Business strategy Exam 1 Self Study Questions
Which of the following statements is true of corporate strategy?
A corporate strategy must be able to create synergies across business units that are quite different.
Which of the following is an example of competitive parity?
A firm produces a similar number of wall clocks at a similar cost as its competitors.
Which of the following statements is true of the social responsibilities of a business?
A firm's ethical responsibilities go beyond its legal responsibilities.
As manager of a major producer of automobile airbags, you have recently introduced the following vision statement: to protect the health of every driver and passenger. How can you ensure that your employees feel invested in and inspired by the firm's vision?
Ask employees for feedback on the vision statement and revise based on their input.
First Pharma Inc. and GeoVax Inc. are two competing firms in the pharmaceutical industry. While First Pharma Inc.'s vision is "to be a preeminent drug manufacturer in the industry," GeoVax Inc.'s vision is "to make good health a reality for everyone around the world." Which of the following is an implication of these different visions?
GeoVax Inc. will be more flexible than First Pharma Inc. when adapting to changing environments.
Which of the following is primarily a value driver?
complements
One way to foster ethical behavior in employees is to
create a control system that encourages desired values.
Hooli, a web development firm, wants to implement an organic structure to foster innovation and attract the most talented creative minds. Which of the following features will make it difficult to do so?
dedication to a cost-leadership business strategy
Food Tiger Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against Food Tiger's low prices. Thus, Food Tiger has a competitive advantage due to its
economies of scale.
To support the rise of emergent strategies, an organization should
empower lower-level employees to take up autonomous actions.
In the AFI strategy framework, strategy analysis primarily involves
evaluating the effects of internal resources and core competencies on a firm's potential to gain and sustain a competitive advantage.
Managers use the AFI strategy framework to
explain and predict differences in firm performance
Tom is the inventor of a personal fitness tracking device, and he is in the process of hiring employees after receiving investment funding. When considering how to structure his company, he should
first establish a strategy and let that be him guide.
Power Juice is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Power Juice has decided to pursue a differentiation strategy. In this case, she should
focus on adding unique features to her product that customers will value.
LinkedIn, a professional social media website, allows its users to create their profiles for free, but charges a premium price for additional services. This is an example of a ________ business model.
freemium
Strategies developed at the departmental level, such as the accounting, human resources, production, and marketing departments, within a strategic business unit are referred to as ________ strategies.
functional
The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
high price, high comfort, high customer service, high concessions variety, low hours of operation
As a part of strategy formulation, a firm's functional strategy primarily concerns questions relating to
how to implement business strategy.
Strategic commitments are actions that are
long-term-oriented.
To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly
organic.
Which of following practices of a firm satisfies its ethical responsibilities?
selling vaccines at a subsidized price in a less developed country even though this results in reduced shareholder returns
A customer-oriented vision statement focuses employees to think about how best to
solve a problem for a consumer.
Dimitre Corp. has been able to gain and sustain a competitive advantage due to its strong relationship with its employees, customers, suppliers, and local communities. The company believes in lifetime employment and ensures that its employees grow along with the company. Investors are more than satisfied with the returns on their investments. Also, 3 percent of the company's profit is spent on community development. With initiatives like these, customers feel privileged to associate themselves with Dimitre products. This scenario best illustrates the implementation of a
stakeholder strategy.
In order to better achieve a competitive advantage, firms must now adopt a holistic approach towards satisfying multiple stakeholders opposed to focusing on the needs of their stockholders. This integrative approach is referred to as
stakeholder strategy.
A ________ is best described as any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures.
strategic initiative
As the CEO of a conglomerate, Sarah Cane exhibited her strong commitment toward the company's core value that customers' well-being is more important than profit when she convinced the board of directors to liquidate the company's pesticide subsidiary. The pesticide brand sold by her company was a major revenue earner in lesser-developed nations, but studies indicate that it is a carcinogen. Eva persuaded the board that the company had to be responsible toward society. In this scenario, Sarah has demonstrated
strategic leadership.
A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.
structure
A blue ocean strategy differs from a low-cost strategy in that
the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.
Which of the following could be used as an example of why a stakeholder strategy approach to business has shortcomings?
the nonsustainable debt levels incurred by sovereign governments to fund social programs
Organizational design is
the process of creating, implementing, and modifying the structure of an organization.
The Founder of Teach for America, Wendy Kopp, wants to make teaching an attractive option for promising young professionals. Identify the phrase that represents the vision she developed for Teach for America.
to give all children in the United States the opportunity to attain an excellent education
During the process of formulating an effective business model, a firm's managers should first
transform their strategy of how to compete into a blueprint of actions and initiatives.
For a firm that operates in an industry where competition is high, which of the following practices will result in inferior performance?
trying to be everything to everybody by combining different competitive strategies
The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called
value innovation.
The most important yet least visible element of organizational culture is
values.
A market penetration strategy is especially effective _______________.
when current markets are not saturated
A firm experiences diseconomies of scale when it
produces at an output level beyond the minimum efficient scale.
Which of the following best represents a customer-oriented vision statement?
"We provide solutions to professional communication needs."
Which of the following descriptions best exemplifies adverse selection?
A manager cannot ascertain the contributions of individual team members in team production.
Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company?
Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs' stocks prior to the announcement of missed earnings estimates.
Vanessa accepts a job as vice president for human resources at a paper manufacturing start-up. She discovers that the start-up believes that teamwork is so important that it plans to award all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Vanessa take regarding this plan?
Cancel the plan because under it, opportunistic employees will do little or no work
CooCoo Cola has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine CooCoo's position?
CooCoo's customers start to consider soda a commodity.
Chris is the manager of a graphic design firm, and he relies on a top-down strategic management approach to maintain tight control over the activities of his employees. The company has recently started to lose market share to its more innovative competitors, and Chris wants to encourage his employees to start contributing to the strategy formulation process to make the company more competitive. Which of the following steps should Chris take?
Designate Friday afternoons as time for employees to pursue outside interests loosely related to the business.
________ is best described as decreases in cost per unit as output increases.
Economies of scale
Which of the following is an example of a business acting upon an organizational core value?
Emerald Autos reduces engine emissions below federal guidelines to reduce pollution.
Kate is the CEO of a firm. She has an opportunity to increase the competitive advantage of her company but is not sure if accepting the opportunity is ethical. Which of the following questions would help her decide if accepting the opportunity is ethical?
How would the media report her decision to accept the opportunity if it were to become public?
One of Black Mesa's core values is to provide unbeatable customer service, a commitment introduced to the company by its founder more than 10 years ago. This value is expressed in the company's "Always You" campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer's initials onto any item for free using a patented sewing technique, two features that are not offered by any of Black Mesa's competitors. Although the campaign has resulted in a 10 percent decline in profits, Black Mesa has decided to continue to pursue its founder's vision to reward customers and maintain employees' sense of purpose. Why does Black Mesa's culture, exemplified by the "Always You" campaign, fail to support a competitive advantage?
It does not increase economic value creation for the firm.
Which of the following statements is true of organizational culture?
It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages.
How is a cost-leader protected from threats from powerful suppliers?
It is more able to absorb price increases through accepting lower profit margins.
What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies?
It reduces the trust of shareholders in the organization as a vehicle for value creation.
Alan has been an employee with StartsInc. for 15 years. He started with an entry-level job, and today he is a manager of an entire division. Over the years, Alan has acquired a reputation for doing the right things in the company. Hence, as an efficient leader, he is capable of effectively communicating and motivating his subordinates to work toward the company's vision and mission. According to the Level-5 leadership pyramid, which is the highest level of leadership Alan has reached so far?
Level 4
Maria is the Chief Operating Officer of the start-up Apps4U. In which of the following scenarios does Maria exhibit strategic leadership?
Maria schedules a meeting with the manager of the marketing department and overcomes his skepticism about a new campaign aimed at customers in the 55+ age group. Over the next three months, AppPalace gains 250,000 new users in that group.
Jonathan is the owner of a landscaping company that caters to a very wealthy clientele. His company has struggled to differentiate itself from the other high-end landscapers in the area, but because he has hired several expensive but highly qualified team members, Jonathan is unable to shift to a cost-leadership strategy. Which strategy is most likely to achieve a competitive advantage?
Narrow the scope of competition and focus on unique features such as the use of organic materials.
Better Capsules is a highly successful vitamin manufacturer. At the close of its most recent fiscal year, the company's balance sheet showed cash holdings of $110 million. Which of the following actions will provide the most benefit for stakeholders?
Reinvest profits into expanding the company and creating more jobs.
Carla recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Carla to undertake to help safeguard the company's financial health?
Request and review a copy of the firm's risk assessment plan, if such a plan exists.
Which of the following best supports the fact that Dieselgate was unethical when entering the U.S. market?
The engineers installed "defeat devices" that altered the concentration of harmful emissions when EPA regulators tested the vehicles
Which of the following is an implication of all firms in an industry pursuing a low-cost position through application of competitive benchmarking?
The firms would eventually have no resources to invest in product and process improvements.
What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are universal norms.
Which of the following is true of the board of directors in a public stock company?
Votes at shareholder meetings determine whose representatives are appointed to the board of directors.
HomeAgain is a nonprofit organization that works toward rehabilitating the homeless. The credo of the organization is "help us help you." For an organization like HomeAgain, which of the following statements would make an appropriate mission?
We help the homeless gain and sustain financial independence by providing employment opportunities.
Paul is a manager at Macmillan Toys Inc. and is friends with the company's CEO. This privilege gives Paul the information that Macmillan Toys is in the midst of talks to take over a leading rival. Paul buys stocks of Macmillan Toys with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Macmillan Toys depreciate in the following months. Are Paul's actions unethical? Why or why not?
Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.
Which of the following accurately describes an organic organization?
a flexible organization that fosters fast decision making and high employee motivation
Which of the following is an element of good strategy?
a set of coherent actions to implement the firm's guiding policy
Fang and Bone Corp. is a successful drug manufacturer. Because the pharmaceutical industry features a high rate of change and the threat of disruption is high, Fang and Bone Corp. should
be prepared to restructure as the landscape changes.
In a successful ________ strategy, the trade-offs between differentiation and low cost are reconciled
blue ocean
Blue Cat Restaurant Group relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can the Blue Cat Restaurant Group improve its ability to collaborate without sacrificing the benefits of its current structure?
by establishing cross-functional teams
A firm that uses a functional structure will typically have efficient top-down and bottom-up communication, but
communication may be hampered among the horizontal, distinct organizational functions.
Strategic leadership pertains to the use of power and influence by ________ to direct the activities of others when pursuing an organization's goals.
corporate executives
While creating its AFI strategy framework, Gordon's Consultants decided what markets the firm should compete in. By doing this, what type of strategy did the company devise?
corporate strategy
Jordan is president of a medium-sized bank. What can he do to lessen the chance of employees or board members taking part in insider trading?
create a strict code of ethics and explain that inside traders will be fired
Finger Lickin' BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?
eliminating brick-and-mortar locations and offering delivery from a central kitchen
ECO Jeans, Inc. had a mission to become the leading producer of environmentally friendly blue jeans, an emerging and in-demand category in the apparel industry. Its strategy involved leveraging a network of organic cotton farmers and suppliers of environmentally responsible synthetic materials to create a product that is durable, attractive, affordable, and 100% recyclable. However, because it did not upgrade its outdated production facilities, ECO Jeans could not assemble its products at a low-enough cost to offer the jeans at a price that was attractive to customers. ECO Jeans' strategy failed because
it was not backed up with strategic commitments.
During an AFI planning session, the managers of the Bronco Motorcycle Corporation decided to place various stages of production in different countries in order to implement the strategy of cutting overhead costs. By doing this, what issue did the firm address?
organizational design
A positive relationship between vision statements and firm performance is more likely to exist when
organizational structures are aligned with the firm's vision statement.
Which of the following is typically an economic responsibility of a firm?
paying adequate returns to the firm's stockholders on the capital invested by them
Hooper's Store Inc. started a chain of organic supermarkets that had initial success. The managers achieved a mastery of the firm's current environment, thereby filling a need in the market. However, Hooper's Store defined and measured it success by financial metrics, with a focus on short-term performance. As a result, the firm put in place metrics and systems to accommodate and manage increasing firm size due to continued success. As a result of this tightly coupled system, Hooper's Store developed a(n)
resistance to change.
The former CEO of Sam's Club, a division with its own profit-and-loss responsibility, Rosalind Brewer, reported to Walmart's CEO, C. Douglas McMillon, who as corporate executive oversees Walmart's entire operations. Sam's Club, therefore, is a ________ of Walmart.
strategic business unit
Which of the following summarizes the difference between a firm's vision and mission?
A vision states what a firm wants to accomplish; a mission states how a firm plans to accomplish this vision.
Designed to help businesses maximize sales on new products and services, _____________ involves setting rates high during the introductory phase.
price skimming
What most likely happens when a firm optimizes its organizational structure to its current situation?
It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur.
Toy sales have declined by 10 percent each year, forcing many retailers to exit the industry. To eliminate its remaining competition, Bargain Toys sells all of its product at a loss and relies on its significant cash holdings to cover costs until its competition is forced to exit the industry. Is this an example of a successful strategy? Why or why not?
No. Bargain's strategy and competitive advantage are unsustainable.
A ________ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
business-level strategy
Batt Packs recently came under criticism when a newspaper article revealed that the company's production plant had leaked a chemical compound into a sensitive wetland ecosystem. Although use of the chemical was not technically prohibited by law, the local government levied a small fine for cleaning up the spill. Environmental groups, however, argued that continued use of the chemical was damaging to the local wildlife and threatened to organize a boycott against Batt Packs. What should Batt Packs do to ensure that it meets its ethical responsibilities?
design batteries without the chemical and market them as environmentally friendly
The amount of polyethanal that can be used in household paint is legally limited to 0.03 percent. Anything beyond this amount is hazardous to health and the environment and is considered a legal offense. Consequently, PrismPaints Corp. has vouched to make its products as safe as possible. Therefore, it manufactures polyethanal-free paints even though this increases its costs and reduces the dividends paid to its shareholders in the long run. Which of the following responsibilities is Prism Paints Corp. primarily compromising in this scenario?
economic responsibilities toward its shareholders
When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it
gains market share from other firms.
According to Michael Porter, which of the following is a problem with many publicly traded companies?
They have defined value creation too narrowly in terms of financial performance.
TransNational Inc. is a large conglomerate that operates in 17 different countries. The corporate executives at the headquarters have decided that the company's objective for the next two years will be to increase its customer equity, or the value of potential future revenues generated by all its customers in a lifetime. Based on this guideline received from the top management team, the product leader of the home audio division has decided to adopt a cost-leadership strategy in all of his 17 units. Thus, the decision made by the product leader best illustrates a ________ strategy.
business
Evaluate the following statement: Strategic leaders should always try to pursue a blue ocean strategy because it is the most complex, coveted, and most desirable strategy that exists.
I disagree; firms should only pursue this strategy if they are able to reconcile the tradeoff's of each generic strategy.
Which of the following is a disadvantage of a functional strategy?
It cannot effectively address a higher level of diversification.
Deep Earth Gardening has a vision of helping every American learn how to grow their own food. Its management team recently unveiled the mission statement "A garden at every home." What is wrong with this mission statement?
It does not indicate how the company will accomplish its goals.
Suger & Sweet Sodas has seen its market share erode in recent years, as consumers increasingly turn toward healthier beverage choices such as unsweetened sparkling water. Hoping to rekindle interest in sugary sodas, Suger & Sweet decides to produce a limited run of "throwback" cans using labeling first introduced in the 1980s. What is wrong with this strategy?
It fails to face the competitive challenge.
Paper Street Soap Company, a cosmetics firm, has offices in New York, Texas, California, New Mexico, and New Jersey. Each of these offices is headed by a president who reports directly to Jennifer Watson, the CEO. The heads of the centralized HR, Finance, and Marketing teams report to Jennifer Watson as well. Managers in the various offices also report to the CEO directly. Based on this information, which of the following statements is most likely to be true?
Jennifer Watson has a wide span of control.
Jill is interested in the concept of strategy and decides to create her own. As a result, Jill says that her strategy is to focus on growth and marketing to achieve competitive advantage. How would you evaluate Jill's statement?
Jill should reevaluate her statement because it fails to meet the principles of what a strategy should be.
Jim is the CEO of a financial services firm. What action should Jim take to be sure the firm avoids moral hazards?
Jim should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.
Which of the following scenarios best illustrates a good stakeholder strategy?
Nowadays Corp. distributes only 40 percent of its annual profit after taxes to shareholders, while the remaining is invested for further research and distributed among employees and the local community.
________ are best described as the ethical standards and norms that govern the behavior of individuals within a firm.
Organizational core values
________ describes the collectively shared values and norms of an organization's members.
Organizational culture
________ refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure.
Organizational inertia
Which of the following statements should ideally reflect a firm's strategy for competitive advantage?
Our aim is to create superior customer value while controlling costs.
The Estelle Leonard Talent Agency recently underwent a reorganization. Based on customer feedback, the company eliminated many of its middle management positions and implemented a flatter structure. Which of the following is a possible drawback of this decision?
The increased span of control for remaining managers may lead to higher levels of stress and possible burnout.
Tindel Inc. competes on cost with Nirvana Sites in the web design industry. Both firms operate on a 90 percent learning curve, and neither firm is capable of increasing its cumulative output any further. How might Tindel Inc. achieve a cost-leadership position while maintaining customer satisfaction?
by incorporating new programming techniques to take advantage of experience-curve effects
Weyland Yutani Inc. is an electronic appliances manufacturer that has many strategic business units (SBUs), among which, television and computers share a close relationship. These SBUs have to fight each other for R&D funding because there is a combined amount set aside for these two units. However, they share technological findings with each other and work together to ensure that their combined output is better that of the other SBUs. Such a relationship between SBUs in a business is referred to as
co-opetition.
All of the following are generic business-level strategies except
focused marketing strategy.
Treequote Industries has produced a new piece of technology that will monitor the soil moisture in a user's garden and send a notification to an app on the user's phone when it is time to water their plants. The goal of this inexpensive technology is to entice users to purchase Treequote's more expensive automated watering system, so that they can trigger the watering process from the app on their phones. Which business model is most likely to help Treequote Industries accomplish its goals?
freemium
What do we call the board members who are part of a company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance?
inside directors
Blackzim Wireless is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer's talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this best illustrate?
pay-as-you-go
Which of the following best describes a Level 5 manager in the Level-5 leadership pyramid?
Jim is the CEO of Eco Inc.; he has helped his company in gaining and sustaining a competitive advantage through ethical decision making.
Which of the following statements is true of strategy in an organization?
Organizational structure must follow strategy in order for firms to achieve superior performance.
Laura owns and runs Cyberdyne Systems Corp., a private start-up company with a current value of $1.3 billion. Cyberdyne Systems Corp.is interested in going public to fund future growth. Which action should Laura take before Cyberdyne Systems Corp.'s initial public offering?
She should investigate Cyberdyne Systems Corp.'s existing or potential problems with ethics or the law, if such problems exist.
Which of the following real-world scenarios best exemplifies the use of organizational culture to build competitive advantage? Multiple Choice
Southwest Airlines pilots sometimes help load baggage, which results in quick turnaround time.
What is most likely to happen if a firm relies too long on a competency without honing, refining, and upgrading as the firm and the environment change?
The firm's culture can turn from a core competency into a core rigidity.
Which of the following statements is true of shareholders in a public stock company?
They are granted a charter of incorporation by the state and legally own company stock
You are the founder of NewexSurfboards, and you are considering methods of gaining and sustaining a competitive advantage. Which of the following changes has the best chance of quickly creating a sustainable advantage?
allowing customers to upload their own image designs and help assemble the finished product at retail locations
The goal of a good strategy is focused primarily on
creating superior value while containing costs.
Stephen is a mid-level manager for a high-tech start-up. He's just been asked by his boss to perform an activity that may be unethical. To improve his ethical decision making, Stephen should
imagine whether he would feel comfortable explaining and defending the decision in public.
Due to several black swan events in the past, the
implicit trust relationship between the corporate world and society at large has deteriorated.
Which of the following drivers simultaneously increases value while lowering cost?
innovation
Chad is the founder of a firm producing self-driving vehicles. Because the industry is so new and chaotic, Chad favors a top-down strategic planning approach in which he exerts strong control over all aspects of the business, from product development and design to manufacturing and marketing. What is wrong with this scenario?
The self-driving vehicle industry is changing too much for the top-down approach to be effective.
Los Pollos Hermanos is a nationwide fast-food chain. Decision power resides at the top of the organization. Each job is documented in minute detail. The firm has many levels of supervision, including vice presidents and regional managers. The firm's headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board. Based on this scenario, which of the following is an accurate statement about Tony's?
Los Pollos Hermanos has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy.
Which of the following organizational structures matches best with an international strategy?
functional
