MGMT 495 Practice Midterm #1

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. Two or more firms performing at the same level have competitive parity. Therefore, a firm has competitive parity if it produces wall clocks at the same rate as its competitors.

_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.

Economic value created Economic value created is the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it.

Euan manages product design and development at a toy company. The junior managers who report to him tell him that new complementors for the firm's products are available. What should Euan's reaction be?

He needs to find out if his company as well as other companies can provide the complements. Complements increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm. Firms may choose to provide the complements themselves or work with another company to accomplish this.

_____ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.

Isolating mechanisms Isolating mechanisms are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

PESTEL framework The PESTEL framework allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

Which of the following is an example of a business acting upon an organizational core value?

Pegasus Autos reduces engine emissions below federal guidelines to reduce pollution. Organizational core values are the ethical standards and norms that govern the behavior of individuals within a firm or organization. By lowering engine emissions below beyond what federal laws require, Pegasus Autos is acting on an ethical standard and thus an organizational value.

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research & development expense/Revenue, and

Selling, general, & administrative expense/Revenue. The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research & Development (R&D) expense/Revenue, and Selling, general, & administrative (SG&A) expense/Revenue.

_____ are the legal owners of public companies.

Shareholders Shareholders—individuals or organizations who own one or more shares of stock in a public company—are the legal owners of public companies.

Upper management at Softstep Inc., a manufacturer of insoles for shoes, wants to work on improving the product lines it already has without taking on other challenges at this time. Which of the following vision statements reflects that goal?

Softstep Inc. wants to be the best manufacturer of insoles in the industry. Because it of its goals, Softstep would choose a product-oriented vision statement, which focuses employees on improving existing products and services without consideration of underlying customer or employee problems to be solved.

What is the strategic management process?

Strategic leaders design a method to formulate and implement strategy. The strategic management process is a method put in place by strategic leaders to formulate and implement a strategy.

Keeping in mind the five forces in the airline industry, which of the following best explains the difficulty airlines have in generating a profit?

Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry. The competitive forces are quite unfavorable for generating a profit potential in the domestic airline industry. Substitutes are readily available: If customers believe prices are too high, they can drive their cars or use the train or bus.

When the strong dictatorial rule in Backenstein unexpectedly collapsed due to the shocking death of the royal family in an explosion, the nation's economy experienced drastic changes. The laws became more restrictive, the country lost many locally produced resources and products, and the distribution of wealth became inequitable. The unexpected event that led to these changes can best be described as a(n) _____ event.

black swan The unexpected event that led to these changes can best be described as a black swan event. The metaphor of a black swan describes the high impact of a highly improbable event.

Corporate executives at LikeReal, Inc. decide to compete in the remote model airplane industry by making the largest model planes available. By doing this, they completed part of their

business strategy. Business strategy deals with differentiation, such as making a product that is in some way different from the product of competitors. LikeReal, Inc. is doing this by making the largest model planes available.

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate?

perfect competition The iron ore industry best illustrates a perfect competition. A perfectly competitive industry is characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices.

Which of the following strategies does Tesla need to implement or achieve to gain a competitive advantage?

reinvest profits to build successively better electric automobiles As mentioned in Chapter Case 1, Tesla has consistently reinvested its profits to build successively better models of electric cars while keeping its strategy secret from competitors.

Although True Ion Inc. and One Electro Inc. operate in the same consumer electronic industry, True Ion Inc. has better sales and brand equity. This is attributed to True Ion Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which One Electro Inc. lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated?

resource heterogeneity The scenario illustrates resource heterogeneity. In the resource-based view, a firm is assumed to be a bundle of resources, capabilities, and competencies. The first critical assumption—resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. Resource immobility, the tendency of resources to be "sticky," is not discussed in this example. Value and imitability are aspects of the VRIO framework, not critical assumptions of the resource-based view.

As the CEO of a conglomerate, Eva Morris 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, Eva has demonstrated

strategic leadership. In this scenario, Eva has demonstrated strategic leadership. Strategic leadership pertains to executives' use of power and influence to direct the activities of others when pursuing an organization's goals.

A firm's _____ relates to its ability to create value for customers (V) while containing the cost to do so (C).

strategic position A firm's strategic position relates to its ability to create value for customers (V) while containing the cost to do so (C). Competitive advantage flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it (V minus C).

Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?

the balanced-scorecard model By relying on both an internal and an external view of a firm, the balanced-scorecard combines the strengths provided by the individual approaches to assessing competitive advantage: economic value creation, accounting profitability, and shareholder value creation.

The management of a company is assessing the value of all the tangible resources the company owns. Which of the following will be included in this assessment?

the punch presses that produce parts The company's plant and machinery will be included in the assessment of the value of all the tangible resources the company owns. Tangible resources have physical attributes and are visible. Examples of tangible resources are labor, capital, land, buildings, plant, equipment, and supplies.

Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?

the triple-bottom-line approach The triple-bottom-line approach considers a combination of economic, social, and ecological concerns that can lead to a sustainable strategy.

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. A vision is a statement about what an organization ultimately wants to accomplish; it captures the company's aspiration. Wendy Kopp, founder of Teach for America, declared the organization's vision to be "One day, all children in this nation will have the opportunity to attain an excellent education." By developing this vision, she helped to attract promising college graduates and get them interested in teaching. Klopp's vision attempts to inspire the best and brightest young professionals to contribute to society by becoming teachers.

Cartech Inc. is a manufacturer of automobile parts, which it sells to retail auto supply stores. Its core competencies include superior design and engineering capabilities, as well as a highly integrated and efficient supply chain. To sustain its competitive advantage, Cartech should first

upgrade its engineering department and improve its supply chain. Core competencies that are not continuously nourished will lose their ability to yield a competitive advantage. Cartech should prioritize upgrading or improving its core competencies to ensure that competitors do not develop superior skills in those areas.

The CEO of Mabel Automobiles was the child of parents who had difficulty making enough money to support their family. As a result, he and his siblings did not have access to many advantages that children from wealthier families had. This CEO, therefore, emphasized making affordable, low-maintenance vehicles that could be bought by low-income households. Which of the following does this example demonstrate?

upper-echelons theory Upper-echelons theory is a conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team, who interpret situations through the lens of their unique perspectives. The values of the CEO of Mabel Automobiles influenced organizational outcomes, specifically making affordable vehicles that could be bought by low-income households.

Crystal Tech Inc.'s competency in designing and manufacturing efficient microprocessors has made its laptops the most advanced computers in the market. This competency, along with the just-in-time manufacturing system, has enabled Crystal Tech Inc. to increase its profitability by lowering its production costs. Thus, Crystal's competency in designing and manufacturing microprocessors will be considered a(n) _____ resource in the VRIO framework.

valuable Crystal's competency in designing and manufacturing microprocessors will be considered a valuable resource in the VRIO framework. A resource is valuable if it helps a firm increase the perceived value of its product or service in the eyes of consumers, either by adding attractive features or by lowering price because the resource helps the firm lower its costs.