272; LO2)

34.

Why was the QWERTY keyboard established as the standard for typewriters and computer keyboards? a. installed base too large to change b. government mandate c. strategic actions of firms d. agreement by standard setting bodies (a; Medium; p. 274; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

114

35.

Why did the internal combustion engine become the standard for automobiles instead of the electric battery motor? a. government mandate b. social support c. strategic actions of firms d. agreement by standard setting bodies (b; Medium; p. 274; AACSB: Reflective thinking skills; LO2)

36.

What is the most common way that industries converge on technically inferior alternatives? a. natural workings of the market b. social support c. government mandate d. strategic action of firms (a; Easy; p. 274; LO2)

37.

Why was the original adoption of high-definition DVDs slow? a. technical difficulties b. government regulation c. battles over a common standard d. all of the above (c; Easy; p. 275; AACSB: Reflective thinking skills; LO3)

38.

Why are technical standards important to the customer adoption decision? a. ensuring components produced by different companies are compatible b. making many products more functional c. facilitates the creation of complementary products d. all of the above (d; Easy; p. 275; AACSB: Reflective thinking skills; LO3)

39.

Why would you have an advantage in a market where you have a technical standard? a. products that conform to the standard can be sold at a premium b. suppliers have to conform to the standard c. competitors will have to adopt your technology d. all of the above (d; Easy; p. 276; LO4)

40.

What was occurring when railroads were trying to decide on the standard width of a railroad track? a. backward compatibility b. standards battle c. cooperation between competing firms d. customer adoption (b; Medium; p. 276; AACSB: Reflective thinking skills; LO4)

41.

What can be done to win a standards battle? a. gain the support of the producers of competitive products b. make your product forward compatible c. manage your customers’ expectations d. all of the above (c; Medium; p. 277; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

115

42.

In the high-definition DVD battle, what were Sony and Toshiba trying to accomplish by gaining the support of the movie studios? a. gaining the support of the producers of complementary products b. making the product backward compatible c. managing the customers’ expectations d. making product preannouncements (a; Medium; p. 274; AACSB: Reflective thinking skills; LO4)

43.

In the high-definition DVD battle, what were Sony and Toshiba trying to accomplish by having game manufacturers include their standard in the game consoles? a. managing the customer’s expectations b. criticizing the competition c. gaining the support of other complementary products d. making the product backward compatible (c; Medium; p. 277; AACSB: Reflective thinking skills; LO4)

44.

What are you attempting to accomplish when you introduce a product that also works with a previous generation of products? a. manage customer expectations b. make the product backward compatible c. gain the support of complementary products d. make product preannouncements (b; Medium; p. 271; AACSB: Reflective thinking skills; LO4)

45.

What were Sega and Nintendo doing when, in the early 1990s, they each claimed to control over 60 percent of the market? a. gaining the support of complementary products b. managing customer expectations c. criticizing the competition d. all of the above (b; Medium; p. 278; AACSB: Reflective thinking skills; LO4)

46.

How can preannouncements help to manage expectations? a. convince competitors that they expedite the launch a competing product b. discourage suppliers from attempting to form alliances with you c. attempt to become the industry standard d. all of the above (c; Easy; p. 278; LO4)

47.

What is a cost associated with preannouncements? a. providing information to competitors b. motivate customers to delay purchases of the company’s existing products c. undermine your customers trust d. all of the above (d; Medium; p. 278; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

116

48.

What was Thomas Edison attempting to do when he electrocuted a dog using George Westinghouse’s electrical standard? a. providing information to competitors b. making product preannouncements c. criticizing a competitor d. making the product backward compatible (c; Easy; p. 278; AACSB: Reflective thinking skills; LO4)

49.

Based on the advantages and disadvantages associated with standards battles, what should a company entering a newly developing industry do? a. exert all efforts possible to win the standards war b. concede to other companies if they are in an advantages c. manage information to ensure victory of the standards war d. hedge against the loss of a standards battle (d; Medium; p. 279; AACSB: Reflective thinking skills; LO4)

50.

What is an option you have if you lose a standards battle? a. exit the market b. conform to the new standard c. continue to produce your product with a different standard d. all of these are options (d; Easy; p. 279; LO5)

51.

What is a likely outcome if you surrender a standards battle and conform to the standard? a. lose all the capital, reputation, and learning that you have invested in the industry b. your ability to differentiate your product will be enhanced c. reduction in the size of your target market d. improved ability to focus on a niche (a; Medium; p. 279; LO5)

52.

Based on the pros and cons of conforming to the industry standard, when should you not conform and focus on a niche? a. if the market is mature and most customers are in the late majority b. if the market is young and most customers are in the late majority c. if the market is mature and most customers early adopters d. if the market is young and most customers are early adopters (d; Medium; p. 280; AACSB: Reflective thinking skills; LO5)

53.

Based on the pros and cons of conforming to the industry standard, when should you make your product compatible with the existing industry standard? a. if the market is mature and most customers are in the late majority b. if the market is young and most customers are in the late majority c. if the market is mature and most customers are early adopters d. if the market is young and most customers are early adopters (a; Medium; p. 280; AACSB: Reflective thinking skills; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

117

54.

Which strategy would likely help to defend your technology standard by increase your customer’s switching costs? a. make your product more attractive by focusing on one or two features b. sign short-term contracts with producers of complementary products c. make future generations of your product backward compatible with previous versions d. make your product compatible with the alternatives offered by competitors (c; Medium; p. 281; AACSB: Reflective thinking skills; LO7)

55.

At what level does business in the MP3 market compete? a. business strategy b. technology standard c. operating efficiency d. technical system (d; Medium; p. 281; AACSB: Reflective thinking skills; LO8)

56.

What type of standard has specifications that are known by other companies? a. technical b. open c. business d. closed (b; Easy; p. 282; AACSB: Reflective thinking skills; LO8)

57.

What type of standard has specifications that are not known by other companies? a. technical b. open c. business d. closed (d; Easy; p. 282; AACSB: Reflective thinking skills; LO8)

58.

What is an advantage associated with closed systems? a. make it easier for other companies to build complementary products b. encourage other companies to adopt your technology c. generate a large installed base very quickly d. none of the above (d; Medium; p. 282; AACSB: Reflective thinking skills; LO10)

59.

What is a risk associated with an open system? a. risk that licensees might change your technology so it unnecessary for them to pay you royalties b. demonstrates to your competitors how your technology works c. make less money than if you had a closed system d. all of the above (d; Easy; p. 283; AACSB: Reflective thinking skills; LO10)

60.

What is one way a nonproprietary open system makes the product better for the customer? a. does not allow companies to control quality or the development of the standard b. do not require customers to pay royalties c. does not provide strong incentives for companies to support their customers d. opens up markets to competitors (b; Medium; p. 283; LO10)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

118

61.

What is one way a nonproprietary open system creates strategic problems for providers? a. customers are neutral b. the products are easier to customize c. do not provide strong incentives for companies to support their customers d. do not require customers to pay royalties (c; Medium; p. 284; LO10)

ESSAY QUESTIONS 62.

Define technical standards and explain why they are important in a wide variety of industries.

(Difficult; pp. 272-273; AACSB: Reflective thinking skills; LO1)

63.

Describe how technical standards and dominant designs develop in a variety of ways.

(Difficult; pp. 273-274; AACSB: Reflective thinking skills; LO2)

64.

Explain how it occurs that the technical standard is often inferior to the other alternative technologies available.

(Difficult; p. 274; AACSB: Reflective thinking skills; LO2)

65.

Explain the relationship between technical standards and customer adoption in industries in which technical standards exist.

(Difficult; p. 275; AACSB: Reflective thinking skills; LO3)

66.

Explain the various tactics that can be used to help win a standards battle.

(Difficult; pp. 276-279; AACSB: Reflective thinking skills; LO4)

67.

Describe the various strategies available if you lose a standards battle.

(Difficult; pp. 279-280; AACSB: Reflective thinking skills; LO5)

68.

Explain the different strategies that can be followed to defend a technological standard.

(Difficult; p.281; AACSB: Reflective thinking skills; LO7)

69.

Compare and contrast open versus closed standards. Explain the advantages and disadvantages of both types of standards (Difficult; pp. 282-284; AACSB: Reflective thinking skills; LO10)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

119

CHAPTER 13 STRATEGY IN NETWORKED INDUSTRIES TRUE/FALSE QUESTIONS 1.

In industries based on decreasing returns, what you earn on the marginal product increases with the volume of output (False; Easy; p. 290; LO1)

2.

In a business with decreasing returns, you initially get a high return on the marginal product produced but, as time passes, your costs increase with the volume you produce, leading to decreasing marginal returns.

(True; Medium; p. 291; LO1)

3.

One reason industries experience increasing returns when upfront costs are low and marginal costs are high is because unit costs drop dramatically as volume increases.

(False; Easy; p. 292; AACSB: Reflective thinking skills; LO1)

4.

Network externalities exist when the purchase of a product by a new customer creates additional value for existing customers.

(True; Medium; p. 293; LO2)

5.

Indirect network effects are network externalities that come from the direct interaction of users.

(False; Easy; p. 293; LO2)

6.

Metcalfe’s law states that the value of a telecommunications network is proportional to the cube of the number of devices on that network.

(False; Medium; p. 293; LO2)

7.

Complementary products are used along with the focal product and increase a product’s value.

(True; Easy; p. 293; LO2)

8.

An example of direct network effects is when the value of a DVD player increases with the number of movies that you can watch on it.

(False; Difficult; p. 294; AACSB: Reflective thinking skills; LO2)

9.

Indirect networks are often complex because network effects can influence suppliers as well as customers.

(False; Medium; p. 294; LO2)

10.

Networked industries account for the majority of the revenue from 60 of the top 100 companies.

(True; Easy; p. 295; LO3)

11.

When a network is shared, maintaining the platform is easier than if it’s maintained by one firm.

(False; Medium; p. 295; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

120

12.

Facebook.com had more viewers in May 2006 than any other social networking site.

(False; Easy; p. 296; LO4)

13.

When Palm Computing worked to get developers to write software for its operating system, they were attempting to create indirect network effects.

(True; Medium; p. 296; AACSB: Reflective thinking skills; LO4)

14.

If you operate in an industry based on increasing returns you should start small and build over time.

(False; Easy; p. 298; LO6)

15.

In an industry based on increasing returns, starting large and targeting a large market creates huge core rigidities for a company.

(True; Difficult; p. 298; LO6)

16.

For start-ups in an industry based on increasing returns, bootstrapping is a very effective way of raising the required funds.

(False; Medium; p. 298; AACSB: Reflective thinking skills; LO6)

17.

Although building a large installed base can be effective, it has the tendency to make your product less attractive to the providers of complementary products.

(False; Difficult; p. 299; AACSB: Reflective thinking skills; LO7)

18.

A large installed base has the tendency to push you down the learning curve.

(True; Medium; p. 300; LO7)

19.

Building an installed base quickly will keep out competition by creating a positive feedback loop that is hard for competitors to break.

(True; Easy; p. 300; LO7)

20.

The use of bundling is particularly helpful in building your installed base if the bundled products are not complementary.

(False; Medium; p. 301; LO8)

21.

Customer lock-in occurs when customers view the costs of switching supplies as too high to justify doing so.

(True; Easy; p. 302; LO9)

22.

Hewlett-Packard uses razor-razor blade pricing by selling its printers at a loss to get customers to purchase them and make profits off the sale of ink cartridges.

(True; Easy; p. 302; AACSB: Reflective thinking skills; LO8)

23.

In order to be a first mover in an industry with increasing returns, you need to use contractual mechanisms to create the business’s value chain.

(True; Medium; p. 303; LO10)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

121

MULTIPLE CHOICE 24.

What is most likely to occur in an industry based on decreasing returns? a. what you earn on your marginal product declines as volume of output increases b. what you earn on your marginal product increases as volume of output increases c. what you earn on your marginal product declines as network externalities increase d. what you earn on your marginal product increase as network externalities increase (a; Medium; p. 290; LO1)

25.

What is most likely to occur in an industry based on increasing returns? a. what you earn on your marginal product declines as volume of output increases b. what you earn on your marginal product increases as volume of output increases c. what you earn on your marginal product declines as network externalities increase d. what you earn on your marginal product increase as network externalities increase (b; Medium; p. 290; LO1)

26.

Which of the following firms is least likely to have increasing returns? a. pharmaceuticals b. telecommunications c. mining d. computers (c; Medium; p. 290; AACSB: Reflective thinking skills; LO1)

27.

What type of returns would you expect from an Internet auction house like eBay? a. constant returns b. increasing returns c. decreasing returns d. impossible to tell (b; Medium; p. 290; AACSB: Reflective thinking skills; LO1)

28.

If a firm has increasing returns, what can be expected if sales and customers increase? a. costs increase, prices remain constant, marginal returns decreases b. cost increase, prices increase, marginal returns remain the same c. costs decrease, prices decrease, marginal returns remain the same d. costs decrease, prices remain constant, marginal returns increase (d; Difficult; p. 291; AACSB: Reflective thinking skills; LO1)

29.

Why are high-technology industries likely to show increasing returns? a. when upfront costs are high and marginal costs are high, unit costs drop as volume increases b. due to a steep learning curve, as a firm produces more, its cost increase c. network externalities allow the company to raise prices as they sell more d. all of the above (c; Difficult; p. 293; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

122

30.

What is the reason why the drug industry is likely to show increasing returns? a. when upfront costs are high and marginal costs are low, unit costs drop as volume increases b. network externalities allow the company to lower prices and sell more c. due to a steep learning curve, as a firm produces more, its costs decrease d. all of the above (a; Medium; p. 292; AACSB: Reflective thinking skills; LO5)

31.

When do network externalities exits? a. when the purchase of a product by an existing customer creates additional value for existing customers b. when the purchase of a product by an existing customer creates additional value for a new customer c. when the purchase of a product by a new customer creates additional value for existing customers d. when the purchase of a product by a new customer creates additional value for new customers (c; Medium; p. 293; LO2)

32.

According to Metcalfe’s law, the value of a telecommunications network is proportional to the ___________ of the number of devices on that network. a. equivalent b. square root c. square d. cube (c; Medium; p. 293; LO3)

33.

Network externalities that come from the direct interaction of users are called: a. complementary products b. substitute products c. direct network effects d. indirect network effects (c; Easy; p. 293; LO3)

34.

What is a situation called in which the purchase of a product by a new customer increases its value to existing customers? a. installed base b. direct network effects c. indirect network effects d. network externalities (d; Medium; p. 293; LO3)

35.

Network externalities that develop when the presence of complementary products are called: a. direct network effects b. indirect network effects c. complementary products d. substitute products (b; Easy; p. 293; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

123

36.

According to Metcalfe’s law if you have a network of 10 users and you add another, how much have you increased the value to the users? a.

1 percent b.

10 percent c.

21 percent d.

30 percent (c; Difficult; p. 293; AACSB: Analytic skills; LO4)

37.

How do complementary products increase a focal products value? a. because the product is less useful if the complement is not present b. because the product is less useful if the complement is present c. because the product is more useful if the complement is not present d. because the product is more useful if the complement is present (d; Easy; p. 293; LO4)

38.

What type of effect is occurring when the value of a video game console increases with the number of games that you can play on it? a. direct b. indirect c. functional d. dysfunctional (b; Medium; p. 293; AACSB: Reflective thinking skills; LO4)

39.

What type of effect is occurring when the value of a DVD player increases with the number of movies that you can watch on it increases? a. direct b. indirect c. functional d. dysfunctional (b; Medium; p. 293; AACSB: Reflective thinking skills; LO4)

40.

What condition is consistent with an indirect network effect? a. complementary products don’t affect the focal product’s functionality, but do make it more desirable b. complementary products don’t affect the focal product’s functionality and make it less desirable c. complementary products affect the focal products functionality and make it more desirable d. complementary products affect the focal products functionality, but make it less desirable (a; Medium; p. 294; AACSB: Reflective thinking skills; LO4)

41.

Networked industries account from the majority of revenue of what percentage of the top 100 companies? a.

10 percent b.

30 percent c.

50 percent d.

60 percent (d; Medium; p. 295; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

124

42.

What is a strategic issue associated with network effects? a. maintenance of the network b. the possibility of sustaining more than one network c. competition that occurs outside the network d. all of the above (d; Easy; p. 295; LO5)

43.

What strategic issue associated with network effects is exemplified by Apple and the Macintosh computer? a. maintenance of the network b. the possibility of sustaining more than one network c. use of strategic action to exploit network effects d. all of the above (a; Medium; p. 295; AACSB: Reflective thinking skills; LO5)

44.

Which network had the most U.S. visitors in May 2006? a.

Facebook.com b.

Myspace.com c.

Friendster.com d.

Classmates.com (b; Easy; p. 296; LO5)

45.

Which network had the greatest increase in U.S. visitors from May 2005 to May 2006? a.

Facebook.com b.

Myspace.com c.

Frienster.com d.

Classmates.com (b; Easy; p. 296; LO5)

46.

Which network had, but lost, the lead in number of U.S. visitors between May 2005 and May 2006? a.

Facebook.com b.

Friendster.com c.

Classmates.com d.

Myspace.com (c; Medium; p. 296; LO5)

47.

What was Palm Computing attempting to exploit by creating a beaming capability that allowed information to be transferred between Palm PDAs? a. decreasing returns b. economies of scale c. indirect effects d. direct effects (d; Medium; p. 296; AACSB: Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

125

48.

What was Palm Computing attempting to exploit by working to get developers to write software for its operating system? a. decreasing returns b. economies of scale c. indirect effects d. direct effects (c; Medium; p. 296; AACSB: Reflective thinking skills; LO5)

49.

What strategic action to exploit network effects was exemplified by Microsoft overtaking RealNetworks’ lead in the streaming media market by bundling its media player with its PC operating system? a. maintenance of the network b. competition that occurs outside the network c. the possibility of sustaining more than one network d. use of strategic action to exploit network effects (b; Difficult; p. 296; AACSB: Reflective thinking skills; LO5)

50.

In general, what is required in increasing return industries in order to be successful? a. establish smaller-scale operations b. build your established base over time c. be a first mover d. all of the above (c; Medium; p. 298; LO6)

51.

What tends to happen in industries based on increasing returns? a. monopolies develop b. perfect competition develops c. oligopolies develop d. impossible to tell (a; Medium; p. 298; AACSB: Reflective thinking skills; LO6)

52.

What is usually required in industries based on increasing returns? a. attract customers and profits first b. attract customers first and profits later c. make profits first and attract customers later d. make profits later and attract customers later (b; Medium; p. 296; AACSB: Reflective thinking skills; LO6)

53.

What is usually required in industries based on increasing returns? a. remaining flexible b. delaying action c. developing core rigidity d. preserving options (c; Difficult; p. 298; LO7)

54.

What is most likely to happen over time in industries based on increasing returns? a. need to raise large amounts of money and a decreasing ownership share b. need to raise large amounts of money and an increasing ownership share c. need to raise less money and a decreasing ownership share d. need to raise less money and an increasing ownership share (a; Medium; p. 298; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

126

55.

Why is it important to build a large installed base quickly in an industry based on increasing returns? a. more likely to make the product the industry standard b. more likely to make the product more attractive to the providers of complementary products c. pushes the company down the learning curve d. all of the above (d; Easy; p. 300; LO7)

56.

What advantage associated with building a large base is demonstrated by Microsoft being able to recoup its development costs faster than Apple? a. keeping competition in a positive feedback loop b. pushing the company down the learning curve c. making your product the industry standard d. improving the economics of developing new technologies (d; Medium; p. 300; LO7)

57.

What can be done to increase your installed base quickly in an industry based on increasing returns? a. use penetration pricing b. bundling your product with other products already popular with customers c. target the mass market from the start d. all of the above (d; Easy; p. 301; LO8)

58.

What method of increasing the installed base did PayPal use when they gave $10 to all new customers? a. penetration pricing b. bundling c. targeting the mass market d. customer lock in (a; Medium; p. 301; LO8)

59.

What method of increasing the installed base did Microsoft use when it included its Internet software with other applications? a. penetration pricing b. bundling c. targeting the mass market d. customer lock in (b; Easy; p. 301; AACSB: Reflective thinking skills; LO8)

60.

What is called when customers view the costs of switching suppliers as too high to justify doing so? a. penetration pricing b. bundling c. targeting the mass market d. customer lock in (d; Easy; p. 302; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

127

61.

What is it called when you create a unique system composed of a base product and additional components that are not compatible with your competitor’s base product? a. customer lock in b. razor-razor blade pricing c. penetration pricing d. bundling (b; Medium; p. 302; AACSB: Reflective thinking skills; LO9)

62.

What is Hewlett-Packard using when they sell their printers at a loss in order to make a profit on the sale of ink cartridges? a. bundling b. customer lock in c. razor-razor blade pricing d. penetration pricing (c; Difficult; p. 302; AACSB: Reflective thinking skills; LO9)

63.

What is Microsoft using when it sells its Xbox consoles at below cost in order to make profits on game software? a. razor-razor blade pricing b. bundling c. customer lock in d. penetration pricing (a; Difficult; p. 302; AACSB: Reflective thinking skills; LO9)

64.

How was eBay able to remain ahead of its competition as an Internet auction house? a. using penetration pricing b. bundling the software c. customer lock in d. being a first mover (d; Medium; p. 303; AACSB: Reflective thinking skills; LO10)

ESSAY QUESTIONS 65.

Explain why some industries display decreasing returns while others exhibit increasing returns.

(Difficult; pp. 291-293; AACSB: Reflective thinking skills; LO1)

66.

Compare and contrast direct and indirect network effects.

(Difficult; pp. 293-294; AACSB: Reflective thinking skills; LO2)

67.

Explain how firms can use network effects to their strategic advantage.

(Difficult; pp. 295-296; AACSB: Reflective thinking skills; LO3)

68.

Explain that starting large can be effective at increasing returns.

(Difficult; pp 298; AACSB: Reflective thinking skills; LO6)

69.

Explain why building your installed base quickly is crucial in a business based on increasing returns.

(Difficult; pp. 298-301; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

128

70.

Describe why it’s important to get customers to lock in to your product.

(Difficult; pp. 302-303; AACSB: Reflective thinking skills; LO9)

71.

Explain what is necessary to do to be a first mover in an industry based on increasing returns.

(Difficult; p. 303; AACSB: Reflective thinking skills; LO10)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

129

CHAPTER 14 COLLABORATION STRATEGIES TRUE/FALSE QUESTIONS 1.

Vertically integrated means that your company owns all of the parts of the value chain.

(True; Easy; p. 310; LO1)

2.

Vertical integration is particularly important if a technology is discrete and technical standards have not been established.

(False; Difficult; p. 311; AACSB: Reflective thinking skills; LO2)

3.

Established companies have an advantage over new companies in the development of innovations that are based on systemic technologies (True; Medium; p. 312; LO2)

4.

A vertical alliance occurs when alliances are made between firms at the same stage in the value chain.

(False; Medium; p. 313; LO4)

5.

A strategic alliance increases the expense of building the business’s value chain.

(False; Medium; p. 314; LO4)

6.

An advantage associated with strategic alliances is the reduction of antitrust problems.

(False; Medium; p. 315; LO4)

7.

A joint venture is a legal partnership between two firms to own equity in a third firm formed by the two partners.

(True; Easy; p. 315; LO8)

8.

Joint research is an arrangement under which one organization permits another to use its technology in return for the payment of a fee.

(False; Medium; p. 317; LO8)

9.

An advantage associated with licensing is that it can provide a mechanism to earn a financial return on a technology that the company has developed, even if the company lacks the capabilities or resources to develop or manufacture new products or services from the technology.

(True; Medium; p. 318; AACSB: Reflective thinking skills; LO5)

10.

In order to make your company more effective at licensing, you need to make sure to involve legal counsel in all legal issues.

(True; Easy; p. 319; LO5)

11.

Sun Microsystems and Microsoft considered cross-licensing as part of an effort to make their technologies compatible.

(True; Medium; p. 321; AACSB: Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

130

12.

Cross-licensing occurs when you assign some aspect of operations to another company under contract.

(False; Medium; p. 321; LO7)

13.

Outsourcing allows companies to expand their operations without investing in additional plants and equipment or increasing their labor force.

(True; Easy; p. 322; LO7)

14.

The costs and benefits of outsourcing suggests that you should contract out only those activities at which significant cost savings can be achieved and which are not central to the mission of your company.

(True; Medium; p. 323; Reflective thinking skills; LO7)

15.

When determining whether or not to collaborate, you first need to identify the trade-offs between the different modes of doing business across several different dimensions.

(True; Easy; p. 325; LO9)

16.

Contractual forms of doing business are more valuable in industries in which opportunities are long-lived.

(False; Medium; p. 326; LO9)

17.

With strategic alliances there is a high chance of having antitrust problems but there is also a high chance of assisting in standard setting.

(True; Difficult; p. 328; AACSB: Reflective thinking skills; LO9)

18.

Licensing is the fastest collaborative strategy for bringing a product to market.

(True; Medium; p. 328; AACSB: Reflective thinking skills; LO9)

19.

To design an effective contractual organizational arrangement, you have to verify the credentials of your transaction partners.

(True; Easy; p. 329; LO9)

20.

Conflict in a collaborative relationship between a large and small firm may develop because new firms often want to delay the introduction of new products.

(False; Medium; p. 330; LO10)

MULTIPLE CHOICE 21.

What is it called when your company owns all of the parts of the value chain? a. contractual b. vertically integrated c. horizontally integrated d. contract manufacturing (b; Medium; p. 310; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

131

22.

What is called when your company signs agreements with independent firms to provide part of the value chain? a. contractual b. vertically integrated c. horizontally integrated d. systemic (a; Medium; p. 310; AACSB: Reflective thinking skills; LO1)

23.

Which of the following is a contractual part of the value chain? a. licensing b. joint ventures c. strategic alliances d. all of the above (d; Easy; p. 310; AACSB: Reflective thinking skills; LO1)

24.

Under which situation would you be more likely to use a contractual mode? a. when the technology is discrete b. when the technology is systemic c. when there is horizontal integration d. could work for any of the above (b; Medium; p. 311; AACSB: Reflective thinking skills; LO2)

25.

Under which situation would you be more likely to use vertical integration? a. if a technology is discrete and technical standards have been established b. if a technology is discrete and technical standards have not been established c. if a technology is systemic and technical standards have been established d. if a technology is systemic and technical standards have not been established (d; Medium; p. 311; LO2)

26.

With what type of technology can the value generated by the new product be reaped only if a firm has in place the other technology with which the new product will operate? a. integrated b. systemic c. codified d. discrete (b; Easy; p. 312; LO2)

27.

What type of technology does not require the creation of a system of other technologies to be deployed? a. integrated b. systemic c. codified d. discrete (d; Easy; p. 312; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

132

28.

With what form of technology do established firms not have an advantage over new firms in the development of products based on these technologies? a. discrete b. codified c. systemic d. integrated (a; Medium; p. 312; AACSB: Reflective thinking skills; LO2)

29.

What type of knowledge is easily written down and enforceable? a. discrete b. codified c. systemic d. tacit (b; Medium; p. 312; LO2)

30.

With what type of knowledge do people learn how to do something by doing it and usually cannot write down all of the steps in the process? a. discrete b. codified c. systemic d. tacit (d; Medium; p. 312; LO2)

31.

What type of knowledge makes it difficult to contract between independent organizations? a. discrete b. codified c. tacit d. systemic (c; Medium; p. 312; AACSB: Reflective thinking skills; LO2)

32.

What is a relationship between two firms that work together to achieve a common business goal called? a. strategic alliance b. licensing c. joint venture d. outsourcing (a; Medium; p. 313 LO4)

33.

What type of contractual form of governance is made between firms at different stages of the value chain? a. vertical venture b. vertical alliance c. horizontal venture d. horizontal alliance (b; Medium; p. 313; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

133

34.

What type of contractual form of governance is made between firms at the same stage in the value chain? a. vertical venture b. vertical alliance c. horizontal venture d. horizontal alliance (d; Medium; p. 313; LO4)

35.

What is not an advantage associated with strategic alliances? a. helps develop new competitive advantages b. reduces the importance of industry standards c. reinforces market power d. all of the above are advantages (b; Medium; p. 316; LO3)

36.

What is not an advantage associated with strategic alliances? a. allows specialization of capabilities b. facilitates learning about new markets and technologies c. increases the cost of creating the value chain d. allows the investigation of acquisition targets (c; Medium; p. 316; LO4)

37.

What is not a disadvantage associated with strategic alliances? a. reduces the cost of creating the value chain b. hinders the development of capabilities c. risks the loss of proprietary knowledge d. can create antitrust problems (a; Medium; p. 316; AACSB: Reflective thinking skills; LO4)

38.

What advantage associated with strategic alliances are drug companies exploiting when they hire people with different skills and attitudes from the ones that they need to develop those drugs? a. reinforce market power b. facilitate learning about new markets and technologies c. allow specialization of capabilities d. establish technical standards (c; Difficult; p. 313; AACSB: Reflective thinking skills; LO4)

39.

When Imax Inc. was developing fuel cells for the army, what advantage associated with strategic alliance were they exploiting when it formed an alliance with W. L. Gore & Associates to avoid incurring the cost of creating its own fuel cell membrane from scratch? a. reinforcing market power b. establishing technical standards c. allowing specialization of capabilities d. reducing the cost of creating the value chain (d; Difficult; p. 314; AACSB: Reflective thinking skills; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

134

40.

What advantage associated with strategic alliances was Sony exploiting when it partnered with Samsung to make flat-panel television sets to move up the learning curve in liquid crystal display technology? a. allowing specialization of capabilities b. developing new competitive advantages c. reinforcing market power d. establishing technical standards (b; Difficult; p. 314; AACSB: Reflective thinking skills; LO4)

41.

What advantage associated with strategic alliances are pharmaceutical firms trying to exploit when they form alliances with biotechnology companies after the genetic engineering revolution so that their R&D units would learn how to conduct drug development using genetic engineering and genomics? a. facilitate learning about new markets and technologies b. help develop competitive advantages c. reduce the cost of creating the value chain d. allow specialization of capabilities (a; Medium; p. 314; AACSB: Reflective thinking skills; LO4)

42.

What advantage associated with strategic alliances was General Motors trying to exploit when it formed a strategic alliance with Toyota to develop common ways to make fuel cell and electronic vehicles in the hopes that it would encourage customer adoption of such vehicles? a. reduce the cost of creating the value chain b. facilitate learning about new markets and technologies c. establish technical standards d. reinforce market power (c; Medium; p. 315; AACSB: Reflective thinking skills; LO5)

43.

What contractual form of governance is a legal partnership between two firms to own equity in a third firm formed by the two partners? a. strategic alliance b. joint venture c. licensing d. contract manufacturing (b; Easy; p. 315; LO8)

44.

What contractual form of governance did 3Com and the Chinese firm Huawei enter into when they formed H-3C to produce Ethernet switches and IP routers? a. strategic alliance b. licensing c. contract manufacturing d. joint venture (d; Medium; p. 315; AACSB: Reflective thinking skills; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

135

45.

What advantage associated with joint ventures was Samsung attempting to exploit when the formed a joint venture with Sony to make flat-panel televisions to learn how to make better displays than the versions it used in cell phones? a. help companies to improve their efficiency b. establish technical standards c. help companies to learn new capabilities d. reinforce market power (c; Difficult; p. 316; AACSB: Reflective thinking skills; LO8)

46.

What contractual form of governance uses an arrangement under which one organization permits another to use its technology in return for the payment of a fee? a. alliance b. licensing c. joint venture d. contract manufacturing (b; Medium; p. 315; AACSB: Reflective thinking skills; LO5)

47.

What percent of Texas Instruments’ net income is derived from licensing agreements? a.

15 percent b.

25 percent c.

45 percent d.

55 percent (d; Medium; p. 318; LO5)

48.

Which of the following is not an advantage associated with licensing? a. provides a mechanism to earn a financial return on a technology your firm has developed b. facilitates rapid market penetration c. helps to avoid intellectual property disputes d. all of the above are advantages associated with licensing (d; Easy; p. 319; LO5)

49.

Which of the following is something you should do to make your company more effective at technology licensing? a. include more than just patents b. assume that you have all the information c. give rights to future discoveries d. consider the agreement to be the end of the relationship (a; Difficult; p. 319; AACSB: Reflective thinking skills; LO5)

50.

Which of the following is something you should not do to make your company more effective at technology licensing? a. look for comparable transactions b. give rights to future discoveries c. include a best effort clause d. involve legal counsel in all legal issues (b; Difficult; p. 319; AACSB: Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

136

51.

What contractual form of governance provides a license to use a technology to only one company? a. exclusive license b. contract manufacturing c. outsourcing d. joint venture (a; Easy; p. 320; LO5)

52.

What contractual form of governance provides a license to use a technology to many companies? a. contract manufacturing b. nonexclusive licensing c. outsourcing d. joint ventures (b; Easy; p. 320; LO5)

53.

What contractual form of governance might two companies pursue when each company has patents to technologies necessary to develop a product but neither party will invest in the development of that product for fear of a patent infringement lawsuit? a. exclusive licensing b. nonexclusive licensing c. cross-licensing d. all of the above could be used (c; Medium; p. 321; AACSB: Reflective thinking skills; LO5)

54.

What contractual form of governance were Sun Microsystems and Microsoft engaged in when, as part of an effort to make their technologies compatible, the two organizations each valued their own and each other’s patent portfolios to determine which company would have to pay net royalties to the other? a. exclusive licensing b. contract manufacturing c. nonexclusive licensing d. cross-licensing (d; Medium; p. 321; AACSB: Reflective thinking skills; LO5)

55.

What contractual form of governances involves assigning some aspect of operation to another company under contract? a. strategic alliance b. contract manufacturing c. outsourcing d. joint venture (c; Medium; p. 321; LO7)

56.

When auto companies like Honda or Toyota contract with engineers who are not employees to complete design work for them, they are engaged in which contractual form of governance? a. strategic alliance b. outsourcing c. joint venture d. all of the above (b; Medium; p. 321; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

137

57.

What is not an advantage associated with outsourcing? a. allows companies to not have to developing capabilities at the activities they outsource b. allows companies to specialize in the parts of the value chain where their core capabilities lie c. allows companies to expand their operations without investing in additional plant and equipment d. allows a company to accelerate the pace at which it begins operations (a; Medium; p. 315; AACSB: Reflective thinking skills; LO7)

58.

When companies outsource the manufacturing of their products to another company, it is called? a. strategic alliance b. joint venture c. contract manufacturing d. licensing (c; Medium; p. 322; LO7)

59.

Which of the following is not a dimension that needs to be considered when determining if you should collaborate with another company or go it alone? a. mode of doing business b. nature of technology c. size of industry d. strategic factor (c; Medium; p. 326; AACSB: Reflective thinking skills; LO7)

60.

If your company was most concerned with getting your product as quickly as possible, which contractual form of governance would be most effective? a. integration b. strategic alliance c. licensing d. outsourcing (c; Medium; p. 328; AACSB: Reflective thinking skills; LO5)

61.

Which of the contractual forms of governance has the highest cost? a. integration b. licensing c. strategic alliance d. joint venture (a; Medium; p. 328; LO7)

62.

If your company was particularly interested in protecting your intellectual property, which contractual form of governance would best meet your needs? a. licensing b. joint venture c. strategic alliances d. integration (d; Medium; p. 328; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

138

63.

If your company was very risk adverse, what collaborative strategy would probably be best for you? a. integration b. strategic alliance c. licensing d. joint venture (c; Medium; p. 328; AACSB: Reflective thinking skills; LO5)

64.

If your company was interested in maximizing the specialization of your capabilities, which collaborative strategy would work best for you? a. strategic alliance b. licensing c. outsourcing d. all of these can result in high specialization of capabilities (d; Medium; p. 328; AACSB: Reflective thinking skills; LO3)

65.

Which collaborative strategy provides the greatest opportunity for the development of new capabilities? a. outsourcing b. integration c. licensing d. joint ventures (b; Medium; p. 328; LO7)

66.

Which collaborative strategy it best at reducing the risk of antitrust problems? a. outsourcing b. joint ventures c. licensing d. integration (d; Medium; p. 328; LO5)

67.

If you were interested in attempting to set a standard in an industry, which collaborative strategy would be most effective? a. strategic alliance b. outsourcing c. integration d. joint ventures (a; Medium; p. 329; AACSB: Reflective thinking skills; LO4)

68.

What needs to be done to design an effective contractual arrangement? a. conduct due diligence b. assess the match between your business and your prospective counterparts c. know your firm’s strategy and capabilities at different parts of the value chain d. all of the above (d; Easy; p. 329; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

139

69.

What percent of all contractual business arrangements fail? a.

20 percent b.

35 percent c.

50 percent d.

65 percent (c; Medium; p. 329; LO9)

70.

Which of the following is not an issue that frequently arises between large and small firms when they enter a collaborative arrangement? a. large companies are more willing to terminate the contract b. small companies are less willing to bring marginal products to market c. large companies frequently want to delay bringing the product to market d. all of the above are issues (b; Difficult; p. 330; AACSB: Reflective thinking skills; LO10)

ESSAY QUESTIONS 71.

Define and distinguish between vertical and horizontal integration. Discuss the advantages and disadvantages of both.

(Difficult; pp. 310-312; AACSB: Reflective thinking skills; LO1)

72.

Define strategic alliances and discuss their advantages and disadvantages.

(Difficult; pp. 313-315; AACSB: Reflective thinking skills; LO4)

73.

Define joint venture and discuss their advantages and disadvantages (Difficult; pp. 315-317; AACSB: Reflective thinking skills; LO8)

74.

Define licensing and discuss what should and should not be done to make your company more effective at technology licensing.

(Difficult; pp. 317-319; AACSB: Reflective thinking skills; LO5)

75.

Define outsourcing and explain the conditions under which outsourcing would be effective.

(Difficult; pp. 321-323; AACSB: Reflective thinking skills; LO7)

76.

Describe what you would need to consider making the decision to either enter into a collaborative arrangement or go it alone.

(Difficult; pp. 325-328; AACSB: Reflective thinking skills; LO9)

77.

Describe what needs to be done to design an effective contractual organizational arrangement.

(Difficult; p. 329; AACSB: Reflective thinking skills; LO9)

78.

Discuss the various managerial issues that frequently arise when collaborative agreements are arranged between large, established and small, new firms.

(Difficult; pp. 329-330; AACSB: Reflective thinking skills; LO10)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

140

CHAPTER 15 STRATEGIC HUMAN RESOURCE MANAGEMENT OF TECHNICAL PROFESSIONALS TRUE/FALSE QUESTIONS 1.

An unsupportive culture is the number one reported obstacle to innovation in organizations.

(True; Easy; p. 337; LO1)

2.

Creating a respect for knowledge and knowledge development makes organizations more innovative.

(True; Medium; p. 338; LO1)

3.

When Eli Lilly’s former chief scientific officer, W. Leigh Thompson, threw failure parties he was trying to demonstrate that creating a respect for knowledge and knowledge development makes organizations more creative.

(False; Medium; p. 338; AACSB: Reflective thinking skills; LO1)

4.

In general you need to manage R&D employees the same as everyone else.

(False; Medium; p. 339; LO2)

5.

R&D personnel will be more productive if you allow them to build strong links to, and exchange ideas with, technical personnel outside the organization.

(True; Easy; p. 339; LO2)

6.

Open communication can enhance innovation and information sharing but is likely to increase misunderstandings.

(False; Difficult; p. 340; LO3)

7.

Strong external communication facilitates innovation because it improves decision making about potential innovations.

(True; Easy; p. 341; LO3)

8.

In order to build strong links to external sources of information, you should encourage your employees to engage in boundary-spanning activities.

(True; Medium; p. 341; LO3)

9.

Because innovation is risky, stressful and prone to failure, employees will not natural engage in it.

(True; Easy; p. 342; AACSB: Reflective thinking skills; LO4)

10.

While awarding equity for innovation is good, providing bonuses is better.

(False; Medium; p. 343; LO4)

11.

An advantage of equity is that the employees will persist with innovative efforts even if they have a low probability of success.

(False; Difficult; p. 343; LO4)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

141

12.

Intrinsic motivation comes from internal rewards as compared to external rewards (e.g. salary).

(True; Easy; p. 344; LO6)

13.

Research has found that individual attributes that affect creativity include high self-efficacy, tolerance of risk, greater persistence, and an external locus of control.

(False; Difficult; p. 344; LO6)

14.

Creativity is enhanced by having a flexible environment where people have autonomy and the right to determine how to do their jobs.

(True; Easy; p. 344; LO6)

15.

Georges de Mestral’s idea for Velcro, developed after seeing burrs sticking to his dog, is a good example how innovation can enhanced by reasoning by analogy.

(True; Medium; p. 345; AACSB: Reflective thinking skills; LO6)

16.

If teams are too large, companies miss out on the benefits of joint effort and diversity of skills that teams provide.

(False; Medium; p. 347; LO7)

17.

Functional teams can develop more specialized skills in their functional areas than crossfunctional team members.

(True; Medium; p. 347; LO7)

18.

A major disadvantage associated with a matrix structure is that employees report to two different bosses.

(True; Easy; p. 350; LO7)

19.

Heavyweight teams are problematic for derivative projects because they cannot be managed as efficiently as lightweight teams, are less subject to senior management control, and do not conform well to a functional organizational structures.

(True; Difficult; p. 351; LO7)

20.

Heavyweight teams are very good at projects that exploit existing organizational capabilities and lightweight teams are needed to create new capabilities.

(False; Medium; p. 352; LO7)

21.

Virtual teams reduce the cost of product development but are likely to increase the product development time.

(False; Difficult; p. 352; LO8)

MULTIPLE CHOICE 19.

What is the set of beliefs, norms, and attitudes common to members of an organization called? a. mission b. culture c. values d. all of the above (b; easy; p. 337; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

142

20.

What is most likely to inhibit innovation? a. process immaturity b. workforce issues c. unsupportive culture d. insufficient access to information and data (c; Medium; p. 337; AACSB: Reflective thinking skills; LO1)

21.

Which of the following is least likely to enhance innovation? a. not tolerating failure b. encouraging constructive criticism c. having diversity of points of view d. creating a respect of knowledge and knowledge development (a; Easy; p. 338; LO1)

22.

What can you do to welcome the involvement of all organizational members? a. make all employees aware of the value of innovation and the company’s strategy b. make innovation a shared responsibility c. make everyone’s performance appraisal dependent on innovation d. all of the above are effective at welcoming innovation from all organizational members (d; Easy; p. 338; LO1)

23.

What was Eli Lilly’s former chief scientific officer, W. Leigh Thompson, attempting to demonstrate by throwing failure parties? a. all employees were aware of the value of innovation and the company’s strategy b. making innovation a shared responsibility c. demonstrating a tolerance for failure d. making everyone’s performance appraisal dependent on innovation. (c; Difficult; p. 338; AACSB: Reflective thinking skills; LO1)

24.

Why would you want to allow people to deviate from organizational norms in both defining problems and in identifying solutions to them? a. to welcome the involvement of all organizational members b. to increase diversity of viewpoints c. to demonstrate a tolerance for failure d. to make innovation a shared responsibility (b; Medium; p. 338; AACSB: Reflective thinking skills; LO1)

25.

What is more common in R&D staff as compared to those working in other parts of the organization? a. less interested in the commercial outcomes and more motivated by the work itself b. less interested in the commercial outcomes and less motivated by the work itself c. more interested in the commercial outcomes and more motivated by the work itself d. more interested in the commercial outcomes and less motivated by the work itself (a; Difficult; p. 339; AACSB: Reflective thinking skills; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

143

26.

What human resource practices would be most effective with R&D personnel? a. give them more interesting projects and reward them for commercial accomplishments b. give them more interesting projects and reward them for technical accomplishments c. give them more routine projects and reward them for commercial accomplishments d. give them more routine projects and reward them for technical accomplishments (b; Medium; p. 339; AACSB: Reflective thinking skills; LO2)

27.

How can you make your communication more open? a. reduce goal setting and work planning b. reduce misunderstanding c. reduce information exchange d. all of above make communication more open (b; Easy; p. 340; LO3)

28.

How are you trying to encourage technical communication if you move people in closer proximity to each other? a. informal and social interaction b. job rotation c. use of technology d. collocation (d; Easy; p. 340; AACSB: Reflective thinking skills; LO3)

29.

How are you trying to encourage technical communication if you have people learn jobs in different functional areas? a. informal and social interaction b. job rotation c. use of technology d. collocation (b; Easy; p. 340; AACSB: Reflective thinking skills; LO3)

30.

How are you trying to encourage technical communication if you establish company-wide intranets? a. informal and social interaction b. job rotation c. use of technology d. collocation (c; Easy; p. 340; AACSB: Reflective thinking skills; LO3)

31.

How does social networks and external ties improve innovation? a. provides access to information about sources of opportunity b. improves decision making about potential innovations c. provides information in a more timely manner d. all of the above (d; Easy; p. 341; AACSB: Reflective thinking skills; LO3)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

144

32.

What type of activities are attending conferences, visiting customers and suppliers, and participating in trade associations called? a. informal and social b. vertical c. horizontal d. boundary-spanning (d; Medium; p. 341; AACSB: Reflective thinking skills; LO3)

33.

Why are incentives necessary to motivate innovation? a. its risky b. its stressful c. its prone to failure d. all of the above (d; Easy; p. 342; LO4)

34.

What is the best compensation system to encourage innovation? a. salary b. bonus c. equity d. all work equally well (c; Medium; p. 343; AACSB: Reflective thinking skills; LO4)

35.

What is an advantage of using equity as a method of compensation? a. helps overcome the moral hazard that occurs when innovators bear the cost of failure b. attracts personnel who are looking for steady and consistent earnings c. provides employees with the potential for upside rewards for risk taking d. all of the above are advantages (c; Medium; p. 343; LO4)

36.

DEKA Research does not give equity or stock options to its engineers because employees with equity ownership: a. have an incentive to persist with innovative efforts even if they have a low probability of success b. can fail to work on other projects even if they are better for the organization c. have an incentive to focus their attention only on activities that are tied to the incentive d. all of the above are reasons (c; Difficult; p. 340; AACSB: Reflective thinking skills; LO4)

37.

What is the ability to come up with novel solutions to problems called? a. intrinsic motivation b. creativity c. extrinsic motivation d. innovation (b; Easy; p. 344; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

145

38.

Which of the following is not a characteristic of someone who is likely to be more creative? a. external locus of control b. tolerance of ambiguity c. greater persistence d. greater self-efficacy (a; Medium; p. 344; AACSB: Reflective thinking skills; LO6)

39.

What is it called if you are driven to complete a task because of internal rewards? a. self-efficacy b. self-esteem c. creativity d. intrinsic motivation (d; Easy; p. 340; AACSB: Reflective thinking skills; LO6)

40.

What is it called if you are driven to complete a task because of external rewards? a. external locus of control b. internal locus of control c. external motivation d. internal motivation (c; Medium; p. 344; LO6)

41.

What can be done to enhance creativity? a. vary tasks b. allow people to experiment with ideas c. let people determine how to do their jobs d. all of the above (d; Easy; p. 344; LO6)

42.

What is 3M trying to do when they allocate a portion of their employees’ time to whatever ideas they see fit? a. increase communication b. increase creativity c. increase intrinsic motivation d. increase extrinsic motivation (b; Medium; p. 344; AACSB: Reflective thinking skills; LO6)

43.

Which of the following would be least likely to enhance creativity? a. hire people with an external locus of control b. develop a flexible environment c. create some slack in the system d. increase diversity of work groups (a; Medium; p. 345; LO6)

44.

According to 3M’s mission, what percentage of their revenue is to be generated from products launched in the last four years? a.

30 percent b.

40 percent c.

50 percent d.

60 percent (b; Medium; p. 346; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

146

45.

What is 3M trying to do with its policy of the “benevolent blind eye”? a. increase communication b. increase motivation c. increase creativity d. increase self-efficacy (c; Easy; p. 340; AACSB: Reflective thinking skills; LO3)

46.

Approximately how much time does it take to develop a new version of the Microsoft operating system? a. less than 100,000 hours b. around 300,000 hours c. around 450,000 hours d. more than 600,000 hours (d; Medium; p. 347; AACSB: Reflective thinking skills; LO7)

47.

As a rule of thumb, what time period is too long for a team to stay together? a. more than a year b. more than three years c. more than five years d. there is no maximum time (c; Medium; p. 347; LO7)

48.

What type of team is made up of people from a single discipline? a. cross-functional b. functional c. autonomous d. matrix (b; Easy; p. 347; LO7)

49.

What type of team is made up of people brought together from different disciplines? a. cross-functional b. functional c. creative d. innovative (a; Easy; p. 347; LO7)

50.

With which type of team are the members more likely to develop specialized skills? a. matrix b. autonomous c. cross-functional d. functional (d; Medium; p. 347; AACSB: Reflective thinking skills; LO7)

51.

With which type of team are you more likely to exploit the benefits of comparative advantage? a. matrix b. autonomous c. functional d. cross-functional (d; Medium; p. 347; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

147

52.

What is true regarding functional teams compared to cross-functional teams? a. functional teams are easier to administer and less expensive b. functional teams are more difficult to administer and less expensive c. functional teams are easier to administer and more expensive d. functional teams are more difficult to administer and more expensive (a; Easy; p. 3348; LO7)

53.

When are functional teams better than cross-functional teams? a. when the rate of technical changes is high, the length of the project is short, and interdependency between projects is high b. when the rate of technical change is high, the length of the project is long, and interdependency between projects is low c. when the rate of technical change is low, the length of the project is short, and the interdependency of the projects is high d. when the rate of technical change is low, the length of the project is long, and interdependency between projects is low (b; Difficult; p. 348; AACSB: Reflective thinking skills; LO7)

54.

What is true when looking at cross-functional teams versus functional teams? a. cross-functional teams are worse for radical change but better for incremental innovation b. cross-functional teams are worse for radical change and worse for incremental innovation c. cross-functional teams are better for radical change and better for incremental innovation d. cross-functional teams are better for radical change but worse for incremental innovation (d; Difficult; p. 348; AACSB: Reflective thinking skills; LO7)

55.

What type of organizational arrangement has one person reporting to two bosses? a. functional team b. cross-functional team c. virtual team d. matrix (d; Medium; p. 349; LO7)

56.

What is true of the matrix structure? a. it lacks the specialized benefits of a functional team and the interdisciplinary benefits of a cross-functional team b. it lacks the specialized benefits of a functional team but has the interdisciplinary benefits of a cross-functional team c. it has the specialized benefits of a functional team but lacks the interdisciplinary benefits of a cross-functional team d. has the specialized benefits of a functional team and the interdisciplinary benefits of a cross-functional team (d; Medium; p. 349; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

148

57.

What type of team is composed of people who reside in their functional areas but have a liaison relationship with a project management committee? a. lightweight team b. matrix team c. heavyweight team d. autonomous team (a; Easy; p. 350; LO7)

58.

What types of teams are collocated teams composed of people from each of the functional areas of the organization? a. lightweight teams b. matrix teams c. heavyweight teams d. autonomous teams (c; Easy; p. 350; LO7)

59.

What types of teams are composed of people from different functional areas who are assigned to the team? a. lightweight teams b. matrix teams c. heavyweight teams d. autonomous teams (d; Easy; p. 350; LO7)

60.

What type of team is problematic for derivative projects? a. lightweight teams b. matrix teams c. heavyweight teams d. autonomous teams (c; Difficult; p. 351; AACSB: Reflective thinking skills; LO7)

61.

What type of team would be least effective if your company does not currently have capabilities in the areas in which you are conducting your product development project? a. lightweight teams b. matrix teams c. heavyweight teams d. autonomous teams (a; Medium; p. 351; AACSB: Reflective thinking skills; LO7)

62.

Which type of team is best if innovation is incremental? a. matrix teams b. heavyweight teams c. lightweight teams d. autonomous teams (c; Medium; p. 351; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

149

63.

What type of team is not collocated but collaborates through electronic means? a. cross-functional team b. functional team c. virtual team d. matrix team (c; Easy; p. 351; LO8)

64.

What is most likely to be associated with virtual teams? a. reduced cost of product development and faster product development b. reduced cost of product development but slower product development c. increased cost of product development but faster product development d. increased cost of product development and slower product development (a; Medium; p. 351; AACSB: Reflective thinking skills; LO8)

ESSAY QUESTIONS 65.

Define corporate culture and discuss how can be used to influence innovation.

(Difficult; pp. 337-338; AACSB: Reflective thinking skills; LO1)

66.

Explain why R&D personnel are typically different than those working in other parts of the organization. Describe what can be done to enhance their innovation.

(Difficult; pp. 339-340; AACSB: Reflective thinking skills; LO2)

67.

Explain how to organize technical communication.

(Difficult; pp. 340-341; AACSB: Reflective thinking skills; LO3)

68.

Describe the process you would follow if you were going to develop an incentive package for your R&D employees.

(Difficult; pp. 342-344; AACSB: Reflective thinking skills; LO4)

69.

Define creativity and explain what can be done to increase overall organizational creativity.

(Difficult; pp. 344-346; AACSB: Reflective thinking skills; LO6)

70.

Compare and contrast the different types of product development teams. Explain the different situations when each type would be preferable.

(Difficult; pp. 346-353; AACSB: Reflective thinking skills; LO6)

71.

Define a virtual team and explain how they affect product development.

(Difficult; pp. 346-353; AACSB: Reflective thinking skills; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

150

CHAPTER 16 ORGANIZATION STRUCTURE FOR TECHNOLOGY STRATEGY TRUE/FALSE QUESTIONS 1.

An advantage of decentralization is that it reduces conflict with ongoing operations.

(False; Medium; p. 361; LO1)

2.

A disadvantage of decentralization is that it leads to avoidance of radical innovation.

(True; Medium; p. 361; LO1)

3.

Organic structures are loosely controlled with hierarchical communication patterns and specialized jobs.

(False; Medium; p. 363; LO2)

4.

Mechanistic structures permit greater organizational flexibility and adaptability than mechanistic ones.

(False; Medium; p. 364; LO2)

5.

Successful high-technology firms typically build in slack resources to encourage innovation.

(True; Medium; p. 365; LO3)

6.

Efforts to make organizations more efficient usually involve the elimination of slack resources because they are viewed as a drag on efficiency.

(True; Easy; p. 366; LO3)

7.

On average, small firms can hire a more talented and more diverse group of employees than large ones, which improves the quality of their human capital.

(False; Medium; p. 367; LO4)

8.

Small firms tend to be more innovative than large firms in industries that are younger, less R&D intensive, less concentrated, less capital intensive, less advertising intensive, and more reliant on skilled labor.

(True; Easy; p. 367; AACSB: Reflective thinking skills; LO5)

9.

Research has shown that more than 80 percent of all firms are founded in the same industry as the one in which their founders were previously employed.

(True; Medium; p. 368 LO6)

10.

The disagreement with employees about how to divide the profit from innovation between them is the most basic explanation for why people create spin-off companies.

(False; Medium; p. 369; LO6)

11.

External equity investment in technology start-ups typically comes from venture capitalist.

(False; Medium; p. 371; LO7)

12.

Business angels are private individuals who invest their own money in new companies.

(True; Easy; p. 372; LO7)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

151

13.

New venture groups are entities that invest a business’s money in start-up companies in return for an equity interest in them.

(False; Medium; p. 373; LO8)

14.

Corporate venture capital funds use a venture capital approach to corporate venturing, frequently coinvesting with other financial institutions.

(True; Easy; p. 373; LO9)

15.

Although the number of corporate venture groups peaked around 2003, it is still higher than it was in 1999.

(False; Medium; p. 373; LO9)

16.

When companies engage in corporate venturing, they usually need to take the strategy of a parent firm into consideration and can’t maximize financial returns, like independent venture capitalist.

(True; Medium; p. 376; LO9)

17.

An advantage of corporate venturing is that it reduces risks on companies.

(False; Medium; p. 379; LO9)

18.

A disadvantage of corporate venturing is that it can interfere with ongoing operations.

(True; Easy; p. 379; LO9)

19.

If the corporate ventures are strategically important and operationally related to your core capabilities, then the new ventures should be part of your core business.

(True; Medium; p. 380; LO9)

20.

If the corporate ventures are strategically important and operationally unrelated to your core capabilities, then the new ventures should be direct spin-offs.

(False; Medium; p. 380; LO9)

21.

Acquisitions allow companies to gain control over proven new technical capabilities and intellectual property.

(True; Easy; p. 381; LO10)

22.

In general, the returns to shareholders of acquiring companies tend to be better than anticipated, especially in the short-term.

(False; Medium; p. 382; LO10)

MULTIPLE CHOICE 23.

To innovate successfully, companies need to be concerned with which of the following factors? a. centralization b. efficiency c. creating new companies d. all of the above (d; Easy; p. 360; AACSB: Reflective thinking skills; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

152

24.

What refers to the extent to which decision making in an organization is controlled at the top? a. mechanistic b. organic c. centralized d. decentralized (c; Medium; p. 361; LO)

25.

What refers to the extent to which decision making in an organization is spread out throughout an organization? a. mechanistic b. organic c. centralized d. decentralized (d; Easy; p. 361; LO1)

26.

What is an advantage with decentralization? a. facilitates innovation in noncore areas b. leads to avoidance of radical innovation c. decreases market orientation d. makes coordination easier (a; Difficult; p. 361; LO1)

27.

What is a disadvantage of decentralization? a. results in overinvestment in large-scale innovation b. hinders strategic management innovation c. reduces market innovation d. reduces idea generation (b; Medium; p. 361; LO1)

28.

As Microsoft grew, its centralized structure made it slow to take advantage of innovative opportunities. What advantage of decentralization was the company trying to exploit by dividing the company into seven different divisions; each with its own division responsible for profit and loss and a goal of speeding up decision making? a. improves access to information b. facilitates innovation in noncore areas c. facilitates idea generation d. improved coordination (c; Medium; p. 362; AACSB: Reflective thinking skills; LO1)

29.

What is a benefit associated with decentralization? a. reduces the cost of coordination b. improves performance by giving technical personnel freedom from operations activities c. encourages companies to invest in radical innovation d. facilitates innovation in noncore areas (d; Easy; p. 362; LO1)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

153

30.

What is a benefit of centralization? a. encourages companies to invest in radical innovation b. increases market orientation c. reduces financial risk to the overall organization d. makes it easier to get government aid for innovation (a; Easy; p. 360; LO1)

31.

What was 3M attempting to do by changing its structure so that the managers of all units undertaking R&D report to the same senior manager? a. increase the mechanistic nature of the organization b. increase the organic nature of the organization c. increase the centralization of the organization d. increase the decentralization of the organization (c; Easy; p. 360; AACSB: Reflective thinking skills; LO1)

32.

What type of organization is loosely structured with nonhierarchical communication patterns and unspecialized jobs? a. mechanistic b. organic c. centralized d. decentralized (b; Easy; p. 363; LO2)

33.

What type of organization is tightly controlled with hierarchical communication patterns and specialized jobs? a. mechanistic b. organic c. centralized d. decentralized (a; Easy; p. 364; LO2)

34.

What is most accurate concerning organic structures? a. they permit less organizational flexibility but are more adaptable b. they permit less organizational flexibility and are less adaptable c. they permit more organizational flexibility and are more adaptable d. they permit more organizational flexibility but are less adaptable (c; Medium; p. 364; LO2)

35.

What is most accurate concerning organic structures? a. more cross-functional activity and greater horizontal communication b. more cross-functional activity but less horizontal communication c. less cross-functional activity but greater horizontal communication d. less cross-functional activity and less horizontal communication (a; Medium; p. 364; LO2)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

154

36.

What is an advantage associated with mechanistic structures compared to mechanistic ones? a. work is less structured b. more efficient c. permits less monitoring d. makes it more difficult to evaluate employees (b; Easy; p. 365; LO2)

37.

Which factor is more in-line with the creation of radical innovation? a. efficient decision-making processes b. authority structures c. participative decision making d. all of the above (c; Medium; p. 365; AACSB: Reflective thinking skills; LO2)

38.

What was General Motors attempting to do by resisting the pressure to cut R&D in the light of widespread financial pressures? a. increase efficiency b. reduce costs c. focus on the long-term as compared to the short-term d. eliminate dead-end costs (c; Medium; p. 366; AACSB: Reflective thinking skills; LO3)

39.

What is more consistent to a large firm compared to a small one? a. large firms make decisions faster b. large firms are less bureaucratic c. larger firms have faster communication d. large firms have more complex communication (d; Medium; p. 366; AACSB: Reflective thinking skills; LO4)

40.

What is more consistent with a large firm as compared to a larger one? a. large firms have an increased ability to colocate marketing and engineering b. large firms promote fewer talented researchers to management positions c. large firms produce innovation at a lower cost of R&D d. large firms improve the quality of human capital (d; Easy; p. 367; LO4)

41.

What is more consistent of a small firm as compared to a large one? a. small firms generate more slack necessary to innovate b. small firms produce their innovations at a lower cost of R&D c. small firms exploit economies of scale d. small firms hire a more talented and diverse group of employees (b; Difficult; p. 367; AACSB: Reflective thinking skills; LO4)

42.

Small firms tend to be more innovative in which type of industry? a. less advertising intensive b. older industries c. more concentrated d. less reliant on skilled labor (a; Easy; p. 360; AACSB: Reflective thinking skills; LO5)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

155

43.

Which industry would you expect a small firm to be more innovative than a large one? a. pharmaceutical preparations b. photographic equipment c. fabricated metal products d. measuring and controlling devices (c; Difficult; p. 368; AACSB: Reflective thinking skills; LO5)

44.

Which industry would you expect a large firm to be more innovative than a small one? a. pharmaceutical preparations b. photographic equipment c. fabricated metal products d. measuring and controlling devices (a; Medium; p. 360; AACSB: Reflective thinking skills; LO5)

45.

What percentage of all firms are founded in the same industry as the one in which their founders were previously employed? a.

40 % b.

60% c.

80% d.

90% (c; Medium; p. 368; LO6)

46.

What percentage of all firm founders start companies to serve the same or similar customers as their prior employers? a.

40% b.

60% c.

80% d.

90% (b; Medium; p. 368; LO6)

47.

What is a reason why so many employees leave to start their own spin-off company? a. lack of reward sharing b. inability to effectively bargain over profits c. inability go agree on a source of value d. all of the above are reasons (d; Easy; p. 368; LO6)

48.

What led Robert Metcalfe to quit Xerox and start 3Com? a. disagreement over dividing profits b. lack of sharing rewards c. inability to agree on a source of value d. all of the above (b; Difficult; p. 368; AACSB: Reflective thinking skills; LO6)

49.

What is the most basic explanation why people spin-off companies? a. lack of shared rewards b. disagreement over dividing profits c. ineffective leadership d. inability to agree on a source of value (a; Medium; p. 369; LO6)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

156

50.

What can keep an employee from exploiting innovations that were identified while working for another company? a. noncompete agreements b. patents c. nondisclosure agreements d. all of the above (d; Easy; p. 370; LO6)

51.

External equity investment in technology start-ups typically comes from which source? a. corporations b. business angels c. venture capitalists d. all of the above (d; Easy; p. 371; LO7)

52.

What are private individuals who invest their own money in a new company called? a. corporate venturing b. venture capital firm c. business angels d. venture capitalist (c; Medium; p. 372; LO7)

53.

What are organizations, generally limited partnerships, called that raise money form university endowments, pension funds, and wealthy individuals to invest in high-technology start-ups called? a. venture capitalist b. business angels c. venture capital firm d. corporate venturing (c; Medium; p. 372; LO2)

54.

What is the creation of new businesses by existing organizations called? a. business angels b. corporate angels c. venture capitalism d. corporate venturing (d; Easy; p. 373; LO8)

55.

In 2003, approximately how many U.S. companies operated corporate venture capital units? a.

200 b.

350 c.

500 d.

750 (a; Medium; p. 373; LO8)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

157

56.

Corporate ventures accounted for what percentage of all venture capital funds invested in the U.S.? a.

7 percent b.

12 percent c.

17 percent d.

22 percent (c; Medium; p. 373; LO8)

57.

What are corporate units that create new companies under the umbrella of the parent firm called? a. business angels b. new venture group c. corporate venture capital funds d. venture capitalists (b; Medium; p. 373; LO9)

58.

What is most likely for corporate venture capital funds? a. following of a corporate approach b. make smaller investment alone c. seek to maintain ownership of the new company d. staging their investments (d; Difficult; p. 373; LO9)

59.

What is most likely for corporate venture groups? a. making larger investments b. coinvesting with other financial institutions c. seek to maintain ownership of the new companies d. staging of investments (c; Difficult; p. 373; AACSB: Reflective thinking skills; LO9)

60.

What is most accurate regarding the amount of money invested in corporate venture groups since the late 1990s? a. they have continued to increase b. they have continued to decrease c. they peaked around 200 and have since declined d. they peaked around 2003 and have since declined (c; Medium; p. 374; AACSB: Reflective thinking skills; LO9)

61.

Which of the following is most likely managed like a corporation? a. venture capitalist b. corporate venture group c. corporate venture capital funds d. business angels (b; Medium; p. 374; LO9)

62.

What is the primary objective when companies conduct corporate venturing? a. purely financial goals b. purely strategic goals c. primarily financial goals d. equally financial and strategic goals (d; Medium; p. 377; AACSB: Reflective thinking skills; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

158

63.

What is a disadvantage associated with corporate venturing? a. increased dependency on mainstream customers b. eliminates equity as an incentive to motivate employees c. interferes with ongoing operations d. reduces the possibility of radical innovation (c; Difficult; p. 379; LO9)

64.

What is an advantage associated with corporate venturing? a. frees companies from dependence on mainstream customers b. reduces financial, legal, and accounting burdens c. helps maximize financial returns on investments d. reduces risks on companies (a; Difficult; p. 379; LO9)

65.

If a company’s core venture is strategically important and the core capability is related, the new venture should be: a. part of the core businesses b. a special unit c. a contractually-based spin-off d. a direct spin off (a; Medium; p. 380; LO9)

66.

If a company’s core venture is strategically important and the core capability is unrelated, the new venture should be: a. part of the core businesses b. a special unit c. a contractually-based spin-off d. a direct spin off (b; Medium; p. 380; LO9)

67.

If a company’s core venture is of no strategic importance and the core capability is related, the new venture should be: a. part of the core businesses b. a special unit c. a contractually-based spin-off d. a direct spin off (c; Medium; p. 380; LO9)

68.

If a company’s core venture is of no strategic importance and the core capability is unrelated, the new venture should be: a. part of the core businesses b. a special unit c. a contractually-based spin-off d. a direct spin off (d; Medium; p. 380; LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

159

69.

What is an advantage associated with acquisitions? a. gaining control over proven new technical property b. gaining knowledge how to serve a market c. enhance efficiency by combining operations and eliminating duplicative assets d. all of the above (d; Easy; p.381; LO10)

70.

What advantage of acquisitions was SBC Communications attempting to leverage with the acquisition of AT&T allowing the combined company to reduce R&D activities, headquarters staff and other operations? a. gain control over proven new technical property b. enhancing efficiency by combining operations and eliminating duplicative assets c. manage the risk of investing in the development of new technologies d. putting their capabilities to work in new markets (b; Medium; p. 377; AACSB: Reflective thinking skills; LO9)

71.

What advantage of acquisition was Novartis attempting to leverage when it acquired biotechnology pioneer Chiron to gain access to the latter’s vaccine development capabilities and to take advantage of the increasing size of the vaccine market that has resulted from fears of Avian flu? a. gain control over proven new technical property b. gain knowledge about how to serve a market they would like to enter c. manage the risk of investing in the development of new technologies d. putting their capabilities to work in new markets (a; Medium; p. 377; AACSB: Reflective thinking skills; LO9)

ESSAY QUESTIONS 72.

Define centralization and decentralization and explain the advantages and disadvantages of each.

(Difficult; pp. 361-363; AACSB: Reflective thinking skills; LO1)

73.

Define mechanistic and organic organizational structures. Which structure is better at encouraging innovation? Why? (Difficult; pp. 363-365; AACSB: Reflective thinking skills; LO2)

74.

Discuss the main reasons why spin-off companies are formed.

(Difficult; pp. 368-371; AACSB: Reflective thinking skills; LO6)

75.

Explain how high-growth technology companies finance their operations. Discuss the advantages and disadvantages associated with corporate venturing.

(Difficult; pp. 371-378; AACSB: Reflective thinking skills; LO8, LO9)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

160