MGT 491 EXAM 2 CH 7&8-BSU FLORES
Pipeline businesses are typically better than platform businesses at incorporating user feedback and taking advantage of network effects.
false
Why is following an unrelated diversification strategy especially advantageous in an emerging economy?
It allows the conglomerate to overcome institutional weaknesses in emerging economies.
Which of the following is a drawback of vertical integration?
It increases the potential of legal repercussions.
hich of the following is a drawback of vertical integration?
It increases the potential of legal repercussions.
The most challenging diversification strategy is likely to be one that combines new core competencies with new and emerging markets.
true
A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.
unrelated diversification strategy
Which of the following best illustrates forward vertical integration?
A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.
How is an equity alliance different from a joint venture?
An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.
Which of the following is a feature of the shakeout phase of the industry life cycle?
Competitive intensity within the industry increases.
________, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.
Coordination costs
Ira can be categorized under the late majority customer segment. Which of the following behaviors is he most likely to exhibit?
He will prefer to buy from well-established brands rather than unknown new ventures.
________ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.
Influence costs
________ is best described as a situation in which one party is more informed than another, because of the possession of private information.
Information asymmetry
While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?
KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
Which of the following accurately describes how Netflix used innovation to gain a competitive advantage?
Netflix applied big data analytics to its user preferences to provide highly personalized viewing recommendations.
Which of the following businesses is most susceptible to negative network effects?
Pics Match is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.
Which of the following scenarios would be characteristic of an entrepreneur?
Rachel implemented a new and more efficient way to produce pottery.
Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?
The framework does not explain everything about changes in industries.
________ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.
Strategic alliances
How does a conglomerate benefit from following an unrelated diversification strategy?
The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
Which of the conditions prevail when an industry is at the end of its life cycle?
The level of process innovation reaches its maximum as firms attempt to lower cost.
Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?
The weaker firms are forced out of the industry in this stage.
Which of the following statements is true of the early majority section of consumers?
They weigh the benefits and costs carefully when adopting a new product.
Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms?
Unlike incumbent firms, new entrants do not have formal organizational structures and processes.
________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.
Vertical integration
Argus Inc. is a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?
a conglomerate
When firms innovate by leveraging existing technologies into new markets, they are said to be involved in
architectural innovations.
When a firm pursues a maintain strategy, it
continues to support marketing efforts even if the demand for the product is declining.
Firms that pursue extremely high or extremely low levels of diversification perform better than those that pursue moderate levels of diversification.
false
In which of the following stages of the industry life cycle is a standard first established?
growth stage
A factor favoring the success of disruptive innovation is that
incumbent firms are slow to change.
Decisions relating to the range of products and services a firm will offer determine the firm's
level of diversification.
A conglomerate receives less than 70 percent of its revenues from any single business and features a number of strategic business units that have little to no relationship with each other.
true
A firm that decides to stop purchasing components from suppliers and start producing them in-house is pursuing backward vertical integration.
true
Decisions relating to "what stages of the industry value chain to participate in" determine a firm's
vertical integration.
In the United States, the time period for the right to exclude others from the use of a patented technology is ________ from the filing date of a patent application.
20 years
To be successful and to survive the shakeout stage of the industry life cycle, a firm should
gain economies of scale.
A new product often has a high price when it is launched because of a
large investment in designing a product while producing small quantities.
Which of the following is an example of an internal transaction cost?
the cost of maintaining a production unit
Which quadrant in the core competence-market matrix is the hardest to pursue?
building new core competencies to create and compete in markets of the future
Using the Boston Consulting Group growth-share matrix, the managers of Xylicon International determined that their business unit devoted to personal health monitoring devices was a star. Based on this finding, which of the following strategies is likely to produce the best results?
Increase investment in the personal health monitoring unit to encourage future growth.
Dominic is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Dominic credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Dominic do to exemplify the social entrepreneurship model?
Provide free weekly catered meals for the homeless.
Which of the following is a competitive benefit experienced by the first mover firm in an industry?
The first mover will be able to reduce costs through economies of scale.
In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?
The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
Which of the following is a feature of the maturity stage of the industry life cycle?
The market reaches its maximum size.
Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
There is more strategic variety in the growth stage when compared to the introduction stage.
While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?
While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.
Royal Motor Corp. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Royal Motor Corp.?
a dominant-business firm
Which of the following best illustrates physical-asset specificity?
a machine solely designed to give a candy its trademarked shape
GoodGear is a mobile platform that matches independent fashion designers with consumers who want a personalized wardrobe. Which of the following initiatives would best allow GoodGear to fine-tune its offerings to better meet the needs of its consumers?
allowing users to provide feedback to producers on the style and fit of clothing
Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.
backward vertical integration
In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of
building new core competencies to create and compete in markets of the future.
Ancho Corp. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity. In this scenario, Ancho is primarily
building new core competencies to protect and extend current market position.
ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created?
diversification premium
Which of the following is an example of social entrepreneurship? The committee approved the new formula for an all-purpose cleaner because it
cleaned as well as other cleaners and used organic ingredients.
The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?
decline stage
A(n) ________ leverages new technologies to attack existing markets.
disruptive innovation
As a start-up company, DigiWrist entered the low end of the highly competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
disruptive innovation
Competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
disruptive innovation
In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should
divest the strategic business unit.
ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under
dogs.
The customers entering the market in the growth stage are primarily
early adopters.
At the time when Ellen decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Ellen best represent?
early majority
Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Marble emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage?
ease of use
As a research scholar, Denise had built a helicam as part of her project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, she started a new venture where she could customize these helicams to fit the specific needs of the buyers and sell them. Denise can be best described as a(n)
entrepreneur.
As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP's patents, regular users did not want to switch because they were concerned about possible side effects. Which of the following benefits does this scenario best illustrate?
first-mover advantages
Revolution Watches, a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of developing nations. Which of the following types of diversification strategies is the firm pursuing?
geographic diversification strategy
Although Mountaintop Electronics still sells its DVD players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Mountaintop Electronics adopted in this scenario?
harvest strategy
In the decline stage, which of the following strategies involves a reduction of investments in product support?
harvest strategy
The Martinez Legal Firm (MLF) recently acquired a smaller competitor, Miller and Associates, which specializes in issues not previously covered by MLF, such as land use and intellectual property cases. Given the increase in the firm's size and complexity, it is likely that its internal transaction costs will
increase.
Lillypad Toys is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should Lillypad's managers prepare for next?
increased competition from imitators
Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
incremental innovation
Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.
industry
A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n)
intrapreneur.
General Electric (GE) disrupted itself in the healthcare industry by
introducing inexpensive and smaller diagnostic devices in developing countries.
Which of the following lists the stages of the industry life cycle in the correct order?
introduction, growth, shakeout, maturity, and decline
While the personal computer industry is flooded and growing with laptops and tablets, Malik recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Ivan best represent?
laggards
Hiku Inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Broadway Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?
licensing
There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?
lowering costs
Which of the following motivations for business growth involves principal-agent problems?
motivating managers
A firm's resistance to changes in the status quo is referred to as
organizational inertia.
Bulldog Holdings is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate?
parent-subsidiary relationship
True Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, True Tomato worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate?
physical-asset specificity
Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate?
principal-agent problem
WellMade Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?
product diversification
Best Burger is a major fast food chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth?
purchasing competitors
The strategic objective of a first mover during the introduction stage of the industry life cycle is to
pursue a harvest strategy.
The core competency of GoGo Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, GoGo Motors is
redeploying and recombining existing core competencies to compete in future markets.
Beagle Autos is known for its affordable and reliable brand of consumer vehicles. Because its shareholders expect to see an improved rate of growth in the coming years, Beagle's executives have decided to diversify the company's range of products so that at least 40 percent of the firm's revenue is generated by new business units. However, the company's resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Beagle pursue?
related-constrained
Nocturnal Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Nocturnal pursuing in this scenario?
related-linked strategy
Fortress International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Fortress International applying?
taper integration
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in
restructuring.
Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Edna's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Edna Gomez?
social entrepreneur
The key objective for firms during the growth phase is to
stake out a strong strategic position not easily imitated by rivals.
The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under
stars.
Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?
the chief executive officer
Which of the following is an example of an external transaction cost?
the cost of searching for a contract manufacturer
Which of the following customer segments as described in the chasm framework make up the mass market?
the early and late majority together
What is an invention?
the transformation of an idea into a new product or process
According to the crossing-the-chasm framework, the biggest chasm between customer segments is between early adopters and the mass market made up of the early majority and the late majority.
true
Firms are more capable than markets at coordinating highly complex tasks, while markets are more capable of providing high-powered incentives for entrepreneurship.
true
For ideas and inventions to be innovative, they must first be commercialized.
true
Not all firms are motivated by a need to grow
true
Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Gold Leaf should
vertically integrate.
Anita has been named CEO of a popular sports apparel company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Anita most likely to make?
what range of products the firm should offer
Potomac Industries is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion, and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Potomac a competitive advantage?
Implement process innovations that lower per-unit costs.
Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?
It is building new core competencies to protect and extend its current market position.
Phoenix Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?
Pursue taper integration.
Which of the following is a feature of the growth stage of the industry life cycle?
The consumer demand increases.
Banana Computers has decided to procure processing chips required for its laptops from external suppliers instead of manufacturing them in their own facilities. How will this decision affect the firm?
The firm will have more flexibility in purchasing and comparing prices of goods and services.
Managers have exactly two choices when determining the boundaries of the firm: produce goods and services in-house ("make") or purchase them externally ("buy").
false
Network effects always lead to a virtuous cycle in which an increasing number of customers improves the quality of a product or service, thereby attracting more customers and continuing the cycle.
false
Social entrepreneurs forego the pursuit of profits to achieve social and environmental goals.
false
On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?
Each stage of the industry life cycle is dominated by a different customer group.
About 20 years ago, Sturdy Light, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario?
Sturdy Light was a star that developed into a cash cow.
Streaming video services replacing brick-and-mortar video rental stores would be an example of a(n)
disruptive innovation.
Sunshine Technologies introduced a tablet that could run completely on solar energy and was less expensive than competitors' tablets. On the downside, it required more frequent charging than the competition's tablets. However, the technology of the Sunshine tablet improved rapidly, thereby improving its recharge frequency. This example describes
disruptive innovation.
When Japanese carmakers entered the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in
disruptive innovation.
Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?
diversification discount
Innovation and strategic entrepreneurship can only occur within new businesses.
false
Incline Electronics relied on a large chain of consumer electronics stores to sell its tablet computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Incline products. In response, Incline Electronics decided to set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate?
forward vertical integration
The leading producer of cell phone backup batteries, Jumpstart, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Jumpstart has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the
growth stage.
Intel's Celeron chip and Atom chip are initiatives to
guard the company against disruptive innovation by protecting the low end of the market.
Process innovation typically overtakes product innovation in importance during the shakeout stage of the industry life cycle.
true
