EXAM 2
You are the CEO of a tech company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?
Compare the current valuations with past valuations to determine a trend.
________________ allow(s) a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.
Core competencies
The ratio of SG&A/Revenue is an indicator of a firm's focus on
marketing and sales to promote its products and services.
Hot Wok Cuisine is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Chinese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Hot Wok Cuisine is most likely operating in a(n)
monopolistically competitive industry.
WeBreak4Bikes Inc. has a new U.S.-based client in the bicycle industry. The client's company produces only bicycles for riding on the road. The bicycles are used for reliable general purpose transportation. When asked to identify a potential substitute for the bicycle industry from the Five Forces perspective, you would select
motorcycles.
When company managers formulate strategy decisions resulting from their internal analysis, they are primarily making decisions about how to
obtain and allocate critical and scarce resources.
According to Porter's Five Forces approach, the overall goal of applying the Five Forces analysis to an industry is to make a judgment about its
overall attractiveness.
Value chain analysis consists of systematically analyzing a firm's key activities that for analysis purposes are categorized into two groups:
primary activities and support activities.
Due to resource immobility, a critical assumption in the resource-based model of a firm, the
resource differences between firms last for a long time.
In recent years a growing number of U.S. consumers have become more health-conscious about what they eat. According to the PESTEL Framework this trend could best be classified as a ________ trend.
sociocultural
A firm has 10 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
$1 billion, that is, 10 million shares × $100.
Your company, a small software development firm, has attracted many of the top young programmers in your area. As a result, the apps you produce have been praised for their innovative features and intuitive user experience. According to the bathtub metaphor in the dynamic capabilities perspective, what is the best way for you to protect against resource leakage?
Improve the benefits package to retain key employees and reduce turnover.
Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?
In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
Sugar Flakes and Cinnamon Texas Toast both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other?
Increase total perceived consumer benefits through differentiation.
_____ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.
Isolating mechanisms
Which of the following is an advantage of the balanced-scorecard?
It allows managers to translate a firm's vision into measureable operational goals.
Which of the following will most likely be considered as an airlines core competency?
the airline's ability to make its fleet more fuel efficient than their competitors
Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
the balanced-scorecard model
Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?
the triple-bottom-line approach
There are several major limitations of employing the balance scorecard framework; which of the following below is not one of those limitations?
the type of marketing and HR functions used to employ the framework
CarTsar Inc. is a manufacturer of automobile parts, which it sells to retail auto supply stores. Its core competencies include superior design and engineering capabilities, as well as a highly integrated and efficient supply chain. To sustain its competitive advantage, CarTsar should first
upgrade its engineering department and improve its supply chain.
The owners of Always Baked bakery want to open a second retail outlet. Which of the following scenarios is most likely to yield a competitive advantage?
Open a shop on an inexpensive piece of land near a new mixed-use residential and business district currently under construction.
The ________ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.
PESTEL framework
Ride N Style Inc. is a bus line with service to several major cities. It has several competitors that each offer service to one or two cities, and based on its current outlays, it cannot match or beat those competitors on price. Because of long-term contracts and an increase in the cost of gasoline, it is not possible to reduce expenditures at this time. Which of these strategies should Ride N Styles pursue instead?
Pursue a differentiated strategy.
Threadbare Industries is a new high-end textile company that has raised sufficient capital from multiple sources. It is planning to use its capital to purchase certain assets. Which of the following assets will be the most difficult for Threadbare Industries to acquire using its capital?
brand name
In an industry, the threat of entry is high when
capital requirements are low.
A new company named Waves Inc. entered the radio retail business, which is a fairly consolidated industry. In response, two large incumbent radio retailers, SMS Radio and TruRadio, lowered the price of their radios. Also, they spent more money to improve their radios and on additional marketing. By doing this, SMS Radio and TruRadio
decreased industry profit potential.
In a firm's external environment, ________trends primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
demographic
Companies in the same strategic group are ________ to each other.
direct competitors
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.
ezTV, a consumer electronics company, is the leading manufacturer of high-definition (HD) LED televisions. HD technology has been its core competency and the company holds 60 percent shares in that market. However, ezTV's competitors have now begun to produce more-advanced technologies like 4K Ultra HD and Internet-enabled Smart televisions. According to the dynamic capabilities perspective, what should ezTV do?
ezTV should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment.
Treequote Industries has produced a new piece of technology that will monitor the soil moisture in a user's garden and send a notification to an app on the user's phone when it is time to water their plants. The goal of this inexpensive technology is to entice users to purchase Treequote's more expensive automated watering system, so that they can trigger the watering process from the app on their phones. Which business model is most likely to help Treequote Industries accomplish its goals?
freemium
A "perfectly competitive" industry is one that
All of the answers are correct.
How do low interest rates affect a business?
Firms can easily borrow money to finance future growth.
How does causal ambiguity act as an isolating mechanism for organizations?
It makes it difficult for the competitors to understand why a company has been so successful.
Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.
Which of the following below are not one of the three dimensions that make up the Triple Bottom Line framework?
None of the answers are correct.
In which of the following situations is the power of suppliers high in an industry?
Suppliers' industry is more concentrated than the industry it sells to.
The market capitalization of a public company is $5 billion. Each share of the company is traded at $200. What do you infer from this financial data?
The firm's number of outstanding shares is 25 million.
How does a firm capture its producer surplus for a good or service?
as profit per unit sold
The balanced-scorecard can accommodate
both short- and long-term performance metrics.
To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to
contribute to the firm's strategic position as either low-cost leader or differentiator.
A resource-based view of a firm provides a model that systematically aids in identifying
core competencies.
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
customer experience
As manager of a relatively new company, you are tasked with analyzing company resources to identify core competencies capable of supporting a competitive advantage. Which of the following resources is most likely to generate a competitive advantage?
enthusiastic company culture
Core competencies are derived from the combination of
key strategic resources and a firm's capabilities.
Economies of scale are cost advantages that accrue for firms with
larger output.
According to the value chain analysis, which of the following is a primary activity?
marketing and sales
The competitive advantage that one firm has will be short-lived in an industry in which
perfect competition exists.
The difference between the price charged for a product and the cost to manufacture it is referred to as the
producer surplus.
A firm's ________ relates to its ability to create value for customers (V) while containing the cost to do so (C).
strategic position
TalkaLot Corp. incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?
$450
Which of the following is a drawback of Porter's five forces model?
Managers cannot determine the changing speed of an industry or the rate of innovation.
After conducting a SWOT analysis, your firm has decided to focus on addressing issues located in the Weaknesses-Opportunities quadrant. Which of the following steps are you most likely to take?
Reorganize the inefficient research and development department to bring innovative products to market more quickly.
Which of the following statements accurately describes a firm's resource stock?
Resource stocks are a firm's current level of intangible resources.
Years ago, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information?
The travel industry changed from a consolidated structure to a fragmented one.
Why are controls like budgets and operating procedures that McDonald's implements known as input controls?
They are considered before employees make any decisions.
Both UTech Inc. and Mirco Corp. incur a cost of $200 to manufacture a single unit of a cell phone. However, UTech Inc. charges a higher price than Mirco Corp. does, but it still sells a higher number of phones. What does this imply?
UTech Inc. creates more economic value than Mirco Corp. does.
Assume a firm's resources and capabilities are costly to imitate. This is because rival companies do not clearly understand the relationship between the resources and capabilities controlled by the firm. In this case, the firm's competitive advantage is protected against imitation by
causal ambiguity.
Samsung and Google cooperate as complementors to compete against Apple's strong position in the mobile device industry, while at the same time Samsung and Google are increasingly becoming competitive with one another. This scenario best illustrates the process of
co-opetition.
Threadless allows customers to submit their own designs and to vote on which designs they would like to see printed on a T-shirt. This business uses a ________ technique.
crowdsourcing
All Signal Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all All Signal users are free. When a person switches to an All Signals network, his or her entire network of family and friends is likely to switch to the same network to receive the benefit of free calls and messages. In addition, an existing user who gets a new user to register with All Signal Inc. is given a free wireless connection. This has helped to keep competition away from All Signal. In this scenario, which of the following factors is acting as an entry barrier for All Signal Inc.?
network effects
When performing internal analysis of firms, how would you answer the question, "why do companies exist?"
Companies exist because they create value for customers in ways that customers are unable to replicate on their own.
Dynamic capabilities are especially relevant for surviving and competing in markets that
shift quickly.
Amanda 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 Amanda to offer her client?
"Carefully consider the entry choices over time before making a decision."
During an interview for a CEO position, Jennifer's potential employers ask her, "If you get this job, will you focus more on industry effects or firm effects?" What should her answer be?
"Firm effects. I will be able to have the most impact on those."
Viral Apparel is the market leader in the sportswear industry. Though most of its resources are common to those of its competitors, a few rare resources have helped the company gain and sustain a competitive advantage. Which of the following assets of Viral Apparel is most likely to be considered a rare resource that is contributing to its competitive advantage?
the company's design patents
Which of the following is an external performance metric?
total return to shareholders
Which of the following statements with regard to industry structures is true?
A consolidated industry tends to be more profitable than a fragmented one.
Which of the following is a drawback of the SWOT analysis?
A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat.
Which of the following statements is true of accounting data?
Accounting data are historical data and thus backward-looking.
Cartzy Inc., Cartific Inc., and Clustercart Inc., are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true?
Any advantage that one firm has will be short-lived.
________ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.
Economic value created
Sasha is the CEO of Enterprise Technologies, a consumer electronics manufacturer. Last year, Enterprise's return on invested capital (ROIC) was 11.6 percent, while Enterprise's closest competitor, Federation Tech, had an ROIC of 17 percent. Which of the following factors might Sasha use to convince investors to invest in Enterprise rather than Federation Tech?
Enterprise's intangible intensity was 6 percent, while Federation Tech's was 3 percent.
The working capital turnover of Complete Systems Corp. is 6.0. What does this financial data suggest?
For every dollar Complete Systems puts to work, the company realizes $6.00 of sales.
Steve 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 Steve's reaction be?
He needs to find out if his company as well as other companies can provide the complements.
Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly?
In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.
How are the critical assumptions of the resource-based model of a firm fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure?
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.
Have A Seat Furniture has seen its profit margins shrink over the past several years as increased competition has driven down furniture prices. You have been tasked with improving the company's margins. Which of the following approaches makes the most sense within the context of strategic activity systems?
Install modern manufacturing equipment to improve efficiency.
Shippity and ShipING Inc. are two competing firms in the same industry. Shippity's tangible assets are valued at $15 billion and its intangible assets are valued at $35 billion. ShipING Inc.'s tangible assets are valued at $5 billion and its intangible assets are valued at $45 billion. What can be concluded from this information?
It is likely that ShipING Inc. is better enabled than Shippity to gain and sustain a competitive advantage.
How is a firm's task environment different from its general environment?
Managers have no direct effect over external factors in the task environment; they have influence over all external forces in the general environment.
Amber is the manager of gardening supplies wholesaler DigIt Inc. The company's vision is to become the leading supplier of gardening materials in the northeast. In assessing the firm's current state, Amber has determined that the firm could differentiate itself from competitors with an easy-to-use online ordering system and a two-day delivery guarantee. To accomplish this, Amber has determined that DigIt must spend the next two quarters honing its capabilities for sourcing materials quickly and improving its web development competencies. According to the balanced-scorecard approach, what is wrong with Amber's thinking?
She has failed to account for external factors such as customer perceptions and shareholder perceptions.
Which of the following statements accurately brings out the difference between tangible and intangible resources?
Tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased.
Hank runs a company that manufactures satellites for commercial and government use. It has few rivals. At the moment, the power of buyers, the power of suppliers, and the threat of substitutes are all low. Based on this information, what can Hank conclude?
The company is likely to be very profitable as long as the threat to entry is low.
Siham is a chef who owns three moderately successful restaurants with innovative menus. Based on what you have read, which of these approaches could help her improve her profits?
Use her existing knowledge, equipment, and staff to launch a catering business.
________ is a business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set its own price.
Wholesale
You are the manager of Value Printing, a leading print shop. Value's resources include a highly experienced staff and state-of-the-art printing presses. However, your closest competition has started to cut into your market share by offering same-day turnaround on most orders. Although your staffing and equipment is not optimized for rapid production, you decide to start offering a same-day guarantee to your customers. According to the resource-based view, what is wrong with this decision?
You have failed to take into account resource immobility.
The tenet behind the triple-bottom-line is that
a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.
Nerissa sets up a business consulting firm in which the employees are motivated because they find their work interesting and creative. She carefully hires workers who fit well with their assigned tasks. Also, she clearly defines the results expected of each worker, but allows the workers to determine the means to these results. Which of the following best describes Nerissa's business?
a firm that relies on high output controls to tap into intrinsic motivation
Wheat and Steak is a restaurant located inside a five-star hotel. It caters mainly to customers who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Wheat and Steak's strategic group?
a premium rooftop restaurant in the same city
Which of the following is the best characterization of sociocultural forces?
a society's culture, norms, and values
WeClean Inc., a manufacturer of cleaning agents, supplies its products to Goodings Inc., a supermarket chain. It demands that Goodings create more shelf space in its stores for WeClean s' products. However, Goodings Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, Goodings Inc. has exercised its bargaining power as a buyer through
backward integration.
Which of the following is NOT considered an important macro-environmental influence on businesses (that is, a potential influence beyond that of the industry alone)?
bargaining power of suppliers
Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as
capabilities.
SJobs's Computer Repair has maintained a competitive advantage based on its thorough and professional service, reasonable pricing, and money-back guarantee. Management at the company is so committed to doing repairs well that they often have rejected employee suggestions to expedite their processes. Recently, the company has begun to lose customers to a new local service offering same day in-home repairs and 24/7 online customer support. According to the dynamic capabilities perspective, SJobs's Computer Repair has lost its competitive advantage due to
core rigidity.
Given the structure of the automobile industry, entering the auto manufacturing industry seemed risky. Yet Tesla Motors joined the fray. Rather than attempting to compete head-on with internal combustion engines, Tesla Motors entered the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?
economies of scale
In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the
firm will have a sustained competitive advantage because of its unique resources that are difficult for others to replicate that are difficult for others to replicate.
Facing stiff competition in the e-reader market, Smart Reads wants to protect its competitive advantage by increasing the perceived value of its reader. Smart Reads' best strategy to accomplish this would be to
highlight the number of celebrities who use Smart Reads e-readers.
Delos Inc. is an apparel manufacturer. The management at Delos Inc. prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through
input controls.
According to the resource-based view, a firm's competitive advantage often stems from its
intangible resources.
Amelia has recently started a restaurant in a commercial area that already has many other established restaurants and popular fast-food chains. Amelia owns the building in which her restaurant is located, rather than leasing premises as her competitors do. This factor allows her to offer her products at a more competitive price. Amelia has also invested a huge amount in designing the restaurant's interior and in equipping the kitchen with the appliances that are most widely used in her industry. In this scenario, which of the following is the most valuable resource for Amelia's business?
the building owned by Amelia, which reduces cost of operations
When the laptop market overtook the desktop market, Blue Tech Inc., a leader in desktop technology, was left at a competitive disadvantage. Later, Blue Tech Inc.'s management channeled all of the company's efforts and revenue to develop an efficient laptop from scratch in less than a year. However, the company failed because Blue Tech Inc.'s models were inferior to the third- and fourth-generation models its competitors were selling. In this scenario, Blue Tech Inc.'s failure can be best attributed to
time compression diseconomies.
James is a novice investor who wants to decide between purchasing shares in Captial-UP or Mainframe Inc. Captial-UP's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Mainframe Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell James?
Captial-UP is more likely to create value while Mainframe Inc. is more likely to destroy value.
While implementing strategic group mapping for the U.S. domestic airline industry, two strategic groups become apparent: low-cost, point-to-point airlines (Virgin Atlantic, Alaska Airlines, JetBlue, and Southwest Airlines) versus differentiated airlines using a hub-and-spoke system (American, Delta, and United). Which of the following statements is true about these two strategic groups?
Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines.
Managers can justify using the balanced-scorecard framework because research show that both ________ and ________ performance dimensions are important when examining the effectiveness of a firm's strategy.
quantitative, qualitative
A high percentage of R&D/Revenue ratio indicates a(n)
strong focus on innovation to improve current products and services.
Which of the following features about a buyer indicates that the buyer has high bargaining power?
when the buyer operates in an industry where products are undifferentiated
Which of the following factors most contributes to the U.S. automotive industry being characterized by high entry barriers?
Car manufacturers require large-scale production in order to be cost-competitive.
Which of the following best exemplifies the use of input controls?
McDonald's use of standard operating procedures
Sally manages the supply chain for a company that sells diamond watches. She learns that economists are predicting a moderate to severe recession in the next six to eight months. Based on that information, what action should Sally recommend to the company's owner?
Reduce supply. Customers generally reduce their purchases of luxury items when the economy falters.
Nye Studios is a large production company that controls a major portion of the television industry's market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Nye Studios is most likely functioning in a(n) ________ industry.
oligopolistic
Competitive rivalry based solely on ________ is destructive to firms as it transfers most of the value created in the industry to the customers.
price-cutting
From an investor's or shareholder's perspective, the measure of competitive advantage that matters most is the
return on risk capital.
The management team for Forever Power came up with the following vision statement: "Forever Power will conscientiously track its financial performance to ensure profits for its investors, enhance its community through employment and supporting charities, and dispose of waste in a manner that will not harm the environment." This vision statement is most likely based on the
triple-bottom-line approach.