Strategic Management of Technological Innovation 5th Edition by MELISSA A SCHILLING - Test Bank

Chapter 01 Introduction True / False Questions 1. Investing in process innovation helps firms lower their costs.

True

False

2. Flexible manufacturing technologies have increased the importance of production economies of scale.

True

False

3. Globalization of markets has reduced the importance of innovation.

True

False

4. Innovation and new technologies have led to longer product life cycles and slower product obsolescence.

True

False

5. Technological innovation decreases the amount of output achievable from a given quantity of labor and capital.

True

False

6. GDP does not directly relate to the amount of goods consumers can purchase.

True

False

7. Externalities are costs that are borne by individuals other than those responsible for creating them.

True

False

8. Technological innovation results in complete eradication of negative externalities.

True

False

9. If a business discharges untreated chemical waste into the local water bodies of a community, it imposes a negative externality on the community members.

True

False

10. Most innovative ideas do not become successful new products.

True

False

11. The majority of effort and money invested in technological innovation comes from nonindustrial firms.

True

False

12. The innovation process is often conceived of as a funnel because most potential new product ideas make it through the development process.

True

False

13. According to the concept of innovation funnel, the number of successful products launched will be greater than the number of raw ideas generated.

True

False

14. According to the concept of the innovation funnel, one new idea is usually responsible for several new products.

True

False

15. A firm's organizational structure and control systems have no influence on the generation of innovative ideas.

True

False

Multiple Choice Questions 16. Which of the following is an advantage of flexible manufacturing technologies?

A. They have made shorter production runs economical.

B. They have increased the importance of production economies of scale.

C. They eliminate the need for differentiation from competitors.

D. They have reduced the importance of technological innovation in industries.

17. As a result of the rapid pace of innovation:

A. product life cycles have become short.

B. product development cycles have become significantly longer.

C. market segmentation has reduced.

D. product obsolescence has slowed down.

18. The _____ of an economy is its total annual output as measured by its final purchase price.

A. balance of payment B. gross domestic product C. cash reserve ratio D. net national income 19. Which of the following is true of technological innovations?

A. Technological innovations help increase a country's gross domestic product.

B. Technological innovations decrease the amount of output achievable from a given quantity of labor and capital.

C. Technological innovations slow down product obsolescence and lengthen the product development cycles.

D. Technological innovations increase production costs and reduce product differentiation.

20. Virtual Inc., a manufacturing company, has recently entered the cell phone industry. This industry is characterized by rapid technological innovations. Which of the following is most likely to be true for Virtual?

A. The life cycle of its cell phones will be very long.

B. It will face rapid product obsolescence.

C. It will face low market segmentation in the cell phone industry.

D. It will have a lower need for product differentiation.

21. Technological innovations increase:

A. the gross domestic product of an economy.

B. product life cycles.

C. the time required for product development and introduction.

D. the production costs of multiple product variations.

22. If a country's GDP stands at $4,867 billion, it means that the country's _____ is worth $4,867 billion.

A. total annual output B. investment on technological innovation C. savings with the World Bank D. negative variance in budget 23. The Solow Residual refers to the:

A. obsolete products left in a market due to accelerated product life cycles.

B. less developed nations of the world being left behind due to their obsolete technology.

C. increased amount of output achievable from a given quantity of labor and capital due to technological innovation.

D. process of dumping goods in developing and underdeveloped countries at a price lower than the home-market price.

24. _____ refer to the costs (or benefits) of technological innovations that are borne by individuals other than those responsible for creating them.

A. Externaliti es B. Innovation funnels C. Opportunity costs D. Cultural lags

25. Which of the following is most likely to create a positive externality for its neighboring community members?

A. A coal mine B. An organic farm C. A petroleum refinery D. A dye manufacturing company 26. Kroters Inc. decides to set up its manufacturing plant near Woodsville, a small community of farmers. Kroters is most likely to create a positive externality for the community members of Woodsville if it:

A. increases its product life cycle based on consumer demand.

B. sets up an organic farm near Woodsville.

C. follows the Solow Residual.

D. reduces the rate of product obsolescence for Woodsville residents.

27. Silk Work Inc., a manufacturer of silk garments, is planning to replace hand weaving with some modern machines that run on fuel. Which of the following consequences of this measure can be categorized as a negative externality?

A. Increased amount of output achievable from the given quantity of labor B. Increase in the quality of the silk garments C. Increased pollution as a result of the new technology D. Increased need for investment to finance the modernization 28. Technology is, in its purest essence, _____.

A. knowled ge B. dissonanc e C. chao s D. guesswor k

29. If a business builds a park in a community, it creates a(n) _____ for the community members.

A. social cost B. positive externality C. opportunity cost D. negative variance 30. Which of the following is true of externalities?

A. All externalities are negative in nature.

B. They are only borne by individuals responsible for creating them.

C. Technological innovation results in complete eradication of negative externalities.

D. Externalities can be in the form of benefits reaped by individuals.

31. Electronic waste results from the disposal of technological goods. This is an example of:

A. the Solow Residual.

B. a negative externality.

C. a negative variance.

D. the innovation funnel.

32. The innovation process is often conceived of as a funnel because:

A. most innovative ideas become successful new products.

B. it decreases the amount of output achievable from a given quantity of labor and capital.

C. it increases the importance of production economies of scale.

D. there are many potential new product ideas and only a few make it through the development process.

33. Jordan, the CEO of Early Bird Corp., believes that it is important to focus on the quantity of new product ideas generated rather than the quality of ideas generated. He encourages everyone in the company to come up with product ideas, and those that seem feasible are further developed. According to him, it takes several raw ideas to develop one successful new product. Jordan's views reflect the concept of:

A. innovation adolescence.

B. innovation diffusion.

C. innovation readiness.

D. innovation funnel.

34. Unicorn Medicines Inc., a pharmaceutical company based in the United States, has its research and development units spread across the globe. Lately, these research and development units have not been receiving adequate financial support. Which of the following is most likely to be the cause for such a situation?

A. Technical innovation leads to lower market segmentation and slower product obsolescence.

B. Most innovative ideas do not become successful new products.

C. The product development cycle in the pharmaceutical industry is short.

D. The cost associated with pharmaceutical research and development is low.

35. Walter is the new director of R&D at Good Health Inc., a pharmaceutical company. Which of the following statements, if made by Walter, would indicate that he believes in the concept of the innovation funnel?

A. "Innovation is a freewheeling process that is unconstrained by rules and plans."

B. "While there are many potential new product ideas going in the wide end, very few make it through the development process."

C. "I believe that Good Health should limit new idea generation to save time and other resources."

D. "I believe that Good Health should allow all new ideas generated in the company to make it to the development process."

Essay Questions

36. Explain the impact of computer-aided design and flexible manufacturing technologies on firms.

37. Explain how the globalization of markets affects the importance of innovation.

38. What are some of the negative impacts on society due to technological innovation? How would you respond to critics of technological innovation who cite these negative impacts?

39. Why is it important for a company to have a well-defined process for strategically managing its new product development process?

40. Explain how an understanding of the innovation funnel might influence a company's view of research and development.

Chapter 01 Introduction Answer Key True / False Questions 1.

Investing in process innovation helps firms lower their costs.

(p. 1)

TRUE Difficulty: 1 Easy

2. (p. 1)

Flexible manufacturing technologies have increased the importance of production economies of scale.

FALSE Difficulty: 1 Easy

3.

Globalization of markets has reduced the importance of innovation.

(p. 1)

FALSE Difficulty: 1 Easy

4. (p. 2)

Innovation and new technologies have led to longer product life cycles and slower product obsolescence.

FALSE Difficulty: 1 Easy

5. (p. 2)

Technological innovation decreases the amount of output achievable from a given quantity of labor and capital.

FALSE Difficulty: 1 Easy

6.

GDP does not directly relate to the amount of goods consumers can purchase.

(p. 3)

FALSE Difficulty: 1 Easy

7. (p. 3)

Externalities are costs that are borne by individuals other than those responsible for creating them.

TRUE Difficulty: 1 Easy

8.

Technological innovation results in complete eradication of negative externalities.

(p. 3)

FALSE Difficulty: 1 Easy

9. (p. 3)

If a business discharges untreated chemical waste into the local water bodies of a community, it imposes a negative externality on the community members.

TRUE Difficulty: 2 Medium

10.

Most innovative ideas do not become successful new products.

(p. 4)

TRUE Difficulty: 1 Easy

11. (p. 4)

The majority of effort and money invested in technological innovation comes from nonindustrial firms.

FALSE Difficulty: 1 Easy

12. (p. 5)

The innovation process is often conceived of as a funnel because most potential new product ideas make it through the development process.

FALSE Difficulty: 1 Easy

13. (p. 5)

According to the concept of innovation funnel, the number of successful products launched will be greater than the number of raw ideas generated.

FALSE Difficulty: 1 Easy

14. (p. 5)

According to the concept of the innovation funnel, one new idea is usually responsible for several new products.

FALSE Difficulty: 1 Easy

15. (p. 6)

A firm's organizational structure and control systems have no influence on the generation of innovative ideas.

FALSE Difficulty: 1 Easy

Multiple Choice Questions 16.

Which of the following is an advantage of flexible manufacturing technologies?

(p. 1)

A. They have made shorter production runs economical.

B. They have increased the importance of production economies of scale.

C. They eliminate the need for differentiation from competitors.

D. They have reduced the importance of technological innovation in industries.

Difficulty: 2 Medium

17.

As a result of the rapid pace of innovation:

(p. 2)

A. product life cycles have become short.

B. product development cycles have become significantly longer.

C. market segmentation has reduced.

D. product obsolescence has slowed down.

Difficulty: 1 Easy

18. (p. 2)

The _____ of an economy is its total annual output as measured by its final purchase price.

A. balance of payment B. gross domestic product C. cash reserve ratio D. net national income Difficulty: 1 Easy

19.

Which of the following is true of technological innovations?

(p. 2)

A. Technological innovations help increase a country's gross domestic product.

B. Technological innovations decrease the amount of output achievable from a given quantity of labor and capital.

C. Technological innovations slow down product obsolescence and lengthen the product development cycles.

D. Technological innovations increase production costs and reduce product differentiation.

Difficulty: 2 Medium

20. (p. 2)

Virtual Inc., a manufacturing company, has recently entered the cell phone industry.

This industry is characterized by rapid technological innovations. Which of the following is most likely to be true for Virtual?

A. The life cycle of its cell phones will be very long.

B. It will face rapid product obsolescence.

C. It will face low market segmentation in the cell phone industry.

D. It will have a lower need for product differentiation.

Difficulty: 3 Hard

21.

Technological innovations increase:

(p. 2)

A. the gross domestic product of an economy.

B. product life cycles.

C. the time required for product development and introduction.

D. the production costs of multiple product variations.

Difficulty: 2 Medium

22. (p. 2)

If a country's GDP stands at $4,867 billion, it means that the country's _____ is worth $4,867 billion.

A. total annual output B. investment on technological innovation C. savings with the World Bank D. negative variance in budget Difficulty: 2 Medium

23.

The Solow Residual refers to the:

(p. 2-3)

A. obsolete products left in a market due to accelerated product life cycles.

B. less developed nations of the world being left behind due to their obsolete technology.

C. increased amount of output achievable from a given quantity of labor and capital due to technological innovation.

D. process of dumping goods in developing and underdeveloped countries at a price lower than the home-market price.

Difficulty: 2 Medium

24. (p. 3)

_____ refer to the costs (or benefits) of technological innovations that are borne by individuals other than those responsible for creating them.

A. Externaliti es B. Innovation funnels C. Opportunity costs D. Cultural lags Difficulty: 1 Easy

25. (p. 3)

Which of the following is most likely to create a positive externality for its neighboring community members?

A. A coal mine B. An organic farm C. A petroleum refinery D. A dye manufacturing company Difficulty: 2 Medium

26. (p. 3)

Kroters Inc. decides to set up its manufacturing plant near Woodsville, a small community of farmers. Kroters is most likely to create a positive externality for the community members of Woodsville if it:

A. increases its product life cycle based on consumer demand.

B. sets up an organic farm near Woodsville.

C. follows the Solow Residual.

D. reduces the rate of product obsolescence for Woodsville residents.

Difficulty: 2 Medium

27. (p. 3)

Silk Work Inc., a manufacturer of silk garments, is planning to replace hand weaving with some modern machines that run on fuel. Which of the following consequences of this measure can be categorized as a negative externality?

A. Increased amount of output achievable from the given quantity of labor B. Increase in the quality of the silk garments C. Increased pollution as a result of the new technology D. Increased need for investment to finance the modernization Difficulty: 3 Hard

28.

Technology is, in its purest essence, _____.

(p. 3)

A. knowled ge B. dissonanc e C. chao s D. guesswor k Difficulty: 1 Easy

29. (p. 3)

If a business builds a park in a community, it creates a(n) _____ for the community members.

A. social cost B. positive externality C. opportunity cost D. negative variance Difficulty: 2 Medium

30.

Which of the following is true of externalities?

(p. 3)

A. All externalities are negative in nature.

B. They are only borne by individuals responsible for creating them.

C. Technological innovation results in complete eradication of negative externalities.

D. Externalities can be in the form of benefits reaped by individuals.

Difficulty: 2 Medium

31. (p. 3)

Electronic waste results from the disposal of technological goods. This is an example of:

A. the Solow Residual.

B. a negative externality.

C. a negative variance.

D. the innovation funnel.

Difficulty: 2 Medium

32.

The innovation process is often conceived of as a funnel because:

(p. 5)

A. most innovative ideas become successful new products.

B. it decreases the amount of output achievable from a given quantity of labor and capital.

C. it increases the importance of production economies of scale.

D. there are many potential new product ideas and only a few make it through the development process.

Difficulty: 2 Medium

33. (p. 5)

Jordan, the CEO of Early Bird Corp., believes that it is important to focus on the quantity of new product ideas generated rather than the quality of ideas generated.

He encourages everyone in the company to come up with product ideas, and those that seem feasible are further developed. According to him, it takes several raw ideas to develop one successful new product. Jordan's views reflect the concept of:

A. innovation adolescence.

B. innovation diffusion.

C. innovation readiness.

D. innovation funnel.

Difficulty: 3 Hard

34. (p. 4)

Unicorn Medicines Inc., a pharmaceutical company based in the United States, has its research and development units spread across the globe. Lately, these research and development units have not been receiving adequate financial support. Which of the following is most likely to be the cause for such a situation?

A. Technical innovation leads to lower market segmentation and slower product obsolescence.

B. Most innovative ideas do not become successful new products.

C. The product development cycle in the pharmaceutical industry is short.

D. The cost associated with pharmaceutical research and development is low.

Difficulty: 3 Hard

35. (p. 5)

Walter is the new director of R&D at Good Health Inc., a pharmaceutical company.

Which of the following statements, if made by Walter, would indicate that he believes in the concept of the innovation funnel?

A. "Innovation is a freewheeling process that is unconstrained by rules and plans."

B. "While there are many potential new product ideas going in the wide end, very few make it through the development process."

C. "I believe that Good Health should limit new idea generation to save time and other resources."

D. "I believe that Good Health should allow all new ideas generated in the company to make it to the development process."

Difficulty: 3 Hard

Essay Questions 36. (p. 1)

Explain the impact of computer-aided design and flexible manufacturing technologies on firms.

Computer-aided design and computer-aided manufacturing have made it easier and faster for firms to design and produce new products, while flexible manufacturing technologies have made shorter production runs economical and have reduced the importance of production economies of scale. These technologies help firms develop and produce more product variants that closely meet the needs of narrowly defined customer groups, thus achieving differentiation from competitors.

Difficulty: 2 Medium

37.

Explain how the globalization of markets affects the importance of innovation.

(p. 1)

The increasing importance of innovation is due in part to the globalization of markets.

Foreign competition has put pressure on firms to continuously innovate in order to produce differentiated products and services. Introducing new products helps firms protect their margins, while investing in process innovation helps firms lower their costs.

Difficulty: 2 Medium

38. (p. 3)

What are some of the negative impacts on society due to technological innovation?

How would you respond to critics of technological innovation who cite these negative impacts?

Production technologies may create pollution that is harmful to the surrounding communities; agricultural and fishing technologies can result in erosion, elimination of natural habitats, and depletion of ocean stocks; medical technologies can result in unanticipated consequences such as antibiotic-resistant strains of bacteria or moral dilemmas regarding the use of genetic modification.

However, technology is, in its purest essence, knowledge—knowledge to solve our problems and pursue our goals. Technological innovation is thus the creation of new knowledge that is applied to practical problems. Sometimes this knowledge is applied to problems hastily, without full consideration of the consequences and alternatives, but overall it will probably serve us better to have more knowledge than less.

Students' answers will vary.

Difficulty: 3 Hard

39.

Why is it important for a company to have a well-defined process for strategically

(p. 4-6) managing its new product development process?

In the frenetic race to innovate, many firms charge headlong into new product development without clear strategies or well-developed processes for choosing and managing projects. Such firms often initiate more projects than they can effectively support, choose projects that are a poor fit with the firm's resources and objectives, and suffer long development cycles and high project failure rates as a consequence.

While innovation is popularly depicted as a freewheeling process that is unconstrained by rules and plans, study after study has revealed that successful innovators have clearly defined innovation strategies and management processes.

Improving a firm's innovation success rate requires a well-crafted strategy. A firm's innovation projects should align with its resources and objectives, leveraging its core competencies and helping it achieve its strategic intent. A firm's organizational structure and control systems should encourage the generation of innovative ideas while also ensuring efficient implementation. A firm's new product development process should maximize the likelihood of projects being both technically and commercially successful. To achieve these things, a firm needs (a) an in-depth understanding of the dynamics of innovation, (b) a well-crafted innovation strategy, and (c) well-designed processes for implementing the innovation strategy.

Difficulty: 2 Medium

40. (p. 5)

Explain how an understanding of the innovation funnel might influence a company's view of research and development.

If a company truly understands the innovation funnel concept, it will see the innovation process as a funnel, with many potential new product ideas going in the wide end, but very few making it through the development process. The company can then encourage its R&D staff as well as the rest of the company to come up with and submit new ideas. It will also develop ways of evaluating large numbers of ideas and set up screening criteria that would help the firm decide which ideas to elevate to the next level of attention. Students' answers will vary.

Difficulty: 2 Medium

Chapter 02 Sources of Innovation True / False Questions 1. If an individual knows a field too well, it can stifle his ability to come up with solutions that require an alternative perspective.

True

False

2. An organization's overall creativity level is a simple aggregate of the creativity of the individuals it employs.

True

False

3. Sometimes, monetary rewards undermine creativity by encouraging employees to focus on extrinsic rather than intrinsic motivation.

True

False

4. Innovation often originates with those who create solutions for their own needs.

True

False

5. The terms research and development represent different kinds of investment in innovation-related activities.

True

False

6. The science-push approach to research and development argued that innovation was driven by the perceived demand of potential users.

True

False

7. Firms often form alliances with competitors to jointly work on an innovation project or to exchange information in pursuit of innovation.

True

False

8. Typically, the intellectual property policies of a university embrace both patentable and unpatentable innovations.

True

False

9. Incubators are regional districts, typically set up by government, to foster R&D collaboration between government, universities, and private firms.

True

False

10. The decline in the government share of spending on R&D is largely due to the rapid increase in industry R&D funding rather than a real decline in the absolute amount spent by the government.

True

False

11. Collaborative research is prohibited in high-technology sectors.

True

False

12. Knowledge that cannot be readily codified is called explicit knowledge.

True

False

13. Proximity and interaction can directly influence firms' ability and willingness to exchange knowledge.

True

False

14. Knowledge that is explicit requires more frequent and close interaction to be meaningfully exchanged than knowledge that is tacit.

True

False

15. The degree to which innovative activities are geographically clustered is independent of the national differences in the way technology development is funded or protected.

True

False

Multiple Choice Questions 16. Erison Group, an advertising company, wants to hire someone as its creative head. Who among the following would be best suited for this position?

A. An individual who completely adheres to the existing logic and paradigms and has extensive knowledge of the field B. An individual who has low tolerance for ambiguity and avoids taking risks C. An individual who has a moderate degree of knowledge of the field but is intrinsically motivated D. An individual who prefers to look at problems in conventional ways

17. Which of the following is a characteristic of most successful inventors?

A. They specialize solely in a single field rather than several fields simultaneously.

B. They are curious and more interested in solutions than in problems.

C. They blindly accept the assumptions made in previous works in their field.

D. They seek global solutions rather than local solutions.

18. Which of the following is an example of user innovation?

A. Samuel has invented a detachable bicycle in order to make profits by selling it to a reputed bicycle manufacturing firm.

B. Sandra, an engineer, has developed a device that helps track the location of her teenage daughter's car.

C. Jessica, an ace designer for a clothing brand, has been asked to work on a dyeing technique that changes fabric color according to the room temperature.

D. Ivan, a scientist at a reputed pharmaceutical company, has developed an antiinflammatory drug for the company to commercialize.

19. Which of the following is the correct sequence of steps for the science-push approach to research and development?

A. Customers express an unmet need, R&D develops the product to meet that need, the product is manufactured, and finally the marketing team promotes the product.

B. Scientific discovery leads to an invention, the engineering team designs the product, it is manufactured, and finally the marketing team promotes it.

C. Marketing discovers a need, R&D comes up with the product concept that is refined by engineering, the manufacturing team produces it, and finally the product is sold.

D. Manufacturing sees a way to improve a product, the engineering team redesigns it, and finally the marketing team creates awareness about the improved product.

20. Breaking Ventures Inc. realized that most parents are worried about their teenage children going out on their own. Based on this information, the company developed a device that could be fixed into teenagers' cell phones, and it helped parents keep track of their children's location. This approach to research and development is referred to as _____.

A. demandpull B. supplypush C. sciencepush D. researchpull

21. The demand-pull approach to research and development refers to research and development that:

A. focuses on developing products that are expected to increase demand in a particular market segment.

B. begins by examining the outcomes of the firm's basic research and the potential commercial applications that may be constructed from those outcomes.

C. focuses on developing products that are expected to decrease the demand for their substitute products.

D. originates as a response to the specific problems or suggestions of customers.

22. Organizations that manufacture products such as light bulbs for lamps or DVDs for DVD players are examples of _____.

A. moderato rs B. lead users C. complement ors D. incubato rs 23. _____ is the ability of an organization to recognize, assimilate, and utilize new knowledge.

A. Cognitive dissonance B. Absorptive capacity C. Organizational obsolescence D. Built-in obsolescence 24. The president of Mountain Home University has been asked by the board of trustees to set up a separate unit to facilitate the commercialization of technology developed by the research students at the university. Such a unit is typically called a _____.

A. strategic business unit B. commercialization office C. technology transfer office D. science park

25. Which of the following statements is true about the Bayh-Dole Act of 1980?

A. It made university technology transfer activities illegal and unethical.

B. It allowed universities to collect royalties on inventions funded with taxpayer dollars.

C. It restricted provision of patents for inventions developed at universities.

D. It made investment in research and technology mandatory for public companies.

26. Regional districts, typically set up by government, to foster R&D collaboration between government, universities, and private firms are called _____.

A. technological trajectories B. free trade areas C. complement ors D. science parks 27. In 2001, Shanghai's municipal government set aside 13 square kilometers of land near the Huangpu River for university laboratories and start-up firms in microelectronics, digital technology, and life sciences. The project aimed to foster research in microelectronics, the development of a technologically advanced labor pool, and the creation of new industries in Shanghai. This project would be best termed a _____.

A. complement or B. strategic unit C. science park D. free trade area 28. Institutions designed to nurture the development of new businesses that might otherwise lack access to adequate funding or advices are called _____.

A. complement ors B. research collaboration offices C. incubato rs D. technology clusters

29. Which of the following is true of interfirm collaborative research and development networks?

A. Collaborative research networks are not important or viable in hightechnology sectors.

B. Interfirm networks can enable firms to achieve much more than they could achieve individually.

C. The flow of information and other resources through a network is independent of the network's size.

D. Information diffusion is fairly slow and limited in collaborative research networks with dense structures and many paths for information to travel.

30. _____ are regional groups of firms that have a connection to a common technology and may engage in buyer, supplier, and complementor relationships, as well as research collaboration.

A. Technology transfer offices B. Technology incubators C. Strategic business units D. Technology clusters 31. Which of the following statements is true of geographical clustering?

A. The proximity of many competitors serving a local market leads to competition that increases their pricing power in their relationships with both buyers and suppliers.

B. Close proximity of firms eliminates the likelihood of a firm's competitors gaining access to the firm's proprietary knowledge.

C. Clustering invariably leads to lower concentration of pollution and inordinately low housing costs.

D. Proximate firms have an advantage in sharing information that can lead to greater innovation productivity.

32. The benefits firms reap by locating in close geographical proximity to each other are known collectively as _____.

A. agglomeration economies B. incubator economies C. virtual economies D. shadow economies

33. _____ are individuals or organizations that transfer information from one domain to another in which it can be usefully applied.

A. Knowledge brokers B. Incubation workers C. Complemento rs D. Category captains 34. _____ is a positive externality from R&D resulting from the spread of knowledge across organizational or regional boundaries.

A. Technological discombobulation B. Technological determinism C. Technological spillover D. Technological dissonance 35. A variety of rice created by Biocrop Inc. through recombinant DNA technology was found to be rich in both carbohydrates and proteins. After the success of this rice variety, recombinant DNA technology was implemented by less-developed countries to increase the nutrient levels of fruits, pulses, and greens in order to feed their malnourished children. This is an example of _____.

A. technological dissonance B. technological spillover C. technological retardation D. technological determinism

Essay Questions

36. What are the most important intellectual abilities for creative thinking? What is the impact of knowledge on creativity?

37. Explain the terms basic research and applied research.

38. In the context of government-funded research, explain the term incubator.

39. What are some of the downsides to geographical clustering?

40. Explain the concept of technology spillovers. What are the factors affecting the likelihood of technological spillovers?

Chapter 02 Sources of Innovation Answer Key True / False Questions 1. (p. 20)

If an individual knows a field too well, it can stifle his ability to come up with solutions that require an alternative perspective.

TRUE Difficulty: 1 Easy

2. (p. 20)

An organization's overall creativity level is a simple aggregate of the creativity of the individuals it employs.

FALSE Difficulty: 1 Easy

3. (p. 21)

Sometimes, monetary rewards undermine creativity by encouraging employees to focus on extrinsic rather than intrinsic motivation.

TRUE Difficulty: 1 Easy

4.

Innovation often originates with those who create solutions for their own needs.

(p. 24)

TRUE Difficulty: 1 Easy

5. (p. 26)

The terms research and development represent different kinds of investment in innovation-related activities.

TRUE Difficulty: 1 Easy

6. (p. 27)

The science-push approach to research and development argued that innovation was driven by the perceived demand of potential users.

FALSE Difficulty: 1 Easy

7. (p. 27)

Firms often form alliances with competitors to jointly work on an innovation project or to exchange information in pursuit of innovation.

TRUE Difficulty: 1 Easy

8. (p. 29)

Typically, the intellectual property policies of a university embrace both patentable and unpatentable innovations.

TRUE Difficulty: 1 Easy

9. (p. 29)

Incubators are regional districts, typically set up by government, to foster R&D collaboration between government, universities, and private firms.

FALSE Difficulty: 1 Easy

10. (p. 29)

The decline in the government share of spending on R&D is largely due to the rapid increase in industry R&D funding rather than a real decline in the absolute amount spent by the government.

TRUE Difficulty: 1 Easy

11.

Collaborative research is prohibited in high-technology sectors.

(p. 32)

FALSE Difficulty: 1 Easy

12.

Knowledge that cannot be readily codified is called explicit knowledge.

(p. 35)

FALSE Difficulty: 1 Easy

13. (p. 35)

Proximity and interaction can directly influence firms' ability and willingness to exchange knowledge.

TRUE Difficulty: 1 Easy

14. (p. 35)

Knowledge that is explicit requires more frequent and close interaction to be meaningfully exchanged than knowledge that is tacit.

FALSE Difficulty: 1 Easy

15. (p. 36)

The degree to which innovative activities are geographically clustered is independent of the national differences in the way technology development is funded or protected.

FALSE Difficulty: 1 Easy

Multiple Choice Questions 16. (p. 20)

Erison Group, an advertising company, wants to hire someone as its creative head.

Who among the following would be best suited for this position?

A. An individual who completely adheres to the existing logic and paradigms and has extensive knowledge of the field B. An individual who has low tolerance for ambiguity and avoids taking risks C. An individual who has a moderate degree of knowledge of the field but is intrinsically motivated D. An individual who prefers to look at problems in conventional ways Difficulty: 3 Hard

17.

Which of the following is a characteristic of most successful inventors?

(p. 23)

A. They specialize solely in a single field rather than several fields simultaneously.

B. They are curious and more interested in solutions than in problems.

C. They blindly accept the assumptions made in previous works in their field.

D. They seek global solutions rather than local solutions.

Difficulty: 2 Medium

18.

Which of the following is an example of user innovation?

(p. 26)

A. Samuel has invented a detachable bicycle in order to make profits by selling it to a reputed bicycle manufacturing firm.

B. Sandra, an engineer, has developed a device that helps track the location of her teenage daughter's car.

C. Jessica, an ace designer for a clothing brand, has been asked to work on a dyeing technique that changes fabric color according to the room temperature.

D. Ivan, a scientist at a reputed pharmaceutical company, has developed an antiinflammatory drug for the company to commercialize.

Difficulty: 3 Hard

19. (p. 27)

Which of the following is the correct sequence of steps for the science-push approach to research and development?

A. Customers express an unmet need, R&D develops the product to meet that need, the product is manufactured, and finally the marketing team promotes the product.

B. Scientific discovery leads to an invention, the engineering team designs the product, it is manufactured, and finally the marketing team promotes it.

C. Marketing discovers a need, R&D comes up with the product concept that is refined by engineering, the manufacturing team produces it, and finally the product is sold.

D. Manufacturing sees a way to improve a product, the engineering team redesigns it, and finally the marketing team creates awareness about the improved product.

Difficulty: 2 Medium

20. (p. 27)

Breaking Ventures Inc. realized that most parents are worried about their teenage children going out on their own. Based on this information, the company developed a device that could be fixed into teenagers' cell phones, and it helped parents keep track of their children's location. This approach to research and development is referred to as _____.

A. demandpull B. supplypush C. sciencepush D. researchpull Difficulty: 3 Hard

21. (p. 27)

The demand-pull approach to research and development refers to research and development that:

A. focuses on developing products that are expected to increase demand in a particular market segment.

B. begins by examining the outcomes of the firm's basic research and the potential commercial applications that may be constructed from those outcomes.

C. focuses on developing products that are expected to decrease the demand for their substitute products.

D. originates as a response to the specific problems or suggestions of customers.

Difficulty: 2 Medium

22. (p. 27)

Organizations that manufacture products such as light bulbs for lamps or DVDs for DVD players are examples of _____.

A. moderato rs B. lead users C. complement ors D. incubato rs Difficulty: 1 Easy

23. (p. 28)

_____ is the ability of an organization to recognize, assimilate, and utilize new knowledge.

A. Cognitive dissonance B. Absorptive capacity C. Organizational obsolescence D. Built-in obsolescence Difficulty: 1 Easy

24. (p. 29)

The president of Mountain Home University has been asked by the board of trustees to set up a separate unit to facilitate the commercialization of technology developed by the research students at the university. Such a unit is typically called a _____.

A. strategic business unit B. commercialization office C. technology transfer office D. science park Difficulty: 2 Medium

25.

Which of the following statements is true about the Bayh-Dole Act of 1980?

(p. 29)

A. It made university technology transfer activities illegal and unethical.

B. It allowed universities to collect royalties on inventions funded with taxpayer dollars.

C. It restricted provision of patents for inventions developed at universities.

D. It made investment in research and technology mandatory for public companies.

Difficulty: 2 Medium

26. (p. 29)

Regional districts, typically set up by government, to foster R&D collaboration between government, universities, and private firms are called _____.

A. technological trajectories B. free trade areas C. complement ors D. science parks Difficulty: 1 Easy

27. (p. 29)

In 2001, Shanghai's municipal government set aside 13 square kilometers of land near the Huangpu River for university laboratories and start-up firms in microelectronics, digital technology, and life sciences. The project aimed to foster research in microelectronics, the development of a technologically advanced labor pool, and the creation of new industries in Shanghai. This project would be best termed a _____.

A. complement or B. strategic unit C. science park D. free trade area Difficulty: 3 Hard

28. (p. 29)

Institutions designed to nurture the development of new businesses that might otherwise lack access to adequate funding or advices are called _____.

A. complement ors B. research collaboration offices C. incubato rs D. technology clusters Difficulty: 1 Easy

29. (p. 32)

Which of the following is true of interfirm collaborative research and development networks?

A. Collaborative research networks are not important or viable in hightechnology sectors.

B. Interfirm networks can enable firms to achieve much more than they could achieve individually.

C. The flow of information and other resources through a network is independent of the network's size.

D. Information diffusion is fairly slow and limited in collaborative research networks with dense structures and many paths for information to travel.

Difficulty: 2 Medium

30. (p. 34)

_____ are regional groups of firms that have a connection to a common technology and may engage in buyer, supplier, and complementor relationships, as well as research collaboration.

A. Technology transfer offices B. Technology incubators C. Strategic business units D. Technology clusters Difficulty: 1 Easy

31.

Which of the following statements is true of geographical clustering?

(p. 34)

A. The proximity of many competitors serving a local market leads to competition that increases their pricing power in their relationships with both buyers and suppliers.

B. Close proximity of firms eliminates the likelihood of a firm's competitors gaining access to the firm's proprietary knowledge.

C. Clustering invariably leads to lower concentration of pollution and inordinately low housing costs.

D. Proximate firms have an advantage in sharing information that can lead to greater innovation productivity.

Difficulty: 2 Medium

32. (p. 35)

The benefits firms reap by locating in close geographical proximity to each other are known collectively as _____.

A. agglomeration economies B. incubator economies C. virtual economies D. shadow economies Difficulty: 1 Easy

33. (p. 36)

_____ are individuals or organizations that transfer information from one domain to another in which it can be usefully applied.

A. Knowledge brokers B. Incubation workers C. Complemento rs D. Category captains Difficulty: 1 Easy

34. (p. 37)

_____ is a positive externality from R&D resulting from the spread of knowledge across organizational or regional boundaries.

A. Technological discombobulation B. Technological determinism C. Technological spillover D. Technological dissonance Difficulty: 1 Easy

35. (p. 37)

A variety of rice created by Biocrop Inc. through recombinant DNA technology was found to be rich in both carbohydrates and proteins. After the success of this rice variety, recombinant DNA technology was implemented by less-developed countries to increase the nutrient levels of fruits, pulses, and greens in order to feed their malnourished children. This is an example of _____.

A. technological dissonance B. technological spillover C. technological retardation D. technological determinism Difficulty: 3 Hard

Essay Questions

36. (p. 20)

What are the most important intellectual abilities for creative thinking? What is the impact of knowledge on creativity?

An individual's creative ability is a function of his or her intellectual abilities, knowledge, style of thinking, personality, motivation, and environment. The most important intellectual abilities for creative thinking include the ability to look at problems in unconventional ways, the ability to analyze which ideas are worth pursuing and which are not, and the ability to articulate those ideas to others and convince others that the ideas are worthwhile. The impact of knowledge on creativity is somewhat double-edged. If an individual has too little knowledge of a field, he or she is unlikely to understand it well enough to contribute meaningfully to it. On the other hand, if an individual knows a field too well, that person can become trapped in the existing logic and paradigms, preventing him or her from coming up with solutions that require an alternative perspective. Thus, an individual with only a moderate degree of knowledge of a field might be able to produce more creative solutions than an individual with extensive knowledge of the field.

Difficulty: 2 Medium

37.

Explain the terms basic research and applied research.

(p. 26)

Basic research is effort directed at increasing understanding of a topic or field without a specific immediate commercial application in mind. This research advances scientific knowledge, which may (or may not) turn out to have long-run commercial implications. Applied research is directed at increasing understanding of a topic to meet a specific need. In industry, this research typically has specific commercial objectives.

Difficulty: 2 Medium

38.

In the context of government-funded research, explain the term incubator.

(p. 2931)

An incubator is an institution designed to nurture the development of new businesses that might otherwise lack access to funding or advice. It allows companies to share costs and resources until they can stand on their own. Incubators help overcome the market failure that can result when a new technology has the potential for important societal benefits, but its potential for direct returns is highly uncertain.

Difficulty: 2 Medium

39.

What are some of the downsides to geographical clustering?

(p. 35)

There are some downsides to geographical clustering. First, the proximity of many competitors serving a local market can lead to competition that reduces their pricing power in their relationships with both buyers and suppliers. Second, close proximity of firms may increase the likelihood of a firm's competitors gaining access to the firm's proprietary knowledge. Third, clustering can potentially lead to traffic congestion, inordinately high housing costs, and higher concentrations of pollution.

Difficulty: 2 Medium

40. (p. 37)

Explain the concept of technology spillovers. What are the factors affecting the likelihood of technological spillovers?

Technological spillovers are a positive externality from R&D resulting from the spread of knowledge across organizational or regional boundaries. Technology spillovers are a significant influence on innovative activity. Whether R&D benefits will spill over is partially a function of the strength of protection mechanisms such as patents, copyrights, and trade secrets. Since the strength of protection mechanisms varies significantly across industries and countries, the likelihood of spillovers varies also.

The likelihood of spillovers is also a function of the nature of the underlying knowledge base and the mobility of the labor pool.

Difficulty: 2 Medium

Chapter 03 Types and Patterns of Innovation True / False Questions 1. The path a technology follows through time is termed as technology trajectory.

True

False

2. Product innovations are more important than process innovations to organizations because they are less visible than process innovations.

True

False

3. An innovation can be competence enhancing to one firm, while competence destroying for another.

True

False

4. A modular innovation significantly affects the overall configuration of a system.

True

False

5. For a firm to adopt a component innovation, it requires architectural knowledge about the way components link and integrate to form a whole system.

True

False

6. S-curves in technology performance and s-curves in technology diffusion are fundamentally different processes.

True

False

7. When a technology's performance is plotted against the amount of effort and money invested in the technology, it typically shows slow initial improvement, then accelerated improvement, then diminishing improvement.

True

False

8. In the context of s-curves in technological improvement, performance improvement in the early stages of a technology is rapid if the fundamentals of the technology are poorly understood.

True

False

9. In the context of s-curves in technological improvement, as a technology begins to reach its inherent limits, the cost of each marginal improvement decreases, and the s-curve flattens.

True

False

10. Technologies always get the opportunity to reach their performance limits before being replaced by a new technology.

True

False

11. Technology diffusion curve is s-shaped because adoption is initially fast when a new technology is introduced to the market.

True

False

12. Technology diffusion and information diffusion take the same amount of time.

True

False

13. S-curves of technology diffusion are in part a function of the s-curves in technology improvement.

True

False

14. Firms cannot influence the shape of the s-curve through their development activities.

True

False

15. It is possible for a firm that follows an s-curve model too closely to end up switching technologies later than it should.

True

False

Multiple Choice Questions 16. The path a technology follows through time is termed as _____.

A. technology map B. technology trajectory C. technology cluster D. technology transfer

17. A bicycle manufacturing company adopted a new type of inventory management system. This inventory system improved the productivity of its manufacturing unit and the quality of its bicycles. This is an example of _____ innovation.

A. virtu al B. regressiv e C. archai c D. proces s 18. Which of the following statements is true of the different types of innovations?

A. Process innovations are more visible than product innovations.

B. An innovation that was once considered radical may eventually be considered incremental as the knowledge base underlying the innovation becomes more common.

C. An innovation is considered a component innovation if it significantly affects the overall configuration of the system of which it is a component.

D. Architectural innovation is also called modular innovation.

19. Which of the following statements is true of component innovation?

A. Component innovation does not significantly affect the overall configuration of a system.

B. Component innovation is also called architectural innovation.

C. For a firm to initiate component innovation, knowledge about the whole system is necessary.

D. Component innovations have more far-reaching and complex influences on industry competitors and technology users than architectural innovations.

20. Dalton discovered that using garlic salt on a regular hamburger made the hamburger taste more like steak. He could then use a less expensive meat in the "smoked steak" sandwiches that he sold. This is an example of a(n) _____ innovation.

A. radic al B. discontinuo us C. architectu ral D. compone nt

21. Which of the following statements is true of s-curves in technological improvement?

A. They are obtained by plotting the cumulative number of adopters of the technology against time.

B. They typically show that technology goes through initial accelerated improvement, then diminishing improvement, then slow improvement.

C. S-curves in technology diffusion and s-curves in technology performance are fundamentally the same process.

D. The s-curves flatten when the cost of each marginal improvement increases and diminishing returns to effort begin to set in.

22. In the context of s-curve in technological improvement, plotting performance against time will result in the same characteristic curve as plotting performance against effort only if:

A. speed, a function of performance, is relatively constant over time.

B. effort is relatively constant over time.

C. power, a function of performance, is relatively inconsistent over time.

D. effort varies over time.

23. When gutter shields were developed, they replaced gutter cleaning services hired by homeowners to keep leaves and debris out of their gutters. In other words, the same need was met by an entirely new technology. This is an example of a(n) _____ technology.

A. complement ary B. compone nt C. discontinuo us D. increment al 24. Digital cameras replaced film cameras. Therefore, digital cameras are an example of _____.

A. modular innovation B. incremental technology C. component innovation D. discontinuous technology

25. When the first personal computers were introduced, Bill started using a spreadsheet program to maintain his accounts. Bill discovered that this new method of maintaining his accounts caused his work to become much slower and that if he typed in the wrong data, it led to more mistakes. This scenario illustrates that:

A. effort invested in an existing technology reaps higher returns than effort invested in a new technology.

B. effort invested in an incumbent technology is much higher than effort invested in a new technology.

C. technological discontinuity may initially have lower performance than the incumbent technology.

D. component innovations are more effective than architectural innovations.

26. S-curves in technology diffusion are obtained by plotting the:

A. capacity of a technology against time.

B. cumulative number of adopters of a technology against time.

C. performance speed of a technology against effort.

D. performance power of a technology against effort.

27. Which of the following statements is true of technology diffusion?

A. S-curves in technology diffusion are obtained by plotting performance against time.

B. Technology diffusion is much faster than information diffusion.

C. A drop in the price of a new technology can accelerate technology diffusion.

D. Adoption is initially fast when a new technology is introduced to the market.

28. The CEO of a pharmaceutical company asked his consultant if it was a good idea to implement the s-curve model to predict when a technology would reach its limits. The consultant identified a limitation in the use of the model. Which of the following is most likely the limitation identified by the consultant?

A. Firms cannot influence the shape of the s-curve through their developmental activities.

B. Unexpected changes in the market can alter the shape of a technology's s-curve.

C. S-curve models cannot be applied in the pharmaceutical industry.

D. S-curve models are outdated and unrealistic.

29. Ron is highly skeptical about new ideas and products. He has not yet bought a satellite television subscription for his home because he is still unsure of its benefits. Ron is also concerned about the expense of getting such a connection. According to this description, Ron:

A. is an innovator.

B. belongs to the early majority.

C. is a laggard.

D. is an early adopter.

30. A marketing research company categorized Jane as an early adopter. Which of the following would be true of Jane in this context?

A. She does not adopt an innovation until she feels pressure from her peers.

B. She is well integrated into her social system.

C. She has a skeptical attitude toward new ideas.

D. She has a low potential for opinion leadership.

31. Iris is quite skeptical about new innovations and is most likely to adopt something new only after experiencing peer pressure to adopt the new innovation. However, she is not so risk averse that she will wait until all uncertainty of a new technology has been resolved; she is willing to accept a little uncertainty if her peers already use the product.

Which of the following adopter categories does Iris belong to?

A. Early adopters B. Innovato rs C. Late majority D. Laggard s

32. Donald is always ready to buy recently launched gadgets and gizmos. Since he has sufficient financial resources to invest in these products, he is unconcerned about the risks and uncertainties involved in buying new products. Based on this description, Donald most likely belongs to the group of:

A. early majority.

B. early adopters.

C. innovator s.

D. laggard s.

33. Once a new product design becomes a dominant design:

A. the product is no longer profitable.

B. it becomes difficult for competitors to imitate.

C. the architecture on which the industry can focus its efforts is destabilized.

D. the product design is adopted by the majority of producers.

34. According to Anderson and Tushman, in the era of incremental change, firms:

A. attempt to achieve lower market segmentation by offering different models and price points.

B. undergo a period of turbulence and uncertainty.

C. focus on efficiency and market penetration.

D. focus on altering the architecture rather than improving components.

35. Alpha Information Inc. is a firm that manufactures desktop computers and wireless network hardware components. The company is spending heavily on R&D to experiment with new designs for wireless networks instead of trying to refine how well they make their current wireless network hardware components. The firm is going through a period of ambiguity and anxiety. Alpha Information Inc. is in the:

A. dominant design phase.

B. era of incremental change.

C. era of ferment.

D. specific phase.

Essay Questions 36. Briefly explain the different types of innovation.

37. How can the s-curves be used as a prescriptive tool? What would be the limitations of this approach?

38. What are the factors that determine whether switching to a new technology will benefit a firm?

39. Explain what Schumpeter meant by the term creative destruction.

40. Briefly define Everett M. Roger's five adopter categories and explain how a marketer might use this knowledge.

Chapter 03 Types and Patterns of Innovation Answer Key True / False Questions 1.

The path a technology follows through time is termed as technology trajectory.

(p. 47)

TRUE Difficulty: 1 Easy

2. (p. 48)

Product innovations are more important than process innovations to organizations because they are less visible than process innovations.

FALSE Difficulty: 1 Easy

3. (p. 49)

An innovation can be competence enhancing to one firm, while competence destroying for another.

TRUE Difficulty: 1 Easy

4.

A modular innovation significantly affects the overall configuration of a system.

(p. 50)

FALSE Difficulty: 1 Easy

5. (p. 50)

For a firm to adopt a component innovation, it requires architectural knowledge about the way components link and integrate to form a whole system.

FALSE Difficulty: 1 Easy

6. (p. 5152)

S-curves in technology performance and s-curves in technology diffusion are fundamentally different processes.

TRUE Difficulty: 1 Easy

7. (p. 52)

When a technology's performance is plotted against the amount of effort and money invested in the technology, it typically shows slow initial improvement, then accelerated improvement, then diminishing improvement.

TRUE Difficulty: 1 Easy

8. (p. 52)

In the context of s-curves in technological improvement, performance improvement in the early stages of a technology is rapid if the fundamentals of the technology are poorly understood.

FALSE Difficulty: 1 Easy

9. (p. 52)

In the context of s-curves in technological improvement, as a technology begins to reach its inherent limits, the cost of each marginal improvement decreases, and the scurve flattens.

FALSE Difficulty: 1 Easy

10. (p. 53)

Technologies always get the opportunity to reach their performance limits before being replaced by a new technology.

FALSE Difficulty: 1 Easy

11. (p. 54)

Technology diffusion curve is s-shaped because adoption is initially fast when a new technology is introduced to the market.

FALSE Difficulty: 1 Easy

12.

Technology diffusion and information diffusion take the same amount of time.

(p. 55)

FALSE Difficulty: 1 Easy

13. (p. 55)

S-curves of technology diffusion are in part a function of the s-curves in technology improvement.

TRUE Difficulty: 1 Easy

14.

Firms cannot influence the shape of the s-curve through their development activities.

(p. 57)

FALSE Difficulty: 1 Easy

15. (p. 57)

It is possible for a firm that follows an s-curve model too closely to end up switching technologies later than it should.

TRUE Difficulty: 1 Easy

Multiple Choice Questions 16.

The path a technology follows through time is termed as _____.

(p. 47)

A. technology map B. technology trajectory C. technology cluster D. technology transfer Difficulty: 1 Easy

17. (p. 48)

A bicycle manufacturing company adopted a new type of inventory management system. This inventory system improved the productivity of its manufacturing unit and the quality of its bicycles. This is an example of _____ innovation.

A. virtu al B. regressiv e C. archai c D. proces s Difficulty: 2 Medium

18.

Which of the following statements is true of the different types of innovations?

(p. 49)

A. Process innovations are more visible than product innovations.

B. An innovation that was once considered radical may eventually be considered incremental as the knowledge base underlying the innovation becomes more common.

C. An innovation is considered a component innovation if it significantly affects the overall configuration of the system of which it is a component.

D. Architectural innovation is also called modular innovation.

Difficulty: 2 Medium

19.

Which of the following statements is true of component innovation?

(p. 50)

A. Component innovation does not significantly affect the overall configuration of a system.

B. Component innovation is also called architectural innovation.

C. For a firm to initiate component innovation, knowledge about the whole system is necessary.

D. Component innovations have more far-reaching and complex influences on industry competitors and technology users than architectural innovations.

Difficulty: 2 Medium

20. (p. 50)

Dalton discovered that using garlic salt on a regular hamburger made the hamburger taste more like steak. He could then use a less expensive meat in the "smoked steak" sandwiches that he sold. This is an example of a(n) _____ innovation.

A. radic al B. discontinuo us C. architectu ral D. compone nt Difficulty: 3 Hard

21.

Which of the following statements is true of s-curves in technological improvement?

(p. 52)

A. They are obtained by plotting the cumulative number of adopters of the technology against time.

B. They typically show that technology goes through initial accelerated improvement, then diminishing improvement, then slow improvement.

C. S-curves in technology diffusion and s-curves in technology performance are fundamentally the same process.

D. The s-curves flatten when the cost of each marginal improvement increases and diminishing returns to effort begin to set in.

Difficulty: 2 Medium

22. (p. 5253)

In the context of s-curve in technological improvement, plotting performance against time will result in the same characteristic curve as plotting performance against effort only if:

A. speed, a function of performance, is relatively constant over time.

B. effort is relatively constant over time.

C. power, a function of performance, is relatively inconsistent over time.

D. effort varies over time.

Difficulty: 2 Medium

23. (p. 53)

When gutter shields were developed, they replaced gutter cleaning services hired by homeowners to keep leaves and debris out of their gutters. In other words, the same need was met by an entirely new technology. This is an example of a(n) _____ technology.

A. complement ary B. compone nt C. discontinuo us D. increment al Difficulty: 2 Medium

24. (p. 53)

Digital cameras replaced film cameras. Therefore, digital cameras are an example of _____.

A. modular innovation B. incremental technology C. component innovation D. discontinuous technology Difficulty: 2 Medium

25. (p. 54)

When the first personal computers were introduced, Bill started using a spreadsheet program to maintain his accounts. Bill discovered that this new method of maintaining his accounts caused his work to become much slower and that if he typed in the wrong data, it led to more mistakes. This scenario illustrates that:

A. effort invested in an existing technology reaps higher returns than effort invested in a new technology.

B. effort invested in an incumbent technology is much higher than effort invested in a new technology.

C. technological discontinuity may initially have lower performance than the incumbent technology.

D. component innovations are more effective than architectural innovations.

Difficulty: 2 Medium

26.

S-curves in technology diffusion are obtained by plotting the:

(p. 54)

A. capacity of a technology against time.

B. cumulative number of adopters of a technology against time.

C. performance speed of a technology against effort.

D. performance power of a technology against effort.

Difficulty: 2 Medium

27.

Which of the following statements is true of technology diffusion?

(p. 5455)

A. S-curves in technology diffusion are obtained by plotting performance against time.

B. Technology diffusion is much faster than information diffusion.

C. A drop in the price of a new technology can accelerate technology diffusion.

D. Adoption is initially fast when a new technology is introduced to the market.

Difficulty: 2 Medium

28. (p. 57)

The CEO of a pharmaceutical company asked his consultant if it was a good idea to implement the s-curve model to predict when a technology would reach its limits. The consultant identified a limitation in the use of the model. Which of the following is most likely the limitation identified by the consultant?

A. Firms cannot influence the shape of the s-curve through their developmental activities.

B. Unexpected changes in the market can alter the shape of a technology's s-curve.

C. S-curve models cannot be applied in the pharmaceutical industry.

D. S-curve models are outdated and unrealistic.

Difficulty: 2 Medium

29. (p. 58)

Ron is highly skeptical about new ideas and products. He has not yet bought a satellite television subscription for his home because he is still unsure of its benefits.

Ron is also concerned about the expense of getting such a connection. According to this description, Ron:

A. is an innovator.

B. belongs to the early majority.

C. is a laggard.

D. is an early adopter.

Difficulty: 2 Medium

30. (p. 58)

A marketing research company categorized Jane as an early adopter. Which of the following would be true of Jane in this context?

A. She does not adopt an innovation until she feels pressure from her peers.

B. She is well integrated into her social system.

C. She has a skeptical attitude toward new ideas.

D. She has a low potential for opinion leadership.

Difficulty: 2 Medium

31. (p. 58)

Iris is quite skeptical about new innovations and is most likely to adopt something new only after experiencing peer pressure to adopt the new innovation. However, she is not so risk averse that she will wait until all uncertainty of a new technology has been resolved; she is willing to accept a little uncertainty if her peers already use the product. Which of the following adopter categories does Iris belong to?

A. Early adopters B. Innovato rs C. Late majority D. Laggard s Difficulty: 2 Medium

32. (p. 58)

Donald is always ready to buy recently launched gadgets and gizmos. Since he has sufficient financial resources to invest in these products, he is unconcerned about the risks and uncertainties involved in buying new products. Based on this description, Donald most likely belongs to the group of:

A. early majority.

B. early adopters.

C. innovator s.

D. laggard s.

Difficulty: 2 Medium

33.

Once a new product design becomes a dominant design:

(p. 61)

A. the product is no longer profitable.

B. it becomes difficult for competitors to imitate.

C. the architecture on which the industry can focus its efforts is destabilized.

D. the product design is adopted by the majority of producers.

Difficulty: 2 Medium

34.

According to Anderson and Tushman, in the era of incremental change, firms:

(p. 62)

A. attempt to achieve lower market segmentation by offering different models and price points.

B. undergo a period of turbulence and uncertainty.

C. focus on efficiency and market penetration.

D. focus on altering the architecture rather than improving components.

Difficulty: 2 Medium

35. (p. 62)

Alpha Information Inc. is a firm that manufactures desktop computers and wireless network hardware components. The company is spending heavily on R&D to experiment with new designs for wireless networks instead of trying to refine how well they make their current wireless network hardware components. The firm is going through a period of ambiguity and anxiety. Alpha Information Inc. is in the:

A. dominant design phase.

B. era of incremental change.

C. era of ferment.

D. specific phase.

Difficulty: 3 Hard

Essay Questions

36.

Briefly explain the different types of innovation.

(p. 4850)

Product innovations are embodied in the outputs of an organization—its goods or services. Process innovations are innovations in the way an organization conducts its business, such as in the techniques of producing or marketing goods or services.

A radical innovation is very new and different from prior solutions. An incremental innovation involves relatively minor changes from (or adjustments to) existing practices.

Competence-enhancing innovations build on existing knowledge and skills, whereas competence-destroying innovations render existing knowledge and skills obsolete.

Whether an innovation is competence enhancing or competence destroying depends on whose perspective is being taken.

Component (or modular) innovation is an innovation to one or more components that does not significantly affect the overall configuration of the system. Architectural innovation is an innovation that changes the overall design of a system or the way its components interact with each other.

Difficulty: 2 Medium

37. (p. 5657)

How can the s-curves be used as a prescriptive tool? What would be the limitations of this approach?

Managers can use the s-curve model as a tool for predicting when a technology will reach its limits and as a prescriptive guide for whether and when the firm should move to a new, more radical technology. Firms can use data on the investment and performance of their own technologies, or data on the overall industry investment in a technology and the average performance achieved by multiple producers. Managers could then use these curves to assess whether a technology appears to be approaching its limits or to identify new technologies that might be emerging on scurves that will intersect the firm's technology s-curve. Managers could then switch scurves by acquiring or developing the new technology.

However, there are many limitations to using s-curves. First, it is rare that the true limits of a technology are known in advance, and there is often considerable disagreement among firms about what a technology's limits will be. Second, the shape of a technology's s-curve is not set in stone. Unexpected changes in the market, component technologies, or complementary technologies can shorten or extend the life cycle of a technology. Furthermore, firms can influence the shape of the s-curve through their development activities. For example, firms can sometimes stretch the s-curve through implementing new development approaches or revamping the architecture design of the technology.

Difficulty: 2 Medium

38. (p. 57)

What are the factors that determine whether switching to a new technology will benefit a firm?

Whether switching to a new technology will benefit a firm depends on a number of factors, including (a) the advantages offered by the new technology, (b) the new technology's fit with the firm's current abilities (and thus the amount of effort that would be required to switch, and the time it would take to develop new competencies), (c) the new technology's fit with the firm's position in complementary resources (e.g., a firm may lack key complementary resources, or may earn a significant portion of its revenues from selling products compatible with the incumbent technology), and (d) the expected rate of diffusion of the new technology.

Difficulty: 2 Medium

39.

Explain what Schumpeter meant by the term creative destruction.

(p. 57)

The s-curve model suggests that technological change is cyclical. Each new s-curve ushers in an initial period of turbulence, followed by rapid improvement, then diminishing returns, and ultimately is displaced by a new technological discontinuity.

The emergence of a new technological discontinuity can overturn the existing competitive structure of an industry, creating new leaders and new losers.

Schumpeter called this process creative destruction, and argued that it was the key driver of progress in a capitalist society.

Difficulty: 2 Medium

40. (p. 58)

Briefly define Everett M. Roger's five adopter categories and explain how a marketer might use this knowledge.

The first category consists of innovators who are most likely to try a new product.

They can afford to take a chance financially, but are not always well integrated into society. Next are the early adopters. They are the second group to adopt a new technology and are respected by others for their assessments of the new technology, and thus have great potential for opinion leadership. The early majority comes next in adoptions. The members of this group are not opinion leaders although they do interact frequently with their peers. The late majority is more skeptical and will only adopt the product after pressure from their peers. The laggards are the last to adopt an innovation and they are highly skeptical. Their decisions are based on past experiences and they must feel certain that a new innovation will not fail before adopting it. A marketer would probably want to appeal primarily to the early adopters since they have great influence over others and can prompt the mass market (early and late majority) to purchase the product. The innovators do not have this impact and are probably more responsive to the technologies' key features than marketing efforts.

Difficulty: 2 Medium

Chapter 04 Standards Battles and Design Dominance True / False Questions 1. Increasing returns to adoption means that the more a technology is adopted, the more valuable it becomes.

True

False

2. The learning curve indicates that the more units a company produces of an item, the more each unit will cost.

True

False

3. Though learning curves are found in a wide range of organizational processes, there are substantial differences in the rates at which organizations learn.

True

False

4. The ability of an organization to recognize, assimilate, and utilize new knowledge is referred to as learning trajectory.

True

False

5. As firms develop complementary technologies to improve the productivity or ease of utilization of the core technology, the technology becomes less attractive to other firms.

True

False

6. In a market characterized by network externalities, the benefit from using a good decreases with an increase in the number of other users of the same good.

True

False

7. Network externalities cannot arise in markets that do not have physical networks.

True

False

8. Products that have a large installed base are likely to attract more developers of complementary goods.

True

False

9. A legally induced adherence to a dominant design is not possible.

True

False

10. The influence of a dominant design can extend beyond its own technology cycle.

True

False

11. Technologically superior products do not always win in the market.

True

False

12. In industries characterized by network externalities, the value of a technological innovation to users will be a function only of its stand-alone benefits and cost.

True

False

13. Since perceived or expected installed base may drive subsequent adoptions, a large perceived or expected installed base can lead to a large actual installed base.

True

False

14. When an industry has network externalities, the value of a good to a user is more likely to go up linearly rather than increase in an s-shape.

True

False

15. Network externality returns refers to the value customers reap as a larger portion of the market adopts the same good.

True

False

Multiple Choice Questions 16. Neon Electronics Inc. is an electronics manufacturing company. It has adopted a dominant design for its television audio speakers. Which of the following statements is most likely to be true in this scenario?

A. Neon Electronics will have to invest heavily in R&D to come up with new designs for the audio speakers.

B. Neon Electronics will face decreasing returns to its adoption of the dominant design.

C. Neon Electronics will have increased opportunities to develop complementary assets.

D. The design adopted by Neon Electronics will be unpopular among most of the other manufacturers.

17. The more a technology is adopted:

A. the less valuable it becomes on account of market saturation.

B. the more susceptible it becomes to decreasing returns of adoption.

C. the greater are the opportunities for development of complementary assets.

D. the lesser are the possibilities for improvements in the technology and its applications.

18. Which of the following statements is true of learning effects?

A. There are substantial differences in the rates at which organizations learn.

B. The learning rate is impervious to organizational factors such as firm strategy.

C. As a technology is adopted, further development and refining of the technology reduces.

D. The cost of producing a unit rises as the number of units produced increases.

19. Clear Vision Inc. has been the market leader for vision care products such as eyeglasses and lenses. It has also recently developed the use of laser technology to correct eye defects. Due to its prior related experiences, it has been successful in recognizing the value of new information and using it to develop new technologies ahead of others. This phenomenon is called:

A. absorptive capacity.

B. disintermediati on.

C. technology determinism.

D. technology retardation.

20. Firms that develop new technologies ahead of others often try a number of unsuccessful techniques before finding a solution that works well. This experimentation:

A. lowers the firm's ability to recognize the value of new information.

B. lowers the firm's ability to develop and enhance technologies.

C. makes it difficult for the firm to develop related technologies.

D. enables the firm to find related solutions and alternatives that work well.

21. As firms develop complementary technologies to improve the productivity or ease of utilization of a core technology, the technology:

A. becomes more attractive to other firms.

B. loses its credibility in the market.

C. loses its dominant design position in the industry.

D. experiences a decrease in its installed base.

22. Money Club and Money Ball are online platforms that allow their members to get in touch with people from various businesses. They also facilitate business contracts between their members. Money Club has 6,000 members, whereas Money Ball has 3,500 members. This indicates that:

A. Money Club has a larger installed base than Money Ball.

B. Money Club has a lower positive consumption externality than Money Ball.

C. Money Ball provides more complementary goods than Money Club.

D. Money Ball does not use a dominant design.

23. Arica Software Inc. is trying to estimate the installed base for its software. It is trying to assess the number of:

A. substitutes available for its software.

B. developers working on its software.

C. areas in which its software can be applied.

D. users of its software.

24. The value of an electronic reader is related to the availability of books, journals, magazines, etc., in a format that can be read by the electronic reader. For an electronic reader, these are _____ goods.

A. complement ary B. substitu te C. Giffe n D. intermedia te 25. Increasing returns to adoption imply that technology trajectories are characterized by _____, meaning that relatively small historical events may have a great impact on the final outcome.

A. the ratchet effect B. the funnel effect C. corrugated anomalies D. path dependency 26. Which of the following statements is true of dominant design?

A. It is not possible to have legally induced adherence to a dominant design.

B. When a firm's technology is locked in as the dominant design of a market, it earns low rewards.

C. A firm that supports a technology that is chosen as the dominant design is in a poor position to shape the evolution of the industry.

D. A firm may find itself locked out of the market if it is unable to adopt the dominant technology.

27. Earth Love Electronics Inc. has developed a lawn mower that runs on solar power. The lawn mowers are available in all local supermarkets and several electronic stores.

According to the Buyer Utility Map, the company is trying to offer convenience utility in the _____ stage.

A. supplemen ts B. purchas e C. dispos al D. maintenan ce 28. TechSense, an electronics manufacturing firm, allows its customers to resell old TechSense products at its retail outlets. The firm reuses the metal, wires, and plastic— extracted from these old products—in its new products. This way the company has been able to take waste management to a whole new level. According to the Buyer Utility Map, the firm is applying environmental friendliness utility lever in the _____ stage of buyer experience cycle.

A. supplemen ts B. purchas e C. us e D. dispos al 29. The U.S. Postal Service now offers a "Click-N-Ship" online service where users can buy and print postage and labels online. According to the Buyer Utility Map, the U.S. Postal Service is offering the _____ utility lever, during the _____ stage of buyer experience cycle.

A. risk; use B. fun and image; maintenance C. convenience; purchase D. environmental friendliness; disposal

30. A new technology is most likely to be successful in displacing an existing technology when:

A. its installed base is significantly less than that of the existing technology.

B. the new technology competes only on the value of its standalone utility.

C. it eclipses the combined value of the existing technology's stand-alone utility, its installed base, and its complementary goods.

D. the new technology's perceived and anticipated components of value are lower than its actual components of value.

31. Oswen Technologies Inc., a software development company, spent a lot of money in advertising software products that were not in the market. However, the firm hoped to bring these products to the market at a later date. The software products advertised before their availability are termed _____.

A. puffer y B. vaporwa re C. first refusal units D. advertising rollouts 32. When users are comparing the value of a new technology to an existing technology, they are said to be using objective information when the comparison is based on:

A. anticipated technological benefits.

B. future prediction regarding the availability of complementary goods.

C. perceived installed base.

D. actual technological benefits.

33. Future Electronics Inc.'s body scanning machine has been adopted by majority of the healthcare market. As a result, the company demands a high price from its customers, which mainly include hospitals. It is not investing much on innovation and its product variety is also very low. This cost borne by the users in this case is referred to as:

A. marginal cost.

B. social cost.

C. monopoly cost.

D. deferred cost.

34. Which of the following statements is true of a monopoly cost curve?

A. Monopoly costs to market share curve is more s-shaped than network externality returns to market share curve.

B. The steepness of the monopoly cost curve is largely a function of a firm's discretionary behavior.

C. It is not possible for a network externality returns curve to cross a monopoly cost curve.

D. A firm choosing to exploit its monopoly power is flattening its monopoly costs curve.

35. When are winner-take-all markets good for consumers?

A. When monopoly costs exceed the value of network externality returns B. When monopoly costs exceed the value of technological utility C. When the monopoly cost curve is extremely steep D. When the value of technology utility and network externality returns exceeds monopoly costs

Essay Questions

36. Explain how the more a technology is adopted, the better it becomes.

37. What is absorptive capacity? Why do firms that fall behind the technology frontier find it difficult to catch up?

38. Explain the concepts of network externalities and installed base.

39. How is a dominant design likely to influence the nature of the technological discontinuity that will eventually replace it?

40. What is vaporware? What are its advantages?

Chapter 04 Standards Battles and Design Dominance Answer Key True / False Questions 1. (p. 71)

Increasing returns to adoption means that the more a technology is adopted, the more valuable it becomes.

TRUE Difficulty: 1 Easy

2. (p. 71)

The learning curve indicates that the more units a company produces of an item, the more each unit will cost.

FALSE Difficulty: 1 Easy

3. (p. 72)

Though learning curves are found in a wide range of organizational processes, there are substantial differences in the rates at which organizations learn.

TRUE Difficulty: 1 Easy

4. (p. 72)

The ability of an organization to recognize, assimilate, and utilize new knowledge is referred to as learning trajectory.

FALSE Difficulty: 1 Easy

5. (p. 72)

As firms develop complementary technologies to improve the productivity or ease of utilization of the core technology, the technology becomes less attractive to other firms.

FALSE Difficulty: 1 Easy

6. (p. 73)

In a market characterized by network externalities, the benefit from using a good decreases with an increase in the number of other users of the same good.

FALSE Difficulty: 1 Easy

7.

Network externalities cannot arise in markets that do not have physical networks.

(p. 73)

FALSE Difficulty: 1 Easy

8. (p. 73)

Products that have a large installed base are likely to attract more developers of complementary goods.

TRUE Difficulty: 1 Easy

9.

A legally induced adherence to a dominant design is not possible.

(p. 75)

FALSE Difficulty: 1 Easy

10.

The influence of a dominant design can extend beyond its own technology cycle.

(p. 76)

TRUE Difficulty: 1 Easy

11.

Technologically superior products do not always win in the market.

(p. 76)

TRUE Difficulty: 1 Easy

12. (p. 77)

In industries characterized by network externalities, the value of a technological innovation to users will be a function only of its stand-alone benefits and cost.

FALSE Difficulty: 1 Easy

13. (p. 80)

Since perceived or expected installed base may drive subsequent adoptions, a large perceived or expected installed base can lead to a large actual installed base.

TRUE Difficulty: 1 Easy

14. (p. 82)

When an industry has network externalities, the value of a good to a user is more likely to go up linearly rather than increase in an s-shape.

FALSE Difficulty: 1 Easy

15. (p. 84)

Network externality returns refers to the value customers reap as a larger portion of the market adopts the same good.

TRUE Difficulty: 1 Easy

Multiple Choice Questions

16. (p. 71)

Neon Electronics Inc. is an electronics manufacturing company. It has adopted a dominant design for its television audio speakers. Which of the following statements is most likely to be true in this scenario?

A. Neon Electronics will have to invest heavily in R&D to come up with new designs for the audio speakers.

B. Neon Electronics will face decreasing returns to its adoption of the dominant design.

C. Neon Electronics will have increased opportunities to develop complementary assets.

D. The design adopted by Neon Electronics will be unpopular among most of the other manufacturers.

Difficulty: 2 Medium

17.

The more a technology is adopted:

(p. 71)

A. the less valuable it becomes on account of market saturation.

B. the more susceptible it becomes to decreasing returns of adoption.

C. the greater are the opportunities for development of complementary assets.

D. the lesser are the possibilities for improvements in the technology and its applications.

Difficulty: 2 Medium

18.

Which of the following statements is true of learning effects?

(p. 72)

A. There are substantial differences in the rates at which organizations learn.

B. The learning rate is impervious to organizational factors such as firm strategy.

C. As a technology is adopted, further development and refining of the technology reduces.

D. The cost of producing a unit rises as the number of units produced increases.

Difficulty: 2 Medium

19. (p. 72)

Clear Vision Inc. has been the market leader for vision care products such as eyeglasses and lenses. It has also recently developed the use of laser technology to correct eye defects. Due to its prior related experiences, it has been successful in recognizing the value of new information and using it to develop new technologies ahead of others. This phenomenon is called:

A. absorptive capacity.

B. disintermediati on.

C. technology determinism.

D. technology retardation.

Difficulty: 2 Medium

20. (p. 72)

Firms that develop new technologies ahead of others often try a number of unsuccessful techniques before finding a solution that works well. This experimentation:

A. lowers the firm's ability to recognize the value of new information.

B. lowers the firm's ability to develop and enhance technologies.

C. makes it difficult for the firm to develop related technologies.

D. enables the firm to find related solutions and alternatives that work well.

Difficulty: 2 Medium

21. (p. 72)

As firms develop complementary technologies to improve the productivity or ease of utilization of a core technology, the technology:

A. becomes more attractive to other firms.

B. loses its credibility in the market.

C. loses its dominant design position in the industry.

D. experiences a decrease in its installed base.

Difficulty: 2 Medium

22. (p. 73)

Money Club and Money Ball are online platforms that allow their members to get in touch with people from various businesses. They also facilitate business contracts between their members. Money Club has 6,000 members, whereas Money Ball has 3,500 members. This indicates that:

A. Money Club has a larger installed base than Money Ball.

B. Money Club has a lower positive consumption externality than Money Ball.

C. Money Ball provides more complementary goods than Money Club.

D. Money Ball does not use a dominant design.

Difficulty: 2 Medium

23. (p. 73)

Arica Software Inc. is trying to estimate the installed base for its software. It is trying to assess the number of:

A. substitutes available for its software.

B. developers working on its software.

C. areas in which its software can be applied.

D. users of its software.

Difficulty: 2 Medium

24. (p. 73)

The value of an electronic reader is related to the availability of books, journals, magazines, etc., in a format that can be read by the electronic reader. For an electronic reader, these are _____ goods.

A. complement ary B. substitu te C. Giffe n D. intermedia te Difficulty: 2 Medium

25. (p. 76)

Increasing returns to adoption imply that technology trajectories are characterized by _____, meaning that relatively small historical events may have a great impact on the final outcome.

A. the ratchet effect B. the funnel effect C. corrugated anomalies D. path dependency Difficulty: 1 Easy

26.

Which of the following statements is true of dominant design?

(p. 76)

A. It is not possible to have legally induced adherence to a dominant design.

B. When a firm's technology is locked in as the dominant design of a market, it earns low rewards.

C. A firm that supports a technology that is chosen as the dominant design is in a poor position to shape the evolution of the industry.

D. A firm may find itself locked out of the market if it is unable to adopt the dominant technology.

Difficulty: 2 Medium

27. (p. 77)

Earth Love Electronics Inc. has developed a lawn mower that runs on solar power. The lawn mowers are available in all local supermarkets and several electronic stores.

According to the Buyer Utility Map, the company is trying to offer convenience utility in the _____ stage.

A. supplemen ts B. purchas e C. dispos al D. maintenan ce Difficulty: 1 Easy

28. (p. 78)

TechSense, an electronics manufacturing firm, allows its customers to resell old TechSense products at its retail outlets. The firm reuses the metal, wires, and plastic —extracted from these old products—in its new products. This way the company has been able to take waste management to a whole new level. According to the Buyer Utility Map, the firm is applying environmental friendliness utility lever in the _____ stage of buyer experience cycle.

A. supplemen ts B. purchas e C. us e D. dispos al Difficulty: 2 Medium

29. (p. 78)

The U.S. Postal Service now offers a "Click-N-Ship" online service where users can buy and print postage and labels online. According to the Buyer Utility Map, the U.S. Postal Service is offering the _____ utility lever, during the _____ stage of buyer experience cycle.

A. risk; use B. fun and image; maintenance C. convenience; purchase D. environmental friendliness; disposal Difficulty: 2 Medium

30. (p. 79)

A new technology is most likely to be successful in displacing an existing technology when:

A. its installed base is significantly less than that of the existing technology.

B. the new technology competes only on the value of its standalone utility.

C. it eclipses the combined value of the existing technology's stand-alone utility, its installed base, and its complementary goods.

D. the new technology's perceived and anticipated components of value are lower than its actual components of value.

Difficulty: 2 Medium

31. (p. 80)

Oswen Technologies Inc., a software development company, spent a lot of money in advertising software products that were not in the market. However, the firm hoped to bring these products to the market at a later date. The software products advertised before their availability are termed _____.

A. puffer y B. vaporwa re C. first refusal units D. advertising rollouts Difficulty: 2 Medium

32. (p. 80)

When users are comparing the value of a new technology to an existing technology, they are said to be using objective information when the comparison is based on:

A. anticipated technological benefits.

B. future prediction regarding the availability of complementary goods.

C. perceived installed base.

D. actual technological benefits.

Difficulty: 2 Medium

33. (p. 8485)

Future Electronics Inc.'s body scanning machine has been adopted by majority of the healthcare market. As a result, the company demands a high price from its customers, which mainly include hospitals. It is not investing much on innovation and its product variety is also very low. This cost borne by the users in this case is referred to as:

A. marginal cost.

B. social cost.

C. monopoly cost.

D. deferred cost.

Difficulty: 3 Hard

34.

Which of the following statements is true of a monopoly cost curve?

(p. 85)

A. Monopoly costs to market share curve is more s-shaped than network externality returns to market share curve.

B. The steepness of the monopoly cost curve is largely a function of a firm's discretionary behavior.

C. It is not possible for a network externality returns curve to cross a monopoly cost curve.

D. A firm choosing to exploit its monopoly power is flattening its monopoly costs curve.

Difficulty: 2 Medium

35.

When are winner-take-all markets good for consumers?

(p. 85)

A. When monopoly costs exceed the value of network externality returns B. When monopoly costs exceed the value of technological utility C. When the monopoly cost curve is extremely steep D. When the value of technology utility and network externality returns exceeds monopoly costs Difficulty: 2 Medium

Essay Questions 36.

Explain how the more a technology is adopted, the better it becomes.

(p. 71)

Ample empirical evidence shows that the more a technology is used, the more it is developed and the more effective and efficient it becomes. As a technology is adopted, it generates sales revenues that can be reinvested in further developing and refining the technology. Furthermore, as firms accumulate experience with the technology, they find ways to use the technology more productively, including developing an organizational context that improves the implementation of the technology. Thus, the more a technology is adopted, the better it should become.

Difficulty: 2 Medium

37. (p. 72)

What is absorptive capacity? Why do firms that fall behind the technology frontier find it difficult to catch up?

A firm's investment in prior learning can accelerate its rate of future learning by building the firm's absorptive capacity. Absorptive capacity refers to the phenomenon whereby as firms accumulate knowledge, they also increase their future ability to assimilate information. A firm's prior related experience shapes its ability to recognize the value of new information, and to utilize that information effectively. For example, in developing a new technology, a firm will often try a number of unsuccessful configurations or techniques before finding a solution that works well. This experimentation builds a base of knowledge in the firm about how key components behave, what alternatives are more likely to be successful than others, what types of projects the firm is most successful at, and so on. This knowledge base enables the firm to more rapidly assess the value of related new materials, technologies, and methods. The effects of absorptive capacity suggest that firms that develop new technologies ahead of others may have an advantage in staying ahead. Firms that forgo investment in technology development may find it very difficult or expensive to develop technology in a subsequent period. This explains, in part, why firms that fall behind the technology frontier find it so difficult to catch up.

Difficulty: 2 Medium

38.

Explain the concepts of network externalities and installed base.

(p. 73)

Many markets are characterized by network externalities, or positive consumption externalities. In a market characterized by network externalities, the benefit from using a good increases with the number of other users of the same good. Network externalities can also arise in markets that do not have physical networks. The number of users of a particular technology is often referred to as its installed base.

Difficulty: 2 Medium

39. (p. 76)

How is a dominant design likely to influence the nature of the technological discontinuity that will eventually replace it?

The influence of a dominant design can extend beyond its own technology cycle. As the dominant design is adopted and refined, it influences the knowledge that is accumulated by producers and customers, and it shapes the problem-solving techniques used in the industry. Firms will tend to use and build on their existing knowledge base rather than enter unfamiliar areas. This can result in a very "sticky" technological paradigm that directs future technological inquiry in the area. Thus, a dominant design is likely to influence the nature of the technological discontinuity that will eventually replace it.

Difficulty: 2 Medium

40.

What is vaporware? What are its advantages?

(p. 80)

Vaporware refers to products that are not actually on the market and may not even exist but are advertised by many software vendors. By building the impression among customers that a product is ubiquitous, firms can prompt rapid adoption of the product when it actually is available. Vaporware may also buy a firm valuable time in bringing its product to market. If other vendors beat the firm to market and the firm fears that customers may select a dominant design before its offering is introduced, it can use vaporware to attempt to persuade customers to delay purchase until the firm's product is available.

Difficulty: 2 Medium

Chapter 05 Timing of Entry True / False Questions 1. Early leaders are firms that are the first to enter a market.

True

False

2. Early followers enter the market only after a product begins to penetrate the mass market.

True

False

3. The initial cost of a good itself can be a switching cost.

True

False

4. In an industry characterized by increasing returns to adoption, there can be powerful advantages to being an early provider.

True

False

5. Late entrants typically bear the bulk of the research and development expenses for their product or service technologies.

True

False

6. First movers typically invest more in exploratory research than late entrants.

True

False

7. All pioneers face customer uncertainty.

True

False

8. Other things being equal, less customer uncertainty favors earlier timing of entry.

True

False

9. When a market is characterized by mature enabling technologies, a firm should enter the market late.

True

False

10. Not all innovations require complementary goods.

True

False

11. In industries that have increasing returns to adoption due to network externalities, allowing competitors to get a head start in building an installed base is the safest strategy.

True

False

12. Many start-up firms demise because new innovations tend to be adopted very slowly at first.

True

False

13. Other things being equal, an entrant with a strong reputation can attract adoptions earlier than entrants without strong reputations.

True

False

14. A firm intending to refine an earlier entrant's technology should avoid fast-cycle development processes.

True

False

15. A disadvantage of using parallel development processes is that it greatly lengthens the new product development time.

True

False

Multiple Choice Questions 16. The first entrants to sell in a new product or service category are referred to as _____.

A. pioneer s B. early leaders C. early followers D. laggard s

17. Doven Inc. pioneered software development in the 1970s and introduced its range of office tools well ahead of its competitors. According to the classification scheme of entrants, Doven would be classified as a(n) _____.

A. first mover B. early follower C. early leader D. laggar d 18. Magnitude Inc. was the first company to introduce a video gaming console in the market.

However, consumers were uncertain about the product, and its high costs discouraged consumers from purchasing it. Eventually, Magnitude withdrew the product from the market. A few years later, Mantel Corp. and Adventura Inc. came up with their respective gaming consoles and successfully established their products. In this scenario, Mantel and Adventura would be considered:

A. pioneer s.

B. early followers.

C. laggard s.

D. late movers.

19. Marine Systems was the first company to develop an inventory management software specifically for hotels and restaurants. Soon after Marine Systems launched its product, Unicorn Systems developed a similar software. The software developed by Unicorn Systems outperformed the one developed by Marine Systems, and it eventually became the market leader. In this scenario, Unicorn Systems is an example of a(n) _____.

A. first pioneer B. late mover C. early follower D. eccentric laggard

20. If the aspects that customers have come to expect in a technology are difficult for competitors to imitate, being the technology leader will:

A. result in an inability to preemptively capture scarce assets.

B. enable it to yield sustained monopoly rents.

C. result in lower bargaining power over suppliers.

D. mean negligible research and development costs.

21. Alpen Inc. is a manufacturing firm that holds the patent for a new food processing machine that is considerably safer and more efficient than the others available in the market. Being the only firm that manufactures this product, Alpen charges a very high price for it. This is referred to as _____.

A. monopoly rent B. technology lag C. incumbent inertia D. absorptive capacity 22. Jupiter Inc., a software firm, is starting to face competition from the new entrant in its market, Coral Inc. Jupiter wants to prevent its existing customers from switching to Coral's newly developed software. Which of the following measures should Jupiter adopt to achieve its objective?

A. Ensuring that customers find its software simpler and more convenient to use than that of Coral B. Keeping the initial cost of its software higher than that of Coral's C. Keeping the prices of the complements required for its software higher than that set by Coral D. Ensuring that fewer complementary products are available for its products in comparison to that for the products of Coral

23. Which of the following statements is true of first movers in comparison with early followers and late entrants?

A. Cost of developing necessary production processes and complementary goods is lower for first movers.

B. First movers are in a better position to exploit buyer switching costs and also to reap increasing returns advantages.

C. First movers, being incumbents, have greater ability than later entrants to respond to changes in the industry environment and adopt newer production processes.

D. First movers fail to capture scarce resources such as key locations, government permits, access to distribution channels, and relationships with suppliers.

24. The tendency of existing firms to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers is known as:

A. monopoly costs.

B. path dependency.

C. incumbent inertia.

D. technology trajectory.

25. Fashion Fair Corp., the first mover in the "all-year discount" stores market, lost its market share to a late entrant, Brand Fair Inc. Brand Fair operates its discount stores solely through the Internet, which saves a lot of expenses. Fashion Fair has been unable to replicate this strategy by adopting the online store business model due to its existing contracts with suppliers and heavy investment in retail stores. Fashion Fair has been experiencing:

A. incumbent inertia.

B. monopoly rents.

C. path dependency.

D. technology attrition.

26. When Fun Bun Inc., an international fast-food chain, first moved into China, it had to teach farmers how to grow a particular variety of potatoes, and bakers had to be taught how to make hamburger buns. This is an example of:

A. corporate social responsibility.

B. an undeveloped supply channel.

C. incumbent inertia.

D. monopoly rents.

27. Which of the following is an advantage of being a late entrant into a market?

A. Late entrants are the first to capture scarce resources.

B. Late entrants often do not have to invest in exploratory research.

C. Late entrants often are most likely to capitalize on monopoly rents.

D. Late entrants are unaffected by switching costs.

28. Component technologies that are necessary for the performance or desirability of a given innovation are referred to as _____.

A. architectural technologies B. diffused technologies C. primary technologies D. enabling technologies 29. Pioneer Athletics Inc. wants to provide better landing mats for gymnasts. It therefore asks its foam suppliers to use a new innovative process to manufacture higher quality, durable foam for use in its mats. This new process used to develop the foam represents a(n) _____ for Pioneer Athletics.

A. network externality B. preemption rent C. enabling technology D. incumbent rent

30. Which of the following statements is true of a firm entering a market too early?

A. Distribution channels required for the firm's products will be well established prior to its entry.

B. Enabling technologies and complements available to the firm will be immature.

C. The firm's competitors would have already captured controlling shares of the market.

D. The firm will not be able to reap the advantages of monopoly rent.

31. Which of the following statements is true of customer preferences?

A. The importance of technological features to customers stays constant over time.

B. Customers can differ from producers in their understanding of a new technology.

C. All pioneers of new-to-the-world technologies face customer uncertainty.

D. Other things being equal, more customer uncertainty favors earlier timing of entry.

32. A delayed entry into a market with a new technology is preferred if:

A. support by complementary goods providers is high.

B. enabling technologies are less mature.

C. customer uncertainty is low.

D. the scope for improving over previous technologies is high.

33. Which of the following calls for an early entry into a market?

A. Immature enabling technologies B. Unavailability of complementary goods C. High customer uncertainty D. Low entry barriers

34. New innovations typically tend to:

A. be adopted very slowly at first.

B. eliminate incumbent inertia for late entrants.

C. eliminate monopoly rents when they are first introduced.

D. reduce the effectiveness of future enabling technologies.

35. _____ require multiple stages of a new product development process to occur simultaneously.

A. Incumbent development processes B. Parallel development processes C. Monopoly development processes D. Slow-cycle development processes

Essay Questions 36. Why were other keyboards that claimed to be more efficient not able to replace the QWERTY keyboard? Explain how this illustrates the need to consider switching costs when introducing new technologies.

37. Explain why sometimes the follower and not the first mover of a new technology is more successful in the marketplace.

38. Loren has invented a product that detects water leakages caused by broken pipes and sends out an alarm similar to a smoke alarm. However, Loren has very little personal money to invest in this new product. Therefore, he borrows enough money from his friends to enter the market and begins to experience some success. The product is not patentable because it is too similar to other existing technologies. Major corporations have seen his success and have now entered the market with competing products. What will be the probable destiny of Loren's company?

39. Since SmartShoe Inc. is the market leader in the gliding shoe market, it enjoys an excellent reputation. It is the pioneer of this new market and currently holds 40 percent market share. Now, SmartShoe wants to introduce a new range of orthopedic shoes.

Discuss how its reputation might affect the new product's acceptance among distributors and consumers.

40. What assumptions underlie the use of timing of entry strategies into the market for new products?

Chapter 05 Timing of Entry Answer Key True / False Questions 1.

Early leaders are firms that are the first to enter a market.

(p. 93)

FALSE Difficulty: 1 Easy

2. (p. 93)

Early followers enter the market only after a product begins to penetrate the mass market.

FALSE Difficulty: 1 Easy

3.

The initial cost of a good itself can be a switching cost.

(p. 94)

TRUE Difficulty: 1 Easy

4. (p. 95)

In an industry characterized by increasing returns to adoption, there can be powerful advantages to being an early provider.

TRUE Difficulty: 1 Easy

5. (p. 96)

Late entrants typically bear the bulk of the research and development expenses for their product or service technologies.

FALSE Difficulty: 1 Easy

6.

First movers typically invest more in exploratory research than late entrants.

(p. 96)

TRUE Difficulty: 1 Easy

7.

All pioneers face customer uncertainty.

(p. 99)

FALSE Difficulty: 1 Easy

8.

Other things being equal, less customer uncertainty favors earlier timing of entry.

(p. 99)

TRUE Difficulty: 1 Easy

9.

When a market is characterized by mature enabling technologies, a firm should enter

(p. 100) the market late.

FALSE Difficulty: 1 Easy

10.

Not all innovations require complementary goods.

(p. 100)

TRUE Difficulty: 1 Easy

11.

In industries that have increasing returns to adoption due to network externalities,

(p. 101) allowing competitors to get a head start in building an installed base is the safest

strategy.

FALSE Difficulty: 1 Easy

12.

Many start-up firms demise because new innovations tend to be adopted very slowly

(p. 102) at first.

TRUE Difficulty: 1 Easy

13.

Other things being equal, an entrant with a strong reputation can attract adoptions

(p. 103) earlier than entrants without strong reputations.

TRUE Difficulty: 1 Easy

14.

A firm intending to refine an earlier entrant's technology should avoid fast-cycle

(p. 103) development processes.

FALSE Difficulty: 1 Easy

15.

A disadvantage of using parallel development processes is that it greatly lengthens

(p. 103) the new product development time.

FALSE Difficulty: 1 Easy

Multiple Choice Questions

16.

The first entrants to sell in a new product or service category are referred to as _____.

(p. 93)

A. pioneer s B. early leaders C. early followers D. laggard s Difficulty: 1 Easy

17. (p. 93)

Doven Inc. pioneered software development in the 1970s and introduced its range of office tools well ahead of its competitors. According to the classification scheme of entrants, Doven would be classified as a(n) _____.

A. first mover B. early follower C. early leader D. laggar d Difficulty: 2 Medium

18. (p. 93)

Magnitude Inc. was the first company to introduce a video gaming console in the market. However, consumers were uncertain about the product, and its high costs discouraged consumers from purchasing it. Eventually, Magnitude withdrew the product from the market. A few years later, Mantel Corp. and Adventura Inc. came up with their respective gaming consoles and successfully established their products. In this scenario, Mantel and Adventura would be considered:

A. pioneer s.

B. early followers.

C. laggard s.

D. late movers.

Difficulty: 3 Hard

19. (p. 93)

Marine Systems was the first company to develop an inventory management software specifically for hotels and restaurants. Soon after Marine Systems launched its product, Unicorn Systems developed a similar software. The software developed by Unicorn Systems outperformed the one developed by Marine Systems, and it eventually became the market leader. In this scenario, Unicorn Systems is an example of a(n) _____.

A. first pioneer B. late mover C. early follower D. eccentric laggard Difficulty: 3 Hard

20. (p. 9394)

If the aspects that customers have come to expect in a technology are difficult for competitors to imitate, being the technology leader will:

A. result in an inability to preemptively capture scarce assets.

B. enable it to yield sustained monopoly rents.

C. result in lower bargaining power over suppliers.

D. mean negligible research and development costs.

Difficulty: 2 Medium

21. (p. 94)

Alpen Inc. is a manufacturing firm that holds the patent for a new food processing machine that is considerably safer and more efficient than the others available in the market. Being the only firm that manufactures this product, Alpen charges a very high price for it. This is referred to as _____.

A. monopoly rent B. technology lag C. incumbent inertia D. absorptive capacity Difficulty: 3 Hard

22. (p. 94)

Jupiter Inc., a software firm, is starting to face competition from the new entrant in its market, Coral Inc. Jupiter wants to prevent its existing customers from switching to Coral's newly developed software. Which of the following measures should Jupiter adopt to achieve its objective?

A. Ensuring that customers find its software simpler and more convenient to use than that of Coral B. Keeping the initial cost of its software higher than that of Coral's C. Keeping the prices of the complements required for its software higher than that set by Coral D. Ensuring that fewer complementary products are available for its products in comparison to that for the products of Coral Difficulty: 3 Hard

23. (p. 9495)

Which of the following statements is true of first movers in comparison with early followers and late entrants?

A. Cost of developing necessary production processes and complementary goods is lower for first movers.

B. First movers are in a better position to exploit buyer switching costs and also to reap increasing returns advantages.

C. First movers, being incumbents, have greater ability than later entrants to respond to changes in the industry environment and adopt newer production processes.

D. First movers fail to capture scarce resources such as key locations, government permits, access to distribution channels, and relationships with suppliers.

Difficulty: 2 Medium

24. (p. 96)

The tendency of existing firms to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers is known as:

A. monopoly costs.

B. path dependency.

C. incumbent inertia.

D. technology trajectory.

Difficulty: 1 Easy

25. (p. 96)

Fashion Fair Corp., the first mover in the "all-year discount" stores market, lost its market share to a late entrant, Brand Fair Inc. Brand Fair operates its discount stores solely through the Internet, which saves a lot of expenses. Fashion Fair has been unable to replicate this strategy by adopting the online store business model due to its existing contracts with suppliers and heavy investment in retail stores. Fashion Fair has been experiencing:

A. incumbent inertia.

B. monopoly rents.

C. path dependency.

D. technology attrition.

Difficulty: 3 Hard

26. (p. 96)

When Fun Bun Inc., an international fast-food chain, first moved into China, it had to teach farmers how to grow a particular variety of potatoes, and bakers had to be taught how to make hamburger buns. This is an example of:

A. corporate social responsibility.

B. an undeveloped supply channel.

C. incumbent inertia.

D. monopoly rents.

Difficulty: 3 Hard

27.

Which of the following is an advantage of being a late entrant into a market?

(p. 96)

A. Late entrants are the first to capture scarce resources.

B. Late entrants often do not have to invest in exploratory research.

C. Late entrants often are most likely to capitalize on monopoly rents.

D. Late entrants are unaffected by switching costs.

Difficulty: 2 Medium

28. (p. 96)

Component technologies that are necessary for the performance or desirability of a given innovation are referred to as _____.

A. architectural technologies B. diffused technologies C. primary technologies D. enabling technologies Difficulty: 1 Easy

29. (p. 96)

Pioneer Athletics Inc. wants to provide better landing mats for gymnasts. It therefore asks its foam suppliers to use a new innovative process to manufacture higher quality, durable foam for use in its mats. This new process used to develop the foam represents a(n) _____ for Pioneer Athletics.

A. network externality B. preemption rent C. enabling technology D. incumbent rent Difficulty: 3 Hard

30.

Which of the following statements is true of a firm entering a market too early?

(p. 96)

A. Distribution channels required for the firm's products will be well established prior to its entry.

B. Enabling technologies and complements available to the firm will be immature.

C. The firm's competitors would have already captured controlling shares of the market.

D. The firm will not be able to reap the advantages of monopoly rent.

Difficulty: 2 Medium

31.

Which of the following statements is true of customer preferences?

(p. 99)

A. The importance of technological features to customers stays constant over time.

B. Customers can differ from producers in their understanding of a new technology.

C. All pioneers of new-to-the-world technologies face customer uncertainty.

D. Other things being equal, more customer uncertainty favors earlier timing of entry.

Difficulty: 2 Medium

32.

A delayed entry into a market with a new technology is preferred if:

(p. 100)

A. support by complementary goods providers is high.

B. enabling technologies are less mature.

C. customer uncertainty is low.

D. the scope for improving over previous technologies is high.

Difficulty: 2 Medium

33.

Which of the following calls for an early entry into a market?

(p. 100)

A. Immature enabling technologies B. Unavailability of complementary goods C. High customer uncertainty D. Low entry barriers Difficulty: 1 Easy

34.

New innovations typically tend to:

(p. 102)

A. be adopted very slowly at first.

B. eliminate incumbent inertia for late entrants.

C. eliminate monopoly rents when they are first introduced.

D. reduce the effectiveness of future enabling technologies.

Difficulty: 2 Medium

35.

_____ require multiple stages of a new product development process to occur

(p. 103) simultaneously.

A. Incumbent development processes B. Parallel development processes C. Monopoly development processes D. Slow-cycle development processes Difficulty: 1 Easy

Essay Questions 36. (p. 9394)

Why were other keyboards that claimed to be more efficient not able to replace the QWERTY keyboard? Explain how this illustrates the need to consider switching costs when introducing new technologies.

The QWERTY keyboard was initially introduced to slow down typing and prevent key jamming on mechanical keyboards. Since so many people had already learned to use this keyboard, they were unwilling to learn how to type on other keyboards even though key jamming was no longer an issue. This illustrates that if buyers face high switching costs, the firm that captures customers early may be able to keep those customers even if technologies with a superior value proposition are introduced later.

Difficulty: 2 Medium

37. (p. 98)

Explain why sometimes the follower and not the first mover of a new technology is more successful in the marketplace.

Although first movers have the opportunity to shape the market and have the first shot at becoming the dominant design, often they are not sure of consumer preferences. As consumer preferences become known, they may have to modify their product designs. Sometimes they must also engage in consumer education about using the new technology, which can be an expensive proposition. Followers can capitalize on learning about consumer preferences from the marketplace. They can introduce products that meet consumer preferences without having to make costly adjustments. They do not have to worry as much about consumer education. This helps them in becoming more successful in the marketplace.

Difficulty: 2 Medium

38.

Loren has invented a product that detects water leakages caused by broken pipes and

(p. 102) sends out an alarm similar to a smoke alarm. However, Loren has very little personal

money to invest in this new product. Therefore, he borrows enough money from his friends to enter the market and begins to experience some success. The product is not patentable because it is too similar to other existing technologies. Major corporations have seen his success and have now entered the market with competing products. What will be the probable destiny of Loren's company?

Since Mr. Loren does not have significant resources and the income will probably be slow, he may not last very long in this new industry. His lack of funds means that he will have very little to invest in product enhancements, while his competitors would be able to improve the product. For example, one company might attach a dialing system to the alarm that notifies a neighbor, a plumber, or the police department in case the owner is not at home. The larger companies can outspend Mr. Loren in advertising as well.

Difficulty: 3 Hard

39.

Since SmartShoe Inc. is the market leader in the gliding shoe market, it enjoys an

(p. 102- excellent reputation. It is the pioneer of this new market and currently holds 40 103)

percent market share. Now, SmartShoe wants to introduce a new range of orthopedic shoes. Discuss how its reputation might affect the new product's acceptance among distributors and consumers.

SmartShoe's excellent reputation will give the new product high credibility and will increase the likelihood of its acceptance into the market. The fact that it has such a strong track record will increase the likelihood that it will be able to line up distributors to carry its new range of orthopedic shoes. Consumers are also more likely to trust this entry due to satisfaction with past products of the company. All of this will mean earlier adoption of the product than any other company could expect.

Difficulty: 3 Hard

40.

What assumptions underlie the use of timing of entry strategies into the market for

(p. 103) new products?

It is assumed that timing of entry is a matter of choice for the firm. However, implicit in this assumption is a corollary assumption that the firm is capable of producing the technology at any point in the time horizon under consideration. For this to be true, the firm must possess the core capabilities required to produce the technology to consumer expectations, or be able to develop them quickly. Also, to be able to take advantage of timing strategies for entry, the firm must have a fast-cycle development process in place and the financial resources to develop, produce, and market the product.

Difficulty: 2 Medium

Chapter 06 Defining the Organization's Strategic Direction True / False Questions 1. Formulating a technological innovation strategy first requires an accurate appraisal of where the firm currently is.

True

False

2. In general, the more firms competing that are of comparable size, the more competitive the industry will be.

True

False

3. When demand is increasing, there is less revenue to go around and firms will experience more competitive pressure.

True

False

4. Low exit barriers intensify rivalry by making firms reluctant to abandon the industry.

True

False

5. According to Porter's five-force model, the threat of potential entrants is influenced by the height of entry barriers.

True

False

6. According to Porter's five-force model, the degree to which a firm relies on one or a few suppliers will influence its ability to negotiate good terms.

True

False

7. Weekly News Inc. bought the paper mill that supplied paper for printing its magazine.

This is an example of horizontal integration.

True

False

8. Ammunition can be considered a complement for firearms.

True

False

9. A strategic stakeholder analysis emphasizes the stakeholder management issues a firm ought to attend to due to their ethical or moral implications.

True

False

10. According to Porter's value chain model, firm infrastructure is a primary activity.

True

False

11. Resources of a tangible nature that can be readily codified are called tacit resources.

True

False

12. Path dependency refers to the abilities that make a firm more agile and responsive to change.

True

False

13. A firm's emphasis on a scientific discipline that is central to its core competency can make the firm less attractive to individuals from other disciplines.

True

False

14. According to Prahalad and Hamel's model, it is possible for a firm to develop core competencies to a set of abilities that enable it to quickly reconfigure its organizational structure and routines in response to new opportunities.

True

False

15. Dynamic capabilities enable firms to quickly adapt to emerging markets or major technological discontinuities.

True

False

Multiple Choice Questions 16. Which of the following statements is true of Porter's five-force model?

A. It states that the attractiveness of an industry is unaffected by the industry's degree of rivalry.

B. It fails to acknowledge the role of substitutes for customers.

C. It is often used in practice to assess a specific firm's external environment.

D. It states that oligopolistic industries are less competitive if firms choose to engage in price wars.

17. Mr. Crunchy Inc. is a firm experiencing severe losses. However, with large initial investment in manufacturing equipment and infrastructure, the firm is finding it difficult to abandon the industry. According to Porter's five-force model, the company is facing a(n):

A. vertical integration.

B. exit barrier.

C. horizontal integration.

D. substitute threat.

18. According to Porter's five-force model, if suppliers of a particular good are very abundant, _____.

A. their bargaining power will be less B. their level of differentiation will be very high C. their level of vertical integration in the industry will be high D. their annual employee turnover rates will be less 19. Ceramic Customs Corp. required a specific type of ceramic to make its tiles. Since there was only one supplier for that particular ceramic, the firm was forced to source all of its supplies from it. The firm tried negotiating the price of the material but failed to get any reduction on the cost. This was because:

A. the supplier had more bargaining power than the firm.

B. the supply was unlimited.

C. the supply exceeded the demand.

D. the industry had barriers to entry.

20. According to Porter's five-force model, if a buyer can threaten to backward vertically integrate, it will:

A. decrease the buyer's bargaining power.

B. increase the buyer's bargaining power.

C. increase the supplier's bargaining power.

D. lower the threat of entry into the industry.

21. Factors that make it difficult or expensive to change suppliers or buyers are referred to as _____.

A. transactional costs B. monopoly costs C. marginal costs D. switching costs 22. Perfecto Espresso Corp. is a chain of coffee shops in the United States. Earlier it used to source its coffee from several coffee suppliers. However, recently it started its own coffee plantation to supply its coffee shops. This is an example of:

A. forward vertical integration.

B. backward vertical integration.

C. horizontal integration.

D. substitutio n.

23. Allure Fabrics Corp. supplies cotton, linen, and silk fabrics to various designer wear boutiques in and around Florida. The firm has recently launched a boutique in Florida under its own brand name to sell women's fashion apparel. Allure Fabrics is practicing:

A. forward vertical integration.

B. backward vertical integration.

C. horizontal integration.

D. substitutio n.

24. Scripts & Scrolls Corp. supplies printing paper to select publishing houses. When its customers asked for a discount in the cost of supplies, the company had to oblige fearing that the customers might withdraw pending contracts. This shows the increased:

A. bargaining power of buyers.

B. bargaining power of suppliers.

C. threat of substitutes.

D. vertical integration of buyers.

25. Ample Espresso Corp. is a coffeehouse located across from Tian's Kitchen, a restaurant.

According to Porter's five-force model, the services and products provided by both are most accurately classified as:

A. complemen ts.

B. competito rs.

C. substitute s.

D. intermediat es.

26. Sam's Sugar Corp., a leading cane sugar manufacturer, faces a threat of going out of business when a rival company introduces a zero-calorie sweetener to replace the highcalorie cane sugar. According to Porter's five-force model, the two products are:

A. complemen ts.

B. supplement s.

C. intermediat es.

D. substitute s.

27. The Corner Shop Corp. is a leading supermarket chain in Chicago. According to Michael Porter's model of a value chain, which of the following activities of the firm is a primary activity?

A. A training session for the floor attendants at The Corner Shop outlets B. An advertising campaign for a new The Corner Shop outlet C. The accounting function at The Corner Shop outlets D. The hiring of lawyers to ensure that the firm adheres to labor laws 28. According to Michael Porter's model of a value chain, which of the following is a support activity?

A. Accounting activities B. Outbound logistics C. Marketin g D. Inbound logistics 29. Which of the following would be an example of a tacit resource?

A. An oddsmaker who works for a large casino in Las Vegas and is correct 95 percent of the time B. Hand-woven fabrics made by local shops C. Chipset manufacturing machine bought by an electronics company D. A distiller used to make malt liquor 30. A resource can be extremely difficult to imitate if:

A. it can be readily codified in written form.

B. it is not path dependent.

C. it arises through the complex interaction of multiple people.

D. it is clear how the resource gives rise to value.

31. Socially complex resources are:

A. resources or activities that emerge through the interaction of multiple individuals.

B. resources that cannot be defined in terms of a numerical value.

C. resources that require public sanction in order to be utilized for profitmaking purposes.

D. resources that are shared by different parties thereby making them easily imitable.

32. The relationship between a _____ resource and the outcome it produces is poorly understood.

A. socially complex B. causally ambiguous C. logistically outbound D. logistically inbound 33. Which of the following statements is true of core competencies?

A. A firm's core competency refers to a single ability.

B. A firm's core competency is more than just a core technology.

C. An individual business unit has only one core competency.

D. A firm's core competency is usually easy to imitate.

34. Piezo Tech Solutions supplies hospitals with software to track insurance claims. As insurance regulations and policies are always changing, its software needs to have the ability to be agile and responsive to change. In other words, the software needs:

A. dynamic capabilities.

B. tacit resources.

C. rigid competencies.

D. to be path dependent.

35. When Faslow Medical Center in Exeter County changed its name to Faslow Hospital, it also unveiled a plan to build a medical tower that would double its physical facilities by 100 percent within the next 10 years. It also announced that its goal was to not only serve Exeter County but also the entire region including the five contiguous counties.

This is most accurately an expression of:

A. vertical integration.

B. strategic intent.

C. monopoly rent.

D. supplier bargaining power.

Essay Questions 36. Explain the influences on the threat of potential entrants into a market according to Porter's five-force model.

37. What properties must resources have to be a potential source of sustainable competitive advantage?

38. What are core competencies?

39. Explain the advantages and disadvantages of rewarding and promoting the development of core competencies.

40. What is the danger of not having a strategic intent? In your answer, assume your company operates a hospital in a city with a population of 30,000 people, located about 50 miles away from a large city.

Chapter 06 Defining the Organization's Strategic Direction Answer Key True / False Questions 1.

Formulating a technological innovation strategy first requires an accurate appraisal of

(p. 111) where the firm currently is.

TRUE Difficulty: 1 Easy

2.

In general, the more firms competing that are of comparable size, the more

(p. 112) competitive the industry will be.

TRUE Difficulty: 1 Easy

3.

When demand is increasing, there is less revenue to go around and firms will

(p. 113) experience more competitive pressure.

FALSE Difficulty: 1 Easy

4.

Low exit barriers intensify rivalry by making firms reluctant to abandon the industry.

(p. 113)

FALSE Difficulty: 1 Easy

5.

According to Porter's five-force model, the threat of potential entrants is influenced by

(p. 113) the height of entry barriers.

TRUE Difficulty: 1 Easy

6.

According to Porter's five-force model, the degree to which a firm relies on one or a

(p. 113) few suppliers will influence its ability to negotiate good terms.

TRUE Difficulty: 1 Easy

7.

Weekly News Inc. bought the paper mill that supplied paper for printing its magazine.

(p. 114) This is an example of horizontal integration.

FALSE Difficulty: 2 Medium

8.

Ammunition can be considered a complement for firearms.

(p. 114)

TRUE Difficulty: 2 Medium

9.

A strategic stakeholder analysis emphasizes the stakeholder management issues a

(p. 115) firm ought to attend to due to their ethical or moral implications.

FALSE Difficulty: 1 Easy

10.

According to Porter's value chain model, firm infrastructure is a primary activity.

(p. 116)

FALSE Difficulty: 2 Medium

11.

Resources of a tangible nature that can be readily codified are called tacit resources.

(p. 118)

FALSE Difficulty: 1 Easy

12.

Path dependency refers to the abilities that make a firm more agile and responsive to

(p. 121) change.

FALSE Difficulty: 1 Easy

13.

A firm's emphasis on a scientific discipline that is central to its core competency can

(p. 121) make the firm less attractive to individuals from other disciplines.

TRUE Difficulty: 1 Easy

14.

According to Prahalad and Hamel's model, it is possible for a firm to develop core

(p. 121) competencies to a set of abilities that enable it to quickly reconfigure its

organizational structure and routines in response to new opportunities.

TRUE Difficulty: 1 Easy

15.

Dynamic capabilities enable firms to quickly adapt to emerging markets or major

(p. 121) technological discontinuities.

TRUE Difficulty: 1 Easy

Multiple Choice Questions 16.

Which of the following statements is true of Porter's five-force model?

(p. 111)

A. It states that the attractiveness of an industry is unaffected by the industry's degree of rivalry.

B. It fails to acknowledge the role of substitutes for customers.

C. It is often used in practice to assess a specific firm's external environment.

D. It states that oligopolistic industries are less competitive if firms choose to engage in price wars.

Difficulty: 2 Medium

17.

Mr. Crunchy Inc. is a firm experiencing severe losses. However, with large initial

(p. 113) investment in manufacturing equipment and infrastructure, the firm is finding it

difficult to abandon the industry. According to Porter's five-force model, the company is facing a(n):

A. vertical integration.

B. exit barrier.

C. horizontal integration.

D. substitute threat.

Difficulty: 3 Hard

18.

According to Porter's five-force model, if suppliers of a particular good are very

(p. 113) abundant, _____.

A. their bargaining power will be less B. their level of differentiation will be very high C. their level of vertical integration in the industry will be high D. their annual employee turnover rates will be less Difficulty: 2 Medium

19.

Ceramic Customs Corp. required a specific type of ceramic to make its tiles. Since

(p. 113) there was only one supplier for that particular ceramic, the firm was forced to source

all of its supplies from it. The firm tried negotiating the price of the material but failed to get any reduction on the cost. This was because:

A. the supplier had more bargaining power than the firm.

B. the supply was unlimited.

C. the supply exceeded the demand.

D. the industry had barriers to entry.

Difficulty: 3 Hard

20.

According to Porter's five-force model, if a buyer can threaten to backward vertically

(p. 113- integrate, it will: 114)

A. decrease the buyer's bargaining power.

B. increase the buyer's bargaining power.

C. increase the supplier's bargaining power.

D. lower the threat of entry into the industry.

Difficulty: 2 Medium

21.

Factors that make it difficult or expensive to change suppliers or buyers are referred

(p. 114) to as _____.

A. transactional costs B. monopoly costs C. marginal costs D. switching costs Difficulty: 1 Easy

22.

Perfecto Espresso Corp. is a chain of coffee shops in the United States. Earlier it used

(p. 114) to source its coffee from several coffee suppliers. However, recently it started its own

coffee plantation to supply its coffee shops. This is an example of:

A. forward vertical integration.

B. backward vertical integration.

C. horizontal integration.

D. substitutio n.

Difficulty: 3 Hard

23.

Allure Fabrics Corp. supplies cotton, linen, and silk fabrics to various designer wear

(p. 114) boutiques in and around Florida. The firm has recently launched a boutique in Florida

under its own brand name to sell women's fashion apparel. Allure Fabrics is practicing:

A. forward vertical integration.

B. backward vertical integration.

C. horizontal integration.

D. substitutio n.

Difficulty: 3 Hard

24.

Scripts & Scrolls Corp. supplies printing paper to select publishing houses. When its

(p. 114) customers asked for a discount in the cost of supplies, the company had to oblige

fearing that the customers might withdraw pending contracts. This shows the increased:

A. bargaining power of buyers.

B. bargaining power of suppliers.

C. threat of substitutes.

D. vertical integration of buyers.

Difficulty: 3 Hard

25.

Ample Espresso Corp. is a coffeehouse located across from Tian's Kitchen, a

(p. 114) restaurant. According to Porter's five-force model, the services and products provided

by both are most accurately classified as:

A. complemen ts.

B. competito rs.

C. substitute s.

D. intermediat es.

Difficulty: 2 Medium

26.

Sam's Sugar Corp., a leading cane sugar manufacturer, faces a threat of going out of

(p. 114) business when a rival company introduces a zero-calorie sweetener to replace the

high-calorie cane sugar. According to Porter's five-force model, the two products are:

A. complemen ts.

B. supplement s.

C. intermediat es.

D. substitute s.

Difficulty: 2 Medium

27.

The Corner Shop Corp. is a leading supermarket chain in Chicago. According to

(p. 116) Michael Porter's model of a value chain, which of the following activities of the firm is

a primary activity?

A. A training session for the floor attendants at The Corner Shop outlets B. An advertising campaign for a new The Corner Shop outlet C. The accounting function at The Corner Shop outlets D. The hiring of lawyers to ensure that the firm adheres to labor laws Difficulty: 2 Medium

28.

According to Michael Porter's model of a value chain, which of the following is a

(p. 116) support activity?

A. Accounting activities B. Outbound logistics C. Marketin g D. Inbound logistics Difficulty: 1 Easy

29.

Which of the following would be an example of a tacit resource?

(p. 118)

A. An oddsmaker who works for a large casino in Las Vegas and is correct 95 percent of the time B. Hand-woven fabrics made by local shops C. Chipset manufacturing machine bought by an electronics company D. A distiller used to make malt liquor Difficulty: 3 Hard

30.

A resource can be extremely difficult to imitate if:

(p. 118)

A. it can be readily codified in written form.

B. it is not path dependent.

C. it arises through the complex interaction of multiple people.

D. it is clear how the resource gives rise to value.

Difficulty: 2 Medium

31.

Socially complex resources are:

(p. 118)

A. resources or activities that emerge through the interaction of multiple individuals.

B. resources that cannot be defined in terms of a numerical value.

C. resources that require public sanction in order to be utilized for profitmaking purposes.

D. resources that are shared by different parties thereby making them easily imitable.

Difficulty: 2 Medium

32.

The relationship between a _____ resource and the outcome it produces is poorly

(p. 118) understood.

A. socially complex B. causally ambiguous C. logistically outbound D. logistically inbound Difficulty: 1 Easy

33.

Which of the following statements is true of core competencies?

(p. 119)

A. A firm's core competency refers to a single ability.

B. A firm's core competency is more than just a core technology.

C. An individual business unit has only one core competency.

D. A firm's core competency is usually easy to imitate.

Difficulty: 2 Medium

34.

Piezo Tech Solutions supplies hospitals with software to track insurance claims. As

(p. 121) insurance regulations and policies are always changing, its software needs to have

the ability to be agile and responsive to change. In other words, the software needs:

A. dynamic capabilities.

B. tacit resources.

C. rigid competencies.

D. to be path dependent.

Difficulty: 2 Medium

35.

When Faslow Medical Center in Exeter County changed its name to Faslow Hospital, it

(p. 121) also unveiled a plan to build a medical tower that would double its physical facilities

by 100 percent within the next 10 years. It also announced that its goal was to not only serve Exeter County but also the entire region including the five contiguous counties. This is most accurately an expression of:

A. vertical integration.

B. strategic intent.

C. monopoly rent.

D. supplier bargaining power.

Difficulty: 2 Medium

Essay Questions 36.

Explain the influences on the threat of potential entrants into a market according to

(p. 113) Porter's five-force model.

According to Porter's five-force model, the threat of potential entrants is influenced by both the degree to which the industry is likely to attract new entrants (i.e., is it profitable, growing, or otherwise alluring?) and the height of entry barriers. Entry barriers can include such factors as large start-up costs, brand loyalty, difficulty in gaining access to suppliers or distributors, government regulation, threat of retaliation by existing competitors, and many others. While profitability and growth may attract new entrants, entry barriers will deter them.

Difficulty: 2 Medium

37.

What properties must resources have to be a potential source of sustainable

(p. 118) competitive advantage?

To be a potential source of sustainable competitive advantage, resources must be rare, valuable, durable, and inimitable. Resources that are rare and valuable may yield a competitive advantage, but that advantage will not be sustainable if the firm is incapable of keeping the resources, or if other firms are capable of imitating them. If a firm lacks the capital to reinvest in its brand image, it will erode. Furthermore, many valuable resources are quickly imitated by other firms. Technological advances are reverse-engineered, skillful marketing campaigns are copied, innovative human resource practices are adopted by imitators, and so on. Some resources, however, are not readily imitable.

Difficulty: 2 Medium

38.

What are core competencies?

(p. 119)

A company's core competencies are typically considered to be those that differentiate it strategically. A core competency is more than just a core technology. A core competency arises from a firm's ability to combine and harmonize multiple primary abilities in which the firm excels into a few key building blocks of specialized expertise.

Difficulty: 2 Medium

39.

Explain the advantages and disadvantages of rewarding and promoting the

(p. 120- development of core competencies.

121)

By rewarding and promoting the development of your core competencies you can really excel at it and continue to be successful in your industry. After all, the core competence gives you an advantage over your competition, and you should leverage that as far as possible. By viewing the business as a portfolio of core competencies, managers are better able to focus on value creation and meaningful new business development, rather than cost cutting or opportunistic expansion.

The disadvantage is that the organizational culture may reward employees who are most closely connected to core competencies with higher status and better access to other organizational resources. While these systems and norms can prove beneficial in reinforcing and leveraging the firm's existing core competencies, they can also inhibit the development of new core competencies. Firms that have well-developed knowledge sets along a particular trajectory may find it very hard to assimilate or utilize knowledge that appears unrelated to that trajectory, potentially limiting the firm's flexibility. Students' answers may vary.

Difficulty: 3 Hard

40.

What is the danger of not having a strategic intent? In your answer, assume your

(p. 121- company operates a hospital in a city with a population of 30,000 people, located 123)

about 50 miles away from a large city.

Without a strategic intent, the hospital will fail to recognize future market needs and will only try to maintain its current market position. The hospital can easily become focused on markets it has served in the past due to a lack of forward-looking orientation. Most likely, hospitals from the larger city will try to become more regional in nature by opening satellite centers in the county where the local hospital is located.

They will also adopt the latest medical technology. Local physicians may start sending patients to the other, larger hospitals as the hospital will not be able to provide the best medical treatment to its patients. Employees will complain about having out-ofdate technology and of losing patients to larger hospitals. This lower morale will adversely affect turnover. The local community will probably also become disgruntled.

Students' answers may vary.

Difficulty: 3 Hard

Chapter 07 Choosing Innovation Projects True / False Questions 1. The allocation of a finite quantity of resources over different possible uses is known as research rationing.

True

False

2. The ratio of R&D expenditures to sales is known as R&D trajectory.

True

False

3. According to the net present value method of discounted cash flow analysis, the time required to break even on a project using discounted cash flows is known as period of return.

True

False

4. Both net present value and internal rate of return techniques provide concrete financial estimates that facilitate strategic planning and trade-off decisions.

True

False

5. Standard discounted cash flow analysis has the potential to severely undervalue a development project's contribution to a firm.

True

False

6. Calculating the internal rate of return of a project typically must be done by trial and error.

True

False

7. From a real options perspective, the value of a call stock option is zero as long as the price of the stock is more than the exercise price.

True

False

8. From a real options perspective, the exercise price associated with commercializing a new technology would include the cost of manufacturing, marketing, and distributing the technology.

True

False

9. While the value of a stock is independent of the call holder's behavior, the value of a R&D investment is not independent of the investor's behavior.

True

False

10. The investor is an active driver of the value of an investment.

True

False

11. Breakthrough projects involve development of products that incorporate revolutionary new product and process technologies.

True

False

12. Derivative projects offer fundamental improvements in the cost, quality, and performance of a technology over preceding generations.

True

False

13. The most common use of conjoint analysis is to assess the relative importance of different product attributes to customers.

True

False

14. Data envelopment analysis (DEA) utilizes linear programming.

True

False

15. The drawback to data envelopment analysis (DEA) is that it does not allow comparisons of projects using multiple kinds of measures.

True

False

Multiple Choice Questions 16. _____ refers to the allocation of a finite quantity of resources over different possible uses.

A. Systematic enrollment B. Translational funding C. Organizational appropriation D. Capital rationing

17. Which of the following is true of quantitative methods of analyzing new projects, particularly in rapidly changing environments?

A. They enable managers to use rigorous statistical comparisons of projects.

B. Their accuracy is unquestionable.

C. Discounted cash flow methods are the least commonly used quantitative methods.

D. They are particularly accurate in highly uncertain or rapidly changing environments.

18. The discounted cash inflows of a project minus the discounted cash outflows is referred to as the _____.

A. internal rate of return B. net present value C. real option D. screening value 19. What is the net present value (NPV) of a project if the present value of cash inflow is $10,000 and the present value of cash outflows is $5,000?

A. $2,00 0 B. $5,00 0 C. $10,00 0 D. $15,00 0 20. If the net present value of a project is greater than zero, then the:

A. project cannot be carried out as the cash outflow is too high.

B. present value of cash outflows is higher than present value of cash inflow.

C. project will require 5 years to break even.

D. project generates wealth.

21. Which of the following is true of the internal rate of return of a project?

A. The discounted cash flow estimates are only as accurate as the original estimates of the profit.

B. It maximizes the net present value of the investment.

C. It neglects the timing of investment and cash flows.

D. It does not discriminate against projects that are long term or risky.

22. Which of the following is a disadvantage of using internal rate of return for assessing a project?

A. It fails to take into account the time value of money and risk.

B. It cannot be calculated by trial and error.

C. It discriminates heavily against long-term and risky projects.

D. It fails to provide concrete financial estimates.

23. With respect to a research and development (R&D) program, which of the following can be considered the exercise price?

A. The cost of the R&D program B. The cost of future investment required to capitalize on the R&D program C. The returns to the R&D investment D. The returns to the R&D investment minus the cost of the R&D program 24. If a firm has the option of investing in R&D, the cost of commercializing a new technology that is developed can be considered the:

A. exercise price.

B. price of a call option.

C. benefit of exercising the option.

D. the value of the option.

25. Which of the following is an advantage of using the real options approach of evaluating a project?

A. It results in better technology investment decisions than a cash flow analysis approach.

B. It is useful as technology investment scenarios often conform to the same capital market assumptions upon which the approach is based.

C. It is cheap to use in case of a firm undertaking solo new product development.

D. It is valuable only when there is no uncertainty in technology trajectories.

26. In the context of qualitative methods for choosing projects, screening questions are used mainly to:

A. increase the rate of employee attrition.

B. structure the discussion about project details like potential costs and benefits.

C. increase employee turnover rates.

D. choose the best consulting firm to analyze a potential project.

27. NewDigger Inc. makes backhoes for digging ditches and trenches. It has developed an acid that, when poured on the ground, reduces the time and labor required to dig trenches of various depths, depending on how much is applied. The firm has recently started using this product commercially. This would most probably be considered a(n) _____ project for NewDigger.

A. derivati ve B. platfor m C. breakthrou gh D. additiv e

28. TechToTeach Co. has developed and sold a product that can be used by students to take faster notes in a classroom as the teacher speaks. The device automatically records the teacher's voice and converts it into a text format. This new technology has been widely accepted by various universities and has been appreciated by students, thus increasing the company's inflow. This technology can be most accurately described as a(n) _____ project by TechToTeach.

A. advanced R&D B. platfor m C. breakthrou gh D. derivati ve 29. Coolers Inc. has developed a new generation of air conditioners. It has upgraded the old technology by making the air conditioners work on voice sensors instead of remote control. Though the technology is new, Coolers has decided to introduce the product in the market at a low cost. This project is a(n) _____ project for Coolers Inc.

A. platfor m B. derivati ve C. breakthrou gh D. advanced R&D 30. A firm that invests heavily in derivative projects that may be immediately commercialized with little risk:

A. will have greater long-term strategic momentum.

B. will be on the leading edge of technology.

C. will likely be unable to compete when the market shifts to a newer technology.

D. will have poor returns on its R&D investment in the short run.

31. In the _____ method, in order to establish scales of customer preferences, individuals in a group are each given a stack of cards with an object or idea on each card.

A. derivati ve B. conceptu al C. DE A D. Qsort 32. In a survey, Sam was asked to rank, on a scale of 1 to 5, how important different cell phone features were to him. The result was then used by the surveying firm to assess the different attributes of the ranking. This survey would most accurately be termed a _____ analysis.

A. figurati ve B. translation al C. fiction al D. conjoi nt 33. Fabmark Consultancy was asked by a client to evaluate the attractiveness of a potential project to develop a new product line. The data provided by the client included cash flow estimates (in dollars), ranking of marketability by the sales force, and ranking of different product attributes from a potential customer focus group. Which of the following methods would allow Fabmark Consultancy to combine this information and analyze it?

A. Qsort B. Data envelopment analysis C. Attribute ranking D. Breakeven analysis

34. Which of the following statements is true of conjoint analysis?

A. It is a simple method for ranking objects or ideas on a number of different dimensions.

B. It is used by managers to compare their desired balance of projects with their actual balance of projects.

C. It requires the creation of a hypothetical efficiency frontier.

D. It is most commonly used to assess the relative importance to customers of different product attributes.

35. An efficiency frontier is the range of _____ that optimize a combination of features of a potential project.

A. product features B. attribute arrangements C. hypothetical configurations D. conjoint dimensions

Essay Questions 36. Why do technology start-ups face a much higher cost of capital than larger competitors?

Discuss the sources from which new technology start-ups can obtain external financing.

37. What is the internal rate of return of a project? How is it calculated? What are the drawbacks of using this method?

38. Explain how the real options method uses stock options. Are there any drawbacks to this method?

39. Dayton Regional Medical Center has decided to build a new wing for its outpatient services. Dayton wants to know which services are important to its patients in this new wing. Do they prefer large waiting rooms for family members or small rooms adjacent to recovery rooms? Do they prefer patient advocates to keep them informed, or would nurses be better? What technique would be appropriate to come up with the weights and trade-offs for these types of services? Explain why you consider the technique to be most appropriate.

40. General Sys Inc. has gathered data to evaluate the attractiveness of a potential project.

It knows the cash flows expected under different scenarios. It has conducted a focus group that ranks various product attributes, and it has the ranking of various marketing techniques provided by a consulting company. What method should General Sys use to evaluate this project? Why is this method the best one to use?

Chapter 07 Choosing Innovation Projects Answer Key True / False Questions 1.

The allocation of a finite quantity of resources over different possible uses is known as

(p. 131) research rationing.

FALSE Difficulty: 1 Easy

2.

The ratio of R&D expenditures to sales is known as R&D trajectory.

(p. 131)

FALSE Difficulty: 1 Easy

3.

According to the net present value method of discounted cash flow analysis, the time

(p. 136) required to break even on a project using discounted cash flows is known as period of

return.

FALSE Difficulty: 1 Easy

4.

Both net present value and internal rate of return techniques provide concrete

(p. 137) financial estimates that facilitate strategic planning and trade-off decisions.

FALSE Difficulty: 1 Easy

5.

Standard discounted cash flow analysis has the potential to severely undervalue a

(p. 137) development project's contribution to a firm.

TRUE Difficulty: 1 Easy

6.

Calculating the internal rate of return of a project typically must be done by trial and

(p. 137) error.

TRUE Difficulty: 1 Easy

7.

From a real options perspective, the value of a call stock option is zero as long as the

(p. 138) price of the stock is more than the exercise price.

FALSE Difficulty: 1 Easy

8.

From a real options perspective, the exercise price associated with commercializing a

(p. 138) new technology would include the cost of manufacturing, marketing, and distributing

the technology.

TRUE

Difficulty: 1 Easy

9.

While the value of a stock is independent of the call holder's behavior, the value of a

(p. 140) R&D investment is not independent of the investor's behavior.

TRUE Difficulty: 1 Easy

10.

The investor is an active driver of the value of an investment.

(p. 140)

TRUE Difficulty: 1 Easy

11.

Breakthrough projects involve development of products that incorporate revolutionary

(p. 143) new product and process technologies.

TRUE Difficulty: 1 Easy

12.

Derivative projects offer fundamental improvements in the cost, quality, and

(p. 143- performance of a technology over preceding generations.

144)

FALSE Difficulty: 1 Easy

13.

The most common use of conjoint analysis is to assess the relative importance of

(p. 145) different product attributes to customers.

TRUE Difficulty: 1 Easy

14.

Data envelopment analysis (DEA) utilizes linear programming.

(p. 148)

TRUE Difficulty: 1 Easy

15.

The drawback to data envelopment analysis (DEA) is that it does not allow

(p. 148) comparisons of projects using multiple kinds of measures.

FALSE Difficulty: 1 Easy

Multiple Choice Questions 16.

_____ refers to the allocation of a finite quantity of resources over different possible

(p. 131) uses.

A. Systematic enrollment B. Translational funding C. Organizational appropriation D. Capital rationing Difficulty: 1 Easy

17.

Which of the following is true of quantitative methods of analyzing new projects,

(p. 133) particularly in rapidly changing environments?

A. They enable managers to use rigorous statistical comparisons of projects.

B. Their accuracy is unquestionable.

C. Discounted cash flow methods are the least commonly used quantitative methods.

D. They are particularly accurate in highly uncertain or rapidly changing environments.

Difficulty: 2 Medium

18.

The discounted cash inflows of a project minus the discounted cash outflows is

(p. 133) referred to as the _____.

A. internal rate of return B. net present value C. real option D. screening value Difficulty: 1 Easy

19.

What is the net present value (NPV) of a project if the present value of cash inflow is

(p. 135) $10,000 and the present value of cash outflows is $5,000?

A. $2,00 0 B. $5,00 0 C. $10,00 0 D. $15,00 0 Difficulty: 2 Medium

20.

If the net present value of a project is greater than zero, then the:

(p. 137)

A. project cannot be carried out as the cash outflow is too high.

B. present value of cash outflows is higher than present value of cash inflow.

C. project will require 5 years to break even.

D. project generates wealth.

Difficulty: 2 Medium

21.

Which of the following is true of the internal rate of return of a project?

(p. 137)

A. The discounted cash flow estimates are only as accurate as the original estimates of the profit.

B. It maximizes the net present value of the investment.

C. It neglects the timing of investment and cash flows.

D. It does not discriminate against projects that are long term or risky.

Difficulty: 2 Medium

22.

Which of the following is a disadvantage of using internal rate of return for assessing

(p. 137) a project?

A. It fails to take into account the time value of money and risk.

B. It cannot be calculated by trial and error.

C. It discriminates heavily against long-term and risky projects.

D. It fails to provide concrete financial estimates.

Difficulty: 2 Medium

23.

With respect to a research and development (R&D) program, which of the following

(p. 138) can be considered the exercise price?

A. The cost of the R&D program B. The cost of future investment required to capitalize on the R&D program C. The returns to the R&D investment D. The returns to the R&D investment minus the cost of the R&D program Difficulty: 1 Easy

24.

If a firm has the option of investing in R&D, the cost of commercializing a new

(p. 138) technology that is developed can be considered the:

A. exercise price.

B. price of a call option.

C. benefit of exercising the option.

D. the value of the option.

Difficulty: 2 Medium

25.

Which of the following is an advantage of using the real options approach of

(p. 138) evaluating a project?

A. It results in better technology investment decisions than a cash flow analysis approach.

B. It is useful as technology investment scenarios often conform to the same capital market assumptions upon which the approach is based.

C. It is cheap to use in case of a firm undertaking solo new product development.

D. It is valuable only when there is no uncertainty in technology trajectories.

Difficulty: 2 Medium

26.

In the context of qualitative methods for choosing projects, screening questions are

(p. 138) used mainly to:

A. increase the rate of employee attrition.

B. structure the discussion about project details like potential costs and benefits.

C. increase employee turnover rates.

D. choose the best consulting firm to analyze a potential project.

Difficulty: 2 Medium

27.

NewDigger Inc. makes backhoes for digging ditches and trenches. It has developed an

(p. 142- acid that, when poured on the ground, reduces the time and labor required to dig 143)

trenches of various depths, depending on how much is applied. The firm has recently started using this product commercially. This would most probably be considered a(n) _____ project for NewDigger.

A. derivati ve B. platfor m C. breakthrou gh D. additiv e Difficulty: 3 Hard

28.

TechToTeach Co. has developed and sold a product that can be used by students to

(p. 142- take faster notes in a classroom as the teacher speaks. The device automatically 143)

records the teacher's voice and converts it into a text format. This new technology has been widely accepted by various universities and has been appreciated by students, thus increasing the company's inflow. This technology can be most accurately described as a(n) _____ project by TechToTeach.

A. advanced R&D B. platfor m C. breakthrou gh D. derivati ve Difficulty: 3 Hard

29.

Coolers Inc. has developed a new generation of air conditioners. It has upgraded the

(p. 143- old technology by making the air conditioners work on voice sensors instead of 144)

remote control. Though the technology is new, Coolers has decided to introduce the product in the market at a low cost. This project is a(n) _____ project for Coolers Inc.

A. platfor m B. derivati ve C. breakthrou gh D. advanced R&D Difficulty: 3 Hard

30.

A firm that invests heavily in derivative projects that may be immediately

(p. 144) commercialized with little risk:

A. will have greater long-term strategic momentum.

B. will be on the leading edge of technology.

C. will likely be unable to compete when the market shifts to a newer technology.

D. will have poor returns on its R&D investment in the short run.

Difficulty: 2 Medium

31.

In the _____ method, in order to establish scales of customer preferences, individuals

(p. 145) in a group are each given a stack of cards with an object or idea on each card.

A. derivati ve B. conceptu al C. DE A D. Qsort Difficulty: 1 Easy

32.

In a survey, Sam was asked to rank, on a scale of 1 to 5, how important different cell

(p. 145) phone features were to him. The result was then used by the surveying firm to assess

the different attributes of the ranking. This survey would most accurately be termed a _____ analysis.

A. figurati ve B. translation al C. fiction al D. conjoi nt Difficulty: 2 Medium

33.

Fabmark Consultancy was asked by a client to evaluate the attractiveness of a

(p. 147- potential project to develop a new product line. The data provided by the client 148)

included cash flow estimates (in dollars), ranking of marketability by the sales force, and ranking of different product attributes from a potential customer focus group.

Which of the following methods would allow Fabmark Consultancy to combine this information and analyze it?

A. Qsort B. Data envelopment analysis C. Attribute ranking D. Breakeven analysis Difficulty: 3 Hard

34.

Which of the following statements is true of conjoint analysis?

(p. 145)

A. It is a simple method for ranking objects or ideas on a number of different dimensions.

B. It is used by managers to compare their desired balance of projects with their actual balance of projects.

C. It requires the creation of a hypothetical efficiency frontier.

D. It is most commonly used to assess the relative importance to customers of different product attributes.

Difficulty: 2 Medium

35.

An efficiency frontier is the range of _____ that optimize a combination of features of a

(p. 148) potential project.

A. product features B. attribute arrangements C. hypothetical configurations D. conjoint dimensions Difficulty: 1 Easy

Essay Questions

36.

Why do technology start-ups face a much higher cost of capital than larger

(p. 134) competitors? Discuss the sources from which new technology start-ups can obtain

external financing.

While large firms can fund innovation projects internally, new technology start-ups must often obtain external financing. This can sometimes be daunting. Because technology start-ups often have both an unproven technology and an unproven business concept (and sometimes an unproven management team), they typically face a much higher cost of capital than larger competitors, and their options for obtaining capital can be very limited.

In the first few stages of start-up and growth, entrepreneurs may have to turn to friends, family, and personal debt. Start-ups might also be able to obtain some initial funding through government agencies. If the idea and the management team seem promising enough, the entrepreneur can tap "angel investors" and venture capitalists as sources of both funds and mentoring. Angel investors are private investors who fund projects without utilizing a venture capital limited partnership structure. For projects that require more than $1 million, entrepreneurs often turn to venture capital, either from independent venture capital firms or corporate venture capital sources. The support of a venture capitalist provides a number of valuable benefits including credibility among other investors (and thus better access to capital) and mentoring.

Difficulty: 2 Medium

37.

What is the internal rate of return of a project? How is it calculated? What are the

(p. 137) drawbacks of using this method?

The internal rate of return (IRR) of a project is the discount rate that makes the net present value of the investment zero. Managers can compare this rate of return to their required return to decide if the investment should be made. Calculating the IRR of a project typically must be done by trial and error, substituting progressively higher interest rates into the net present value (NPV) equation until the NPV is driven down to zero. Calculators and computers can perform this trial and error. This measure should be used cautiously, however; if cash flows arrive in varying amounts per period, there can be multiple rates of return, and typical calculators or computer programs will often simply report the first IRR that is found.

Difficulty: 2 Medium

38.

Explain how the real options method uses stock options. Are there any drawbacks to

(p. 138) this method?

To understand real options, it is first useful to consider the financial model upon which they are based—stock options. In "real options," the assets underlying the value of the option are nonfinancial resources. An investor who makes an initial investment in basic R&D or in breakthrough technologies is, it is argued, buying a real call option to implement that technology later should it prove to be valuable. With respect to research and development: 1. The cost of the R&D program can be considered the price of a call option.

2. The cost of future investment required to capitalize on the R&D program (such as the cost of commercializing a new technology that is developed) can be considered the exercise price.

3. The returns to the R&D investment are analogous to the value of a stock purchased with a call option.

One drawback is the fact that technology investment scenarios often do not conform to the same capital market assumptions upon which the approach is based.

Furthermore, while the value of a stock is independent of the call holder's behavior (that is, the call holder can simply wait and observe whether the value of the stock rises or falls), the value of a R&D investment is not independent of the investor's behavior.

Difficulty: 2 Medium

39.

Dayton Regional Medical Center has decided to build a new wing for its outpatient

(p. 145) services. Dayton wants to know which services are important to its patients in this

new wing. Do they prefer large waiting rooms for family members or small rooms adjacent to recovery rooms? Do they prefer patient advocates to keep them informed, or would nurses be better? What technique would be appropriate to come up with the weights and trade-offs for these types of services? Explain why you consider the technique to be most appropriate.

A conjoint analysis technique would be the best choice for this analysis. Conjoint analysis can estimate the specific value of features of the outpatient center. As a part of the analysis, pricing for these services can also be determined. Multiple regression can be used to assess the degree to which each service influences the overall rating, resulting in the assignment of specific weights to individual criteria for different configurations of the outpatient center. Although the Medical Center cannot please everyone, it can come up with the "best" configuration for its patient base.

Difficulty: 2 Medium

40.

General Sys Inc. has gathered data to evaluate the attractiveness of a potential

(p. 147) project. It knows the cash flows expected under different scenarios. It has conducted

a focus group that ranks various product attributes, and it has the ranking of various marketing techniques provided by a consulting company. What method should General Sys use to evaluate this project? Why is this method the best one to use?

General Sys should use data envelopment analysis (DEA) to conduct its evaluation.

This method allows analysis of multiple criteria that have different kinds of measurement units. In this case, measurement units include dollars (cash flows) and rankings (focus group and consulting company). DEA uses linear programming to combine these different measures to create a hypothetical efficiency frontier that represents the best performance on each measure. These values can then be used to compare this project with other projects.

Difficulty: 2 Medium

Chapter 08 Collaboration Strategies True / False Questions 1. Some firms avoid collaboration for fear of giving up their proprietary technologies.

True

False

2. It is unusual for a company to lack certain complementary assets required to transform a body of technological knowledge into a commercial product.

True

False

3. Obtaining some of the necessary capabilities or resources from a partner rather than building them in-house will increase a firm's asset commitment.

True

False

4. Product life cycles shorten with high-speed technological changes.

True

False

5. A firm cannot collaborate with its competitor.

True

False

6. Firms can use strategic alliances to exploit their own capabilities by leveraging them in another firm's development efforts.

True

False

7. A joint venture between two companies often results in a new separate company.

True

False

8. Licensing a technology from another firm is typically more expensive for a licensee than developing a new technology in-house.

True

False

9. Collective research organizations can take the form of trade associations.

True

False

10. Solo internal development is, on average, a relatively fast and inexpensive way of developing a technology.

True

False

11. Joint ventures are less appropriate than strategic alliances when a firm places great importance on access to other firms' competencies.

True

False

12. After licensing a technology, a firm typically has limited discretion over what it can do with the technology.

True

False

13. A firm's effectiveness at managing its collaborations will increase with the number of collaborations to which it is committed.

True

False

14. The pooling of supplementary resources can enable partners to achieve market power.

True

False

15. Some collaboration agreements include provisions for periodic auditing either by the partner organizations or by a third party.

True

False

Multiple Choice Questions 16. When technology is progressing rapidly, firms are more likely to:

A. commit themselves to fixed assets that will rapidly become obsolete.

B. avoid forming alliances for projects that are risky and complex.

C. use linkages with other specialized firms to access resources they do not possess.

D. avoid becoming more narrowly specialized.

17. Greyer Corp. has developed a special drug that kills cancer cells. While the scientists at Greyer have the knowledge, they are short on equipment, money, and marketing knowhow. In this situation, the most appropriate step for Greyer would be to:

A. give up the idea of selling the drugs altogether.

B. find a partner to collaborate with to sell the drug.

C. forge forward and develop the drug on its own.

D. come up with a completely new drug.

18. Which of the following is an advantage of collaborating?

A. It increases the in-house development time for projects.

B. It increases a product's cycle time.

C. It gives firms more flexibility.

D. It causes firms to commit to assets that will rapidly become obsolete.

19. Which of the following is an advantage of collaborating at the development stage of a technology?

A. It increases asset commitment to obsolete products.

B. It ensures cooperation in the commercialization stage.

C. It increases a product's cycle time.

D. It facilitates the emergence of multiple competing standards for a product.

20. Which of the following is a feature of joint venture that differentiates it from other forms of alliances?

A. It usually does not result in the creation of a new business entity.

B. It increases asset commitment to products that will become rapidly obsolete.

C. It increases cycle time of a technology.

D. It involves a significant equity stake by the partners.

21. Allured Architecture Inc. collaborated with Maze & Matiz Corp. to form a new architecture firm called AllureAmaze Inc. Both the firms had a significant equity stake in the new entity. This collaboration would most accurately be termed a(n) _____.

A. licensing project B. joint venture C. outsourcing maneuver D. contract alliance 22. Gerden Price Corp. and New Ware Systems Inc. formed an alliance to develop a new line of technologically advanced cooking stoves. Which of the following would be the most likely outcome of this alliance?

A. Faster product delivery to the market B. Increased market development and penetration times C. Lesser opportunities to pursue other projects D. Reduced overall flexibility 23. Combining the capabilities and other resources of partner firms but not necessarily transferring those resources between the partners is referred to as _____.

A. capability transfer B. capability complementation C. resource modification D. disintermediati on

24. Easymake Corp. developed a new Web design software to build Web pages for its clients.

However, Easymake soon realized it could make more money by selling this software to those who wish to quickly build Web pages to sell their products. Which of the following would be the most appropriate strategy for Easymake?

A. It should not sell the Web design software as it will give rise to competition on the Internet.

B. It should become a licensor of the new Web design software.

C. It should become a licensee of the new Web design software.

D. It should make the Web design software available to users as open source software.

25. Greyer Corp. manufactures surgical instruments. Systems Medico Inc. enters into a contractual arrangement with Greyer that allows it to use Greyer manufacturing methods and management structure to produce and sell surgical instruments. Systems Medico must pay a yearly fee to Greyer for the use of its manufacturing processes. In this scenario, Systems Medico is the _____.

A. licens or B. contract manufacturer C. license e D. intraprene ur 26. Allured Cosmetics Corp. enters into a contractual agreement with Pure Cosmetics Inc., a manufacturing firm in the West Coast. According to the contract, Pure Cosmetics can use the manufacturing processes of Allured Cosmetics to produce cosmetics in return for a specific fee. Pure Cosmetics is bound to use the manufacturing process only to make complementary products for the cosmetics manufactured by Allured Cosmetics. This collaborative arrangement is most accurately classified as _____.

A. licensin g B. outsourci ng C. a joint venture D. capability complementation

27. Which of the following statements is true of contract manufacturing?

A. It requires companies to increase its labor force to meet the scale of market demand.

B. It requires firms to meet the scale of market demand by committing to long-term capital investments.

C. It enables a firm to tap the greater economies of scale.

D. It decreases organizational responsiveness to the environment.

28. Alumplus Aluminum Company has come up with a new type of metal. However, producing it would take up 75 percent of its manufacturing capacity and would hinder its ability to continue producing its other products. Alumplus Aluminum hires LM Group of Manufacturers to manufacture the new type of metal. This collaborative arrangement is most likely to be classified as _____.

A. outsourci ng B. disintermediati on C. capability complementation D. solo internal development 29. Which of the following statements is true of outsourcing?

A. It involves significantly low amounts of transaction costs.

B. It is the most viable option for companies seeking to avoid becoming hollow.

C. It is the best way for a company to develop in-house manufacturing capabilities.

D. It carries a risk of proprietary technology being expropriated by the contract manufacturer.

30. Which of the following collaborative arrangements is the most appropriate when firms place great importance on access to other firms' competencies?

A. Licensing in B. Joint venture C. Licensing out D. Sole internal development

31. _____ offers a fast way for a firm to extend the reach of its technology that is nearly free and offers the potential for royalties.

A. Licensing out a technology B. Forming a joint venture C. Solo internal development D. Vertical integration 32. Which of the following statements is true of a collective research organization?

A. It does not help firms to leverage their competencies.

B. It is a short-term commitment.

C. It is an effort to rapidly access capabilities or technology.

D. It allows a firm to share the cost and risk of basic research.

33. _____ refers to the degree to which partners have compatible objectives and styles.

A. Resource fit B. Strategic fit C. Capability complementation D. Contractual fit 34. When each partner of an alliance contributes capital and owns a specified right to a percentage of the proceeds from the alliance, the collaborative relationship is referred to as _____.

A. equity ownership B. relational governance C. alliance contracts D. solo internal development

35. Self-enforcing norms based on goodwill, trust, and reputation of the partners is known as _____.

A. capability complement B. alliance contract C. equity ownership D. relational governance

Essay Questions 36. What are the advantages and disadvantages of collaborating for research and product development?

37. Greyer Corp. has developed a method of killing cancer cells with light in a process called Photodynamic Therapy (PDT). While their scientists have the medical knowledge, they are short on equipment, money, and marketing know-how. As a consultant, what would you advise Greyer to do?

38. Why do licensing agreements impose restrictions on the licensee? How does licensing enable a firm to opt for a steady stream of royalties rather than risk losing the dominant position of its technology?

39. What are the characteristics of collective research organizations?

40. How can firms evaluate potential partners?

Chapter 08 Collaboration Strategies Answer Key True / False Questions 1.

Some firms avoid collaboration for fear of giving up their proprietary technologies.

(p. 161)

TRUE Difficulty: 1 Easy

2.

It is unusual for a company to lack certain complementary assets required to

(p. 163) transform a body of technological knowledge into a commercial product.

FALSE Difficulty: 1 Easy

3.

Obtaining some of the necessary capabilities or resources from a partner rather than

(p. 163) building them in-house will increase a firm's asset commitment.

FALSE Difficulty: 1 Easy

4.

Product life cycles shorten with high-speed technological changes.

(p. 163)

TRUE Difficulty: 1 Easy

5.

A firm cannot collaborate with its competitor.

(p. 164)

FALSE Difficulty: 1 Easy

6.

Firms can use strategic alliances to exploit their own capabilities by leveraging them

(p. 165) in another firm's development efforts.

TRUE Difficulty: 1 Easy

7.

A joint venture between two companies often results in a new separate company.

(p. 171)

TRUE Difficulty: 1 Easy

8.

Licensing a technology from another firm is typically more expensive for a licensee

(p. 171) than developing a new technology in-house.

FALSE Difficulty: 1 Easy

9.

Collective research organizations can take the form of trade associations.

(p. 170)

TRUE Difficulty: 1 Easy

10.

Solo internal development is, on average, a relatively fast and inexpensive way of

(p. 170) developing a technology.

FALSE Difficulty: 1 Easy

11.

Joint ventures are less appropriate than strategic alliances when a firm places great

(p. 171) importance on access to other firms' competencies.

FALSE Difficulty: 1 Easy

12.

After licensing a technology, a firm typically has limited discretion over what it can do

(p. 171) with the technology.

TRUE Difficulty: 1 Easy

13.

A firm's effectiveness at managing its collaborations will increase with the number of

(p. 173) collaborations to which it is committed.

FALSE Difficulty: 1 Easy

14.

The pooling of supplementary resources can enable partners to achieve market

(p. 173) power.

TRUE Difficulty: 1 Easy

15.

Some collaboration agreements include provisions for periodic auditing either by the

(p. 177) partner organizations or by a third party.

TRUE Difficulty: 1 Easy

Multiple Choice Questions 16.

When technology is progressing rapidly, firms are more likely to:

(p. 163)

A. commit themselves to fixed assets that will rapidly become obsolete.

B. avoid forming alliances for projects that are risky and complex.

C. use linkages with other specialized firms to access resources they do not possess.

D. avoid becoming more narrowly specialized.

Difficulty: 2 Medium

17.

Greyer Corp. has developed a special drug that kills cancer cells. While the scientists

(p. 163) at Greyer have the knowledge, they are short on equipment, money, and marketing

know-how. In this situation, the most appropriate step for Greyer would be to:

A. give up the idea of selling the drugs altogether.

B. find a partner to collaborate with to sell the drug.

C. forge forward and develop the drug on its own.

D. come up with a completely new drug.

Difficulty: 2 Medium

18.

Which of the following is an advantage of collaborating?

(p. 163)

A. It increases the in-house development time for projects.

B. It increases a product's cycle time.

C. It gives firms more flexibility.

D. It causes firms to commit to assets that will rapidly become obsolete.

Difficulty: 2 Medium

19.

Which of the following is an advantage of collaborating at the development stage of a

(p. 163) technology?

A. It increases asset commitment to obsolete products.

B. It ensures cooperation in the commercialization stage.

C. It increases a product's cycle time.

D. It facilitates the emergence of multiple competing standards for a product.

Difficulty: 2 Medium

20.

Which of the following is a feature of joint venture that differentiates it from other

(p. 164) forms of alliances?

A. It usually does not result in the creation of a new business entity.

B. It increases asset commitment to products that will become rapidly obsolete.

C. It increases cycle time of a technology.

D. It involves a significant equity stake by the partners.

Difficulty: 2 Medium

21.

Allured Architecture Inc. collaborated with Maze & Matiz Corp. to form a new

(p. 164) architecture firm called AllureAmaze Inc. Both the firms had a significant equity stake

in the new entity. This collaboration would most accurately be termed a(n) _____.

A. licensing project B. joint venture C. outsourcing maneuver D. contract alliance Difficulty: 2 Medium

22.

Gerden Price Corp. and New Ware Systems Inc. formed an alliance to develop a new

(p. 165) line of technologically advanced cooking stoves. Which of the following would be the

most likely outcome of this alliance?

A. Faster product delivery to the market B. Increased market development and penetration times C. Lesser opportunities to pursue other projects D. Reduced overall flexibility Difficulty: 2 Medium

23.

Combining the capabilities and other resources of partner firms but not necessarily

(p. 165) transferring those resources between the partners is referred to as _____.

A. capability transfer B. capability complementation C. resource modification D. disintermediati on Difficulty: 1 Easy

24.

Easymake Corp. developed a new Web design software to build Web pages for its

(p. 166) clients. However, Easymake soon realized it could make more money by selling this

software to those who wish to quickly build Web pages to sell their products. Which of the following would be the most appropriate strategy for Easymake?

A. It should not sell the Web design software as it will give rise to competition on the Internet.

B. It should become a licensor of the new Web design software.

C. It should become a licensee of the new Web design software.

D. It should make the Web design software available to users as open source software.

Difficulty: 3 Hard

25.

Greyer Corp. manufactures surgical instruments. Systems Medico Inc. enters into a

(p. 167) contractual arrangement with Greyer that allows it to use Greyer manufacturing

methods and management structure to produce and sell surgical instruments.

Systems Medico must pay a yearly fee to Greyer for the use of its manufacturing processes. In this scenario, Systems Medico is the _____.

A. licens or B. contract manufacturer C. license e D. intraprene ur Difficulty: 3 Hard

26.

Allured Cosmetics Corp. enters into a contractual agreement with Pure Cosmetics Inc.,

(p. 167- a manufacturing firm in the West Coast. According to the contract, Pure Cosmetics 168)

can use the manufacturing processes of Allured Cosmetics to produce cosmetics in return for a specific fee. Pure Cosmetics is bound to use the manufacturing process only to make complementary products for the cosmetics manufactured by Allured Cosmetics. This collaborative arrangement is most accurately classified as _____.

A. licensin g B. outsourci ng C. a joint venture D. capability complementation Difficulty: 3 Hard

27.

Which of the following statements is true of contract manufacturing?

(p. 169)

A. It requires companies to increase its labor force to meet the scale of market demand.

B. It requires firms to meet the scale of market demand by committing to long-term capital investments.

C. It enables a firm to tap the greater economies of scale.

D. It decreases organizational responsiveness to the environment.

Difficulty: 2 Medium

28.

Alumplus Aluminum Company has come up with a new type of metal. However,

(p. 169- producing it would take up 75 percent of its manufacturing capacity and would hinder 170)

its ability to continue producing its other products. Alumplus Aluminum hires LM Group of Manufacturers to manufacture the new type of metal. This collaborative arrangement is most likely to be classified as _____.

A. outsourci ng B. disintermediati on C. capability complementation D. solo internal development Difficulty: 3 Hard

29.

Which of the following statements is true of outsourcing?

(p. 169)

A. It involves significantly low amounts of transaction costs.

B. It is the most viable option for companies seeking to avoid becoming hollow.

C. It is the best way for a company to develop in-house manufacturing capabilities.

D. It carries a risk of proprietary technology being expropriated by the contract manufacturer.

Difficulty: 2 Medium

30.

Which of the following collaborative arrangements is the most appropriate when firms

(p. 171) place great importance on access to other firms' competencies?

A. Licensing in B. Joint venture C. Licensing out D. Sole internal development Difficulty: 2 Medium

31.

_____ offers a fast way for a firm to extend the reach of its technology that is nearly

(p. 172) free and offers the potential for royalties.

A. Licensing out a technology B. Forming a joint venture C. Solo internal development D. Vertical integration Difficulty: 1 Easy

32.

Which of the following statements is true of a collective research organization?

(p. 172)

A. It does not help firms to leverage their competencies.

B. It is a short-term commitment.

C. It is an effort to rapidly access capabilities or technology.

D. It allows a firm to share the cost and risk of basic research.

Difficulty: 2 Medium

33.

_____ refers to the degree to which partners have compatible objectives and styles.

(p. 173)

A. Resource fit B. Strategic fit C. Capability complementation D. Contractual fit Difficulty: 1 Easy

34.

When each partner of an alliance contributes capital and owns a specified right to a

(p. 177) percentage of the proceeds from the alliance, the collaborative relationship is referred

to as _____.

A. equity ownership B. relational governance C. alliance contracts D. solo internal development Difficulty: 1 Easy

35.

Self-enforcing norms based on goodwill, trust, and reputation of the partners is known

(p. 177) as _____.

A. capability complement B. alliance contract C. equity ownership D. relational governance Difficulty: 1 Easy

Essay Questions

36.

What are the advantages and disadvantages of collaborating for research and product

(p. 163- development?

164)

Collaborating on development projects can offer a firm a number of advantages. First, collaborating can enable a firm to obtain necessary skills or resources more quickly than developing them in-house. Second, obtaining some of the necessary capabilities or resources from a partner rather than building them in-house can help a firm reduce its asset commitment and enhance its flexibility. Third, collaboration with partners can be an important source of learning for the firm. Fourth, one primary reason firms collaborate on a development project is to share the costs and risks of the project.

This can be particularly important when a project is very expensive or its outcome highly uncertain. Finally, firms may also collaborate on a development project when such collaboration would facilitate the creation of a shared standard.

Collaboration also has some disadvantages. It requires a firm to share profits and knowledge on proprietary technologies. By relying on a partner the company does not develop in-house capabilities for the future. Collaboration also means giving up some control over how the technology is developed and used.

Difficulty: 2 Medium

37.

Greyer Corp. has developed a method of killing cancer cells with light in a process

(p. 164- called Photodynamic Therapy (PDT). While their scientists have the medical 165)

knowledge, they are short on equipment, money, and marketing know-how. As a consultant, what would you advise Greyer to do?

Greyer can sell the process to a major drug company, enter into an alliance or joint venture with a major company, or just find financing and hire the experts it needs. It can also sell or license the product to a major company. Greyer can form a joint venture that will enable the company to develop the needed competencies while working with a partner. Students' answers will vary.

Difficulty: 2 Medium

38.

Why do licensing agreements impose restrictions on the licensee? How does licensing

(p. 168) enable a firm to opt for a steady stream of royalties rather than risk losing the

dominant position of its technology?

Licensing agreements typically impose many restrictions on the licensee, enabling the licensor to retain control over how the technology is used. However, over time, licensees may gain valuable knowledge from working with the licensed technology that can enable them to later develop their own proprietary technologies. In the long run, the licensor's control over the technology may erode. Sometimes firms license their technologies to preempt their competitors from developing their own competing technologies. By licensing out the technology to potential competitors, the licensor gives up the ability to earn monopoly rents on the technology. However, doing so may prevent potential competitors from developing their own proprietary technologies.

Thus, licensing enables a firm to opt for a steady stream of royalties rather than gambling on the big gain—or big loss—of having its technology compete against others for market dominance.

Difficulty: 2 Medium

39.

What are the characteristics of collective research organizations?

(p. 172)

Participation in a collective research organization is typically a long-term commitment rather than an effort to rapidly access capabilities or technology. Collective research organizations can be very valuable ways for a firm to leverage and build upon its existing competencies, as well as to learn from other participating organizations.

Though collective research organizations may not yield immediate returns in the form of new products or services, participating in collective research organizations can be extremely useful in industries that have complex technologies and require considerable investment in basic science. By pooling their knowledge and effort, firms in collective research organizations can share the cost and risk of basic research, while accelerating the rate at which it yields useful new solutions.

Difficulty: 2 Medium

40.

How can firms evaluate potential partners?

(p. 173)

The success of collaborations will depend in large part on the partners chosen. A number of factors can influence how well suited partners are to each other, including their relative size and strength, the complementarity of their resources, the alignment of their objectives, and the similarity of their values and culture. These factors can be boiled down to two dimensions: resource fit and strategic fit. Resource fit refers to the degree to which potential partners have resources that can be effectively integrated into strategy that creates value. Strategic fit refers to the degree to which partners have compatible objectives and styles. Firms can also evaluate potential partners using many of the same tools used to evaluate the firm's own position and strategic direction. This includes assessing how collaboration with the partner is likely to impact the firm's opportunities and threats in its external environment; its internal strengths, weaknesses, or potential for sustainable competitive advantage; and the firm's ability to achieve its strategic intent.

Difficulty: 2 Medium

Chapter 09 Protecting Innovation True / False Questions 1. If the knowledge underlying a particular technology is tacit, competitors will typically find it very easy to duplicate.

True

False

2. Discovery of scientific principles that pertain to natural laws can be patented.

True

False

3. Patent laws do not vary from country to country.

True

False

4. A service mark distinguishes the provider of a service rather than a product.

True

False

5. Trademarks must be registered before a suit can be brought in federal court against an infringement of the mark.

True

False

6. If you live in a country that is a member of the Madrid Union and you register a trademark in your country, that trademark is protected throughout the world.

True

False

7. Titles and names can be copyrighted.

True

False

8. A common set of international copyright laws automatically protects an author's work throughout the world.

True

False

9. In the United States, there are no laws to protect trade secrets.

True

False

10. Wholly open systems are usually quickly commoditized and provide little appropriability of rents to their developers.

True

False

11. If multiple firms benefit from a technology's success, the developer of that technology has a much greater incentive to invest in further developing the technology.

True

False

12. When multiple firms can produce a technology, losing money on the technology in the short term to promote it as a standard is highly risky.

True

False

13. External development efforts typically lack the coordination of internal development.

True

False

14. For technologies in which standardization and compatibility are important, maintaining the integrity of the core product is absolutely essential.

True

False

15. Technology trajectories are path dependent.

True

False

Multiple Choice Questions 16. The scientists at Brainstorm Inc., a private medical research firm, have come up with a remarkable method for curing cancer. This cancer treatment technology is well protected and cannot be easily duplicated. Based on this information, it would be most accurate to say that this technology:

A. cannot be patented.

B. is easily imitable.

C. is not socially complex.

D. has a high degree of appropriability.

17. Tacit knowledge is best defined as the knowledge that:

A. cannot be readily codified or transferred in written form.

B. cannot be patented.

C. has a very low degree of appropriability.

D. is not eligible for copyright protection.

18. After much research, Angela has designed a new automobile tire with a unique polycarbonate exterior that cannot be punctured. In the context of U.S. patent law, which of the following statements would be true for this invention?

A. It can be patented as it is useful, novel, and not obvious.

B. It can only receive a plant patent.

C. It cannot be patented because tires are intangible products.

D. It cannot be patented as it is only eligible for a copyright protection.

19. Felix has designed a pair of sunglasses that can be folded and put into a case that easily fits into a shirt or pant pocket. Felix wants to know if he can receive a patent on this invention. Which of the following responses would be most accurate according to U.S. patent law?

A. He cannot receive a patent as the invention is only eligible for a copyright protection.

B. He cannot receive a patent since he is merely making the sunglasses more portable.

C. He cannot receive a patent as the invention is not useful.

D. He can receive a patent as the invention is a tangible product.

20. Under U.S. patent law, which of the following is one of the mandatory requirements to be met by a new invention in order to be eligible for patent protection?

A. It must be obvious.

B. It must be novel.

C. It must substitute one material for another.

D. It must substitute an element for an equivalent element.

21. Which of the following statements is true of a patent?

A. The laws governing patent protection are universal and do not differ from country to country.

B. A patent granted in one country provides protection in all other countries as well.

C. In the United States, an inventor can publish an invention up to a year before applying for the patent.

D. Discovery of scientific principles that pertain to natural laws can be patented.

22. In the United States, utility patent owners are granted a term of _____ years of protection.

A. 3 5 B. 2 0 C. 9 0 D. 5 0 23. To ensure that companies do not receive patents in countries where they do not intend to set up production of the invention, some countries have a "working requirement," according to which:

A. if the product is not profitable, it will not be granted a patent.

B. patents in a country will only be granted to people who have been working in the country for at least one year.

C. the invention must be manufactured in the country where the patent was granted within a specified period of time.

D. the workers who manufacture the product must be from the country where the patent was granted.

24. Angelo has designed a license plate holder for automobiles that makes theft of the license plate practically impossible. He has filed an application for a patent through the Patent Cooperation Treaty (PCT) office, and it has been approved. How long is this application going to protect his right to file for patent protection in the member countries of the PCT?

A. 3 days B. 6 months C. 1 year D. 2 ½ years 25. Joe's Burgers Corp. is a famous fast-food chain that uses a picture of a cook in a red hat as its symbol. It would not be legal for you to sell hamburgers with the same identification picture as that of Joe's Burgers because that would be a(n):

A. patent violation.

B. trademark violation.

C. embargo violation.

D. trade secret violation.

26. David and Sons Corp., a firm that manufactures home appliances, uses a symbol resembling a lightning strike to distinguish its products from other similar products in the market. This symbol is an example of a(n):

A. paten t.

B. embarg o.

C. statut e.

D. trademar k.

27. The difference between copyrights and trademark protection is that:

A. trademark is an indicator used to distinguish the source of a good.

B. trademarks are a form of protection granted to works of authorship.

C. copyrights are established by the legitimate use of a product.

D. copyrights can last as long as the copyright is in use.

28. Sandy lives in a country that is a member of the Madrid Union. She has registered her trademark within her country. Her trademark is now protected:

A. throughout the world.

B. only in the countries that Sandy chooses among the members of the Madrid Union.

C. only in her own country.

D. only in the countries where products with the trademark are manufactured.

29. Stevenson, a U.S. citizen, wrote a book called The Ten Commandments of Leadership. He gave away copies of the book to the people who attended his workshops on leadership.

The copyright protection for this book:

A. is nonexistent unless Stevenson registers it with the Copyright Office.

B. is in effect from the time the book was created and fixed in a copy.

C. will be valid for only 20 years since the publication of the book.

D. will be valid till Stevenson dies.

30. Which of the following can be protected by a copyright?

A. Familiar symbols B. Names of people C. An improvisational speech that has not been recorded D. A novel

31. _____ specifies a minimum level of copyright protection for all member countries, and it requires member countries to offer the same protection to both its own citizens and foreign nationals.

A. The Berne Convention B. Treaty of Easton C. The Patent Cooperation Treaty D. The Madrid Agreement 32. Sally has come up with a unique recipe for cookies and is selling them through exclusive outlets all across Atlanta. As the sales skyrocket, her friends tell her to patent the recipe.

However, she is so protective of her recipe that she does not even want to reveal her secret ingredients to a government agency. Is there anything she can do to keep the recipe legally protected?

A. No, she cannot protect her recipe unless she is willing to get her recipe patented.

B. Yes, her recipe can be considered a trade secret and she can legally prevent others from benefiting from her recipe without her permission.

C. Yes, she can declare her recipe to be a trade secret and register it with the U.S. Trade Secret Agency.

D. No, the recipe is not a tangible product and therefore cannot be protected.

33. Software whose code is made freely available to others for use, augmentation, and resale is referred to as:

A. wholly proprietary systems.

B. patented software.

C. open source software.

D. copyright protected systems.

34. LiteShoes Inc. has recently obtained architectural control for its shoe glider technology.

By doing so, the company has:

A. improved its efficiency in controlling the rate at which the technology is upgraded or refined.

B. limited its ability to measure the product's compatibility with the complements produced by others.

C. limited its potential to influence other firms in the industry.

D. eliminated the possibilities of "feature creep."

35. Singing Cards Corp. has decided to make the technology behind its musical cards open.

Which of the following is most likely to be one of the advantages associated with this decision?

A. The technology will accrue more rapid adoptions.

B. The price of the technology will rise exponentially.

C. The production of complementary goods will cease.

D. The technology's installed base will accumulate much more slowly.

Essay Questions 36. Jonathan has recently developed a new kind of camera. He has a working prototype and plans to patent his invention. He needs to raise money for production, so he wants articles about his camera to appear in various publications. Discuss the problems that Jonathan might have to face if he wants to seek patents in other countries in the future.

37. Albert has designed a license plate holder for automobiles that makes theft of the license plate practically impossible. He has limited income and feels that he needs to protect his patent in numerous countries so that he can sell his product there in the future. Discuss how Albert can accomplish this.

38. What is a trademark? How can the rights to a trademark or service mark be established?

39. What is a copyright? Discuss the provisions of the section 106 of the 1976 Copyright Act.

40. George has come up with a new computer program to help sellers manage online auctions at sites such as eBay. It is more efficient than just using a spreadsheet to track auctions. He would like his program to become the dominant design, but he also wants to earn a profit from all his hard work. What can George do to most effectively meet both these objectives?

Chapter 09 Protecting Innovation Answer Key True / False Questions 1.

If the knowledge underlying a particular technology is tacit, competitors will typically

(p. 188) find it very easy to duplicate.

FALSE Difficulty: 1 Easy

2.

Discovery of scientific principles that pertain to natural laws can be patented.

(p. 189)

FALSE Difficulty: 1 Easy

3.

Patent laws do not vary from country to country.

(p. 191)

FALSE Difficulty: 1 Easy

4.

A service mark distinguishes the provider of a service rather than a product.

(p. 194)

TRUE Difficulty: 1 Easy

5.

Trademarks must be registered before a suit can be brought in federal court against

(p. 194) an infringement of the mark.

TRUE Difficulty: 1 Easy

6.

If you live in a country that is a member of the Madrid Union and you register a

(p. 195) trademark in your country, that trademark is protected throughout the world.

FALSE Difficulty: 1 Easy

7.

Titles and names can be copyrighted.

(p. 195)

FALSE Difficulty: 1 Easy

8.

A common set of international copyright laws automatically protects an author's work

(p. 196) throughout the world.

FALSE Difficulty: 1 Easy

9.

In the United States, there are no laws to protect trade secrets.

(p. 196)

FALSE Difficulty: 1 Easy

10.

Wholly open systems are usually quickly commoditized and provide little

(p. 198) appropriability of rents to their developers.

TRUE Difficulty: 1 Easy

11.

If multiple firms benefit from a technology's success, the developer of that technology

(p. 200- has a much greater incentive to invest in further developing the technology.

201)

FALSE Difficulty: 1 Easy

12.

When multiple firms can produce a technology, losing money on the technology in the

(p. 201) short term to promote it as a standard is highly risky.

TRUE Difficulty: 1 Easy

13.

External development efforts typically lack the coordination of internal development.

(p. 202)

TRUE Difficulty: 1 Easy

14.

For technologies in which standardization and compatibility are important,

(p. 204) maintaining the integrity of the core product is absolutely essential.

TRUE Difficulty: 1 Easy

15.

Technology trajectories are path dependent.

(p. 204)

TRUE Difficulty: 1 Easy

Multiple Choice Questions

16.

The scientists at Brainstorm Inc., a private medical research firm, have come up with

(p. 188) a remarkable method for curing cancer. This cancer treatment technology is well

protected and cannot be easily duplicated. Based on this information, it would be most accurate to say that this technology:

A. cannot be patented.

B. is easily imitable.

C. is not socially complex.

D. has a high degree of appropriability.

Difficulty: 2 Medium

17.

Tacit knowledge is best defined as the knowledge that:

(p. 188)

A. cannot be readily codified or transferred in written form.

B. cannot be patented.

C. has a very low degree of appropriability.

D. is not eligible for copyright protection.

Difficulty: 2 Medium

18.

After much research, Angela has designed a new automobile tire with a unique

(p. 189) polycarbonate exterior that cannot be punctured. In the context of U.S. patent law,

which of the following statements would be true for this invention?

A. It can be patented as it is useful, novel, and not obvious.

B. It can only receive a plant patent.

C. It cannot be patented because tires are intangible products.

D. It cannot be patented as it is only eligible for a copyright protection.

Difficulty: 3 Hard

19.

Felix has designed a pair of sunglasses that can be folded and put into a case that

(p. 189) easily fits into a shirt or pant pocket. Felix wants to know if he can receive a patent on

this invention. Which of the following responses would be most accurate according to U.S. patent law?

A. He cannot receive a patent as the invention is only eligible for a copyright protection.

B. He cannot receive a patent since he is merely making the sunglasses more portable.

C. He cannot receive a patent as the invention is not useful.

D. He can receive a patent as the invention is a tangible product.

Difficulty: 3 Hard

20.

Under U.S. patent law, which of the following is one of the mandatory requirements to

(p. 189) be met by a new invention in order to be eligible for patent protection?

A. It must be obvious.

B. It must be novel.

C. It must substitute one material for another.

D. It must substitute an element for an equivalent element.

Difficulty: 1 Easy

21.

Which of the following statements is true of a patent?

(p. 191)

A. The laws governing patent protection are universal and do not differ from country to country.

B. A patent granted in one country provides protection in all other countries as well.

C. In the United States, an inventor can publish an invention up to a year before applying for the patent.

D. Discovery of scientific principles that pertain to natural laws can be patented.

Difficulty: 2 Medium

22.

In the United States, utility patent owners are granted a term of _____ years of

(p. 191) protection.

A. 3 5 B. 2 0 C. 9 0 D. 5 0 Difficulty: 1 Easy

23.

To ensure that companies do not receive patents in countries where they do not

(p. 191) intend to set up production of the invention, some countries have a "working

requirement," according to which:

A. if the product is not profitable, it will not be granted a patent.

B. patents in a country will only be granted to people who have been working in the country for at least one year.

C. the invention must be manufactured in the country where the patent was granted within a specified period of time.

D. the workers who manufacture the product must be from the country where the patent was granted.

Difficulty: 2 Medium

24.

Angelo has designed a license plate holder for automobiles that makes theft of the

(p. 192) license plate practically impossible. He has filed an application for a patent through

the Patent Cooperation Treaty (PCT) office, and it has been approved. How long is this application going to protect his right to file for patent protection in the member countries of the PCT?

A. 3 days B. 6 months C. 1 year D. 2 ½ years Difficulty: 2 Medium

25.

Joe's Burgers Corp. is a famous fast-food chain that uses a picture of a cook in a red

(p. 193- hat as its symbol. It would not be legal for you to sell hamburgers with the same 194)

identification picture as that of Joe's Burgers because that would be a(n):

A. patent violation.

B. trademark violation.

C. embargo violation.

D. trade secret violation.

Difficulty: 2 Medium

26.

David and Sons Corp., a firm that manufactures home appliances, uses a symbol

(p. 194) resembling a lightning strike to distinguish its products from other similar products in

the market. This symbol is an example of a(n):

A. paten t.

B. embarg o.

C. statut e.

D. trademar k.

Difficulty: 2 Medium

27.

The difference between copyrights and trademark protection is that:

(p. 194)

A. trademark is an indicator used to distinguish the source of a good.

B. trademarks are a form of protection granted to works of authorship.

C. copyrights are established by the legitimate use of a product.

D. copyrights can last as long as the copyright is in use.

Difficulty: 2 Medium

28.

Sandy lives in a country that is a member of the Madrid Union. She has registered her

(p. 188) trademark within her country. Her trademark is now protected:

A. throughout the world.

B. only in the countries that Sandy chooses among the members of the Madrid Union.

C. only in her own country.

D. only in the countries where products with the trademark are manufactured.

Difficulty: 2 Medium

29.

Stevenson, a U.S. citizen, wrote a book called The Ten Commandments of Leadership.

(p. 195) He gave away copies of the book to the people who attended his workshops on

leadership. The copyright protection for this book:

A. is nonexistent unless Stevenson registers it with the Copyright Office.

B. is in effect from the time the book was created and fixed in a copy.

C. will be valid for only 20 years since the publication of the book.

D. will be valid till Stevenson dies.

Difficulty: 2 Medium

30.

Which of the following can be protected by a copyright?

(p. 195)

A. Familiar symbols B. Names of people C. An improvisational speech that has not been recorded D. A novel Difficulty: 1 Easy

31.

_____ specifies a minimum level of copyright protection for all member countries, and

(p. 196) it requires member countries to offer the same protection to both its own citizens and

foreign nationals.

A. The Berne Convention B. Treaty of Easton C. The Patent Cooperation Treaty D. The Madrid Agreement Difficulty: 1 Easy

32.

Sally has come up with a unique recipe for cookies and is selling them through

(p. 196- exclusive outlets all across Atlanta. As the sales skyrocket, her friends tell her to 197)

patent the recipe. However, she is so protective of her recipe that she does not even want to reveal her secret ingredients to a government agency. Is there anything she can do to keep the recipe legally protected?

A. No, she cannot protect her recipe unless she is willing to get her recipe patented.

B. Yes, her recipe can be considered a trade secret and she can legally prevent others from benefiting from her recipe without her permission.

C. Yes, she can declare her recipe to be a trade secret and register it with the U.S. Trade Secret Agency.

D. No, the recipe is not a tangible product and therefore cannot be protected.

Difficulty: 2 Medium

33.

Software whose code is made freely available to others for use, augmentation, and

(p. 198) resale is referred to as:

A. wholly proprietary systems.

B. patented software.

C. open source software.

D. copyright protected systems.

Difficulty: 1 Easy

34.

LiteShoes Inc. has recently obtained architectural control for its shoe glider

(p. 201) technology. By doing so, the company has:

A. improved its efficiency in controlling the rate at which the technology is upgraded or refined.

B. limited its ability to measure the product's compatibility with the complements produced by others.

C. limited its potential to influence other firms in the industry.

D. eliminated the possibilities of "feature creep."

Difficulty: 2 Medium

35.

Singing Cards Corp. has decided to make the technology behind its musical cards

(p. 201) open. Which of the following is most likely to be one of the advantages associated

with this decision?

A. The technology will accrue more rapid adoptions.

B. The price of the technology will rise exponentially.

C. The production of complementary goods will cease.

D. The technology's installed base will accumulate much more slowly.

Difficulty: 2 Medium

Essay Questions

36.

Jonathan has recently developed a new kind of camera. He has a working prototype

(p. 191) and plans to patent his invention. He needs to raise money for production, so he

wants articles about his camera to appear in various publications. Discuss the problems that Jonathan might have to face if he wants to seek patents in other countries in the future.

The United States allows a 1-year grace period, that is, an inventor can publish an invention up to a year before applying for the patent. However, in most other countries, publication of information about the invention before applying for a patent will bar the right to a patent. If Jonathan publishes information about his camera in the United States to create interest and raise funds for production, this may prevent him from obtaining patents in other countries. Many countries also require that the invention be manufactured in the country in which a patent was granted within a certain time frame (often 3 years) from the time the patent is granted.

Difficulty: 2 Medium

37.

Albert has designed a license plate holder for automobiles that makes theft of the

(p. 192) license plate practically impossible. He has limited income and feels that he needs to

protect his patent in numerous countries so that he can sell his product there in the future. Discuss how Albert can accomplish this.

Albert can file an application for a patent with the Patent Cooperation Treaty (PCT) governmental receiving office. The PCT currently covers more than hundred countries.

The PCT will conduct a patent search in the member countries to verify that the invention is not subject to a prior claim. If that is the case, it will approve his application and the date on which it was approved will be established as the date from which he can claim protection for his invention. Once Albert has the funds, he can file for patents in all the member nations of the PCT. Difficulty: 2 Medium

38.

What is a trademark? How can the rights to a trademark or service mark be

(p. 194) established?

A trademark is a word, phrase, symbol, design, or other indicator that is used to distinguish the source of goods from one party from the goods of others. The "Intel Inside" logo on many computers is one example of a trademark, as is the familiar Nike "swoosh" symbol. The rights to a trademark or service mark are established in the legitimate use of the mark and do not require registration.

Difficulty: 1 Easy

39.

What is a copyright? Discuss the provisions of the section 106 of the 1976 Copyright

(p. 195) Act.

Copyright is a form of protection granted to works of authorship. In the United States, the authors of original literary, dramatic, musical, artistic, and certain other intellectual works can obtain copyright protection. This protection is available whether or not the work is published and prevents others from producing or distributing that work. Under section 106 of the 1976 Copyright Act, the owner of the copyright has the exclusive right to do (or authorize others to do) the following: • Reproduce the work in copies or phonorecords.

• Prepare derivative works based upon the work.

• Distribute copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending.

• Perform the work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works.

• Display the copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work.

• Perform the work publicly by means of a digital audio transmission (in the case of sound recordings).

Difficulty: 2 Medium

40.

George has come up with a new computer program to help sellers manage online

(p. 199) auctions at sites such as eBay. It is more efficient than just using a spreadsheet to

track auctions. He would like his program to become the dominant design, but he also wants to earn a profit from all his hard work. What can George do to most effectively meet both these objectives?

If George makes the program open source, it will quickly diffuse and increase the likelihood that it will become the dominant design. However, George will receive little, if any, profits from the program. If he makes the program a wholly proprietary product, then it will be slower in moving toward dominance. It will be very difficult to get complementary programs, such as payment software, written that will interact with his program. The result may be low sales of his program and also low profits. The answer is to allow limited licensing or partial protection. He may have to allow other developers to access his source code to develop complementary programs, but he will still be able to maintain control over his source code and give his approval to their programs. This way he can still sell his program and reap the profits.

Difficulty: 3 Hard

Chapter 10 Organizing for Innovation True / False Questions 1. According to Joseph Schumpeter, small firms are likely to have better-developed complementary activities such as marketing or financial planning that enable them to be more effective innovators than larger firms.

True

False

2. Coalitions of small firms typically have a well-defined system of authority and control.

True

False

3. A firm's prior success in the market increases its ability to respond to new technological generations. This is known as an Icarus Paradox.

True

False

4. If a firm codifies all of its activities with detailed procedures, it may stifle employee creativity.

True

False

5. In the context of innovation productivity, a firm's overall size is not an easy-tomanipulate attribute of the firm.

True

False

6. It is possible for organizations to have a highly decentralized mechanistic structure.

True

False

7. A high degree of formalization and standardization in firms results in organic structures.

True

False

8. As a firm grows, it becomes more difficult to exercise direct managerial oversight.

True

False

9. Quasiformal structures foster interactions based on hierarchy rather than on interests.

True

False

10. Modular products become more valuable when customers have heterogeneous demands and there are diverse options for meeting them.

True

False

11. In a loosely coupled structure, development and production activities achieve coordination through tight integration.

True

False

12. With advances in information technology, loosely coupled organizational structures are losing their popularity.

True

False

13. A loosely coupled structure is best suited for activities that involve exchange of tacit knowledge.

True

False

14. The customization of products and processes to a local market makes them particularly difficult to transfer to divisions serving different markets.

True

False

15. The transnational approach to R&D leverages resources and capabilities that exist anywhere within a firm and deploys them when and where any opportunity arises.

True

False

Multiple Choice Questions 16. As a firm grows bigger, it becomes:

A. more effective in monitoring and motivating employees.

B. less vulnerable to bureaucratic inertia.

C. less efficient in R&D due to loss of managerial control.

D. increasingly easy for individual scientists to appropriate the returns of their efforts.

17. In the 1980s and 1990s, Neon Corp. was the most successful firm in the television market. The firm believed that its competitors would never be able to produce televisions comparable to its quality and cost. As a result, it was unable to respond to the new generations of television with which its Japanese competitors had begun to infiltrate the market. Eventually, Neon lost its market leadership to its competitors. This scenario most clearly exemplifies the _____.

A. Giffen effect B. Hawthorne effect C. Idiosyncrasy Credit D. Icarus Paradox 18. Altair Inc., a large firm in the electronics market, is facing stiff competition from a relatively smaller firm, Cygnus Corp. Which of the following is an advantage that Cygnus has over Altair due its size?

A. Larger fixed-asset bases B. More layers of administration C. More flexible and entrepreneurial culture D. Greater bureaucratic inertia due to well-developed policies and procedures 19. Since larger companies tend to have more bureaucracy, fixed costs, and commitments to large numbers of employees, customers, and suppliers than smaller firms, you can expect it to _____.

A. gamble more on big changes B. be less responsive to technological changes C. find it much simpler to monitor employees and reward them for their effort or success at innovation D. experience higher rates of new product success

20. Large and hierarchical firms disaggregate in order to:

A. lengthen new product development cycles.

B. prevent large-scale downsizing.

C. become more responsive to technological changes.

D. curb the entrepreneurial culture within them.

21. Urban Fashions Corp. has become very successful in the last few years and now employs a large number of people. Serena, the owner of the firm, had been very informal in running the company. However, because of the increase in the size of the firm, she now feels that the informal ways of management have become ineffective. In order to structure the behavior of employees, Serena wants to introduce written codes of conduct and regulations into the firm. This change being introduced in the company by Serena is referred to as _____.

A. disintermediati on B. formalizati on C. nationalizati on D. decentralizati on 22. Pioneer Systems Inc. has a high degree of formalization. Employees in Pioneer Systems are more likely to:

A. exhibit high levels creativity and experimentation.

B. feel empowered to implement new solutions.

C. face morale and motivation problems.

D. face ambiguity as a result of a lack of formal rules and procedures.

23. Which of the following statements is true of standardization?

A. It can ensure that activities within a firm run smoothly and yield predictable outcomes.

B. It is defined as the degree to which a firm utilizes rules, procedures, and written documentation to structure the behavior of employees.

C. It involves the use of organic structures instead of mechanistic ones.

D. It encourages the creativity and experimentation that leads to innovative ideas.

24. A firm choosing to decentralize its R&D by divisions rather than centralizing it will have a greater possibility of:

A. maximizing economies of scale in R&D. B. preventing redundant R&D activities from being performed in multiple divisions.

C. benefiting from the learning-curve effects.

D. matching new products to the requirements of the customers served.

25. Since much innovation arises from experimentation and improvisation, the _____ organization structure is typically considered better suited to creativity and innovation.

A. mechanist ic B. formaliz ed C. standardiz ed D. organi c 26. Which of the following statements is true of ambidextrous organizations?

A. They have uniform incentive plans for all employees within the organization.

B. They achieve long-term innovation, but not short-term efficiency.

C. They fail to tolerate varying cultures and different sets of behavior from employees.

D. They have a complex organizational form that is composed of multiple internally inconsistent architectures.

27. Liam, an employee of Centaurs Inc., is part of a new product development team that operates in a completely different manner from its parent organization. Within the team, there is considerable decentralization of authority and limited bureaucracy. It also has its own unique culture. Liam's team can be most accurately referred to as:

A. a mechanistic team.

B. skunk works.

C. an inorganic group.

D. a mainstream circle.

28. Which of the following statements is true of skunk works?

A. They are isolated from the mainstream organization to which they belong.

B. They have a mechanistic structure.

C. They are bound by the demands of the rest of the organization.

D. They are teams that face high degrees of centralization of authority and bureaucracy.

29. According to Schoonhoven and Jelinek, quasiformal structures are:

A. slow to respond to the need for changes.

B. most useful in fostering interactions based on hierarchy.

C. less problem-focused than other structures of companies.

D. not part of the formal reporting structure.

30. ErgoWorld Inc. manufactures office furniture. The company is considering adopting a modular production system. A modular system would offer greater value to ErgoWorld if:

A. most customers are likely to agree on a single product configuration.

B. its customers prefer to upgrade their products by replacing their entire system.

C. its customers are willing to pay a premium price for extreme customization and personalization.

D. its customers have heterogeneous demands that need to be met in a costeffective way.

31. Which of the following statements is true of loosely coupled organizational structures?

A. In loosely coupled structures, development and production activities achieve coordination through their adherence to shared objectives.

B. The possibility of achieving synergies is very high in loosely coupled structures.

C. They are most useful in organizations characterized by activities that require the frequent exchange of complex or tacit knowledge.

D. They provide mechanisms for resolving conflict that are more effective or less expensive than those available in the market.

32. M&P Inc., a consumer goods manufacturing firm, has subsidiaries throughout the globe that have to respond to varying local market requirements. Therefore, the firm has planned to adopt a local-for-local approach to innovation. Which of the following statement is true in this context?

A. The subsidiaries of M&P and their R&D divisions will be highly autonomous.

B. The subsidiaries will achieve abundance of scale in R&D activities.

C. This approach will make diffusion of valuable innovations across the company simple.

D. This approach will eliminate redundancy in activities.

33. Not-invented-here syndrome occurs when:

A. a division of a firm is reluctant to adopt other divisions' innovations.

B. a firm tends to adopt innovations developed by competitors.

C. an innovation is openly accepted without testing its suitability.

D. developers of a failed innovation refuse to take responsibility for its failure.

34. Oxygenic Inc. is a company with major decentralized divisions in Germany, Russia, and the United States. The scientists in Russia develop cancer treatment methods.

Treatment clinics are organized in Germany. The U.S. division gathers finance and markets the treatment methods. The activities of the different divisions are coordinated by the central office of the firm to meet companywide objectives. This is most clearly an example of a _____ strategy.

A. center-forglobal B. local-forlocal C. locally leveraged D. globally linked 35. In a locally leveraged strategy to innovation, the R&D divisions _____.

A. are completely centralized B. play different roles in the company's overall R&D strategy C. work on the full scope of development activities relevant to their business unit D. do not share creative resources and innovative developments

Essay Questions 36. What are some of the advantages and disadvantages of large firms in terms of R&D?

37. Biotrue Inc. produces tissues and diagnostics substances for three market segments: hospitals, universities, and pharmaceutical companies. The firm is trying to decide whether to decentralize its R&D activities by division or not. You have been called in as a consultant to explain the advantages and disadvantages of such a move. What will your opinion be?

38. Explain why a mechanistic organizational structure stifles creativity.

39. Phoenix Motor Corp. is considering using a loosely coupled organizational structure. They have asked for your evaluation of such a structure and if you would recommend it for an automobile manufacturer. What will your answer be?

40. Oxygenic Corp. uses photodynamic therapy to treat cancer and has major divisions in Germany, Russia, and the United States. The scientists in Russia develop the cancer treatment methods, treatment clinics are organized in Germany, and the U.S. division gathers the finance and markets the treatment methods. What type of strategy is being employed by Oxygenic, and what are the advantages and disadvantages of this type of strategy?

Chapter 10 Organizing for Innovation Answer Key True / False Questions 1.

According to Joseph Schumpeter, small firms are likely to have better-developed

(p. 214) complementary activities such as marketing or financial planning that enable them to

be more effective innovators than larger firms.

FALSE

Difficulty: 1 Easy

2.

Coalitions of small firms typically have a well-defined system of authority and control.

(p. 214)

FALSE Difficulty: 1 Easy

3.

A firm's prior success in the market increases its ability to respond to new

(p. 215) technological generations. This is known as an Icarus Paradox.

FALSE Difficulty: 1 Easy

4.

If a firm codifies all of its activities with detailed procedures, it may stifle employee

(p. 218) creativity.

TRUE Difficulty: 1 Easy

5.

In the context of innovation productivity, a firm's overall size is not an easy-to-

(p. 215) manipulate attribute of the firm.

TRUE Difficulty: 1 Easy

6.

It is possible for organizations to have a highly decentralized mechanistic structure.

(p. 218)

TRUE Difficulty: 1 Easy

7.

A high degree of formalization and standardization in firms results in organic

(p. 218) structures.

FALSE Difficulty: 1 Easy

8.

As a firm grows, it becomes more difficult to exercise direct managerial oversight.

(p. 220)

TRUE Difficulty: 1 Easy

9.

Quasiformal structures foster interactions based on hierarchy rather than on

(p. 222) interests.

FALSE Difficulty: 1 Easy

10.

Modular products become more valuable when customers have heterogeneous

(p. 223) demands and there are diverse options for meeting them.

TRUE Difficulty: 1 Easy

11.

In a loosely coupled structure, development and production activities achieve

(p. 223) coordination through tight integration.

FALSE Difficulty: 1 Easy

12.

With advances in information technology, loosely coupled organizational structures

(p. 224) are losing their popularity.

FALSE Difficulty: 1 Easy

13.

A loosely coupled structure is best suited for activities that involve exchange of tacit

(p. 224) knowledge.

FALSE Difficulty: 1 Easy

14.

The customization of products and processes to a local market makes them

(p. 226) particularly difficult to transfer to divisions serving different markets.

TRUE Difficulty: 1 Easy

15.

The transnational approach to R&D leverages resources and capabilities that exist

(p. 229) anywhere within a firm and deploys them when and where any opportunity arises.

TRUE Difficulty: 1 Easy

Multiple Choice Questions 16.

As a firm grows bigger, it becomes:

(p. 214)

A. more effective in monitoring and motivating employees.

B. less vulnerable to bureaucratic inertia.

C. less efficient in R&D due to loss of managerial control.

D. increasingly easy for individual scientists to appropriate the returns of their efforts.

Difficulty: 2 Medium

17.

In the 1980s and 1990s, Neon Corp. was the most successful firm in the television

(p. 215) market. The firm believed that its competitors would never be able to produce

televisions comparable to its quality and cost. As a result, it was unable to respond to the new generations of television with which its Japanese competitors had begun to infiltrate the market. Eventually, Neon lost its market leadership to its competitors.

This scenario most clearly exemplifies the _____.

A. Giffen effect B. Hawthorne effect C. Idiosyncrasy Credit D. Icarus Paradox Difficulty: 3 Hard

18.

Altair Inc., a large firm in the electronics market, is facing stiff competition from a

(p. 215) relatively smaller firm, Cygnus Corp. Which of the following is an advantage that

Cygnus has over Altair due its size?

A. Larger fixed-asset bases B. More layers of administration C. More flexible and entrepreneurial culture D. Greater bureaucratic inertia due to well-developed policies and procedures Difficulty: 2 Medium

19.

Since larger companies tend to have more bureaucracy, fixed costs, and

(p. 217) commitments to large numbers of employees, customers, and suppliers than smaller

firms, you can expect it to _____.

A. gamble more on big changes B. be less responsive to technological changes C. find it much simpler to monitor employees and reward them for their effort or success at innovation D. experience higher rates of new product success Difficulty: 2 Medium

20.

Large and hierarchical firms disaggregate in order to:

(p. 217)

A. lengthen new product development cycles.

B. prevent large-scale downsizing.

C. become more responsive to technological changes.

D. curb the entrepreneurial culture within them.

Difficulty: 2 Medium

21.

Urban Fashions Corp. has become very successful in the last few years and now

(p. 217- employs a large number of people. Serena, the owner of the firm, had been very 218)

informal in running the company. However, because of the increase in the size of the firm, she now feels that the informal ways of management have become ineffective.

In order to structure the behavior of employees, Serena wants to introduce written codes of conduct and regulations into the firm. This change being introduced in the company by Serena is referred to as _____.

A. disintermediati on B. formalizati on C. nationalizati on D. decentralizati on Difficulty: 2 Medium

22.

Pioneer Systems Inc. has a high degree of formalization. Employees in Pioneer

(p. 218) Systems are more likely to:

A. exhibit high levels creativity and experimentation.

B. feel empowered to implement new solutions.

C. face morale and motivation problems.

D. face ambiguity as a result of a lack of formal rules and procedures.

Difficulty: 2 Medium

23.

Which of the following statements is true of standardization?

(p. 218)

A. It can ensure that activities within a firm run smoothly and yield predictable outcomes.

B. It is defined as the degree to which a firm utilizes rules, procedures, and written documentation to structure the behavior of employees.

C. It involves the use of organic structures instead of mechanistic ones.

D. It encourages the creativity and experimentation that leads to innovative ideas.

Difficulty: 2 Medium

24.

A firm choosing to decentralize its R&D by divisions rather than centralizing it will

(p. 216) have a greater possibility of:

A. maximizing economies of scale in R&D. B. preventing redundant R&D activities from being performed in multiple divisions.

C. benefiting from the learning-curve effects.

D. matching new products to the requirements of the customers served.

Difficulty: 2 Medium

25.

Since much innovation arises from experimentation and improvisation, the _____

(p. 218) organization structure is typically considered better suited to creativity and

innovation.

A. mechanist ic B. formaliz ed C. standardiz ed D. organi c Difficulty: 1 Easy

26.

Which of the following statements is true of ambidextrous organizations?

(p. 220)

A. They have uniform incentive plans for all employees within the organization.

B. They achieve long-term innovation, but not short-term efficiency.

C. They fail to tolerate varying cultures and different sets of behavior from employees.

D. They have a complex organizational form that is composed of multiple internally inconsistent architectures.

Difficulty: 2 Medium

27.

Liam, an employee of Centaurs Inc., is part of a new product development team that

(p. 221) operates in a completely different manner from its parent organization. Within the

team, there is considerable decentralization of authority and limited bureaucracy. It also has its own unique culture. Liam's team can be most accurately referred to as:

A. a mechanistic team.

B. skunk works.

C. an inorganic group.

D. a mainstream circle.

Difficulty: 2 Medium

28.

Which of the following statements is true of skunk works?

(p. 221)

A. They are isolated from the mainstream organization to which they belong.

B. They have a mechanistic structure.

C. They are bound by the demands of the rest of the organization.

D. They are teams that face high degrees of centralization of authority and bureaucracy.

Difficulty: 2 Medium

29.

According to Schoonhoven and Jelinek, quasiformal structures are:

(p. 222)

A. slow to respond to the need for changes.

B. most useful in fostering interactions based on hierarchy.

C. less problem-focused than other structures of companies.

D. not part of the formal reporting structure.

Difficulty: 2 Medium

30.

ErgoWorld Inc. manufactures office furniture. The company is considering adopting a

(p. 223) modular production system. A modular system would offer greater value to ErgoWorld

if:

A. most customers are likely to agree on a single product configuration.

B. its customers prefer to upgrade their products by replacing their entire system.

C. its customers are willing to pay a premium price for extreme customization and personalization.

D. its customers have heterogeneous demands that need to be met in a costeffective way.

Difficulty: 3 Hard

31.

Which of the following statements is true of loosely coupled organizational

(p. 224) structures?

A. In loosely coupled structures, development and production activities achieve coordination through their adherence to shared objectives.

B. The possibility of achieving synergies is very high in loosely coupled structures.

C. They are most useful in organizations characterized by activities that require the frequent exchange of complex or tacit knowledge.

D. They provide mechanisms for resolving conflict that are more effective or less expensive than those available in the market.

Difficulty: 2 Medium

32.

M&P Inc., a consumer goods manufacturing firm, has subsidiaries throughout the

(p. 224) globe that have to respond to varying local market requirements. Therefore, the firm

has planned to adopt a local-for-local approach to innovation. Which of the following statement is true in this context?

A. The subsidiaries of M&P and their R&D divisions will be highly autonomous.

B. The subsidiaries will achieve abundance of scale in R&D activities.

C. This approach will make diffusion of valuable innovations across the company simple.

D. This approach will eliminate redundancy in activities.

Difficulty: 2 Medium

33.

Not-invented-here syndrome occurs when:

(p. 226)

A. a division of a firm is reluctant to adopt other divisions' innovations.

B. a firm tends to adopt innovations developed by competitors.

C. an innovation is openly accepted without testing its suitability.

D. developers of a failed innovation refuse to take responsibility for its failure.

Difficulty: 2 Medium

34.

Oxygenic Inc. is a company with major decentralized divisions in Germany, Russia,

(p. 227) and the United States. The scientists in Russia develop cancer treatment methods.

Treatment clinics are organized in Germany. The U.S. division gathers finance and markets the treatment methods. The activities of the different divisions are coordinated by the central office of the firm to meet companywide objectives. This is most clearly an example of a _____ strategy.

A. center-forglobal B. local-forlocal C. locally leveraged D. globally linked Difficulty: 3 Hard

35.

In a locally leveraged strategy to innovation, the R&D divisions _____.

(p. 228)

A. are completely centralized B. play different roles in the company's overall R&D strategy C. work on the full scope of development activities relevant to their business unit D. do not share creative resources and innovative developments Difficulty: 2 Medium

Essay Questions

36.

What are some of the advantages and disadvantages of large firms in terms of R&D?

(p. 214)

Large firms have the advantage of having finances, equipment, more highly skilled personnel to use for R&D, and a wider base of complementary assets and skills. If large firms spend more on R&D in an absolute sense, they might also reap economies of scale and learning curve advantages in R&D—that is, they may get better and more efficient at it over time. Large firms are also in a better position to take on large or risky innovation projects than smaller firms.

On the other hand, as a firm grows, its R&D efficiency might decrease because of a loss of managerial control. That is, the bigger a firm gets the more difficult it can become to effectively monitor and motivate employees. Furthermore, as a firm grows, it becomes increasingly difficult for individual scientists or entrepreneurs to appropriate the returns of their efforts; therefore their incentives diminish. Thus, as the firm grows, the effectiveness of its governance systems may decrease.

Difficulty: 2 Medium

37.

Biotrue Inc. produces tissues and diagnostics substances for three market segments:

(p. 216) hospitals, universities, and pharmaceutical companies. The firm is trying to decide

whether to decentralize its R&D activities by division or not. You have been called in as a consultant to explain the advantages and disadvantages of such a move. What will your opinion be?

Decentralizing the R&D divisions has many advantages. Each division can develop projects that meet the needs of its particular market segment better. Each division has unique knowledge of its market and customers and can therefore pursue projects that will benefit them better. The disadvantage is that there may be duplication of efforts among the divisions, which is wasteful. In fact, Biotrue will be giving up some economies of scale and benefits of the learning curve by decentralizing its R&D. If Biotrue's R&D produces outputs that are basically the same across the markets it serves, Biotrue is likely to benefit from keeping its R&D centralized. Students' answers will vary.

Difficulty: 2 Medium

38.

Explain why a mechanistic organizational structure stifles creativity.

(p. 217)

A mechanistic structure uses formalization and standardization to achieve efficiency.

It dictates procedures and detailed rules and standards. This allows for very little deviation from the standard, thus stifling any attempts to do things differently or more creatively. Therefore, mechanistic structures are often deemed unsuitable for fostering innovation.

Difficulty: 1 Easy

39.

Phoenix Motor Corp. is considering using a loosely coupled organizational structure.

(p. 223- They have asked for your evaluation of such a structure and if you would recommend 224)

it for an automobile manufacturer. What will your answer be?

A loosely coupled organization requires that different parts of the organization adhere to shared objectives and common standards and allows considerable autonomy in meeting those objectives and standards. This allows the R&D efforts to be organized in an organic structure that fosters creativity while still ensuring that components will work together. The production department can be organized more mechanistically and therefore be more efficient. However, the company would be giving up the synergistic effects of working closely together and it may find it more difficult to resolve conflicts that arise. It would seem that this structure would work well for this company. Students' answers will vary.

Difficulty: 2 Medium

40.

Oxygenic Corp. uses photodynamic therapy to treat cancer and has major divisions in

(p. 228) Germany, Russia, and the United States. The scientists in Russia develop the cancer

treatment methods, treatment clinics are organized in Germany, and the U.S. division gathers the finance and markets the treatment methods. What type of strategy is being employed by Oxygenic, and what are the advantages and disadvantages of this type of strategy?

This strategy is known as the globally linked strategy. Each division uses its R&D expertise to develop different aspects of the overall service. Each division meets a different need of the global company. While innovation is decentralized to take advantage of resource and talent pools, it is also globally coordinated to meet Oxygenic's overall objectives. The problem with this strategy lies in coordination. It is expensive in both time and money as it requires intensive coordination.

Difficulty: 3 Hard

Chapter 11 Managing the New Product Development Process True / False Questions 1. The majority of all new product development projects result in an economic return.

True

False

2. A company with a short development cycle can quickly revise or upgrade its offering as design flaws are revealed or technology advances.

True

False

3. A sequential process has an early warning system to indicate that planned features are not manufacturable.

True

False

4. Parallel development processes are universally endorsed.

True

False

5. The use of executive sponsors reduces the effectiveness of a development process.

True

False

6. A firm can benefit from developing "antichampions."

True

False

7. Firms always make decisions about projects on the basis of marketing criteria.

True

False

8. Many firms use beta testing to get customer input early in the development process.

True

False

9. Suppliers can contribute ideas for product improvement or increased development efficiency.

True

False

10. In the product development process, expenditures increase as uncertainty increases.

True

False

11. In the context of design rules for fabricated assembly products, minimizing the number of parts for a product reduces direct labor and material handling costs.

True

False

12. In failure modes and effects analysis (FMEA), potential problems in a system are classified according to the time at which they occurred.

True

False

13. Using computer-aided design (CAD) to build and test product design increases cycle time.

True

False

14. Computer-aided manufacturing (CAM) is faster and more flexible than traditional methods of manufacturing.

True

False

15. Three-dimensional printing can generate a model in a few hours.

True

False

Multiple Choice Questions 16. The time elapsed from project initiation to product launch, usually measured in months or years, is referred to as _____.

A. diffusion of innovation time B. technology trajectory C. development cycle time D. the Six Sigma period

17. Which of the following statements is true about a firm with a long development cycle time?

A. It can quickly revise or upgrade its product offering.

B. It is more likely to have a high cost of capital.

C. It can take advantage of both first-mover and second-mover advantages.

D. It is more likely to be able to fully amortize the fixed costs of development before that generation becomes obsolete.

18. Trekker Inc. has developed a product with a very short product development cycle.

Which of the following can it typically expect?

A. The product's sales will be slow as consumers would already be committed to other products.

B. It will be able to provide complementary goods to enhance the attractiveness of its product.

C. It will be unable to fully amortize the fixed costs of development before the product becomes obsolete.

D. It will not be able to upgrade its product.

19. Which of the following statements is true of partly parallel development processes?

A. It enhances the probability that R&D will design products that are difficult to manufacture.

B. It requires costly iterations between design stages.

C. It shortens overall cycle time.

D. It initiates product design after concept development is complete.

20. Josh is the executive vice president of a bank. The president of the bank has recently asked Josh to use his influence to ensure that the bank's online banking project is developed and implemented. Paul has been asked to be a(n):

A. devil's advocate.

B. project champion.

C. entreprene ur.

D. mento r.

21. In the context of project development, an "antichampion" is:

A. a person who wishes to sabotage a new project.

B. a person who plays the role of the "devil's advocate."

C. a person who uses subjective criteria to evaluate a new project.

D. a person in a competing firm who sabotages market tests by promoting his company's products more heavily than normal.

22. A _____ of a product is an early working prototype of the product released to users for testing and feedback.

A. beta version B. substitu te C. spiral model D. sigma model 23. Astech Inc. has been developing a new graphic design software. The firm has released a functional version of the software and has sent it to several lead users for testing. Based on the feedback from the lead users, the firm is going to improve the design of the product and begin commercial production. This initial version of the product is referred to as the _____.

A. spiral model B. substitute product C. beta version D. theta model

24. Customers who face the same general needs of the marketplace but are likely to experience them months or years earlier than the rest of the market and stand to benefit disproportionately from solutions to those needs are referred to as _____.

A. laggard s B. intrapreneu rs C. early followers D. lead users 25. _____ is a distributed problem-solving model whereby a design problem or production task is presented to people who voluntarily contribute their ideas and effort in exchange for compensation, intrinsic rewards, or a combination thereof.

A. Championi ng B. Crowdsourci ng C. Partly parallel development D. Sequential development 26. Beta Cleaning Equipment Corp. has started the actual design and development of a new floor buffing machine. It has the details of manufacturing, marketing, and operations of the new product as well. According to the stage-gate process, what is the next stage of this project?

A. Launch of the product by producing it commercially and selling it B. Verification and validation of the new product, and its marketing and production C. Formation a focus group to make sure the product meets user expectations D. Development of a business case to justify the project

27. According to the stage-gate process developed by Robert G. Cooper, _____ are the results of the previous stage and are the inputs for the gate review.

A. criteri a B. outpu ts C. deliverabl es D. beta versions 28. Theta Cleaning Corp. wants to use the house of quality matrix in designing and developing a new vacuum cleaner. What is the first step that Theta Cleaning should take?

A. Identification of customer requirements B. Determination of the relative value or weight of customer requirements C. Identification of the engineering attributes that determine the performance of the vacuum cleaner D. Evaluation of the competing products to determine how well they meet customer needs 29. Sigma Cleaning Inc. wants to use the house of quality matrix in designing and developing a new vacuum cleaner. What is the last step that Sigma Cleaning will have to take?

A. Determination of the relative value or weight of customer requirements B. Creation of a new design based on the design targets C. Identification of the engineering attributes that determine the performance of the vacuum cleaner D. Evaluation of the competing products to determine how well they meet customer needs 30. Omega Cleaning Corp. wants to use the house of quality matrix in designing and developing a new vacuum cleaner. The use of house of quality is most likely to:

A. provide a common language and framework for members of a project team to use.

B. blur the relationship between product attributes and customer requirements.

C. conceal the competitive shortcomings of the company's existing products.

D. hide design tradeoffs.

31. Which of the following statements is true of design for manufacturing (DFM) methods?

A. It lengthens the development cycle time for products.

B. It increases the cost of production by reducing the number of parts involved in the manufacturing process.

C. It is a method of facilitating integration between engineering and manufacturing.

D. It is a method by which firms identify potential failures in a system and classify them according to their severity.

32. Jupiter Tech Inc. has conducted a failure modes and effects analysis of a digital identification system that it developed. The scores are as follows: Severity = 4 Likelihood of occurrence = 2 Inability of controls to detect it = 3 What is the risk priority number of the digital identification system?

A. 2 4 B. 6 C. 2.6 7 D. 9 33. In the context of failure modes and effects analysis, which of the following formulas is used to calculate the risk priority number?

A. Risk priority number = total profits from new products/total expenditures B. Risk priority number = total profits from new products - total expenditures C. Risk priority number = successful projects/total project portfolio D. Risk priority number = severity × likelihood of occurrence × inability of controls to detect 34. Additive manufacturing refers to:

A. printing a design by laying down thin horizontal cross sections of material.

B. manually printing a new design that converges with an old design by adding details.

C. constructing a model by injection molding.

D. constructing a model by machining a mold.

35. Which of the following measures assesses the ratio of a firm's total profits from new products to its total expenditures?

A. Return on innovation B. Average cycle time of the innovation C. Percentage of development projects meeting deadlines D. Percentage of development projects within the estimated budget

Essay Questions 36. What is a partly parallel development process? Is it universally used?

37. What are the risks of championing?

38. Delta Cleaning Equipment Corp. is experimenting with a faster and quieter machine to polish floors. To develop this concept, the company is contemplating using the lead user method of concept development. How does this method work? What are its advantages?

39. Explain the function of the go/kill gate in the stage-gate process for project development.

40. What is quality function deployment (QFD)? What are its advantages?

Chapter 11 Managing the New Product Development Process Answer Key True / False Questions 1.

The majority of all new product development projects result in an economic return.

(p. 240)

FALSE Difficulty: 1 Easy

2.

A company with a short development cycle can quickly revise or upgrade its offering

(p. 242) as design flaws are revealed or technology advances.

TRUE Difficulty: 1 Easy

3.

A sequential process has an early warning system to indicate that planned features

(p. 243) are not manufacturable.

FALSE Difficulty: 1 Easy

4.

Parallel development processes are universally endorsed.

(p. 245)

FALSE Difficulty: 1 Easy

5.

The use of executive sponsors reduces the effectiveness of a development process.

(p. 245)

FALSE Difficulty: 1 Easy

6.

A firm can benefit from developing "antichampions."

(p. 247)

TRUE Difficulty: 1 Easy

7.

Firms always make decisions about projects on the basis of marketing criteria.

(p. 247)

FALSE Difficulty: 1 Easy

8.

Many firms use beta testing to get customer input early in the development process.

(p. 247)

TRUE Difficulty: 1 Easy

9.

Suppliers can contribute ideas for product improvement or increased development

(p. 248) efficiency.

TRUE Difficulty: 1 Easy

10.

In the product development process, expenditures increase as uncertainty increases.

(p. 251)

FALSE Difficulty: 1 Easy

11.

In the context of design rules for fabricated assembly products, minimizing the

(p. 255) number of parts for a product reduces direct labor and material handling costs.

TRUE Difficulty: 1 Easy

12.

In failure modes and effects analysis (FMEA), potential problems in a system are

(p. 255) classified according to the time at which they occurred.

FALSE Difficulty: 1 Easy

13.

Using computer-aided design (CAD) to build and test product design increases cycle

(p. 256) time.

FALSE Difficulty: 1 Easy

14.

Computer-aided manufacturing (CAM) is faster and more flexible than traditional

(p. 256) methods of manufacturing.

TRUE Difficulty: 1 Easy

15.

Three-dimensional printing can generate a model in a few hours.

(p. 257)

TRUE Difficulty: 1 Easy

Multiple Choice Questions

16.

The time elapsed from project initiation to product launch, usually measured in

(p. 242) months or years, is referred to as _____.

A. diffusion of innovation time B. technology trajectory C. development cycle time D. the Six Sigma period Difficulty: 1 Easy

17.

Which of the following statements is true about a firm with a long development cycle

(p. 242) time?

A. It can quickly revise or upgrade its product offering.

B. It is more likely to have a high cost of capital.

C. It can take advantage of both first-mover and second-mover advantages.

D. It is more likely to be able to fully amortize the fixed costs of development before that generation becomes obsolete.

Difficulty: 2 Medium

18.

Trekker Inc. has developed a product with a very short product development cycle.

(p. 242) Which of the following can it typically expect?

A. The product's sales will be slow as consumers would already be committed to other products.

B. It will be able to provide complementary goods to enhance the attractiveness of its product.

C. It will be unable to fully amortize the fixed costs of development before the product becomes obsolete.

D. It will not be able to upgrade its product.

Difficulty: 2 Medium

19.

Which of the following statements is true of partly parallel development processes?

(p. 245)

A. It enhances the probability that R&D will design products that are difficult to manufacture.

B. It requires costly iterations between design stages.

C. It shortens overall cycle time.

D. It initiates product design after concept development is complete.

Difficulty: 2 Medium

20.

Josh is the executive vice president of a bank. The president of the bank has recently

(p. 245) asked Josh to use his influence to ensure that the bank's online banking project is

developed and implemented. Paul has been asked to be a(n):

A. devil's advocate.

B. project champion.

C. entreprene ur.

D. mento r.

Difficulty: 2 Medium

21.

In the context of project development, an "antichampion" is:

(p. 247)

A. a person who wishes to sabotage a new project.

B. a person who plays the role of the "devil's advocate."

C. a person who uses subjective criteria to evaluate a new project.

D. a person in a competing firm who sabotages market tests by promoting his company's products more heavily than normal.

Difficulty: 1 Easy

22.

A _____ of a product is an early working prototype of the product released to users for

(p. 247) testing and feedback.

A. beta version B. substitu te C. spiral model D. sigma model Difficulty: 1 Easy

23.

Astech Inc. has been developing a new graphic design software. The firm has released

(p. 247) a functional version of the software and has sent it to several lead users for testing.

Based on the feedback from the lead users, the firm is going to improve the design of the product and begin commercial production. This initial version of the product is referred to as the _____.

A. spiral model B. substitute product C. beta version D. theta model Difficulty: 3 Hard

24.

Customers who face the same general needs of the marketplace but are likely to

(p. 248) experience them months or years earlier than the rest of the market and stand to

benefit disproportionately from solutions to those needs are referred to as _____.

A. laggard s B. intrapreneu rs C. early followers D. lead users Difficulty: 1 Easy

25.

_____ is a distributed problem-solving model whereby a design problem or production

(p. 248) task is presented to people who voluntarily contribute their ideas and effort in

exchange for compensation, intrinsic rewards, or a combination thereof.

A. Championi ng B. Crowdsourci ng C. Partly parallel development D. Sequential development Difficulty: 1 Easy

26.

Beta Cleaning Equipment Corp. has started the actual design and development of a

(p. 251) new floor buffing machine. It has the details of manufacturing, marketing, and

operations of the new product as well. According to the stage-gate process, what is the next stage of this project?

A. Launch of the product by producing it commercially and selling it B. Verification and validation of the new product, and its marketing and production C. Formation a focus group to make sure the product meets user expectations D. Development of a business case to justify the project Difficulty: 2 Medium

27.

According to the stage-gate process developed by Robert G. Cooper, _____ are the

(p. 251) results of the previous stage and are the inputs for the gate review.

A. criteri a B. outpu ts C. deliverabl es D. beta versions Difficulty: 1 Easy

28.

Theta Cleaning Corp. wants to use the house of quality matrix in designing and

(p. 252) developing a new vacuum cleaner. What is the first step that Theta Cleaning should

take?

A. Identification of customer requirements B. Determination of the relative value or weight of customer requirements C. Identification of the engineering attributes that determine the performance of the vacuum cleaner D. Evaluation of the competing products to determine how well they meet customer needs Difficulty: 2 Medium

29.

Sigma Cleaning Inc. wants to use the house of quality matrix in designing and

(p. 254) developing a new vacuum cleaner. What is the last step that Sigma Cleaning will have

to take?

A. Determination of the relative value or weight of customer requirements B. Creation of a new design based on the design targets C. Identification of the engineering attributes that determine the performance of the vacuum cleaner D. Evaluation of the competing products to determine how well they meet customer needs Difficulty: 2 Medium

30.

Omega Cleaning Corp. wants to use the house of quality matrix in designing and

(p. 254) developing a new vacuum cleaner. The use of house of quality is most likely to:

A. provide a common language and framework for members of a project team to use.

B. blur the relationship between product attributes and customer requirements.

C. conceal the competitive shortcomings of the company's existing products.

D. hide design tradeoffs.

Difficulty: 2 Medium

31.

Which of the following statements is true of design for manufacturing (DFM)

(p. 254) methods?

A. It lengthens the development cycle time for products.

B. It increases the cost of production by reducing the number of parts involved in the manufacturing process.

C. It is a method of facilitating integration between engineering and manufacturing.

D. It is a method by which firms identify potential failures in a system and classify them according to their severity.

Difficulty: 2 Medium

32.

Jupiter Tech Inc. has conducted a failure modes and effects analysis of a digital

(p. 256) identification system that it developed. The scores are as follows:

Severity = 4 Likelihood of occurrence = 2 Inability of controls to detect it = 3 What is the risk priority number of the digital identification system?

A. 2 4 B. 6 C. 2.6 7 D. 9 Difficulty: 2 Medium

33.

In the context of failure modes and effects analysis, which of the following formulas is

(p. 256) used to calculate the risk priority number?

A. Risk priority number = total profits from new products/total expenditures B. Risk priority number = total profits from new products - total expenditures C. Risk priority number = successful projects/total project portfolio D. Risk priority number = severity × likelihood of occurrence × inability of controls to detect Difficulty: 1 Easy

34.

Additive manufacturing refers to:

(p. 256)

A. printing a design by laying down thin horizontal cross sections of material.

B. manually printing a new design that converges with an old design by adding details.

C. constructing a model by injection molding.

D. constructing a model by machining a mold.

Difficulty: 2 Medium

35.

Which of the following measures assesses the ratio of a firm's total profits from new

(p. 259) products to its total expenditures?

A. Return on innovation B. Average cycle time of the innovation C. Percentage of development projects meeting deadlines D. Percentage of development projects within the estimated budget Difficulty: 1 Easy

Essay Questions 36.

What is a partly parallel development process? Is it universally used?

(p. 245)

To shorten the development process and avoid time-consuming and costly iterations between stages of the development cycle, many firms have adopted a partly parallel development process. Product design is initiated before concept development is complete, and process design is begun long before product design is finalized, enabling much closer coordination between the different stages and minimizing the chance that R&D will design products that are difficult or costly to manufacture. This should eliminate the need for time-consuming iterations between design stages and shorten overall cycle time.

Parallel development processes are not universally endorsed. In some situations, using a parallel development process can substantially increase the risks or costs of the development process.

Difficulty: 2 Medium

37.

What are the risks of championing?

(p. 245247)

A manager's role as champion may cloud judgment about the true value of the project. Managers may fall victim to escalating commitment and be unable (or unwilling) to admit that a project should be killed even when it is clear to many others in the organization that the project has gone sour, or the factors driving the project's original value are no longer relevant. Managers who have invested their reputations and years of their lives in development projects may find it very difficult to cut their losses. Though the champion's seniority is an asset in gaining access to resources and facilitating coordination, this same seniority may also make others in the firm unwilling to challenge the project champion even if it has become apparent that the project's expected value has turned negative.

Difficulty: 2 Medium

38.

Delta Cleaning Equipment Corp. is experimenting with a faster and quieter machine to

(p. 248) polish floors. To develop this concept, the company is contemplating using the lead

user method of concept development. How does this method work? What are its advantages?

Lead users are those who face the same needs of the general marketplace but face them months or years earlier than the bulk of the market, and expect to benefit significantly from a solution to those needs. In this case, the lead users might be large janitorial services groups. Delta Cleaning Equipment would ask these users to provide some input with respect to the design concept for such a machine, perhaps through a focus group. The users might identify the features that are desirable in the machine and may even come up with ideas about how to design the machine. This method increases the probability that the finished product will meet the needs of the users.

Students' answers will vary.

Difficulty: 2 Medium

39.

Explain the function of the go/kill gate in the stage-gate process for project

(p. 251) development.

Go/kill gates are designed to control the quality of the project and to ensure that the project is being executed in an effective and efficient manner. Gates act as the funnels that cull mediocre projects. Each gate has three components: deliverables (these are the results of the previous stage and are the inputs for the gate review), criteria (these are the questions or metrics used to make the go/kill decision), and outputs (these are the results of the gate review process and may include a decision such as go, kill, hold, or recycle; outputs should also include an action plan for the dates and deliverables of the next gate).

Difficulty: 2 Medium

40.

What is quality function deployment (QFD)? What are its advantages?

(p. 252254)

QFD was developed in Japan as a comprehensive process for improving the communication and coordination among engineering, marketing, and manufacturing personnel. It achieves this by taking managers through a problem-solving process in a very structured fashion. The organizing framework for QFD is the "house of quality."

The house of quality is a matrix that maps customer requirements against product attributes.

The great strength of the house of quality is that it provides a common language and framework within which the members of a project team may interact. The house of quality makes the relationship between product attributes and customer requirements very clear, it focuses on design trade-offs, it highlights the competitive shortcomings of the company's existing products, and it helps identify what steps need to be taken to improve them.

Difficulty: 2 Medium

Chapter 12 Managing New Product Development Teams True / False Questions 1. As the size of a team increases, the potential for social loafing decreases.

True

False

2. A lack of cross-functional communication can lead to a poor fit between product attributes and customer requirements.

True

False

3. A cross-functional team is one that has members of different ethnic backgrounds in a single functional area.

True

False

4. Homogeneous teams should possess more information, on average, than heterogeneous groups.

True

False

5. In a functional team approach to new product development, team members remain in their functional departments and may meet periodically to discuss the project.

True

False

6. Functional teams typically have a project manager or dedicated liaison personnel.

True

False

7. Managers of lightweight teams are normally junior or middle management employees.

True

False

8. Lightweight teams are appropriate for derivative projects where high levels of coordination and communication are not required.

True

False

9. In heavyweight teams, the long-term career development of individual members rests with their project managers rather than their functional managers.

True

False

10. Heavyweight teams are typically permanent in nature.

True

False

11. Project managers of heavyweight teams are typically junior managers.

True

False

12. Heavyweight teams are suitable for platform projects.

True

False

13. A contract book must be developed before a project charter can be written.

True

False

14. A contract book is an important mechanism for establishing team commitment to a project and a sense of ownership over the project.

True

False

15. Proximity and frequent interaction help teams to develop shared norms and a dialect for communicating about a project.

True

False

Multiple Choice Questions 16. In the context of product development teams, which of the following statements is true?

A. The larger a team is, the easier it is to foster a shared sense of identity among team members.

B. As the size of a team increases, the potential for social loafing increases.

C. Formation of cross-functional teams hinders the crossfertilization of ideas.

D. Increasing the diversity of team members eliminates the possibility of homophily.

17. Karen's supervisor, while discussing about her participation in a new product development team, tells her that she has been engaging in social loafing. This means that Karen:

A. has been involved in whistle-blowing activities.

B. has been discriminating against colleagues belonging to minority groups.

C. has not been putting much effort into the team's work.

D. has stolen office property.

18. At Tech Edge Inc., a special team is set up for making a robot capable of assisting blind people in going about their daily activities. The members of the team are taken from various areas of the firm, including R&D, marketing, manufacturing, and distribution. The new team is put under the charge of a senior manager. This team is most accurately an example of a:

A. cross-functional team.

B. laggard team.

C. homogenous team.

D. self-directed work team.

19. Which of the following is an advantage typically associated with cross-functional teams?

A. A cross-functional interface ensures that cross-fertilization of ideas is reduced.

B. Cross-functional teams allow a project to draw on a wider mix of information sources in the environment.

C. Cross-functional teams usually reduce coordination and communication costs.

D. Cross-functional teams are most efficient in eradicating homophily.

20. The vice president of Sunflower Computers Inc. is trying to decide on the composition of a new product development team. If he chooses members who are from different backgrounds, he is most likely to reap the benefits of:

A. a broader knowledge base.

B. lesser cross-fertilization of ideas.

C. homophil y.

D. social loafing.

21. The vice president of Biomedics Inc. is trying to decide on the composition of a new product development team. If she chooses members from multiple functional areas in the firm, which of the following disadvantages is she most likely to experience?

A. Increase in instances of whistleblowing B. Increase in communication and coordination costs C. Lesser cross-fertilization of ideas D. Lesser instances of social loafing 22. June is a member of a new product development team. Her supervisor asks her about her experience in the team, and she replies, "Our team seems to be suffering from homophily." This statement means that:

A. team members are not exerting the expected amount of effort.

B. team members spend all their time chatting about their personal issues.

C. team members are only interested in talking to people who are senior to them.

D. team members only like other people whom they perceive as being similar to themselves.

23. Ruth works in the advertising department of her company. It was observed that she interacted more frequently and more intensely with team members who shared her interests and social background, but ignored others. This phenomenon exhibited by Ruth is referred to as:

A. free riding.

B. social loafing.

C. homophil y.

D. groupthin k.

24. Albert has put together a new product development team based on the functional team structure. Which of the following statements is most likely to be true about this team?

A. Team members will spend up to 50 percent of their time on teamrelated activities.

B. The team will typically require dedicated liaison personnel.

C. The team will have a high degree of cross-functional integration.

D. The team structure will be straightforward to implement.

25. Which of the following statements is true of functional teams?

A. Functional teams consist of members from multiple areas in the firm such as R&D, marketing, manufacturing, distribution, and so on.

B. The functional team structure provides little opportunity for cross-functional coordination.

C. Functional teams are not appropriate for derivative projects that affect only a single function.

D. Functional teams are usually permanent.

26. Which of the following is an advantage of a functional team?

A. The team structure of a functional team is straightforward to implement.

B. The team structure of a functional team allows for greater cross-functional coordination.

C. The team structure of a functional team increases the crossfertilization of ideas.

D. The team structure of a functional team increases the possibility of social loafing.

27. Which of the following statements is true of lightweight teams?

A. Lightweight teams are typically permanent.

B. Lightweight teams do not have dedicated liaison personnel.

C. Lightweight teams are most appropriate for projects where high levels of coordination are required.

D. Lightweight teams are comprised of members who still reside in their functional departments.

28. Which of the following is an advantage of lightweight teams?

A. Lightweight teams are more stable as they are permanent in nature.

B. Lightweight teams do not have dedicated liaison personnel, and the members have more decision-making authority.

C. The team structure of lightweight teams increases the possibility of homophily.

D. It is easier to coordinate activities in a lightweight team than in a functional team.

29. Which of the following statements is true of heavyweight teams?

A. Project managers of heavyweight teams lack the authority to command resources.

B. Heavyweight teams are always temporary.

C. In heavyweight teams, members are collocated with the project manager.

D. Heavyweight teams are considered inappropriate for platform projects.

30. Which of the following is an advantage of heavyweight teams?

A. Heavyweight teams have strong cross-functional coordination.

B. The team structure of heavyweight teams increases the possibility of social loafing.

C. Heavyweight teams are typically permanent.

D. The team structure of heavyweight teams decreases the crossfertilization of ideas.

31. Which of the following is a defining characteristic of autonomous teams?

A. Autonomous teams are not held accountable for the success of a project.

B. Autonomous teams do not have a project manager, which leads to constant problems with coordination of activities.

C. The degree of cross-functional integration is low in autonomous teams.

D. Autonomous teams often do not conform to the operating procedures of the rest of the organization.

32. Which of the following statements is true of the autonomous team structure?

A. In autonomous teams, individuals may spend less than 10 percent of their time working on team-related activities.

B. In autonomous teams, the potential for conflict between team and functions is very low.

C. In autonomous teams, team members are collocated with a senior project manager.

D. The project manager of an autonomous team is not given full control over resources.

33. Which of the following is a disadvantage associated with autonomous teams?

A. The project manager of an autonomous team does not have any control over resources contributed from different functional departments.

B. The autonomous team structure does not accommodate cross-functional integration.

C. It is hard for autonomous teams to fold back into the parent organization when a project is completed.

D. Autonomous teams do not have project managers, because of which they face a lot of coordination problems.

34. Virtual teams are best defined as teams in which members:

A. may be situated at a great distance from each other and collaborate intensively via advanced information technologies.

B. are drawn from multiple functional areas in the firm such as R&D, marketing, manufacturing, and distribution, and they work at the company headquarters.

C. have the tendency to cooperate only with people whom they perceive as being similar to themselves.

D. have the tendency of shirking their responsibilities and blaming one another for their poor performance.

35. Members of a virtual team:

A. must be located in the same office.

B. may live great distances apart.

C. are always collocated.

D. must belong to the same country.

Essay Questions 36. What are the advantages and disadvantages of having a heterogeneous new product development team?

37. Write a short note on functional teams.

38. The CEO of Bright Electronics Inc. has put together an autonomous new product development team. He is now trying to decide the type of leader who should be appointed to head the team. What should he look for in the leader of this team to improve its chances of success?

39. Describe project charter and contract book. Explain their purposes. How are they related to each other?

40. In the forming of virtual teams, what criteria must be used to select team members?

Chapter 12 Managing New Product Development Teams Answer Key True / False Questions 1.

As the size of a team increases, the potential for social loafing decreases.

(p. 268)

FALSE Difficulty: 1 Easy

2.

A lack of cross-functional communication can lead to a poor fit between product

(p. 268) attributes and customer requirements.

TRUE Difficulty: 1 Easy

3.

A cross-functional team is one that has members of different ethnic backgrounds in a

(p. 268) single functional area.

FALSE Difficulty: 1 Easy

4.

Homogeneous teams should possess more information, on average, than

(p. 269) heterogeneous groups.

FALSE Difficulty: 1 Easy

5.

In a functional team approach to new product development, team members remain in

(p. 271) their functional departments and may meet periodically to discuss the project.

TRUE Difficulty: 1 Easy

6.

Functional teams typically have a project manager or dedicated liaison personnel.

(p. 271)

FALSE Difficulty: 1 Easy

7.

Managers of lightweight teams are normally junior or middle management

(p. 272) employees.

TRUE Difficulty: 1 Easy

8.

Lightweight teams are appropriate for derivative projects where high levels of

(p. 272) coordination and communication are not required.

TRUE Difficulty: 1 Easy

9.

In heavyweight teams, the long-term career development of individual members rests

(p. 272) with their project managers rather than their functional managers.

FALSE Difficulty: 1 Easy

10.

Heavyweight teams are typically permanent in nature.

(p. 272)

FALSE Difficulty: 1 Easy

11.

Project managers of heavyweight teams are typically junior managers.

(p. 272)

FALSE Difficulty: 1 Easy

12.

Heavyweight teams are suitable for platform projects.

(p. 272)

TRUE Difficulty: 1 Easy

13.

A contract book must be developed before a project charter can be written.

(p. 275)

FALSE Difficulty: 1 Easy

14.

A contract book is an important mechanism for establishing team commitment to a

(p. 275) project and a sense of ownership over the project.

TRUE Difficulty: 1 Easy

15.

Proximity and frequent interaction help teams to develop shared norms and a dialect

(p. 275) for communicating about a project.

TRUE Difficulty: 1 Easy

Multiple Choice Questions

16.

In the context of product development teams, which of the following statements is

(p. 268) true?

A. The larger a team is, the easier it is to foster a shared sense of identity among team members.

B. As the size of a team increases, the potential for social loafing increases.

C. Formation of cross-functional teams hinders the crossfertilization of ideas.

D. Increasing the diversity of team members eliminates the possibility of homophily.

Difficulty: 2 Medium

17.

Karen's supervisor, while discussing about her participation in a new product

(p. 268) development team, tells her that she has been engaging in social loafing. This means

that Karen:

A. has been involved in whistle-blowing activities.

B. has been discriminating against colleagues belonging to minority groups.

C. has not been putting much effort into the team's work.

D. has stolen office property.

Difficulty: 2 Medium

18.

At Tech Edge Inc., a special team is set up for making a robot capable of assisting

(p. 268) blind people in going about their daily activities. The members of the team are taken

from various areas of the firm, including R&D, marketing, manufacturing, and distribution. The new team is put under the charge of a senior manager. This team is most accurately an example of a:

A. cross-functional team.

B. laggard team.

C. homogenous team.

D. self-directed work team.

Difficulty: 2 Medium

19.

Which of the following is an advantage typically associated with cross-functional

(p. 269) teams?

A. A cross-functional interface ensures that cross-fertilization of ideas is reduced.

B. Cross-functional teams allow a project to draw on a wider mix of information sources in the environment.

C. Cross-functional teams usually reduce coordination and communication costs.

D. Cross-functional teams are most efficient in eradicating homophily.

Difficulty: 2 Medium

20.

The vice president of Sunflower Computers Inc. is trying to decide on the composition

(p. 269) of a new product development team. If he chooses members who are from different

backgrounds, he is most likely to reap the benefits of:

A. a broader knowledge base.

B. lesser cross-fertilization of ideas.

C. homophil y.

D. social loafing.

Difficulty: 2 Medium

21.

The vice president of Biomedics Inc. is trying to decide on the composition of a new

(p. 269) product development team. If she chooses members from multiple functional areas in

the firm, which of the following disadvantages is she most likely to experience?

A. Increase in instances of whistleblowing B. Increase in communication and coordination costs C. Lesser cross-fertilization of ideas D. Lesser instances of social loafing Difficulty: 2 Medium

22.

June is a member of a new product development team. Her supervisor asks her about

(p. 269) her experience in the team, and she replies, "Our team seems to be suffering from

homophily." This statement means that:

A. team members are not exerting the expected amount of effort.

B. team members spend all their time chatting about their personal issues.

C. team members are only interested in talking to people who are senior to them.

D. team members only like other people whom they perceive as being similar to themselves.

Difficulty: 2 Medium

23.

Ruth works in the advertising department of her company. It was observed that she

(p. 269) interacted more frequently and more intensely with team members who shared her

interests and social background, but ignored others. This phenomenon exhibited by Ruth is referred to as:

A. free riding.

B. social loafing.

C. homophil y.

D. groupthin k.

Difficulty: 2 Medium

24.

Albert has put together a new product development team based on the functional

(p. 271) team structure. Which of the following statements is most likely to be true about this

team?

A. Team members will spend up to 50 percent of their time on teamrelated activities.

B. The team will typically require dedicated liaison personnel.

C. The team will have a high degree of cross-functional integration.

D. The team structure will be straightforward to implement.

Difficulty: 2 Medium

25.

Which of the following statements is true of functional teams?

(p. 271272)

A. Functional teams consist of members from multiple areas in the firm such as R&D, marketing, manufacturing, distribution, and so on.

B. The functional team structure provides little opportunity for cross-functional coordination.

C. Functional teams are not appropriate for derivative projects that affect only a single function.

D. Functional teams are usually permanent.

Difficulty: 2 Medium

26.

Which of the following is an advantage of a functional team?

(p. 271)

A. The team structure of a functional team is straightforward to implement.

B. The team structure of a functional team allows for greater cross-functional coordination.

C. The team structure of a functional team increases the crossfertilization of ideas.

D. The team structure of a functional team increases the possibility of social loafing.

Difficulty: 2 Medium

27.

Which of the following statements is true of lightweight teams?

(p. 272)

A. Lightweight teams are typically permanent.

B. Lightweight teams do not have dedicated liaison personnel.

C. Lightweight teams are most appropriate for projects where high levels of coordination are required.

D. Lightweight teams are comprised of members who still reside in their functional departments.

Difficulty: 2 Medium

28.

Which of the following is an advantage of lightweight teams?

(p. 272)

A. Lightweight teams are more stable as they are permanent in nature.

B. Lightweight teams do not have dedicated liaison personnel, and the members have more decision-making authority.

C. The team structure of lightweight teams increases the possibility of homophily.

D. It is easier to coordinate activities in a lightweight team than in a functional team.

Difficulty: 2 Medium

29.

Which of the following statements is true of heavyweight teams?

(p. 272)

A. Project managers of heavyweight teams lack the authority to command resources.

B. Heavyweight teams are always temporary.

C. In heavyweight teams, members are collocated with the project manager.

D. Heavyweight teams are considered inappropriate for platform projects.

Difficulty: 2 Medium

30.

Which of the following is an advantage of heavyweight teams?

(p. 272)

A. Heavyweight teams have strong cross-functional coordination.

B. The team structure of heavyweight teams increases the possibility of social loafing.

C. Heavyweight teams are typically permanent.

D. The team structure of heavyweight teams decreases the crossfertilization of ideas.

Difficulty: 2 Medium

31.

Which of the following is a defining characteristic of autonomous teams?

(p. 272)

A. Autonomous teams are not held accountable for the success of a project.

B. Autonomous teams do not have a project manager, which leads to constant problems with coordination of activities.

C. The degree of cross-functional integration is low in autonomous teams.

D. Autonomous teams often do not conform to the operating procedures of the rest of the organization.

Difficulty: 2 Medium

32.

Which of the following statements is true of the autonomous team structure?

(p. 266267)

A. In autonomous teams, individuals may spend less than 10 percent of their time working on team-related activities.

B. In autonomous teams, the potential for conflict between team and functions is very low.

C. In autonomous teams, team members are collocated with a senior project manager.

D. The project manager of an autonomous team is not given full control over resources.

Difficulty: 2 Medium

33.

Which of the following is a disadvantage associated with autonomous teams?

(p. 272)

A. The project manager of an autonomous team does not have any control over resources contributed from different functional departments.

B. The autonomous team structure does not accommodate cross-functional integration.

C. It is hard for autonomous teams to fold back into the parent organization when a project is completed.

D. Autonomous teams do not have project managers, because of which they face a lot of coordination problems.

Difficulty: 2 Medium

34.

Virtual teams are best defined as teams in which members:

(p. 275)

A. may be situated at a great distance from each other and collaborate intensively via advanced information technologies.

B. are drawn from multiple functional areas in the firm such as R&D, marketing, manufacturing, and distribution, and they work at the company headquarters.

C. have the tendency to cooperate only with people whom they perceive as being similar to themselves.

D. have the tendency of shirking their responsibilities and blaming one another for their poor performance.

Difficulty: 2 Medium

35.

Members of a virtual team:

(p. 275)

A. must be located in the same office.

B. may live great distances apart.

C. are always collocated.

D. must belong to the same country.

Difficulty: 1 Easy

Essay Questions 36.

What are the advantages and disadvantages of having a heterogeneous new product

(p. 269) development team?

Teams that incorporate cultural diversity should show better problem solving by incorporating multiple viewpoints, and teams composed of members who are diverse in terms of education, gender, or age can help ensure a variety of viewpoints are considered and external resources are tapped. Studies have demonstrated that demographic diversity in teams can increase innovative outcomes and overall performance.

Heterogeneous teams often have greater difficulty integrating objectives and views, leading to conflict and lower group cohesion. Heterogeneous teams should possess more information, on average, than homogeneous groups.

The heterogeneity of a team can increase the creativity and variance in decision making, leading to more innovative outcomes and higher overall performance.

However, to realize this potential performance advantage, heterogeneous teams may require long-term contact and incentives to foster communication and cooperation.

Difficulty: 2 Medium

37.

Write a short note on functional teams.

(p. 271)

In functional teams, members remain in their functional departments (e.g., R&D, marketing, manufacturing, etc.), and report to their regular functional manager; however, they may meet periodically to discuss the project. Such teams are usually temporary, and individuals may spend less than 10 percent of their time working on team-related activities. Functional teams also typically do not have a project manager or dedicated liaison personnel. While this team structure is straightforward to implement because it requires little (if any) deviation from the firm's normal operations, this structure provides little opportunity for cross-functional coordination.

Further, since individuals are still evaluated and rewarded almost exclusively based on their functional performance, the team members may have little commitment to the development project. Functional teams are more likely to be appropriate for derivative projects that primarily affect only a single function of the firm.

Difficulty: 2 Medium

38.

The CEO of Bright Electronics Inc. has put together an autonomous new product

(p. 272) development team. He is now trying to decide the type of leader who should be

appointed to head the team. What should he look for in the leader of this team to improve its chances of success?

Due to the nature of an autonomous team, the team leader should be a senior manager with significant experience and organizational influence. He or she will have to champion the product concept within the organization, resolve conflicts, and be able to communicate with personnel from different functional areas in the terms they understand and identify with. He or she will also have to exert influence on the engineering, manufacturing, and marketing functions to get the project completed.

Difficulty: 2 Medium

39.

Describe project charter and contract book. Explain their purposes. How are they

(p. 274) related to each other?

To ensure that members have a clear focus and commitment to the development project, many organizations now have heavyweight and autonomous teams develop a project charter and contract book. The project charter encapsulates the project's mission and articulates exact and measurable goals for the project. It might include a vision statement for the project and a background statement for why this project is important for the organization. The charter may describe who is on the team, the length of time members will spend on the team, and the percentage of their time that will be spent on team activities. It may also stipulate the team's budget, its reporting timeline, and the key success criteria of the project.

Once the team charter is established, core team members and senior managers must negotiate a contract book. The contract book defines in detail the basic plan to achieve the goal laid out in the project charter. Typically, the contract book will estimate the resources required, the development time schedule, and the results that will be achieved. The contract book provides a tool for monitoring and evaluating the team's performance in meeting objectives by providing a set of performance benchmarks and deadlines to which the team's performance can be compared. More important, however, the contract book is an important mechanism for establishing team commitment to the project and a sense of ownership over the project. After negotiation and acceptance of this contract, all parties often sign the contract book as an indication of their intention to honor the plan and achieve the results. Team members who sign the contract book typically feel a greater sense of duty to work toward the project's goals.

Difficulty: 2 Medium

40.

In the forming of virtual teams, what criteria must be used to select team members?

(p. 277)

In the forming of virtual teams, it is important to select personnel who are both comfortable with the technologies being used to facilitate collaboration and who have strong interpersonal skills. Team members must be able to work independently and have a strong work ethic. Since distance makes it easy for team members to deflect opportunities for interaction, it is important to choose individuals who tend to seek interaction rather than avoid it. It is important that members of the team establish standards for how quickly they will respond to messages, and how often they will be available for synchronous communications (communications where the involved parties must participate at the same time, such as telephone calls, videoconferencing, and instant messaging). Furthermore, because many of the opportunities for informal interaction may be lost in a virtual environment, more types of interaction may have to be incorporated into the ground rules of the team.

Difficulty: 2 Medium

Chapter 13 Crafting a Deployment Strategy True / False Questions 1. The value of a technological innovation is solely determined by what the technology can do.

True

False

2. Firms should always be racing to launch their products as early as possible.

True

False

3. Cannibalization is the process by which a firm's sales of one product diminish due to a substitute product offering by a competitor.

True

False

4. If a firm wishes to avoid giving away its own installed base or complementary goods advantages to others, it may protect them by ensuring its products are incompatible with those of future entrants.

True

False

5. If a firm's objective is maximum market skimming, it will initially set a high price on new products.

True

False

6. Firms intending to maximize market share typically use market skimming pricing strategy.

True

False

7. Firms in industries characterized by increasing returns will often use the objective of maximizing market share and a penetration pricing strategy.

True

False

8. Firms can accelerate distribution of a new technology by bundling it with another product that is already in wide use.

True

False

9. In crafting an advertising message, firms must focus more on making the advertisements entertaining and memorable than on providing a significant quantity of informative content.

True

False

10. Viral marketing is based on the fact that people are more receptive to, or have greater faith in, information that comes through personal contacts.

True

False

11. Marketing channels that enable high content and selective reach are appropriate for innovators and early adopters.

True

False

12. In marketing a new product to the late majority and laggards, a company should emphasize the advanced technological features of the new product.

True

False

13. Firms often find it is difficult to make the transition between successfully selling to early adopters versus the early majority.

True

False

14. While mavens with a valuable piece of information are likely to expose it to a great number and diversity of people, connectors are likely to convey the information to fewer people but in more detail.

True

False

15. A firm can signal its commitment to an industry by making substantial investments that would be difficult to reverse.

True

False

Multiple Choice Questions

16. When Pearl Love Inc. introduced its new range of bodywash, consumers switched from using its soaps, being sold under the same brand name, to using the bodywash. As a result, the company experienced a sharp drop in its soap sales. This scenario represents:

A. cannibalizati on.

B. the vampire effect.

C. the halo effect.

D. vaporwar e.

17. BioSense Prosthetics Inc. was a leader in the prosthetics market and was earning very high profits. The firm developed a new computerized prosthetic arm that would render its previous models obsolete. It decided to withhold the new computerized prosthetic arm from the market. This would allow the firm to:

A. minimize its return on investment in developing each generation of the product.

B. make its products backward compatible.

C. avoid cannibalization of the sales of its current prosthetics.

D. build a smaller installed base for the new computerized prosthetics.

18. Maverick Systems Inc. is a leading company in the mobile phone market, and profits from its mobile phones are very high. Maverick Systems has developed a new generation of smartphones, which is better than its existing line of smartphones, and has decided to embrace cannibalization of its existing line of smartphones. This means that the company is going to:

A. introduce the new technology right away and increase its market lead while taking away profits from its existing line of smartphones.

B. delay introduction of the next generation product until profits have begun to significantly decrease for the existing line of smartphones.

C. use up most of its financial resources in promoting the new phone.

D. wait for the existing line of smartphones to become obsolete and then introduce the new generation of smartphones into the market.

19. Genetech Inc. has produced a new generation of video game consoles. The new product can be used to run the games used in the previous generation of the video game console as well. In this context, Genetech is most accurately applying the concept of:

A. backward integration.

B. backward compatibility.

C. backward linkage.

D. backward traceability.

20. Speeding Horse Inc., a leader in the video game console market, is making its new generation consoles backward compatible with its previous games. This means that:

A. it is giving away its own installed base or complementary goods advantages to competitors.

B. it is providing a significant incentive to the owners of its previously developed consoles to buy the new console.

C. the transition of customers through product generations will become impossible.

D. a large range of complementary goods of the previous generations, mainly the games, will lose its existing value and utility.

21. Which of the following is an advantage of making a new generation of technology backward compatible?

A. Consumers will have to buy completely new complements.

B. Consumer switching costs may be lower because they anticipate using their existing complements.

C. It directly increases the sales of complementary goods for its new generation of technology.

D. It is typically less expensive to make a new generation of technology backward compatible than to make it incompatible.

22. A(n) _____ price strategy is a short-run strategy that prices goods to cover variable costs and some fixed costs, and it is used by firms in industries plagued with intense price competition.

A. market skimming B. penetrati on C. surviv al D. econom y

23. When Sports 360, a sports bar in New York, saw yet another sports bar open up across the street, it knew that it would have to lower its price again to stay in business. The city already had too many sports bars, and Sports 360 intended on being one of those left after the inevitable shake out. In this situation, the best pricing strategy for Sports 360 would be:

A. premium pricing.

B. market skimming.

C. survival pricing.

D. a freemium program.

24. The Rocketingbusiness.com Web site offers large volumes of business research information for no cost. If a user is interested in more comprehensive information and business consultation, the site offers these services for a premium fee. This is typically an example of _____ pricing model.

A. penetrati on B. market skimming C. surviv al D. freemiu m 25. Companies that buy manufacturer's products in bulk and then resell them (often in smaller or more diverse bundles) to other supply channel members are referred to as _____.

A. wholesale rs B. manufacturers' representatives C. retaile rs D. value-added resellers

26. Gemini Car Inc. buys car components from various manufacturers and assembles them into cars, which it sells under its own brand name. From the given information, Gemini Car is most accurately an example of a(n):

A. pirate operator.

B. original equipment manufacturer.

C. disintermediation factor.

D. category captain.

27. Blue Water Publication Corp. is planning to sell its books solely through its Web site BlueWaterbooks.com. By doing so, it ceases to require wholesalers and retailers. This is most accurately an example of:

A. disintermediati on.

B. backward compatibility.

C. value added reselling.

D. bundling arrangement.

28. Super Alarm Inc. makes customized door security systems, which it sells under its own brand name. These security systems require installation, extensive customer education, and regular services. _____ would be the most appropriate selling method for Super Alarm Inc.

A. Employing a direct sales force B. Creating an online ordering system C. Using a mail-order catalog system D. Using a cannibalization strategy

29. When Green Water Publication publishes professional books, it donates or sends a number of these new books to university libraries and professors. Which of the following strategies is the firm using to accelerate distribution?

A. Bundling relationship B. Product modularity C. Sponsorshi p D. Consignment arrangement 30. BioMark Lifesystems Inc. wanted to enhance the adoption of its new diagnostic substances by medical laboratories. It made an agreement with the dominant producer of syringes and test tubes to have its diagnostic substances sold to laboratories in a package along with the syringes and tubes. Such an arrangement is known as:

A. sponsorshi p.

B. product modularity.

C. a bundling relationship.

D. disintermediati on.

31. _____ marketing is an attempt to capitalize on the social networks of individuals to stimulate word-of-mouth advertising.

A. Ambus h B. Vira l C. Tes t D. Realtime 32. Which of the following statements is true of innovators and early adopters?

A. They are unwilling to take risks and to pay high prices.

B. They may demand considerable customization and technical support.

C. They are more likely to respond to marketing that communicates the product's completeness.

D. For this market segment, detailed technical information is not as important as using market channels with high reach and high credibility.

33. In the context of a firm's product diffusion curve, when there is a chasm between early adopters and early majority customers:

A. the firm must reduce its production capacity.

B. the firm should improve its efficiency to target the mass market.

C. the early majority market becomes saturated.

D. the early majority market is ready to buy the product.

34. Preadvertised products that are not actually on the market yet and may not even exist are referred to as _____.

A. substitute products B. value-added products C. consignmen ts D. vaporwa re 35. Which of the following statements is true of using marketing to shape perceptions and expectations?

A. Preannouncements reduce excitement about a product before its release.

B. A firm that aggressively promotes its products loses its actual installed base and its perceived installed base.

C. A firm should avoid using vaporware if other vendors beat the firm to market and the firm fears that customers may select a dominant design.

D. A firm can signal its commitment to an industry by making substantial investments that would be difficult to reverse.

Essay Questions

36. BioSense Prosthetics Inc. is a market leader in prosthetics and earns very high profits.

The company has developed a computerized prosthetic arm and is trying to decide when to introduce it to the market. What options does it have?

37. When Pearl Soft Shampoo was released by Clary Laboratories Inc. in the late 1970s, it was an innovative hair care concept because it repaired split ends. Even though the new product was an improvement on the previous ones, Clary Laboratories entered the market with low prices and dealer incentives. Discuss the possible reasons for this marketing strategy.

38. Gerald Rupert is a retired race car driver. He is writing a book and planning a video release to share his racing experiences. He is trying to decide whether to market these items directly to consumers over the Internet or to use intermediaries. To make this decision, he needs to know the pros and cons of each route. Provide the necessary information and make a recommendation to him.

39. Frosty Products Inc. is coming out with a new type of computerized refrigerator with a flat panel display that accesses the Internet for recipes, nutrition information, etc. Which group (innovators, early adopters, early majority, late majority, or laggards) should the company target its promotion toward initially, and what type of message and medium should it use?

40. In the context of Gladwell's theories, define the terms connectors, mavens, and salespersons.

Chapter 13 Crafting a Deployment Strategy Answer Key True / False Questions 1.

The value of a technological innovation is solely determined by what the technology

(p. 291) can do.

FALSE Difficulty: 1 Easy

2.

Firms should always be racing to launch their products as early as possible.

(p. 292)

FALSE Difficulty: 1 Easy

3.

Cannibalization is the process by which a firm's sales of one product diminish due to a

(p. 293) substitute product offering by a competitor.

FALSE Difficulty: 1 Easy

4.

If a firm wishes to avoid giving away its own installed base or complementary goods

(p. 294) advantages to others, it may protect them by ensuring its products are incompatible

with those of future entrants.

TRUE Difficulty: 1 Easy

5.

If a firm's objective is maximum market skimming, it will initially set a high price on

(p. 295) new products.

TRUE Difficulty: 1 Easy

6.

Firms intending to maximize market share typically use market skimming pricing

(p. 295) strategy.

FALSE Difficulty: 1 Easy

7.

Firms in industries characterized by increasing returns will often use the objective of

(p. 296) maximizing market share and a penetration pricing strategy.

TRUE Difficulty: 1 Easy

8.

Firms can accelerate distribution of a new technology by bundling it with another

(p. 300) product that is already in wide use.

TRUE Difficulty: 1 Easy

9.

In crafting an advertising message, firms must focus more on making the

(p. 294) advertisements entertaining and memorable than on providing a significant quantity

of informative content.

FALSE

Difficulty: 1 Easy

10.

Viral marketing is based on the fact that people are more receptive to, or have

(p. 302) greater faith in, information that comes through personal contacts.

TRUE Difficulty: 1 Easy

11.

Marketing channels that enable high content and selective reach are appropriate for

(p. 304) innovators and early adopters.

TRUE Difficulty: 1 Easy

12.

In marketing a new product to the late majority and laggards, a company should

(p. 304) emphasize the advanced technological features of the new product.

FALSE Difficulty: 1 Easy

13.

Firms often find it is difficult to make the transition between successfully selling to

(p. 304) early adopters versus the early majority.

TRUE Difficulty: 1 Easy

14.

While mavens with a valuable piece of information are likely to expose it to a great

(p. 307) number and diversity of people, connectors are likely to convey the information to

fewer people but in more detail.

FALSE Difficulty: 1 Easy

15.

A firm can signal its commitment to an industry by making substantial investments

(p. 308) that would be difficult to reverse.

TRUE Difficulty: 1 Easy

Multiple Choice Questions 16.

When Pearl Love Inc. introduced its new range of bodywash, consumers switched

(p. 293) from using its soaps, being sold under the same brand name, to using the bodywash.

As a result, the company experienced a sharp drop in its soap sales. This scenario represents:

A. cannibalizati on.

B. the vampire effect.

C. the halo effect.

D. vaporwar e.

Difficulty: 3 Hard

17.

BioSense Prosthetics Inc. was a leader in the prosthetics market and was earning very

(p. 293) high profits. The firm developed a new computerized prosthetic arm that would

render its previous models obsolete. It decided to withhold the new computerized prosthetic arm from the market. This would allow the firm to:

A. minimize its return on investment in developing each generation of the product.

B. make its products backward compatible.

C. avoid cannibalization of the sales of its current prosthetics.

D. build a smaller installed base for the new computerized prosthetics.

Difficulty: 2 Medium

18.

Maverick Systems Inc. is a leading company in the mobile phone market, and profits

(p. 293) from its mobile phones are very high. Maverick Systems has developed a new

generation of smartphones, which is better than its existing line of smartphones, and has decided to embrace cannibalization of its existing line of smartphones. This means that the company is going to:

A. introduce the new technology right away and increase its market lead while taking away profits from its existing line of smartphones.

B. delay introduction of the next generation product until profits have begun to significantly decrease for the existing line of smartphones.

C. use up most of its financial resources in promoting the new phone.

D. wait for the existing line of smartphones to become obsolete and then introduce the new generation of smartphones into the market.

Difficulty: 2 Medium

19.

Genetech Inc. has produced a new generation of video game consoles. The new

(p. 295) product can be used to run the games used in the previous generation of the video

game console as well. In this context, Genetech is most accurately applying the concept of:

A. backward integration.

B. backward compatibility.

C. backward linkage.

D. backward traceability.

Difficulty: 2 Medium

20.

Speeding Horse Inc., a leader in the video game console market, is making its new

(p. 296) generation consoles backward compatible with its previous games. This means that:

A. it is giving away its own installed base or complementary goods advantages to competitors.

B. it is providing a significant incentive to the owners of its previously developed consoles to buy the new console.

C. the transition of customers through product generations will become impossible.

D. a large range of complementary goods of the previous generations, mainly the games, will lose its existing value and utility.

Difficulty: 2 Medium

21.

Which of the following is an advantage of making a new generation of technology

(p. 295) backward compatible?

A. Consumers will have to buy completely new complements.

B. Consumer switching costs may be lower because they anticipate using their existing complements.

C. It directly increases the sales of complementary goods for its new generation of technology.

D. It is typically less expensive to make a new generation of technology backward compatible than to make it incompatible.

Difficulty: 2 Medium

22.

A(n) _____ price strategy is a short-run strategy that prices goods to cover variable

(p. 295) costs and some fixed costs, and it is used by firms in industries plagued with intense

price competition.

A. market skimming B. penetrati on C. surviv al D. econom y Difficulty: 1 Easy

23.

When Sports 360, a sports bar in New York, saw yet another sports bar open up

(p. 295) across the street, it knew that it would have to lower its price again to stay in

business. The city already had too many sports bars, and Sports 360 intended on being one of those left after the inevitable shake out. In this situation, the best pricing strategy for Sports 360 would be:

A. premium pricing.

B. market skimming.

C. survival pricing.

D. a freemium program.

Difficulty: 2 Medium

24.

The Rocketingbusiness.com Web site offers large volumes of business research

(p. 296) information for no cost. If a user is interested in more comprehensive information and

business consultation, the site offers these services for a premium fee. This is typically an example of _____ pricing model.

A. penetrati on B. market skimming C. surviv al D. freemiu m Difficulty: 2 Medium

25.

Companies that buy manufacturer's products in bulk and then resell them (often in

(p. 297) smaller or more diverse bundles) to other supply channel members are referred to as

_____.

A. wholesale rs B. manufacturers' representatives C. retaile rs D. value-added resellers Difficulty: 1 Easy

26.

Gemini Car Inc. buys car components from various manufacturers and assembles

(p. 298) them into cars, which it sells under its own brand name. From the given information,

Gemini Car is most accurately an example of a(n):

A. pirate operator.

B. original equipment manufacturer.

C. disintermediation factor.

D. category captain.

Difficulty: 2 Medium

27.

Blue Water Publication Corp. is planning to sell its books solely through its Web site

(p. 298) BlueWaterbooks.com. By doing so, it ceases to require wholesalers and retailers. This

is most accurately an example of:

A. disintermediati on.

B. backward compatibility.

C. value added reselling.

D. bundling arrangement.

Difficulty: 2 Medium

28.

Super Alarm Inc. makes customized door security systems, which it sells under its

(p. 299) own brand name. These security systems require installation, extensive customer

education, and regular services. _____ would be the most appropriate selling method for Super Alarm Inc.

A. Employing a direct sales force B. Creating an online ordering system C. Using a mail-order catalog system D. Using a cannibalization strategy Difficulty: 2 Medium

29.

When Green Water Publication publishes professional books, it donates or sends a

(p. 300) number of these new books to university libraries and professors. Which of the

following strategies is the firm using to accelerate distribution?

A. Bundling relationship B. Product modularity C. Sponsorshi p D. Consignment arrangement Difficulty: 2 Medium

30.

BioMark Lifesystems Inc. wanted to enhance the adoption of its new diagnostic

(p. 300) substances by medical laboratories. It made an agreement with the dominant

producer of syringes and test tubes to have its diagnostic substances sold to laboratories in a package along with the syringes and tubes. Such an arrangement is known as:

A. sponsorshi p.

B. product modularity.

C. a bundling relationship.

D. disintermediati on.

Difficulty: 3 Hard

31.

_____ marketing is an attempt to capitalize on the social networks of individuals to

(p. 302) stimulate word-of-mouth advertising.

A. Ambus h B. Vira l C. Tes t D. Realtime Difficulty: 1 Easy

32.

Which of the following statements is true of innovators and early adopters?

(p. 304)

A. They are unwilling to take risks and to pay high prices.

B. They may demand considerable customization and technical support.

C. They are more likely to respond to marketing that communicates the product's completeness.

D. For this market segment, detailed technical information is not as important as using market channels with high reach and high credibility.

Difficulty: 2 Medium

33.

In the context of a firm's product diffusion curve, when there is a chasm between

(p. 305) early adopters and early majority customers:

A. the firm must reduce its production capacity.

B. the firm should improve its efficiency to target the mass market.

C. the early majority market becomes saturated.

D. the early majority market is ready to buy the product.

Difficulty: 2 Medium

34.

Preadvertised products that are not actually on the market yet and may not even

(p. 306) exist are referred to as _____.

A. substitute products B. value-added products C. consignmen ts D. vaporwa re Difficulty: 1 Easy

35.

Which of the following statements is true of using marketing to shape perceptions and

(p. 308) expectations?

A. Preannouncements reduce excitement about a product before its release.

B. A firm that aggressively promotes its products loses its actual installed base and its perceived installed base.

C. A firm should avoid using vaporware if other vendors beat the firm to market and the firm fears that customers may select a dominant design.

D. A firm can signal its commitment to an industry by making substantial investments that would be difficult to reverse.

Difficulty: 2 Medium

Essay Questions

36.

BioSense Prosthetics Inc. is a market leader in prosthetics and earns very high profits.

(p. 291- The company has developed a computerized prosthetic arm and is trying to decide 292)

when to introduce it to the market. What options does it have?

One option is to withhold the computerized prosthetic arm from the market until sales and profits from its current offerings begin to decline significantly. This will allow it to maximize its investment in its current prosthetics. The danger in this is that the competition might introduce a computerized prosthetic arm that could steal market share from BioSense and cause the company to fall behind in the market. The other option is to introduce the product immediately and embrace cannibalization of its current product. This could help the company to increase its lead in the market and could create a bigger gap between itself and its competitors.

Difficulty: 3 Hard

37.

When Pearl Soft Shampoo was released by Clary Laboratories Inc. in the late 1970s, it

(p. 295- was an innovative hair care concept because it repaired split ends. Even though the 296)

new product was an improvement on the previous ones, Clary Laboratories entered the market with low prices and dealer incentives. Discuss the possible reasons for this marketing strategy.

When achieving high volume is important, firms will often emphasize a maximum market share objective. To maximize market share, firms often use penetration pricing. The firm set the lowest price possible hoping to rapidly attract customers, driving volume up and production costs down. Low pricing was a way to penetrate an already crowded shampoo market. Offering dealer incentives helped the company to gain shelf space and the low price helped Clary Laboratories "buy market share." This helped the company to increase production and take advantage of lower production costs to keep prices lower.

Difficulty: 2 Medium

38.

Gerald Rupert is a retired race car driver. He is writing a book and planning a video

(p. 297) release to share his racing experiences. He is trying to decide whether to market

these items directly to consumers over the Internet or to use intermediaries. To make this decision, he needs to know the pros and cons of each route. Provide the necessary information and make a recommendation to him.

Gerald Rupert can sell the book and the video online. This will give him complete control over the product and the profits. He can establish a Web site or even sell it on eBay. However, he will have to advertise to get customers to his Web site. He will need to have his own storage and shipping facility as well as personnel to handle the orders. If he sells through intermediaries, they may also sell his items via the Internet.

Online stores like Amazon.com may sell the item for him. Bookstores may sell the items both in their retail outlets and online. In this case, he will have to ship large quantities to the intermediaries and they will break them down into single units and do the shipping. Of course, he will have to share his profits but will also have reduced costs. The best recommendation is to use intermediaries. Students' answers will vary.

Difficulty: 2 Medium

39.

Frosty Products Inc. is coming out with a new type of computerized refrigerator with a

(p. 304- flat panel display that accesses the Internet for recipes, nutrition information, etc.

305)

Which group (innovators, early adopters, early majority, late majority, or laggards) should the company target its promotion toward initially, and what type of message and medium should it use?

Not only are innovators and early adopters the first to adopt a new product, they are also often the opinion leaders for others, so they should be targeted first. They are most interested in a product that offers advanced technology with significant advantages over previous generations, which should be emphasized in the promotional campaign. A medium that allows Frosty Products to explain in detail the technological advances and advantages of its new refrigerator should be used.

Magazines, trade journals, and newspapers are good media examples for this approach.

Difficulty: 2 Medium

40.

In the context of Gladwell's theories, define the terms connectors, mavens, and

(p. 307) salespersons.

Gladwell identifies three distinct types of individuals who have disproportionate amount of influence: connectors, mavens, and salespersons.

Connectors are individuals who tend to form an exceptionally large circle of acquaintances. They belong to multiple social worlds. Thus, connectors can bring together people who would otherwise be unlikely to meet.

Mavens are individuals who are driven to obtain and disseminate knowledge about one or more of their interests. They will frequently volunteer information and derive great pleasure out of helping other consumers.

Finally, salespersons are those individuals who are naturally talented persuaders.

Such individuals are gifted at providing verbal responses that their listener is likely to find compelling. These individuals can infect others with their mood.

Difficulty: 2 Medium