Ch. 12

T or F: Superior value creation relative to rivals requires that the gap between the value and cost of production achieved by a company be lesser than the gap attained by its competitors

False

T or F: The firm that moves up the experience curve most rapidly will have a cost advantage vis-a-vis its competitors.

False

The _____ of a value chain provide inputs that allow the primary activities to occur. A. lateral functions B. support activities C. core activities D. central activities E. secondary activities

support activities

The _____ function of a value chain ensures that the company has the right mix of skilled people to perform its value creation activities effectively. A. finance B. marketing C. human resource D. logistics E. marketing and sales

human resource

A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if: A. the product is already being offered by local companies in the nations that the company enters. B. the product is a generic product that requires little differentiation. C. indigenous competitors in the nations that the company enters lack comparable products. D. there is a high inflation in the nations that the company enters. E. the product is perceived to be very costly in the home country of the company.

indigenous competitors in the nations that the company enters lack comparable products

A company can create more value for a product by: A. charging a higher price for the product. B. raising production costs. C. generating more profits. D. making the product more attractive. E. increasing the profitability of the product.

making the product more attractive

Of all the value creation activities in a firm, _____ create(s) value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs. A. production B. marketing and sales C. human resources D. logistics E. information systems

marketing and sales

The _____ activities of a firm have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. A. support B. tertiary C. ancillary D. primary E. secondary

primary

The value creation activities of a firm are categorized as _____ and _____. A. primary activities; support activities B. strategic activities; functional activities C. ancillary functions; tertiary functions D. primary activities; core activities E. goal-oriented activities; organizational activities

primary activities; support activities

The rate of return that a firm makes on its invested capital is referred to as _____. A. stakeholder return B. profitability C. profit growth D. process value E. strategic fit

profitability

The price that reflects an individual's assessment of the value of a product is referred to as: A. the market price. B. the customer's negotiated price. C. the base value of the product. D. the customer's reservation price. E. the profit growth price.

the customer's reservation price

For services such as banking or health care, "production" typically occurs when: A. the customer specifies the service requirements. B. the service is paid for by the customer. C. the service is designed in-house. D. the service is delivered to the customer. E. the customer gives a feedback.

the service is delivered to the customer.

In which of the following tasks will the learning effects be most significant? A. Pizza delivery for a fast-food major B. Data entry for a loan recovery center C. Assembly process involving 1,000 complex steps D. Sewing buttons onto shirts in a garment factory E. Delivering letters to different recipients

Assembly process involving 1,000 complex steps

Which of the following statements is true about economies of scale? A. Economies of scale lead to an increase in the average unit cost of a product. B. Attaining economies of scale increases a firm's profitability. C. The ability to spread variable costs over a large volume is a source of economies of scale. D. Economies of scale result due to the increase in the perceived value of a product. E. Economies of scale refer to cost savings that come from learning by doing.

Attaining economies of scale increases a firm's profitability

T or F: The ability to spread fixed costs over a large volume is one of the sources of economies of scale.

True

T or F: The actions that managers take to attain the goals of the firm are referred to as a firm's strategy.

True

Which of the following support functions is most likely to involve dealing with the organizational structure, control systems, and culture of the firm? A. Human resource function B. Logistics C. Information systems D. Company infrastructure E. Inventory management

Company infrastructure

Which of the following is a part of the organization architecture that consists of the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits? A. Reports B. Controls C. Rewards D. Knowledge flows E. Dominions

Controls

Which of the following is a support activity in the operations of a firm? A. Research and development B. Customer service C. Marketing and sales D. Creation and maintenance of information systems E. Production

Creation and maintenance of information systems

Which of the following functions creates a perception of superior value in the minds of consumers by solving consumer problems and by supporting them after they have purchased the product? A. Production B. Marketing and sales C. Human resources D. Customer service E. Logistics

Customer service

_____ is a value creation activity which falls into the category of primary activities. A. Creation and maintenance of information systems B. Customer service C. Human resources D. Logistics E. Company infrastructure maintenance

Customer service

T or F: The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.

True

T or F: The higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.

True

T or F: The various value creation activities that a firm undertakes are referred to as operations.

True

_____ refer to the reductions in unit cost achieved by producing a large volume of a product. A. Location economies B. Learning effects C. Standardization economies D. Core economies E. Economies of scale

Economies of scale

T or F: A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy.

False

T or F: According to Michael Porter, all positions on the efficiency frontier are viable.

False

T or F: According to researchers, firms facing strong pressures for local responsiveness should pursue a global standardization strategy.

False

T or F: Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only minimal additional costs.

False

T or F: Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

False

T or F: For services such as banking or health care, production typically occurs when the service is being designed by in-house professionals.

False

T or F: Learning effects will be more significant in an assembly process which involves 100 simple steps than in an assembly process which involves 1,000 complex steps

False

T or F: One key to progressing downward on the experience curve is to decrease the volume produced by a single plant.

False

T or F: The experience curve refers to the systematic increase in production costs that have been observed to occur over the life of a product.

False

T or F: The greater the consumer surplus, the lower the value for the money the consumer gets.

False

T or F: The human resource function controls the transmission of physical materials through the value chain.

False

T or F: The price a firm charges for a good or service is typically more than the value placed on that good or service by the customer.

False

T or F: The term organizational structure refers to the totality of a firm's organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.

False

T or F: Universal needs exist when the tastes and preferences of consumers in different nations are different.

False

_____ are considered a part of an organization architecture and are used to reward appropriate managerial behavior. A. Knowledge flows B. Reports C. Processes D. Incentives E. Controls

Incentives

Which of the following is most likely to be the advantage of locating a value creation activity in the optimal location for that activity? A. It increases the costs of value creation. B. It decreases consumer surplus. C. It helps the firm to achieve a high-cost position. D. It nullifies all trade barriers. E. It enables a firm to differentiate its product offering from those of competitors.

It enables a firm to differentiate its product offering from those of competitors.

How does possessing a core competence help a firm? A. It helps a firm to create value in such a way that premium pricing is impossible. B. It reduces a firm's dependence on its logistics function. C. It enables a firm to reduce the costs of value creation. D. It reduces the scope of transfer of skills to foreign markets. E. It reduces the need to replicate a business model in a foreign market.

It enables a firm to reduce the costs of value creation

In theory, which of the following advantages can be realized by a firm by implementing a global web of operations? A. It will be able to raise the perceived value of its goods and services. B. It will be able to decrease consumers' reservation price for its products. C. It will be able to decrease consumer surplus. D. It will be able to increase the cost of value creation. E. It will be able to sell its products at a price which is below its cost price in its home country.

It will be able to raise the perceived value of its goods and services.

_____ refer to cost savings that come from acquiring knowledge from doing a task. A. Learning effects B. Exponential effects C. Ancillary effects D. Economies of scale E. Location economies

Learning effects

_____ are the economies that arise from performing a value creation activity in the optimal place for that activity, wherever in the world that might be. A. Diversification economies B. Value-building economies C. Location economies D. Support economies E. Core economies

Location economies

_____ is a support activity. A. Research and development B. Production C. Marketing and sales D. Logistics E. Customer service

Logistics

Which of the following statements is true of the efficiency frontier? A. To maximize its profitability, a firm should avoid a position that lies on the efficiency frontier. B. Not all positions on the efficiency frontier are viable. C. The efficiency frontier is a function of the cost and revenue of a product. D. Positions inside the frontier are more efficient than the positions that are located on the frontier. E. It is always concave in shape because of diminishing returns.

Not all positions on the efficiency frontier are viable.

Which of the following terms best represents the norms and value systems that are shared among the employees of an organization? A. Process scenario B. Organizational structure C. Business structure D. Organizational culture E. Management structure

Organizational culture

Which of the following is a primary activity in the operations of a firm? A. Logistics function B. Research and development C. Information systems D. Human resource function E. Company infrastructure

Research and development

Which of the following operations of a firm is concerned with the design of products and production processes? A. Human resources B. Research and development C. Marketing and sales D. Materials management E. Company infrastructure

Research and development

T or F: Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation.

True

T or F: Strategic alliances allow firms to share the fixed costs of developing new products or processes.

True

The value of a product to an average consumer is V, the average price that the firm can charge a consumer for that product is P, and the average unit cost of producing that product is C. For this scenario, which of the following is true? A. The firm makes a profit so long as C is greater than P. B. The higher C is relative to P, greater will be the profit. C. The consumer surplus per unit is equal to V - P. D. The higher the intensity of competitive pressure, the higher the price charged relative to V. E. The lower the consumer surplus the greater the value for the money the consumer gets.

The consumer surplus per unit is equal to V - P.

Which of the following is true about learning effects? A. They tend to be more significant in non-repetitive tasks. B. They tend to be less significant when a task is technologically complex. C. They typically last a lifetime. D. They are important only during the start-up period of a new process. E. They do not have any effect on the cost of production.

They are important only during the start-up of a new process

T or F: Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.

True

T or F: Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.

True

Who among the following should be viewed as part of a firm's infrastructure? A. Procurement manager B. Top management C. Production manager D. Research and development scientist E. Marketing personnel

Top management

Which of the following caveats is most likely to discourage global expansion of businesses? A. Economies of scale B. High consumers' reservation prices C. Trade barriers D. Mass customization E. Low transportation costs

Trade barriers

T or F: A global standardization strategy makes most sense when there are strong pressures for cost reductions & demands for local responsiveness are minimal.

True

T or F: A localization strategy involves some duplication of functions and smaller production runs.

True

T or F: An international strategy involves taking products first produced for their domestic market & selling them internationally with only minimal local customization.

True

T or F: Consumer surplus captures some of the value of a product thereby reducing the price a firm can charges for it.

True

T or F: Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.

True

T or F: In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.

True

T or F: Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.

True

T or F: Maintaining the company infrastructure is a support activity.

True

T or F: Pressures for local representatives imply that it may not be possible to leverage skills & products associated with a firm's core competencies wholesale from one nation to another.

True

T or F: Processes are the manner in which decisions are made and work is performed within the organization.

True

T or F: Profit growth is measured by the percentage increase in net profits over time.

True

Learning effects tend to be more significant when: A. a task involves a few simple steps. B. a task is repeated for a period of over five years. C. the workforce consists of unskilled labor. D. the cumulative output becomes half of what it was originally. E. a technologically complex task is repeated.

a technologically complex task is repeated

Managers are most likely to increase the profitability of their firm by pursuing strategies that: A. add value to the firm's products. B. increase costs. C. enable the firm to reduce the depth of its product line. D. allow the firm to sell less products in existing markets. E. allow the firm to exit from relatively new markets.

add value to the firm's products.

A firm's ability to increase its profitability and profit growth by expanding globally is constrained: A. by the imperative of localization. B. by the economies of scale. C. due to customer surplus. D. due to the leveraging of skills developed in foreign operations. E. due to the dispersion of individual value creation activities.

by the imperative of localization

A firm maximizes its profitability when it: A. creates products similar to the products of its competitors. B. minimizes the value provided by its products. C. picks a position on the efficiency frontier that is not viable. D. strips all the value out of its product offering. E. configures its internal operations to support the position selected by it on the efficiency frontier.

configures its internal operations to support the position selected by it on the efficiency frontier

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the consumer captures some of that value in the form of what economists call a _____. A. firm value B. consumer surplus C. customer loyalty D. firm deficit E. profit growth

consumer surplus

Skills within a firm that competitors cannot easily match or imitate are referred to as _____. A. core competencies B. barriers to entry C. internalities D. externalities E. premium skills

core competencies

A number of studies have observed that a product's production costs decline by some quantity about each time _____ doubles. A. annual output B. cumulative output C. workforce D. fixed investment E. foreign domestic investment

cumulative output

A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a _____ strategy. A. standardization B. differentiation C. target-identification D. low-cost E. profitability

differentiation

According to Michael Porter, _____ and _____ are the two basic strategies for improving creating value and attaining a competitive advantage in an industry. A. differentiation; low-cost B. value creation; generalization C. one-size-fits-all; zero-sum D. comparison; standardization E. profitability; strategic fit

differentiation; low-cost

The efficiency frontier has a convex shape because of: A. a high-cost structure. B. diminishing returns. C. a significantly low product value. D. low production costs. E. high profit growth.

diminishing returns

According to Michael Porter, superior portability goes to a firm that: A. creates similar products as their competitors. B. keeps the gap between value and cost of production smaller than the gap attained by competitors. C. drives down the cost structure of its business. D. has the highest cost structure in the industry. E. has the least valuable product in the industry.

drives down the cost structure of its business

Spreading fixed costs over a large volume results in a cost-savings phenomenon which is referred to as: A. volume synergies. B. economies of scale. C. captured savings. D. size effects. E. location economies.

economies of scale

The _____ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position. A. demand-value model B. experience curve C. efficiency frontier D. optimal output model E. surplus curve

efficiency frontier

A firm's profitability maximizes when it: A. creates products similar to the products of its competitors. B. strips all the value out of its product offering. C. ensures that it has the right organization structure in place to execute its strategy. D. picks a position on the efficiency frontier that is not viable. E. does not configure its internal operations to reduce costs.

ensures that it has the right organization structure in place to execute its strategy

Superior value creation relative to rivals requires that the firm: A. creates similar products as its competitors so that consumers do not have to pay a premium price. B. has the highest cost structure in the industry. C. creates the least valuable product in the eyes of consumers. D. ensures that the gap between value and cost of production is greater than the gap attained by competitors. E. drives up the cost structure of its business.

ensures that the gap between value and cost of production is greater than the gap attained by competitors

The _____ refer(s) to systematic reductions in production costs that have been observed to occur over the life of a product. A. experience curve B. learning effects C. location economies D. efficiency slope E. economies of scale

experience curve

A firm creates a(n) _____ by dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized. A. integral circle B. dispersal chain C. global web D. international mesh E. worldwide circle

global web

One of the reasons why a firm typically charges for a good or service less than the value placed on that good or service by the customer is because: A. the firm attempts to create value for the consumers by providing them a wide range of products B. it is normally impossible to segment a market based on each customer's reservation price. C. the value creation results in a corresponding reduction in costs of production. D. the firm frequently modifies its products to compete with the products introduced by other firms. E. it is highly unlikely that the same good or service will be available to the customers from other firms.

it is normally impossible to segment a market based on each customer's reservation price

Labor productivity increases over time as individuals understand the most efficient ways to perform particular tasks. This is as a result of _____. A. diminishing returns B. location economies C. economies of time D. learning effects E. an efficiency frontier.

learning effects

The two phenomena that help explain the experience curve are: A. learning effects and economies of scale. B. technology inputs and wealth transfer. C. leveraging subsidiary and local responsiveness. D. standardized manufacturing and global web. E. efficiency frontier and location economies

learning effects and economies of scale

Typically, the price a firm charges for a good or service is: A. less than the value placed on that good or service by the customer. B. more than what customers assume it would be. C. more than the market price for similar goods or services. D. the same as the value placed on that good or service by the customer. E. less than the lowest priced similar good or service in the market.

less than the value placed on that good or service by the consumer.

If a value creation activity of a firm can take place in Mexico most effectively, then that activity of the firm must be based in Mexico. Firms that pursue such a strategy are most likely to realize: A. a position inside the efficiency frontier. B. the experience curve. C. economies of scale. D. location economies. E. demographic advantages.

location econcomies

The _____ function of a value chain controls the transmission of physical materials through the value chain, from procurement through production and into distribution. A. human resource B. finance C. marketing D. logistics E. research and development

logistics

The term _____ refers to the totality of a firm's organization, including its organizational structure, control systems, incentives, processes, and people. A. primary structure B. organization architecture C. organizational hierarchy D. organizational model E. management structure

organization architecture

For a firm to maximize its profitability, it is necessary that it: A. creates products similar to the products of its competitors. B. does not configure its internal operations to reduce costs. C. minimizes the value of the consumer surplus D. picks a position on the efficiency frontier that is viable. E. strips all the value out of its product offering.

picks a position on the efficiency frontier that is viable.

The amount of value a firm creates is measured by: A. the difference between the previous year's profitability and the current year's profitability. B. dividing the market price of its products by the price that customers are actually willing to pay. C. the difference between its costs of production and the value that consumers perceive in its products. D. dividing the net profits of the firm by total invested capital. E. the sum of the profitability of the last two fiscal years.

the difference between its cost of production and the value that consumers perceive in its products.

As a result of consumer surplus, a firm typically charges less price for a good or service than the value placed on it by customers because: A. the value creation results in a corresponding reduction in costs of production. B. it is highly unlikely that the same good or service will be available to the customers from other firms. C. the firm is competing with other firms for the customer's business. D. the firm charges a price that reveals a consumer's assessment of the product's value. E. the firm creates value for the customer by producing a wide range of products

the firm is competing with other firms for the consumer's business

In general, the more value customers place on a firm's products: A. the lesser the profitability of the firm. B. the higher the competitive pressure from other firms. C. the lesser the quality of the product. D. the lesser the consumer surplus for those products. E. the higher the price the firm can charge for those products.

the higher the price the firm can charge for those products.

Processes are: A. the manner in which decisions are made and work is performed within the organization. B. the metrics used to measure the performance of subunits. C. the devices used to reward appropriate managerial behavior. D. the metrics used to make judgments about how well managers are running the subunits. E. the norms and value systems that are shared among the employees of an organization.

the manner in which decisions are made and work is performed within the organization

Profit growth is measured by: A. dividing the net profits of the firm by total invested capital. B. subtracting the previous years gross profit from the current year's gross profit. C. calculating the difference between the previous year's profitability and the current year's profitability. D. the percentage increase in net profits over time. E. adding the profitability of the last two fiscal years.

the percentage increase in net profits over time.

The _____ of a firm is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product. A. customer surplus B. value creation C. cost curve D. value efficiency E. customer reservation

value creation