Integrated Business Policy & Strategy Exam 1
strategy as planned emergence
-Top Down and Bottom Up Bottom-up strategic initiatives emerge Evaluated & coordinated by management Relies on data, plus: -Personal experience -Deep domain expertise -Front line employee insights
approaches to scenario planning
-obtain input from different levels and functions -determine how to compete situationally -attach probabilities to different future states
during periods of negative growth
-rivalry is fierce -rivals can only gain at the expense of one another
Purpose of AFI Framework
1.Explains and predicts differences in firm performance 2.Helps managers formulate and implement a strategy
resource heterogeneity
A firm is a unique bundle of resources and capabilities that differ across firms
sustainable competitive advantage
A firm that is able to outperform its competitors or the industry average over a prolonged period
competitive disadvantage
A firm that underperforms its rivals or the industry average.
Scenario planning
A formal, top-down planning approach
Strategic Planning
A formal, top-down planning approach
industry analysis
A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.
strategic activity systems
A network of interconnected activities •Socially complex and causally ambiguous •Enhance likelihood of sustained competitive advantage
strategy definition
A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
strategic positioning
A unique position within an industry that allows the firm to provide value to customers, while controlling costs.
Which of the following summarizes the difference between a firm's vision and mission? A vision states what a firm wants to accomplish; a mission states how a firm plans to accomplish this vision. A vision states the ethical values of a firm; a mission states the monetary goals of a firm. A vision states how much a firm wants to earn; a mission states how these earnings will be accomplished. A vision states the management values of a firm; a mission states the values of the other workers.
A vision states what a firm wants to accomplish; a mission states how a firm plans to accomplish this vision.
Carlos is the manager of a graphic design firm, and he relies on a top-down strategic management approach to maintain tight control over the activities of his employees. The company has recently started to lose market share to its more innovative competitors, and Carlos wants to encourage his employees to start contributing to the strategy formulation process to make the company more competitive. Which of the following steps should Carlos take? A) Designate Friday afternoons as time for employees to pursue outside interests loosely related to the business. B) Schedule individual meetings with employees and demand that they come prepared with five ideas. C) Take an extended vacation and see how the business naturally reorganizes itself in his absence. D) Allow employees to take whatever approach they feel is appropriate when dealing with customers.
A) Designate Friday afternoons as time for employees to pursue outside interests loosely related to the business.
How is a firm's task environment different from its general environment? A) Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment. B) Managers have no direct effect over external factors in the task environment; they have some influence over external forces in the general environment. C) Managers have no direct effect over external factors in the task environment; they have influence over all external forces in the general environment. D) Managers have influence over all external factors in the task environment; they have no direct effect over external forces in the general environment.
A) Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment.
Ivan is the founder of a firm producing self-driving vehicles. Because the industry is so new and chaotic, Ivan favors a top-down strategic planning approach in which he exerts strong control over all aspects of the business, from product development and design to manufacturing and marketing. What is wrong with this scenario? A) The self-driving vehicle industry is changing too much for the top-down approach to be effective. B) The top-down approach can only be applied to specific business functions. C) The top-down approach leaves other employees uncertain about their roles in the company. D) The top-down approach is expensive to maintain, leaving the company at a competitive disadvantage.
A) The self-driving vehicle industry is changing too much for the top-down approach to be effective.
A firm always has a competitive disadvantage when its return on invested capital is A) below the industry average. B) 2 percent or lower in a declining industry. C) about the same as its closest competitor. D) declining steadily over two or more years.
A) below the industry average.
The Founder of Teach for America, Wendy Kopp, established a mission by building on her vision, which is "One day, all children in this nation will have the opportunity to attain an excellent education." Considering this, how did Klopp implement the mission of Teach for America? A) by enlisting talented young professionals as teachers B) by offering funds to increase the salaries of low-income teachers C) by starting her own line of private schools D) by starting a fundraising campaign to improve school infrastructure
A) by enlisting talented young professionals as teachers
A firm that achieves superior performance relative to other firms in the same industry or the industry average has a(n) A) competitive advantage. B) balanced scorecard. C) power position. D) equity leverage.
A) competitive advantage.
To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to A) contribute to the firm's strategic position as either low-cost leader or differentiator. B) reduce the immobility and the heterogeneity of the firm's resources. C) create a static fit between the company's internal resources and the external environment. D) reduce the causal ambiguity and the social complexity of the firm's source of success.
A) contribute to the firm's strategic position as either low-cost leader or differentiator.
Bryan is a manager at a software firm. The CEO tells him that the industry as a whole has become increasingly profitable over the past five years. Based on this information, Bryan is most likely to expect A) increased competition in the future and therefore he should recommend that the company upgrade its products to slow the entry of rival companies. B) increased profitability in the future and therefore he should recommend that the company remain on its current course. C) a leveling off of profitability in the next few years and therefore he should recommend that the company cooperate with its rivals to stimulate the industry. D) decreased competition in the next few years and therefore he should recommend that the company take advantage of its pricing power.
A) increased competition in the future and therefore he should recommend that the company upgrade its products to slow the entry of rival companies.
Magical Productions 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, Magical Productions is most likely functioning in a(n) ________ industry. A) oligopolistic B) monopolistic C) perfectly competitive D) monopolistically competitive
A) oligopolistic
Trendline Architects' core competency is building multi-family housing in urban areas. This competency is based primarily on the decisions made by the company's top management over several years to focus on building in densely populated cities. This process is called A) path dependence. B) dependence complexity. C) causal dependence. D) path immobility.
A) path dependence.
A ________ is best described as any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures. A) strategic initiative B) value chain C) supply chain D) corrective action
A) strategic initiative
elements of a good strategy
Analysis, Formulation, Implementation
"A" in AFI Framework
Analyze
During an interview for a CEO position, Elena'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? A) "Neither. I would focus on unexplained variances. They are the most mysterious effects and the most powerful." B) "Firm effects. I will be able to have the most impact on those." C) "Industry effects. They have the most substantial effect on superior firm performance." D) "Neither. I would focus on business cycle effects. These are the most predictable, so they are worth the most effort."
B) "Firm effects. I will be able to have the most impact on those."
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) Bass Automobiles Inc. faced resource leakage. C) The resource flow into Unicorn Autos Inc. was reduced. D) Bass Automobiles Inc.'s tangible assets decreased.
B) Bass Automobiles Inc. faced resource leakage.
Invoro is a market leader in consumer electronics. If Finolo and Ethver, companies that manufacture televisions, develop the same customer knowledge base and create products with the same customer appeal as Invoro, then A) Finolo and Ethver will have a VRIO resource. B) Invoro will have a resource that is valuable but no longer rare. C) Invoro will have a sustainable competitive advantage in the industry. D) Invoro will have a resource that is rare but no longer valuable.
B) Invoro will have a resource that is valuable but no longer rare.
The founder of T-Square Construction strongly believes in the notion of corporate social responsibility, so he has proposed a number of philanthropic activities that he expects the company to pursue. In order to accomplish this vision, the managers should first A) review all legal codes in the areas in which T-Square operates and ensure all permits are up-to-date. B) ensure that the company is profitable and has a sustainable competitive advantage. C) make sure it is paying employees wages that allow them to live comfortably. D) ask for public input on issues that the company can help address.
B) ensure that the company is profitable and has a sustainable competitive advantage.
A firm is said to gain a competitive advantage when it can A) exceed its own previous performances. B) provide products similar to its competitors, but at lower prices. C) perform at the same level as that of its competitors. D) minimize the difference between value creation and cost
B) provide products similar to its competitors, but at lower prices.
The "Natural Nourishment" granola bars manufactured by Global Good Foods have been the top-selling granola bars in the market. Though the market for granola bars is flooded with competitors, Global Good has been able to maintain its market position for a long time. This is mainly attributed to the pleasant texture of its granola, which comes from a proprietary processing technique used by the company. This competency of Global Good Foods will be considered as a(n) ________ resource in the VRIO framework. A) imitable B) rare C) intangible D) organizational
B) rare
Tony's Pizza has been trying to directly copy the strategies of Moonlight Pies. Even though it is evident that the success of Moonlight Pies' success comes from the freshness and variety of ingredients it uses, Tony's Pizza has not been able to introduce the same types of produce into its recipes. This is because Moonlight's network of relationships with local growers, as well as its efficient supply chain, are very difficult to emulate. Which of the following barriers to imitation does this scenario best illustrate? A) path dependence B) social complexity C) resource mobility D) resource homogeneity
B) social complexity
BlueStainless Corp. has been able to gain and sustain a competitive advantage due to its strong relationship with its employees, customers, suppliers, and local communities. The company believes in lifetime employment and ensures that its employees grow along with the company. Investors are more than satisfied with the returns on their investments. Also, 3 percent of the company's profit is spent on community development. With initiatives like these, customers feel privileged to associate themselves with BlueStainless products. This scenario best illustrates the implementation of a A) strategic analysis. B) stakeholder strategy. C) wild card event. D) black swan event.
B) stakeholder strategy.
Peerless Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Peerless Inc. find it most difficult to exit? A) the management consultancy industry in which the company's fixed costs are low B) the steel industry in which the company has obligations like severance pay toward employees C) the corporate training industry in which the company's commitments are mostly short-term D) the e-commerce industry where the company has no long-term contractual agreements with suppliers
B) the steel industry in which the company has obligations like
Strategy as planned emergence
Begins with a strategic plan, but is less formal
Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE)? A) A strong threat of substitutes decreases the rivalry among existing competitors. B) All the five forces must work together to have a meaningful impact. C) Any of the five forces on its own, if sufficiently strong, can extract industry profitability. D) Competition must be defined more narrowly to remain confined to the industry's closest competitors.
C) Any of the five forces on its own, if sufficiently strong, can extract industry profitability.
Which of the following statements should ideally reflect a firm's strategy for competitive advantage? A) Our strategy is to win at any cost. B) We will be number one in the industry. C) Our aim is to create superior customer value while controlling costs. D) We want to be the market leader by replicating our competitor's strategy.
C) Our aim is to create superior customer value while controlling costs.
What is the strategic management process? A) The CEO decides who the product managers will be for a company. B) The CEO defines the main problems facing a company. C) Strategic leaders design a method to formulate and implement strategy. D) Strategic leaders focus on creating a vision that reflects the company's strategy.
C) Strategic leaders design a method to formulate and implement strategy.
________ is best described as an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage. A) Supply chain management B) Integrated technology management C) Strategic management D) Inventory management
C) Strategic management
Strategic commitments are actions that are A) inexpensive, long-term oriented, and difficult to reverse. B) inexpensive, short-term oriented, and easy to reverse. C) costly, long-term oriented, and difficult to reverse. D) costly, short-term oriented, and easy to reverse.
C) costly, long-term oriented, and difficult to reverse.
Leading guitar string producer Wound Up Inc. has enjoyed a competitive advantage based on its proprietary coating that gives its strings a clearer sound and longer lifespan than uncoated strings. One of Wound Up's competitors, however, has recently developed a similar coating using less expensive ingredients, which allows it to charge a lower price than Wound Up for similar-quality strings. Wound Up's competitive advantage is in danger due to A) a lack of perceived value. B) a lack of organization. C) direct imitation and substitution. D) resource immobility.
C) direct imitation and substitution.
Patriot Tools, a company that manufactures industrial tools, incurs higher costs because of its refusal to outsource its manufacturing to countries where labor costs are lower. This reflects Patriot Tools' ________ responsibility. A) economic B) legal C) ethical D) demographic
C) ethical
vision
Captures an organization's aspiration Identifies the long-term objective Should be forward-looking and inspiring
competitive parity
Competitive Parity: two or more firms that perform at the same level.
during periods of high growth:
Consumer demand rises Price competition among firms decreases
Ironhorse Tools has used $700,000 from its total annual earnings of $1,650,000 to invest in upgrading its manufacturing facilities. Its accounts receivable from customers is estimated to be $130,000 and accounts payable $75,000. In monetary terms, what would Ironhorse's resource flows be? A) $1,650,000 B) $130,000 C) $75,000 D) $700,000
D) $700,000
Which of the following is an example of competitive parity? A) A firm manufactures higher-quality wall clocks than its competitors. B) A firm provides wall clocks that its consumers value more than other wall clocks. C) A firm sells wall clocks at a lower price than its competitors. D) A firm produces a similar number of wall clocks at a similar cost as its competitors
D) A firm produces a similar number of wall clocks at a similar cost as its competitors
Lu 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 Lu conclude? A) The manufacturer is likely to see little profit until the power of buyers improves. B) In this scenario, suppliers are likely to create and sell effective substitutes. C) This firm is an example of near-perfect competition. D) The company is likely to be very profitable as long as the threat to entry is low.
D) The company is likely to be very profitable as long as the threat to entry is low.
Kimba Inc. is a manufacturer of smart watches that track the wearer's heart rate and sleep patterns. Which of the following is most likely an implication of new firms entering this industry? A) The bargaining power of buyers will reduce. B) The industry's overall profit potential and sales will increase. C) The rivalry among existing competitors will reduce. D) The incumbent firms will spend more to satisfy their existing customers.
D) The incumbent firms will spend more to satisfy their existing customers.
Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs 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, All Needs Inc. has exercised its bargaining power as a buyer through A) price stability. B) retroactive market share. C) enhanced technology. D) backward integration.
D) backward integration.
Underperformance relative to other firms in the same industry or the industry average results in a(n) ________ for a firm. A) sustainable competitive advantage B) increased power distance C) diseconomies of scope D) competitive disadvantage
D) competitive disadvantage
A(n) ________ is best described as the strategic option that top managers decide most closely matches the current reality and which is then executed. A) bottom-up emergent strategy B) executive summary C) realized strategy D) dominant strategic plan
D) dominant strategic plan
Organic Food Inc., a multinational company, relies on its media partner Radio Plus to regularly advertise its offers, sales, and new products. Radio Plus is invested in this relationship because it generates most of its revenue from advertising Organic Food's products. In this scenario, Radio Plus is Organic Food Inc.'s A) stockholder. B) workforce. C) internal stakeholder. D) external stakeholder.
D) external stakeholder.
Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, a firm will be successful today only if its A) competitive advantage is derived from static resource or market advantages. B) resource advantage is not causally ambiguous or socially complex. C) resource advantage is maintained for a short period of time. D) internal strengths change with its external environment in a dynamic fashion.
D) internal strengths change with its external environment in a dynamic fashion.
Three large firms dominate the telecommunication industry of United Canava: AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in? A) monopoly B) perfect competition C) monopolistic competition D) oligopoly
D) oligopoly
If a company wants to gain a competitive advantage in a highly competitive industry, it should ideally A) execute an integrated cost-leadership and differentiation position. B) copy the strategies of other firms through competitive benchmarking. C) provide goods or services similar to its competitors at higher prices. D) stake out a unique position within the industry
D) stake out a unique position within the industry
During market testing, Sensation Cosmetics (SC) realized that the cosmetics industry was dominated by multiple, well-established brands. These brands mostly sold their products in exclusive outlets and departmental stores. SC management realized that a new entrant would require a different business model to be successful. Thus, SC started selling its products through direct marketing. In this scenario, Sensation Cosmetics accomplished substitution primarily through A) path dependence. B) technology transfer. C) knowledge diffusion. D) strategic equivalence.
D) strategic equivalence.
Corporate Strategy
Decide in which industries, markets, and geographies their companies should compete.
Analysis
Diagnosis of the competitive challenge Analysis of the firm's internal and external environments
1st "E" in PESTEL
Economic
Formulation
Effective guiding policy backed by strategic commitments
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? Newcomers cannot use existing assets or reconfigure their value chains. New competitors usually ignore stakeholders who are not stockholders. It is difficult for outsiders to gauge which stage of the "life cycle" that industry is in. Entry barriers usually protect the incumbent players in a profitable industry.
Entry barriers usually protect the incumbent players in a profitable industry.
2nd "E" in PESTEL
Environmental
How do low interest rates affect a business? Firms tend to defer investments until rates rise. Firms can easily borrow money to finance future growth. Consumer demand slows down. Business credit is harder to obtain.
Firms can easily borrow money to finance future growth.
product-oriented vision statements
Focus employees on improving existing products and services
customer-oriented vision statements
Focus employees on problem solving for the customer
"F" in AFI Framework
Formulate
Functional Strategy
Functional managers are responsible for decisions and actions within the function.
Resource-Allocation Process (RAP)
How a firm allocates resources based on policy Helps shape realized strategy
"I" in AFI Framework
Implement
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? Invest in an online marketing campaign for existing products to retain customers. Open a satellite office overseas to support the company culture of taking chances. Attempt to undercut the competition by imitating their top-selling product. Improve the benefits package to retain key employees and reduce turnover.
Improve the benefits package to retain key employees and reduce turnover.
InVue, 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, InVue'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 InVue do? InVue should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment. InVue should stick to its existing core competency, that is HD LED technology, as it is the best in that segment. InVue should take steps to reduce the causal ambiguity and socially complexity of its core competency. InVue should work on enhancing the mobility of its core competency.
InVue should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment.
Igor's 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? Go against the trend and raise prices. Install modern manufacturing equipment to improve efficiency. Increase spending on online marketing efforts. Focus on imitating the most successful products of competitors.
Install modern manufacturing equipment to improve efficiency.
Understanding the Resource Allocation Process (RAP) will have large effects on shaping a firm's realized strategy. Which of the following is an example of such an allocation of resources? Starbucks' launch of iced drinks Teach For America's mission statement Merck's voluntary withdrawal of Vioxx from the market Intel's rule to "maximize margin-per-wafer-start"
Intel's rule to "maximize margin-per-wafer-start"
________ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. Embargoes Cartel arrangements Isolating mechanisms Market niches
Isolating mechanisms
The average cost of production for a bottle of vitamin water in the industry is $4 while its average price is $7. StoreAll Inc. manufactures the same product for $3 per bottle and sells it for $7 per bottle. Which of the following statements is most likely true of StoreAll Inc. in this scenario? It has a competitive advantage in the industry. It has a competitive disadvantage in the industry. It has competitive parity with other firms in the industry. It has formed a strategic alliance with other firms in the industry.
It has a competitive advantage in the industry.
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. It creates a situation in which different social and business systems interact with one another. It makes it difficult for competitors to deploy their resources by creating ambiguity within their organizational structures. It makes it difficult for competitors to imitate core competencies quickly due to time compression diseconomies.
It makes it difficult for the competitors to understand why a company has been so successful.
Which of the following is a primary feature of the five forces model? It is concerned exclusively about the intensity of rivalry among direct competitors. It takes into account a firm's internal resources, capabilities, and core competencies. It helps managers determine the changing speed of an industry or the rate of innovation. It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.
It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.
shortcomings of the top-down approach
May not adapt well to change Formulation separate from implementation Information flows one-way Leaders' future vision can be wrong
threat of substitutes
Meet the same basic customer need •But in a different way •Available from outside the given industry
The owners of Puff Ball 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. Purchase an existing bakery from a business that closed due to declining sales and try to revive it. Build a shop in a sparsely populated rural area where the land is inexpensive and few other bakeries exist. Open a shop in a crowded downtown location where several other bakeries have been successful over the years.
Open a shop on an inexpensive piece of land near a new mixed-use residential and business district currently under construction.
Upper Echelon's Theory
Organizational outcomes (strategic choices, performance levels) reflect the values of the top management team.
stakeholders
Organizations, groups, and individuals Can affect or are affected by a firm's actions Have an interest in the performance and survival of the firm
________ describes a process in which the options one faces in a current situation are limited by decisions made in the past. Social complexity Path dependence Cannibalization Causal ambiguity
Path dependence
power of suppliers
Pressures that industry suppliers can exert on an industry's profit potential
Business Strategy
Profit and Loss responsibility (standalone division of corporate)
industry dynamics
Provides insight about: •Changing speed of an industry •Rate of innovation Analysis must repeat over time •Industry structures aren't stable •They are dynamic
Addams Coaches 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 Addams pursue instead? Create a strategic group through mergers. Compete based on inter-group rivalry, not intra-group rivalry. Pursue a differentiated strategy. Close the business until the cost of gas decreases.
Pursue a differentiated strategy.
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? Devote more resources to an extremely popular advertising campaign to promote an exciting new product. Shut down struggling retail outlets in an economically depressed region. Deploy top sales personnel to prevent buyers from migrating towards lower-priced competition. Reorganize the inefficient research and development department to bring innovative products to market more quickly.
Reorganize the inefficient research and development department to bring innovative products to market more quickly.
Upper management at Softstep Inc., a manufacturer of insoles for shoes, wants to work on improving the product lines it already has without taking on other challenges at this time. Which of the following vision statements reflects that goal? Softstep Inc. wants to adapt their insoles to the changing demands of consumers. Softstep Inc. wants to always satisfy the consumers who purchase insoles. Softstep Inc. wants to provide the best benefits for employees in the insole industry. Softstep Inc. wants to be the best manufacturer of insoles in the industry.
Softstep Inc. wants to be the best manufacturer of insoles in the industry.
Keeping in mind the five forces in the airline industry, which of the following best explains the difficulty airlines have in generating a profit? Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry. Suppliers have weak bargaining power because they offer products that are not differentiated. Entry barriers in the industry are high, resulting in hardly any new airlines popping up. Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry.
Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry.
What is strategic leadership?
Successful use of power and influence Directing the activities of others Pursuing an organization's goals Enabling organizational competitive advantage
competitive advantage
Superior performance relative to other competitors in the same industry or the industry average.
The "diagonal assembly system" was a production system pioneered by the automobile company Gogo. Recently, Gogo was able to sue a competitor and won the suit, thereby receiving $100 million in damages. Which of the following would most likely enable Gogo to win such a lawsuit? The competitor ran advertising that criticized Gogo's assembly system. The competitor failed to apply for a patent of its own assembly system. The competitor infringed on Gogo's patent of the "diagonal assembly system." The competitor developed an assembly system that worked on a newer theory than Gogo's system.
The competitor infringed on Gogo's patent of the "diagonal assembly system."
Which of the following is an implication of all firms in an industry pursuing a low-cost position through application of competitive benchmarking? No firm would face direct competition from others in the industry; hence, profit potential would be high. Each firm would be catering to a different customer segment. The firms would eventually have no resources to invest in product and process improvements. Each firm would be in a better position to gain a competitive advantage.
The firms would eventually have no resources to invest in product and process improvements.
rivalry among competitors
The intensity with which companies in the same industry jockey for market share and profitability
Which of the following methods of developing a strategy best illustrates scenario planning? Based on the previous year's profits, the CEO of Solva Inc. decided to adopt an expansion strategy in its home market. 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. 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. 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.
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.
competitive industry structure
The number and size of its competitors The firms' degree of pricing power The type of product or service (commodity or differentiated product) The height of entry barriers
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. The pricing power of the incumbent firms in the travel industry has increased. The bargaining power of buyers in the travel industry has decreased. The structure of the travel industry changed from monopolistic competition to an oligopolistic one.
The travel industry changed from a consolidated structure to a fragmented one.
True Help is a nonprofit organization that works toward rehabilitating the homeless. The credo of the organization is "help us help you." For an organization like True Help, which of the following statements would make an appropriate mission? Help us help you find a home. One day, everyone in this nation will have a home to protect themselves. We help the homeless gain and sustain financial independence by providing employment opportunities. Our mission is to turn this not-for-profit organization into a for-profit organization so that the stakeholders benefit.
We help the homeless gain and sustain financial independence by providing employment opportunities.
mission
What an organization actually does •The products and services it will provide •The markets in which it will compete
industry convergence
When unrelated industries satisfy the same need (caused by technological advances)
Oligopoly
a few large companies that control prices for an entire industry
dynamic capabilities
a firm's ability to adapt resources over time
core rigidity
a former core competency that turned into a liability because the firm failed to hone, refine, and upgrade the competency as the environment changed
Which of the following best qualifies as a firm's internal stakeholder? an auditor assigned to the firm by a federal government agency a labor union with whom the firm's employees can affiliate a manager taking care of the firm's operations in a foreign market a competitor manufacturing the same products as that of the firm
a manager taking care of the firm's operations in a foreign market
the dynamic capabilities perspective
a model that emphasizes a firm's ability to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment
complements
a product, service, or competency that adds value when used with the original product
Implementation
a set of coherent actions
Which of the following is an element of good strategy? a summary of the firm's history within its industry a guiding policy to address employee satisfaction a set of coherent actions to implement the firm's guiding policy an approach that underestimates the competition
a set of coherent actions to implement the firm's guiding policy
strategic groups
a set of companies pursuing a similar strategy in the same industry
sociocultural factors
a society's cultures, norms, and values along with demographic trends (always in flux)
What is PESTEL?
a straightforward way to scan, monitor, and evaluate an industry at a specific point in time
strategic commitments
actions that are costly, long-term oriented, and difficult to reverse
stakeholder strategy
an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage
strategic initiatives
any activity a firm pursues to explore and develop (can bubble up from deep within a firm)
resources
any assets that a firm can draw on
emergent strategy
any unplanned strategic initiative bubbling up from the bottom of the organization
technological factors
application of knowledge, innovations in process technology, and innovations in product technology
isolating mechanisms
barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy
In an industry, the threat of entry is high when capital requirements are low. expected returns are low. technological know-how is industry specific. switching costs are high.
capital requirements are low.
strategic group model
clusters different firms into groups based on key strategic dimensions
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. perfect competition. monopolization. conglomeration.
co-opetition.
realized strategy
combination of intended and emergent strategy
If Zephyr Electronics obtains an 18 percent return on invested capital, which of the following will help determine if it has a competitive advantage over other pharmaceutical companies? comparing the return to the return on invested capital obtained by other firms in the industry assessing the value based on the shareholders' expectations of return on their capital evaluating the liquidity ratios for other pharmaceutical companies comparing the value to the history of the firm's return of investment over a number of years
comparing the return to the return on invested capital obtained by other firms in the industry
a resource is costly to imitate if
competitors can't develop the resource for a reasonable price
co-opetition
cooperation by competitors to achieve a strategic objective
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 resource flow. dynamic capabilities. core rigidity. value chain.
core rigidity.
Seth'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, Seth's Computer Repair has lost its competitive advantage due to value chain disruption. core rigidity. resource flows. resource stocks.
core rigidity.
"I" in VRIO
costly to imitate
external stakeholders
customers, suppliers, alliance partners, creditors, unions, communities, governments, media
activities
distinct and fine-grained business processes
In the pyramid of corporate social responsibility, ________ responsibilities are the foundational building block. economic ethical philanthropic legal
economic
the firm is organized to capture value through:
effective organizational structure and coordinating systems
industry effects
elements common to all (entry/exit barriers, number and size of companies, types of products/services offered)
primary activities
firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain
support activities
firm activities that add value indirectly, but are necessary to sustain primary activities
A strategic group will typically include firms within the same industry. customers belonging to a particular socioeconomic class. firms employing similar number of employees, irrespective of their industries. employees within a firm earning the same amount in salary.
firms within the same industry.
Strategies developed at the departmental level, such as the accounting, human resources, production, and marketing departments, within a strategic business unit are referred to as ________ strategies. grand corporate business functional
functional
industry
group of incumbent companies, relatively similar suppliers and buyers, similar products and services
a resource is valuable if
helps exploit an opportunity or offset a threat
After carefully assessing the market potential for solar-powered mobile devices, the top-level executives of Futuretronics Inc. decided that the company would be launching a line of solar-powered tablets within the next two years. This would mean that the tablet division would need to immediately begin research and development efforts. Which of the following strategies in the planned emergence model does this best illustrate? intended strategy emergent strategy unrealized strategy tactical strategy
intended strategy
"L" in PESTEL
legal
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 responsibilities philanthropic responsibilities ethical responsibilities demographic responsibilities
legal responsibilities
economic factors
macroeconomic factors such as growth rates, levels of employment, interest rates, price stability, and currency exchange rates
How does task environment impact a firm?
managers can influence industry structure and composition of strategic groups
How does general environment impact a firm?
managers have little control -consists of macroeconomic factors (interest, currency exchange rates)
monopolistic competition
many firms, same pricing power, differentiated product, medium entry barriers
perfect competition
many small firms, firms are price takers, commodity product, low entry barriers
Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate? monopolistic competition monopoly oligopoly perfect competition
monopoly
environmental factors
natural environment, global warming, sustainable economic growth
exit barriers
obstacles that determine how easily a firm can leave an industry
legal factors
official outcomes of political processes (laws, mandates, regulations, and court decisions)
Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? monopolistic competition oligopoly monopoly perfect competition
oligopoly
monopoly
one firm provides the product or service in a particular industry
a resource is rare if
only one or a few firms possess it
capabilities
organizational and managerial skills
"O" in VRIO
organized to capture value
When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate? monopoly oligopoly perfect competition monopolistic competition
perfect competition
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 top-down strategic planning approach. planned emergence approach. scenario planning process. reverse engineering process.
planned emergence approach.
"P" in PESTEL
political
power of buyers
pressure customers put on an industry
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 new product releases promotional campaigns product differentiation
price-cutting
political factors
processes and actions of government bodies that can influence the decisions and behavior of firms
serendipity
random events, surprises, coincidences
"R" in VRIO
rare
Which of the following strategies does Tesla need to implement or achieve to gain a competitive advantage? imitate the features of the most popular SUVs on the market reinvest profits to build successively better electric automobiles sell advertising space on their cars' digital displays substitute less-expensive components to keep costs low
reinvest profits to build successively better electric automobiles
Southwest Airlines (SWA) has enjoyed a sustained competitive advantage, allowing it to outperform its competitors over several decades. Continental and Delta attempted to copy SWA with their offerings of Continental Lite and Song, respectively. Neither Continental nor Delta, however, was able to successfully imitate the resource bundles and firm capabilities that make SWA unique. Which of the following is this case an example of? resource immobility resource heterogeneity resource imitation resource substitution
resource immobility
mobility barrier
restrict movement between strategic groups industry-specific factors based on hard-to-reverse investments
threat of entry
risk that potential competitors will enter an industry
Dynamic capabilities are especially relevant for surviving and competing in markets that shift quickly. shift slowly. remain constant. remain unpredictable.
shift quickly.
"S" in PESTEL
sociocultural
internal stakeholders
stockholders, employees, and board members
autonomous actions
strategic initiatives undertaken by lower-level employees in response to unexpected situations
A traditional top-down strategic planning process typically begins with employees at the operational level identifying problems within an organization. functional managers formulating functional strategies for their respective departments. strategic leaders adjusting a company's vision and mission based on environmental analysis. employees who have close contact with customers taking autonomous actions.
strategic leaders adjusting a company's vision and mission based on environmental analysis.
FindFor Inc. is an e-commerce retail firm that sells a variety of merchandise online. Through services like cash on delivery, easy return, and online tracking, the company has created more customer value than its competitors (brick-and-mortar businesses) at the same price. Also, the company's costs are substantially lower than its competitors because of minimal investments in operation and administration. In this scenario, FindFor Inc. has most likely been able to provide superior value and cost control through strategic parity. strategic profiling. strategic liquidation. strategic positioning.
strategic positioning.
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. balanced scorecard fiduciary responsibility consistent power position sustainable competitive advantage
sustainable competitive advantage
"T" in PESTEL
technological
dynamic markets are due to
technological change, deregulation, globalization, demographic shifts
firm effects
the actions managers take, more important than firm effects
Riya has recently started a restaurant in a commercial area that already has many other established restaurants and popular fast-food chains. Riya 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. Riya 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 Riya's business? the investments made by Riya on the restaurant's interior the type of kitchen equipment widely used in her industry the restaurant's late entry into the market the building owned by Riya, which reduces cost of operations
the building owned by Riya, which reduces cost of operations
Gladiator 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 Gladiator Apparel is most likely to be considered a rare resource that is contributing to its competitive advantage? the company's land and buildings the company's plant and machinery the company's raw material supplies the company's design patents
the company's design patents
resource stocks
the firm's current level of intangible resources
resource flows
the firm's level of investments to maintain or build a resource
black swan events
the high impact of a highly improbable event
the value chain
the internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value & incremental cost
intended strategy
the outcome of a rational and structured top-down strategic plan
profitability & market share
the rewards of superior value creation and capture
Porter's Five Forces
threat of entry threat of substitute supplier power buyer power competitive rivalry
The Founder of Teach for America, Wendy Kopp, wants to make teaching an attractive option for promising young professionals. Identify the phrase that represents the vision she developed for Teach for America. to improve standardized test scores across the board to cut wasteful spending from education budgets to encourage parents to take a more active role in their children's education to give all children in the United States the opportunity to attain an excellent education.
to give all children in the United States the opportunity to attain an excellent education.
top-down strategic planning
top management attempts to program future success through analysis, five year plans and correlated budgets, and performance monitoring
scenario planning
top management envisions different scenarios (both optimistic and pessimistic) and then derive strategic responses
For a firm that operates in an industry where competition is high, which of the following practices will result in inferior performance? choosing a distinct but different strategic position in the industry working toward increasing the difference between value creation and cost trying to be everything to everybody by combining different competitive strategies focusing on creating value for customers rather than destroying rivals
trying to be everything to everybody by combining different competitive strategies
core competencies
unique strengths, embedded deep within a firm, that allow differentiation of products/services from rivals
"V" in VRIO
valuable
Which of the following features about a buyer indicates that the buyer has high bargaining power? when the buyer cannot credibly threaten to backwardly integrate into the industry when the buyer cannot purchase specific products from other sellers when the buyer faces high switching costs when the buyer operates in an industry where products are undifferentiated
when the buyer operates in an industry where products are undifferentiated
Components of Business Strategy
•How to compete? •Cost leadership, differentiation, or value innovation
Components of Functional Strategy
•How to implement a chosen business strategy?
what can shape political factors?
•Lobbying •Public Relations •Contributions •Litigation
Components of Strategy Implementation
•Organization, coordination, integration •How work gets done •The execution of strategy
resource immobility
•Resources don't move easily from firm to firm •Resources are difficult to replicate •Resources can last for a long time
Components of strategy formulation
•The choice of strategy •Where and how to compete
Components of Corporate Strategy
•Where to compete? •Industry, markets, and geography
