Chapter 2
straddaling
Attempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival.
The symbolic embodiment of all the information connected with a product or service.
Brand
_____ are products or services that are nearly identically offered from multiple vendors.
Commodities
A basic good that can be interchanged with nearly identical offerings by others--think milk, coal, orange juice, or to a lesser extent, Windows PCs and Android phones. The more commoditized an offering, the greater the likelihood that competition will be based on price.
Commodity
_____ Law is said to be at play when the value of a product or service increases as its number of users expands.
Metcalfe's
Also known as Industry and Competitive Analysis. A framework considering the interplay between (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers.
Porter's Five Forces
The degree to which complete information is available.
Price Transparency
As in "to go private" or "take a firm private." Buying up a publicly traded firm's shares. Usually done when a firm has suffered financially and when a turn-around strategy will first yield losses that would further erode share price. Firms (often called private equity, buyout, LBO, or leveraged buyout firms) that take another company private hope to improve results so that the company can be sold to another firm or they can reissue shares on public markets.
Private
The cost a consumer incurs when moving from one product to another. It can involve actual money spent (e.g., buying a new product) as well as investments in time, any data loss, and so forth.
Switching Costs
Exists when savvy rivals watch a pioneer's efforts, learn from their successes and missteps, then enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominate.
Fast Follower Problem
sustainable competitive advantage
Financial performance that consistently outperforms industry averages.
affiliates
Third parties that promote a product or service in exchange for a cut of any sales.
Which of the following is one of Porter's five forces?
Threat of new entrants
false
10: FreshDirect's tech-efficient model actually leads to lower margins than its traditional grocery peers, but the firm makes this up with a greater sales volume.
Straddling
11: _____ refers to attempts by an organization to occupy more than one position while failing to match the benefits of a more efficient, singularly focused rival.
Amazon has deep pockets and is aggressively seeking to expand into groceries
12: FreshDirect should be safe from competition with traditional grocery stores (since they would be straddling two models instead of getting FreshDirect's singular efficiency), and new startups are likely going to struggle to match FreshDirect's scale and brand. However, Amazon presents a particularly strong challenger to FreshDirect. Why?
rareness, value, imperfect imitability, non substitutability
13: The resource-based view of competitive advantage states that for a firm to maintain sustainable competitive advantage it must control a set of exploitable resources that have four critical characteristics. What are these characteristics?
dense wave division multiplexing (DWDM)
14: Sometimes technology can sound geeky and so technical that executives might think that it doesn't require managerial or investor attention. However, many investing in the telecom sector suffered from a lack of insight into how a key technology was impacting their industry. Telecom firms failed to anticipate the impact of a technology known as ____________ which enabled existing fiber to carry more transmissions than ever before.
false
15: Most successful firms typically leverage a single key resource for competitive advantage to create lasting, above-average industry profits.
viral marketing
16: The term _________________ refers to leveraging consumers to promote a product or service.
value chain
17: The set of activities through which a product or service is created and delivered to customers is called the _____.
brand
18: A firm's _____ is the symbolic embodiment of all the information connected with a product or service.
false
19: Businesses benefit from economies of scale when the cost of an investment can be spread across increasing units of operational effectiveness or in serving a small supplier base.
Sustainable competitive advantage
1: ______ is financial performance that consistently outperforms the industry average.
ture
20: Internet and tech-leveraging businesses are said to be highly scalable when profit margins often improve as firms leverage their infrastructure base across a growing number of customers.
scale advantages
21: Advantages related to a firm's size are referred to as _____.
Switching costs
22: _____ are costs that customers incur when moving from one product to another.
Commodities
23: _____ are products or services that are nearly identically offered from multiple vendors.
network effects
24: The phenomenon of _________________________ exists when the value of a product or service increases along with a growing number of users.
true
25: A larger number of skilled workers who can use a given technology exists as a result of network effects.
false
26: OpenTable's network effects are due entirely to the large number of consumers who use the service.
true
27: The Apple Store represents a key distribution channel for the firm and the US's single most successful retail chain as defined by sales per square foot.
Apple's control of iOS gave it control of the distribution channel to reach its users, kicking Google out as the default mapping app and capturing the majority of user engagement.
28: Which of the following describes the relationship between Apple's iOS and Google Maps.
suing or extorting large settlements from large firms.
29: Patent trolls hold intellectual property with the intention of:
Strategic positioning
2: ______ is performing different tasks than rivals or the same tasks in different ways.
false
30: Your firm had better lawyer up! Studies have shown that patents are the single most-important factor for enabling a firm to profit from innovations.
Internet businesses have relatively low barriers to entry.
31: Which of the following observations is true?
critical resources for competitive advantage.
32: Moving first pays off when lead time is used to create:
Bargaining power of buyers (Correct)
33: Which of the following is one of Porter's five forces?
information asymmetry
34: A decision situation where one party has more or better information than its counterparty is known as _____.
Price transparency increases while information asymmetry decreases
35: For providers of commodity products, how does the Internet typically impact price transparency and information asymmetry?
High switching costs
36: Which of the following factors can weaken buyer bargaining power?
Fast follower
3: The _____ problem exists when savvy rivals watch a pioneer's efforts, learn from their successes and missteps, and then enter the market quickly with a comparable or superior product at a lower cost.
operational effectiveness
4: Performing the same tasks better than how rivals perform them is known as ______.
true
5: When offerings are roughly the same, they are more commodity than differentiated.
The firm's technology was copied and it lacked access to a key distribution channel
6: TiVo was an innovator, an early mover, and so well known that the firm's name has become a verb in many households (as in "Did you TiVo that program?"), yet the firm has struggled to achieve consistent profitability. Which two factors are suggested as negatively impacting TiVo's success?
false
7: Technology means FreshDirect's labor costs are higher than rivals', but the firm makes up for this in other ways.
Inventory turns
8: The phrase __________ refers to the number of times inventory is sold or used during the course of a year.
Slotting fees
9: _____ refer(s) to the payments made by suppliers to retailers for prime shelf space.
dense wave division multiplexing (DWDM)
A technology that increases the transmission capacity (and hence speed) of fiber-optic cable. Transmissions using fiber are accomplished by transmitting light inside "glass" cables. In DWDM, the light inside fiber is split into different wavelengths in a way similar to how a prism splits light into different colors.
imitation-resistant value chain
A way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling role.
Programming hooks, or guidelines, published by firms that tell other programs how to get a service to perform a task such as send or receive data. For example, Amazon provides APIs to let developers write their own applications and Web sites that can send the firm orders.
APIs
Third parties that promote a product or service, typically in exchange for a cut of any sales.
Affiliates
Porter's five forces
Also known as Industry and Competitive Analysis. A framework considering the interplay between (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers.
network effects
Also known as Metcalfe's Law, or network externalities. When the value of a product or service increases as its number of users expands.
private
As in "to go private" or "take a firm private." Buying up a publicly traded firm's shares. Usually done when a firm has suffered financially and when a turn-around strategy will first yield losses that would further erode share price. Firms (often called private equity, buyout, LBO, or leveraged buyout firm) that take another company private hope to improve results so that the company can be sold to another firm or they can reissue shares on public markets.
economies of scale
When costs can be spread across increasing units of production or in serving multiple customers. Businesses that have favorable economies o f scale (like many Internet firms) are sometimes referred to as, being highly scalable.
Apple's dominance of smartphone and tablet markets has allowed the firm to lock up 60 percent of the world's supply of advanced touch-screen displays, and to do so with better pricing than would be available to smaller rivals. This is an example of:
a growing firm gaining bargaining power with its suppliers.
According to the resource-based view of competitive advantage, if a firm is to maintain a sustainable competitive advantage, it must control a set of resources that have four critical characteristics. Which of the following is one of those characteristics?
Valuable
The set of activities through which a product or service is created and delivered to customers.
Value Chain
Leveraging consumers to promote a product or service.
Viral Marketing
In _____, the light inside fiber is split into different signal-carrying wavelengths in a way similar to how a prism splits light into different colors.
dense wave division multiplexing
According to Porter, strategy is fundamentally about being _____.
different
The paths through which products or services get to customers are known as _____.
distribution paths
A firm's financial performance that consistently outperforms its industry's peers is known as operational effectiveness.
false
A salesperson's ability to effectively bargain with his/her consumers is called viral marketing.
false
A trademark is the symbolic embodiment of all the information connected with a product or service of a firm.
false
According to Michael Porter, the reason many firms suffer margin-eroding competition is because they have defined themselves according to strategic positioning rather than operational effectiveness.
false
According to the resource-based view of competitive advantage, if a firm is to maintain sustainable competitive advantage, it must control a set of exploitable resources that are valuable and can be substituted easily.
false
Businesses benefit from economies of scale when the cost of an investment can be used in serving a niche customer base.
false
Commodities are products or services that vary across multiple vendors.
false
Fast-growing Groupon was able to dissuade rivals from entering its market because the firm's technology was so difficult to replicate.
false
If a firm's goods are highly differentiated, the Internet can lessen the firm's supplier bargaining power.
false
In the United States, business models cannot be patented because the field of business is extremely dynamic.
false
Market entry is the same as building a sustainable business.
false
Metcalfe's Law is used to explain the concept of switching costs.
false
Network externalities exist when a product or service becomes less expensive as more people use it.
false
The _____ problem exists when rivals watch a pioneer's efforts, learn from their successes and missteps, and then enter the market quickly with a comparable or superior product at a lower cost.
fast follower
Netscape, which once controlled more than 80 percent of the market share in Web browsers, lost its dominant position when customers migrated to Internet Explorer, Microsoft's Web browser. Internet Explorer was easy to install and had no significant differences in terms of usability. This example serves to illustrate that:
firms with low switching costs can be easily and rapidly overtaken by strong rivals.
The patent system is often considered to be unfairly stacked against start-ups because:
high litigation costs coupled with a few months of litigation can sink an early stage firm.
viral marketing
leveraging consumers to promote a product or service
_____ exist when a product or service becomes more valuable as more people use it.
network effects
Which of the following represents one of the primary components of the value chain?
outbound logistics
_____ hold intellectual property not with the goal of bringing novel innovations to market, but instead in hope that they can sue or extort large settlements from others.
patent trolls
Operational effectiveness refers to:
performing the same tasks better than rivals perform them.
Consumers buying commodities are highly _____ since they have so many similar choices.
price-focused
Firms that compete on _____ rather than operational differences have no problem adopting third-party ERP software.
product uniqueness
Operational effectiveness is usually not enough to yield sustainable competitive advantage because
technology can be easily acquired.
distribution channels
the path through which products or services get to customers
value chain
the set of activities through which a product or service is created and delivered to customers
brand
the symbolic embodiment of all the information connected with a product or service
Changes that impact one industry do not necessarily impact other industries in the same way.
true
Cisco's acquisition of Pur Digital, makers of the Flip video camera line, was largely considered a flop because comparable technology soon became a feature in other popular consumer electronics products.
true
Dominant firms with low switching costs risk having their customers taken away by rivals offering similar, but lower-cost products.
true
Firms that build an imitation-resistant value chain develop a way of doing business that others struggle to replicate.
true
Political shock and social changes can help alter the competitive landscape.
true
Technology plays the most significant role in shaping and reshaping Porter's five forces.
true
The scale of technology investment required to run a business can act as a barrier to entry by discouraging new, smaller competitors.
true
Timing and technology alone will not yield sustainable competitive advantage.
true
When technology can be matched quickly, it is rarely a source of competitive advantage.
true
As one of the primary components of the value chain, operations involves:
turning inputs into products or services.
Dell, previously the world's number one PC manufacturer, has seen its market share shrink because of rivals copying its value chain and reducing the price advantage it enjoyed over rivals. Dell's present struggles:
underscore the importance of continually assessing a firm's strategic position among changing market conditions.
the set of activities through which a product or service is created and delivered to customers is known as a(n) _____.
value chain
Leveraging consumers to promote a product or service is known as _____.
viral marketing
scale advantages
advantages related to size
A(n) _____ is the symbolic embodiment of all the information connected with a product or service.
brand
Businesses benefit from economies of scale when the cost of an investment can be:
spread across increasing units of production.
A firm is said to be _____ when it attempts to match the benefits of a successful position while maintaining its existing position.
straddling
_____ refers to performing different tasks than rivals or the same tasks in a different way.
strategic positioning
_____ exist when consumers incur an expense to move from one product or service to another.
switching costs
information asymmentry
A decision situation where one party has more or better information than its counterparty
Moving first pays off when the time lead is used to create:
Critical resources for competitive advantage
A technology that increases the transmission capacity (and hence speed) of fiber-optic cable. Transmissions using fiber are accomplished by transmitting light inside "glass" cables. In DWDM, the light inside fiber is split into different wavelengths in a way similar to how a prism splits light into different colors.
Dense Wave Division Multiplexing (DWDM)
The path through which products or services get to customers.
Distribution Channels
The category of enterprise software known as ________________ is implemented in modules, offering the potential of automating an organization's entire value chain.
ERP, enterprise resource planning
When costs can be spread across increasing units of production or in serving multiple customers. Businesses that have favorable economies of scale (like many Internet firms) are sometimes referred to as being highly scalable.
Economies Of Scale
fast follower problem
Exists when savvy rivals watch a pioneer's efforts, learn from their successes and missteps, then enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominate
A way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling role.
Imitation-Resistant Value Chain
A decision situation where one party has more or better information than its counterparty.
Information Asymmetry
The ratio of a company's annual sales to its inventory.
Inventory Turnover Ratio
Sometimes referred to as inventory turnover, stock turns, or stock turnover. It is the number of times inventory is sold or used during a given period. A higher figure means that a firm is selling products quickly.
Inventory Turns
Also known as Metcalfe's Law, or network externalities. When the value of a product or service increases as its number of users expands.
Network Effects
Commonly known as patent trolls, these firms make money by acquiring and asserting patents, rather than bringing products and services to market.
Non-Practicing Entities
Performing the same tasks better than rivals perform them.
Operational Effectiveness
strategic positioning
Performing different tasks than rivals, or the same tasks in a different way
operational effectiveness
Performing the same tasks better than rivals perform:, them.
The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics. These resources must be (1) valuable, (2) rare, (3) imperfectly imitable, and (4) nonsubstitutable.
Resource-Based View Of Competitive Advantage
Advantages related to size.
Scale Advantages
inventory turns
Sometimes referred to as inventory turnover, stock turns, or stock turnover. It is the number of times inventory is sold or used during a given period. A higher figure means that a firm is selling products quickly.
Attempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival.
Straddling
Performing different tasks than rivals, or the same tasks in a different way.
Strategic Positioning
Financial performance that consistently outperforms industry averages.
Sustainable Competitive Advantage
A firm's financial performance that consistently outperforms its industry's peers is known as _____.
Sustainable competitive advantage
Which of the following statements about technology is true?
Technological improvements can be copied by rivals, leading to a profit-eroding arms race.
switching costs
The cost a consumer incurs when moving from one product to another. It can involve actual money spent (e.g., buying a new product) as well as investments in time, any data loss, and so forth.
price transparency
The degree to which complete information is available
If a new entrant hopes to attract customers from an established incumbent, the new entrant must ensure that the value they offer exceeds the incumbents? value in addition to any perceived _____.
switching costs
resource-based view of competitive advantage
The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics. These resources must be (1) valuable, (2) rare, (3) imperfectly imitable, and (4) non-substitutable.
Many telecom firms began digging up the ground and laying webs of fiberglass to meet the growing demand for Internet connectivity. However, rivals and startups began to imitate these firms and soon these new assets were not so rare and each day they seemed to be less valuable. It can be inferred from this example that:
resource-based thinking can help avoid the trap of carelessly entering markets simply because growth is spotted.
Benefits related to a firm's size are referred to as _____.
scale advantage
Which of the following represents one of the sources of switching costs?
search costs
A strong brand can be an exceptionally powerful resource for competitive advantage by lowering ________, proxying _____ and inspiring _____.
search costs; quality; trust
