BADM 482 Mid Term

Global Reach Corp. is a public company whose shares are currently trading in the market at $150 each. The company manufactures smartphones at the cost of $300 per unit and sells them in the market for $500 each. What is the company's producer surplus?

$200

What are the three stages of the AFI Strategy Framework?

Analyze, Formulate, Implement

Strategic initiatives undertaken by lower-level employees on their volition and often in response to unexpected situations

Autonomous actions

Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals

Balanced Scorecard

Corns the question of how to compete

Business strategy

Details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market

Business-level strategy

_______ is best described as the difference between the value a consumer attaches to a good or service and what he or she paid for it.

Consumer surplus

Happens when a firm relies too long on a competency without honing, refining, and upgrading as the environment changes

Core Rigidity

Unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage

Core competencies

Concerns questions relation to where to compete as to industry, markets, and geography.

Corporate strategy

Describe a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage

Dynamic Capabilities

Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology.

Economic of scope

A firm is required by society and its shareholders to meet its ethical and philanthropic responsibilities. (T/F)

False

A firm will always see its stock price appreciate when it demonstrates measurable growth. (T/F)

False

A local manufacturer that wants to be a global manufacturer faces few mobility barriers because it has not yet invested in supply chains, which can become outdated and expensive. (T/F)

False

Firms within the same industry automatically belong to the same strategic group. (T/F)

False

Intellectual property (IP) protections such as trademarks or patents are proven methods of establishing permanent barriers to imitation. (T/F)

False

It is helpful to break down strategy formulation and strategy implementation into five distinct areas. (T/F)

False

Managers should create two sets of core values, one for employees and one for themselves. (T/F)

False

Strategic leaders spend the majority of their time working alone to devise new strategies. (T/F)

False

The following statement by the chief executive of SunStar movie studio is an effective strategy: "We will produce the greatest films of the 21st century." (T/F)

False

The three tasks of the AFI strategy framework are to Assemble a prototype, Find a buyer, and Incorporate feedback. (T/F)

False

Attribute firm performance to the actions strategic leaders take

Firm Effects

concerns the question of how to implement a chosen business strategy

Functional Strategy

Level-5 Leadership pyramid order

Highly capable individual, contributing team member, competent manager, effective leader, executive

Describes a tendency by managers to overestimate their ability to control events

Illusion of control

Describe the underlying economic structure of the industry

Industry Effects

A process whereby formerly unrelated industries begin to satisfy the same customer need

Industry convergence

have no physical attributes and thus are invisible

Intangible Resources

Share number x Number of shares outstanding

Market Capitalization

Describes what an organization actually does

Mission

Describe the positive effect that one user of a product or service has on the value of that product or service for other users

Network Effects

The ethical standards and norms that govern the behavior of individuals within a firm or organization.

Organizational core values

Helps managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage

Porter's Five Forces

Add value directly

Primary Activities

A resource is ______ if only one of a few firms possess it

Rare

The absolute maximum a customer is willing to pay

Reservation Price

The firm's level of investments to maintain or build a resource

Resource Flows

Comes from the insight that bundles of resources, capabilities, and competencies differ across firms

Resource Heteogeneity

Describes the insight that resources tend to be "sticky" and don't move easily from firm to firm

Resource immobility

Determines the way a firm allocates its resources and can be critical in shaping its realized strategy

Resource-allocation process (RAP)

The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered in the firm goes bankrupt

Risk Capital

Describes random events, pleasant surprises, and accidental happenstances that can have a profound impact on a firm's strategic initiatives

Serendipity

Provides a decision tool with which strategic leaders can recognize, prioritize, and address the needs of different stakeholders.

Stakeholder impact analysis

An integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

Stakeholder strategy

The set of companies that pursue a similar strategy within a specific industry.

Strategic group

Pertains to executives' use of power and influence to direct the activities of others when pursuing an organization's goals

Strategic leadership

____________ is a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

Strategy

Concerns the choice of strategy in terms of where and how to compete

Strategy formulation

Concerns the organization, coordination, and the integration of how work gets done.

Strategy implementation

Add value indirectly

Support Activities

have physical attributes and are visible

Tangible Resources

Provides a relatively straightforward way to scan, monitor, and evaluate the important external factors and trends that might impinge upon a firm.

The PESTEL Model

Porter's Five Forces Model

Threat of New Entry, Buyer Power, Supplier Power, Threat of Substitution, Competitive Rivalry

Combination of economic, social, and ecological concerns that can lead to a sustainable strategy.

Triple Bottom Line

A music distributor that decides to launch a proprietary music streaming service to respond to changes in music consumption trends exhibits dynamic capabilities. (T/F)

True

According to the resource-based view, a firm that differentiates itself from its competitors through its personalized approach to customer service is likely to sustain its competitive advantage for a long time.

True

Because competitors in oligopolistic industries are so interdependent, it is especially important for managers in those firms to monitor and respond to changes their competitors make. (T/F)

True

Executives whose visions and decisions help their companies achieve competitive advantage can be considered strategic leaders. (T/F)

True

Questions asked during the strategy analysis stage of the AFI framework include "How does the firm make money?" and "What effects do forces in the external environment have on the firm's potential to gain and sustain a competitive advantage?" (T/F)

True

The efficient market hypothesis suggests that the market price of a firm's stock is an objective indicator of a firm's past, current, and expected future performance. (T/F)

True

States that organizational outcomes including strategic choices and performance levels reflect the values of the top management team

Upper-echelons theory

Enables the firm to exploit an external opportunity or offset an external threat

Valuable Resource

VRIO Framework (used to evaluate firm's resources)

Valuable, Rare, Cost to Imitate, and Firm Must be Organized

Describes the internal activities a firm engages in when transforming inputs into outputs

Value Chain

Graphically depicts a company's relative performance across its industry's factors of competition

Value curve

The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy.

Value innovation

What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission?

Values

captures an organization's aspiration and spells out what is ultimately wants to accomplish

Vision

A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2,000 annually. In this case, the market capitalization is a. $3 billion, that is, 30 million shares × $100. b. 20:1, that is, $2,000/$100. c. $200,000, that is, $2,000 × $100. d. 30,000 shares, that is, 30 million shares/$100.

a

A high percentage of R&D/Revenue ratio indicates a(n) a. strong focus on innovation to improve current products and services. b. negligent investment toward research and development. c. inefficiency in the management to focus on new products. d. strong focus on marketing and sales to promote products and services.

a

All of the following are tools primarily used to achieve cost-leadership except a. offering products at a premium price. b. controlling the cost of inputs. c. leveraging economies of scale. d. learning by doing.

a

Beats Electronics has been able to outperform Audio-Technica, Bose, JBL, Skullcandy, Sennheiser, and Sony in the high-end, premium headphone market. Which of the following statements accurately explains one of the main reasons for the success of Beats? a. It created a perception that owning its products was cool. b. It focused on sponsoring future athletic superstars. c. It emphasized marketing over core competency. d. It produced the highest-quality headphones.

a

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? a. if the industry has recently become deregulated b. if the company is able to put up a credible threat of retaliation c. if the capital requirements in the industry are high d. if the customer switching costs in the industry are high

a

Mara is a management consultant for a soda manufacturer that wants to expand into health drinks such as green tea and after-workout drinks. Based on what you have read, which of these is sensible advice for Mara to offer her client? a. "Carefully consider the entry choices over time before making a decision." b. "Pinpoint the best time to enter this new market, and then make a yes-or-no decision quickly." c. "Your best bet is to undercut competitors' prices and lure them into a price war." d. "Focus on what your company does well rather than trying to expand into untried areas."

a

The viability of a differentiation strategy is severely undermined when the a. differentiated products become commoditized throughout the industry. b. differential appeal is based more on intangible resources than tangible resources. c. focus of competition shifts to value-creating features rather than price. d. difference between perceived value and costs is significant.

a

There are several cost drivers that can be managed in order to establish a low-cost leadership advantage. One of the primary cost drivers is a. combining experience-based learning and process innovation to move onto a steeper learning curve. b. shifting to small-scale production processes in order to create highly customized products. c. creating personalized customer service in order to minimize price sensitivity among customers. d. adding unique features that turn standard commodities into differentiated products.

a

To be effective, firms need to: A. back up their visions with strategic commitments that are costly and difficult to reverse. B. increase their strategic flexibility by developing product-oriented vision statements. C. isolate top managers from the organizational values. D. pursue visions that are exclusively financial and not aspirational.

a

What is the strategic management process? a. Strategic leaders design a method to formulate and implement strategy. b. The CEO decides who the product managers will be for a company. c. The CEO defines the main problems facing a company. d. Strategic leaders focus on creating a vision that reflects the company's strategy.

a

Which of the following is a disadvantage of the balanced scorecard approach to measure firm performance? a. It provides only limited guidance about which performance metrics to choose. b. It fails to allow managers and executives to find a balance between financial and strategic goals. c. It fails to allow managers to align their different perspectives to create a more focused corporation overall. d. It only relies on an internal view of the firm, ignoring the external view.

a

Which of the following is an advantage of accounting data? a. Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms. b. Accounting data consider off-balance sheet items, which makes comparing companies with different capital structures easy. c. Accounting data focus mainly on intangible assets, which are more important than tangible assets in firms' stock market valuations. d. Accounting profitability ratios not only show us the outcomes from past decisions, but also provide information to guarantee future performance.

a

Which of the following is not a disadvantage of the balanced scorecard approach? a. It fails to allow managers to prepare the company for future growth. b. It fails to provide much insight into how metrics that deviate from the set goals can be put back on track. c. It is a tool merely for strategy implementation, not for strategy formulation. d. It provides only limited guidance about which metrics to choose to measure competitive

a

Best Mobile and Turbo Tech Inc. are two competitors in the mobile phone market. The cost incurred by each company to manufacture smartphones is $200 per unit. Although both the companies sell their smartphones at the same price, Turbo Tech has a larger market share in the laptop industry. What does this imply? a. Best Mobile has a competitive advantage over Turbo Tech. b. Turbo Tech has been able to offer more perceived value than Best Mobile. c. Best Mobile has created a higher value gap than Turbo Tech. d. Turbo Tech has a cost advantage over Best Mobile.

b

Economic contribution is created when the a. value a consumer attaches to a good or service is lesser than what he or she paid for it. b. price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it. c. price a customer is willing to pay for a good is less than what it costs the firm to manufacture it. d. revenue generated by selling a unit of a product is equal to the cost incurred by the firm in producing it.

b

Facing stiff competition in the e-reader market, Sumac Industries wants to protect its competitive advantage by increasing the perceived value of its reader. Sumac's best strategy to accomplish this would be to a. try to imitate some of the features found in competing products. b. highlight the number of celebrities who use Sumac e-readers. c. increase the cost of production to add innovative new features. d. lower the retail price of its e-reader to attract new customers.

b

How do strong ethical values benefit a firm? a. They lay the groundwork for a quick increase of profits and short-term success. b. They serve as the guardrails put in place to keep the company on track when pursuing its mission. c. They emphasize benefiting stakeholders by significantly increasing profit. d. They provide strong public relations, which can either benefit or hinder competitive advantage.

b

In 2008, BlackBerry's market cap peaked at $75 billion. By 2017 this valuation had fallen more than 90 percent, to $3.9 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline? a. BlackBerry failed to offer strong security features for its device. b. BlackBerry failed to change its device into one that could perform multiple tasks effectively. c. BlackBerry failed to adapt to a groundswell that involved workers bringing mobile devices to work. d. BlackBerry failed to produce an efficient emailing system using a keyboard.

b

In a focused differentiation strategy, a firm seeks to a. offer low-priced products and services with a narrow focus on a niche market. b. deliver products or services with unique features to a specific, narrow part of the market. c. focus on reducing the value gap to differentiate itself from the competitors. d. create higher customer value than the competitors in different segments of a mass market.

b

In the financial year 2016, for every $100 in revenues, Microsoft earned $21.5 in profit, while Apple earned $20.6 in profit. This demonstrates that a. Microsoft was more efficient than Apple in producing its goods. b. Microsoft's return on revenue was higher than that of Apple. c. Microsoft was using its capital more efficiently to generate revenue than Apple. d. Apple's inventory turnover was more than that of Microsoft's.

b

Red Hot Inc. and Maverick Cycles Inc. are two competing motorcycle companies. While Red Hot's Cost of goods sold/Revenue is 63.4 percent, the Cost of goods sold/Revenue of Maverick Cycles is 54.2 percent. What do you infer from this financial data? a. Red Hot is able to command a greater price premium for its products than Maverick Cycles. b. Red Hot is less efficient than Maverick Cycles in producing goods. c. Red Hot and Maverick Cycles have achieved a competitive parity. d. Red Hot has a higher profit margin than Maverick Cycles.

b

Smooth Fusion Inc. is a software company that has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of Smooth Fusion Inc. will best enable it to gain and sustain a competitive advantage? a. the headquarters building owned by the company b. the expertise acquired by the employees in the company c. the cloud computing service that it uses d. the capital the company raised from its shareholders

b

Strategic thinking is different from strategic planning in that a. strategic thinking is regimented and confining, whereas strategic planning is more flexible. b. strategic thinking includes all types of information sources while strategic planning does not. c. strategic thinking relies more on hard data than strategic planning. d. strategic thinking can create an illusion of control, whereas strategic planning avoids this.

b

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? a. a culture of proactive communication b. the punch presses that produce parts c. a reputation for fast customer service d. patents for electronic components

b

When using the balanced scorecard approach to assess a firm's performance, which of the following is not a key question that managers need to answer? a. How do we create value? b. What intangible assets do we need? c. How do shareholders view us? d. How do customers view us?

b

Which of the following is a drawback of Porter's five forces model? a. The model fails to consider that threat of substitutes can come from outside a given industry. b. Managers cannot determine the changing speed of an industry or the rate of innovation. c. It fails to provide a basis for deriving implications for a firm's strategic position within an industry. d. The model describes competition narrowly as a firm's closest competitors.

b

Which of the following methods of developing a strategy best illustrates scenario planning? a. Based on the previous year's profits, the CEO of Solva Inc. decided to adopt an expansion strategy in its home market. b. The managers at Lyon Clothing Inc. formulated a strategy that is able to handle small to medium to large increases in the prices of cotton in the future. c. The CEO of BCT Inc., a large conglomerate, has decided to enter the South American market based on the competitor's success in the same market. d. A sales person at MP Foods Inc. suggested that the company should introduce an organic version of its gelato to cater to the needs of the increasingly health-conscious population.

b

a. In the resource-based model, only physical assets of a firm are considered as resources, whereas in perfect competition, a firm's capabilities and competencies are also considered as resources. b. In perfect competition, all firms have access to the same capabilities, whereas in the resource-based model, resource differences exist between firms in the same industry. c. In the resource-based model, resources are freely available and mobile, whereas in the perfectly competitive industry structure, resources are highly immobile. d. In perfect competition, it is extremely difficult to replicate the resource bundles of a firm, whereas in the resource-based model, it is extremely easy to imitate them.

b

Fran owns Consolidated Auto Parts, a company that got its start making auto parts related for hybrid vehicles, but her firm has had difficulty establishing itself as a maker of parts for the more-profitable internal combustion engine. What is most likely contributing to Consolidated's problem in this area? a. It is difficult for outsiders to gauge which stage of the "life cycle" that industry is in. b. Newcomers cannot use existing assets or reconfigure their value chains. c. Entry barriers usually protect the incumbent players in a profitable industry. d. New competitors usually ignore stakeholders who are not stockholders.

c

Several senior managers recently left Bass Automobile Inc. and went to work at Unicorn Autos Inc., a rival company. What does this imply? a. The resource stock of Bass Automobiles Inc. increased. b. The resource flow into Unicorn Autos Inc. was reduced. c. Bass Automobiles Inc. faced resource leakage. d. Bass Automobiles Inc.'s tangible assets decreased.

c

The Lynx Manufacturing Company produces components used in electronic toys. In fiscal year 2017, Lynx earned an accounting profit of $3 million. However, Lynx's production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true? a. Lynx suffered an economic loss of $500,000. b. Lynx suffered an economic loss of $2.5 million. c. Lynx earned an economic profit of $500,000. d. Lynx earned an economic profit of $5.5 million.

c

The internet service provider industry in the country of Megalopolis is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the internet service provider industry, the a. threat of substitutes is most likely high. b. entry barriers are most likely nonexistent. c. threat of new entrants is most likely low. d. bargaining power of buyers is most likely low.

c

What part of the AFI strategy framework does the question "How does the firm make money?" relate to? a. strategic leadership and the strategy process b. external analysis c. competitive advantage, firm performance, and business models d. internal analysis

c

Which of the following is an implication of high employee turnover in a company? a. It makes the source of the company's competitive advantage socially complex. b. It results in greater immobility and heterogeneity of the company's resources. c. It results in a reduction in the company's intangible-resource stocks. d. It makes the source of the company's competitive advantage causally ambiguous.

c

Which of the following methods of developing a strategy best illustrates scenario planning? a. A sales person at MP Foods Inc. suggested that the company should introduce an organic version of its gelato to cater to the needs of the increasingly health-conscious population. b. The CEO of BCT Inc., a large conglomerate, has decided to enter the South American market based on the competitor's success in the same market. c. The managers at Lyon Clothing Inc. formulated a strategy that is able to handle small to medium to large increases in the prices of cotton in the future. d. Based on the previous year's profits, the CEO of Solva Inc. decided to adopt an expansion strategy in its home market.

c

Which of the following statements about competitive advantage is true? a. Competitive advantage is permanent and not transitory; once gained by a firm it stays with the firm. b. Competitive advantage is an absolute measure; it is not relative. c. Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value. d. Competitive advantage is a one-dimensional concept.

c

You are the manager in charge of setting the strategy for a new frozen yogurt company. Which of the following questions would be appropriate for you to ask during the analysis phase of the AFI strategy framework? a. Can we secure relationships with enough organic dairy farmers to meet our commitment to using the healthiest ingredients? b. Should we open our first location in Los Angeles or New York City? c. How have consumer preferences in frozen yogurt flavors changed in the last five years? d. Should we be competing nationally or internationally?

c

A firm that achieves superior performance relative to other competitors in the same industry or the industry average has a ________________

competitive advantage

If a firm underperforms its rivals or the industry average, it has a ______________

competitive disadvantage

Should two or more firms perform at the same level, they have __________________

competitive parity

Rey estimated that a pair of NuFit jeans would be worth $60 for its brand and durability. However, at the NuFit store, the pair of jeans he wanted was available for $45. The difference of $15 in this scenario is referred to as the

consumer surplus

Economic value creation is best expressed as

consumer surplus plus firm profit

Merton's Toothpaste has been the leader of dental care products for about 40 years. However, this company relied too long on its competency of reducing cavities without refining or upgrading other aspects of its product. As a result, other personal hygiene companies that began to offer toothpastes with natural whitening agents gained a competitive advantage over Merton's. This case is an example of

core rigidity

The CEO of Chyron Media has decided to enter the markets of emerging nations like China and Brazil. This means that the books, magazines, and websites published under the Chyron Media banner would be made available in these nations. Which of the following strategies does this scenario best illustrate?

corporate strategy

While creating its AFI strategy framework, Valdez Consultants decided what markets the firm should compete in. By doing this, what type of strategy did the company devise?

corporate strategy

Contour Autos competes against the global leaders in the automobile industry by developing and selling acceptable quality vehicles at a lower price. This has been possible due to the company's large-scale production that reduces its manufacturing expenses. Which of the following generic business strategies is Contour Autos applying in this scenario?

cost-leadership strategy

A firm's strategic position is likely to be strong when a. the entry barriers within the industry it operates in are low and the exit barriers are high. b. its suppliers and vendors can easily forward integrate and buyers can backward integrate. c. all the five forces in Porter's model are strong. d. the gap between the value the firm's product generates and the cost to produce it is large.

d

Anders is researching sociocultural factors related to his employer, a sporting goods manufacturer. Which of the following would be part of the sociocultural forces in a firm's external environment? a. the rate of employee attrition within the firm b. the interest rates prevalent in an economy c. the laws protecting small enterprises in a nation d. the family size of the firm's target market

d

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? a. If the industry barriers to entry are low, he doesn't need to do anything. b. He should consult lawyers about the possibility of suing for copyright infringement. c. If the industry barriers to entry are high, he doesn't need to do anything. d. He needs to find out if his company as well as other companies can provide the complements.

d

For a firm that operates in an industry where competition is high, which of the following practices will result in inferior performance? a. working toward increasing the difference between value creation and cost b. choosing a distinct but different strategic position in the industry c. focusing on creating value for customers rather than destroying rivals d. trying to be everything to everybody by combining different competitive strategies

d

Green 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, Green Jeans could not assemble its products at a low-enough cost to offer the jeans at a price that was attractive to customers. Green Jeans' strategy failed because a. the company did not stake out a unique strategy position. b. managers did not live by the company's core values. c. it failed to consider the competitive challenge. d. it was not backed up with strategic commitments.

d

How do low interest rates affect a business? a. Firms tend to defer investments until rates rise. b. Consumer demand slows down. c. Business credit is harder to obtain. d. Firms can easily borrow money to finance future growth.

d

If costs are equal, when a firm has a higher value gap than its competitor, it can be inferred that the firm a. has achieved a competitive parity in its chosen industry b. can adopt a cost-leadership strategy. c. has lost its competitive advantage to its competitor. d. can charge a premium price for its products and services.

d

Though the microwaves manufactured by Emergo Inc. and Sensation Electronics Inc. sell at the same price of $600 per unit, the economic value created by Emergo Inc. is more than that of Sensation Electronics Inc. In the context of this scenario, which of the following statements is true? a. Emergo and Sensation Electronics have achieved a competitive parity. b. Sensation Electronics has differentiated its products more than Emergo Inc. has. c. Sensation Electronics has been able to create more producer surplus for itself than Emergo. d. Emergo has a relative cost advantage over Sensation Electronics.

d

Which of the following best describes a Level 5 manager in the Level-5 leadership pyramid? a. Luigi is part of the marketing team at RT Corp.; he has been given the charge of managing a team of three, so he will be promoted to a manager's position next month. b. Connie is an employee who just started her career at DK Inc.; she has already been appreciated for her knowledge and skills in the new company. c. Dmitri is an employee at Infinite Circle Inc.; he has helped his team achieve their targets by contributing to the team's efforts. d. Asoka is the CEO of Green Machines Inc.; he has helped his company in gaining and sustaining a competitive advantage through ethical decision making.

d

Which of the following expressions accurately describes market cap? a. It is the difference between a firm's account receivables and account payables. b. It is the ratio of a firm's equity finance and its debt finance. c. It is the difference between the book value and the market value of a firm's assets. d. It is the product of the number of outstanding shares and the share price.

d

Which of the following is a drawback of the SWOT analysis? a. This framework is only applicable to the manufacturing industries; it is ineffective when applied to the service firms. b. A drawback of this framework is that it allows managers to evaluate only a firm's current situation and not its future prospects. c. The SWOT analysis takes into account only the internal environment of a firm, ignoring the equally important external environment. d. A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat.

d

Which of the following is an implication of all firms in an industry pursuing a low-cost position through application of competitive benchmarking? a. No firm would face direct competition from others in the industry; hence, profit potential would be high. b. Each firm would be in a better position to gain a competitive advantage. c. Each firm would be catering to a different customer segment. d. The firms would eventually have no resources to invest in product and process improvements.

d

Which of the following statements accurately brings out the difference between economies of scale and learning effects? a. Economies of scale reduce cost per unit, whereas learning effects increase cost per unit. b. Firms experience economies of scale when output increases, and they experience learning effects when output decreases. c. While there are no diseconomies to scale, there are diseconomies to learning. d. Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased.

d

While Influx Electronics Inc. incurs $350 to manufacture a laptop, its competitor, Hearthstone Electronics Inc., incurs $300. However, laptops of both the companies have been able to create the same value among customers. From the given scenario, it can be inferred that a. Influx Electronics has a competitive advantage over Hearthstone Electronics. b. Hearthstone Electronics can charge a higher price for its laptops. c. Influx Electronics is a cost leader when compared to Hearthstone Electronics. d. Hearthstone Electronics and Influx Electronics share a differentiation parity.

d

According to an evaluation using the VRIO framework, Crocs Shoes was unable to sustain its competitive advantage primarily because its products were

easy to imitate

The sum of consumer surplus and producer surplus for a good or service equals the

economic value created

The idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of the firm's stock is called the

efficient-market hypothesis

In the _____, firms change the underlying technology while holding cumulative output constant.

experience curve

Managers use the AFI strategy framework to

explain and predict differences in firm performance

Quick Connect is an instant messaging mobile application. Users have access to a basic version with limited message recipients for free, but they have to pay a fee to have unlimited message recipients or to use advanced features. Which of the following business models does this best illustrate?

freemium

True Moto Corp. (TMC) is a leading automobile company. The company has been able to sustain its competitive advantage primarily due to its high-quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped TMC sustain its competitive advantage?

high costs involved in imitation

Eleanor owns a large portion of Apex Apparel's stock. However, she is not employed by the company. In this scenario, Rachel is the company's

internal stakeholder

Economies of scale are cost advantages that accrue for firms with

large output

The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. Which of the following factors in a firm's general environment does this mandate best indicate?

legal factors

The minimum wage in the country of New Morland is $8 an hour. Odion, a restaurant in New Morland's capital city, pays its servers $8 per hour. However, the management of the restaurant feels that this amount is excessive for workers whose only job is to clear tables. By continuing to adhere to the rules set by the government of New Morland, which of the following responsibilities is Odion satisfying?

legal responsbilities

Which of the following is a macroeconomic factor that can affect a firm's strategy?

levels of employment

Strategic commitments are actions that are

long-term oriented

If a company has 25 million shares outstanding, and each share is traded at $400, the ______ is $10 billion.

market capitalization

A blue ocean strategy typically allows a firm to

offer a differentiated product or service at low cost.

Burke Furnishings is a company that manufactures and sells home furniture. It sources its materials from another country to keep costs low. An assembly line worker in one of its manufacturing centers noticed that there was increasing concern regarding the potential toxicity of the flame-resistant materials used in the furniture. In response, she compiled a list of nontoxic flame-resistant materials that the company could use. When her manager learned about this, he presented the prospect and got it approved from the top management team. This is an example of the

planned emergence approach

Dr. Shetty is able to drive down the cost of complex medical procedures from $100,000 to $2,000 not by doing one big thing, but rather by doing a thousand small things. This approach focuses on driving down the cost of healthcare through

process innovation

The two critical assumptions of the resource-based model

resource heterogeneity and resource immobility

Brain Boost Inc. is a leading educational toy company. Competitors across the globe have failed to imitate Brain Boost's production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Brain Boost Inc. for a long time. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate?

resource immobility

The firm's current level of intangible resources

resource stocks

The best example of a firm's external stakeholder is a(n)

shareholder who has invested money in the firm but is not employed by the firm.

Blue Billion Inc. is a large company that sells a variety of products such as cosmetics, jewelry, frozen foods, navigation electronics, and airplanes. Apart from this, the company also has a strong presence in the service industry through its chain of dance studios, casinos, and nightclubs. Each of its product divisions operates as an individual business and is responsible for its own profits and losses. Thus, these product divisions under Blue Billion can be referred to as

strategic business units

Choices between a cost or value position

strategic trade-offs

When a blue ocean strategy is successfully formulated and implemented, investments in differentiation and low costs are not

substitutes but complements

GiftBasket.com has successfully created a higher perceived value in the e-commerce industry, though it offers the same products at slightly higher prices than the competitors. This has been mainly attributed to the company's easy-to-navigate website, simple return procedures, fast delivery, and cash on delivery option. Thus, the value driver for GiftBasket.com is its

superior customer service

A firm that is able to outperform its competitors or the industry average over a prolonged period has a __________________

sustainable competitive advantage

Powell Lighting was the first company to start selling LED light bulbs in its country—a product that gained popularity among diverse groups. Soon, other companies started to sell their own brands of LED bulbs, thereby giving Powell Lighting ample competition. In response, Powell Lighting decided to limit its LED light bulbs to outdoor models. However, it ensured that these models were the longest-lasting and lowest-priced on the market. With this innovation, Powell Lighting consistently outperformed its competitors for ten years. In this scenario, Powell Lighting maintained a _____ through its innovative strategy.

sustainable competitive advantage

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