Integrated Business Policy and Strategy - Exam 2

Advantages of the balanced scorecard

- Communicate and link the strategic vision to responsible parties within the organization - Translate the vision into measurable operational goals - Design and plan business processes - Implement feedback and organizational learning in order to modify and adapt strategic goals when indicated

Triple bottom line framework

- Profits: the economic dimension captures the necessity of businesses to be profitable to survive -People: The social dimension emphasizes that people aspect -Planet: The ecological dimension emphasizes the relationship between business and the natural environment

Limitations of accounting date

-Historical and this backward-looking -Does not consider off-balance sheet items -Date mainly focuses on tangiable assests

17) Which of the following provides an example of a firm in a red ocean? A) Cool Apparel offered clothing at a low price but failed to differentiate its product as being exclusive. B) Clothes 'R Us Apparel offered clothing at a price matching that of its competitors and, as a result, it had lower profit margins. C) Nadia Apparel offered clothing at a mid-range price but failed to differentiate its product as being of decent quality. D) XYZ Apparel offered clothing at a higher price than competitors and, as a result, failed to make a profit.

A) Cool Apparel offered clothing at a low price but failed to differentiate its product as being exclusive. Red ocean is a term used when a blue ocean strategy fails. Such a strategy fails when a firm fails to combine differentiation and low cost.

22) A factor favoring the success of disruptive innovation is that A) incumbent firms are slow to change. B) new entrants have highly formal organizational structures and processes. C) the low end of the market is highly guarded. D) incumbent firms focus on radical innovation rather than incremental innovation.

A) incumbent firms are slow to change. A factor favoring the success of disruptive innovation is that incumbent firms often are slow to change. Incumbent firms tend to listen closely to their current customers and respond by continuing to invest in the existing technology and in incremental changes to the existing products.

49) How does a firm capture its producer surplus for a good or service? A) as cost per unit sold B) as profit per unit sold C) as earnings per share D) as market price per share

B) as profit per unit sold The difference between the price charged for a product (P), and the cost to produce it (C), is the producer surplus. Firms capture this amount as profit per unit sold.

40) Dontechi is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does thisbest illustrate? A) subscription-based B) freemium C) pay-as-you-go D) razor-razor-blade

B) freemium This scenario best illustrates the freemium business model. The freemium (= free + premium) business model is a model in which the basic features of a product or service are provided free of charge, but the user must pay for premium services such as advanced features or add-ons.

11) When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it A) loses its competitive advantage. B) gains market share from other firms. C) lowers the economic value created. D) results in diseconomies of scale.

B) gains market share from other firms. When a firm is able to offer a differentiated product or service and can control its costs at the same time, it is able to gain market share from other firms by charging a similar price but offering more perceived value.

30) Generally, as the level of ________ innovation declines, the level of ________ innovation increases. A) process; product B) product; process C) process; incremental D) product; radical

B) product; process When product innovation declines, the level of process innovation increases, with a focus more on cost savings.

41) Nam-zim sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is Nam-zim implementing? A) subscription-based B) razor-razor-blade C) pay-as-you-go D) direct sales

B) razor-razor-blade Nam-zim is implementing the razor-razor-blade business model. In the razor-razor-blade business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods. The company makes its money on the replacement part or consumable when needed.

Ultra-low cost

Basic services is provided at a low cost and extra items are sold at a premium

8) One of the risks of pursuing a blue ocean strategy is that a firm can find itself A) losing sight of its mission and vision. B) competing with only a differentiation strategy. C) "stuck in the middle." D) ineffective when competing on an international scale.

C) "stuck in the middle." Many firms fail at achieving a blue ocean strategy because they end up getting stuck in the middle and are not able to differentiate or establish a cost-leadership position.

50) A wearable technology company has priced one of its wristwatches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch? A) $150 B) $180 C) $170 D) $210

C) $170 The absolute maximum a customer would be willing to pay for a productis referred to as its reservation price, which in this case is $170.

34) While the personal computer industry is flooded and growing with laptops and tablets, Javier recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Javier best represent? A) early adopters B) category captains C) laggards D) early majority

C) laggards Javier best represents the laggards segment. Laggards are customers who adopt a new product only if it is absolutely necessary. They tend to enter the market after it is completely mature and frequently during the decline stage.

Return on Revenue (ROR) break down

Cost of goods sold (COGS) / Revenue Research and Develpment (R&D)/ Revenue Selling, gen & admin (SG&A)/ Revenue

2. Due to its large sales volume and low-cost structure, Bunny's Lo-Cost enjoys a cost-leadership position. Which of the following scenarios might threaten Bunny's competitive advantage? A) Existing competitors in the same industry lower their prices to match those of Bunny's. B) Industry suppliers raise their prices. C) Competitors engage in an all-out price war. D) A new competitor is perceived to provide similar value, but in addition offers innovative self-checkout that Bunny's doesn't offer

D) A new competitor is perceived to provide similar value, but in addition offers innovative self-checkout that Bunny's doesn't offer Although a cost-leadership strategy provides some protection against the five forces, it also carries some risks. If a new entrant with new and relevant expertise enters the market, the low-cost leader's margins may erode due to loss in market share while it attempts to learn new capabilities.

16) How did Marriott use economies of scope to achieve greater economic value than its competitors? A) Marriott sees increases in cost per hotel unit as number of customers increases. B) Marriott sees decreases in cost per hotel unit as number of customers increases. C) Marriott lowered its cost structure by focusing its production assets on one type of hotel, which increased the diversity of its hotel line and thus its differentiated appeal. D) Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.

D) Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal. Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased its menu and thus its differentiated appeal. Economies of scope refers to the saving that come from producing two or more outputs at less cost than producing each output individually.

9) When examining all the generic strategies, which of the following below is inherently superior in every industry? A) broad differentiation B) focused differentiation C) blue ocean D) There is no single superior business-level strategy.

D) There is no single superior business-level strategy. None of the business-level strategies are inherently superior. The success of each depends on context and relies on two factors: (1) how well the strategy leverages the firm's internal strengths while mitigating its weaknesses and (2) how well it helps the firm exploit external opportunities while avoiding external threats. There is no single correct business strategy for a specific industry.

20) Adaptive Biotechnologies Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate? A) disruptive innovation B) incremental innovation C) radical innovation D) architectural innovation

D) architectural innovation This scenario best illustrates architectural innovation. Firms can innovate by leveraging existing technologies into new markets. An architectural innovation is a new product in which known components, based on existing technologies, are reconfigured in a novel way to create new markets.

48) Diana is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Diana's A) social cost. B) break-even price. C) reservation price. D) opportunity cost.

D) opportunity cost. In the scenario, the amount $62,000 ($50,000 + $12,000) would be Diana's opportunity cost. An entrepreneur faces two types of opportunity costs: (1) forgone wages she could be earning if she were employed elsewhere, and (2) the cost of capital she invested in herbusiness, which could instead be invested in, say, the stock market orU.S. Treasury bonds.

economic value created

Difference between value (V) and cost (C), or (V - C).

Breaking Down Working Capital Turnover

Measures how effectively capital is being used to generate revenue

Freemium

Provides the basic features for free of charge but premium services are add-ons

bundling

Sells products or services for which demand is negatively correlated at a discount

Balanced Scorecard

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

Value

The dollar amount (V) a consumer attaches to a good or service; the consumer's maximum willingness to pay; also called reservation price.

Razor-razor blades

The initial product is often sold at a loss or given away to drive demand or complementary goods

Subscription

Users pay for access to a product or service whether they use the product or service during the payment term or not

Pay-as-you-go

Users pay for only the services they consume

The Why, Who, What and How Framework

Why- Does the business model create value? (revenue + cost models) Who - Are the main stakeholders performing the activities? How- Are the offerings to the customers created? (linking of activities) What - Activities need to be performed to create and deliver the offering to customers?

Market Capitalization

a firm performance metric that captures the total dollar market value of a companys total outstanding shares at any given point in time

sustainable strategy

a strategy along the economic, social and ecological dimensions that can be pursued over time without detrimental effects on people or the planet

producer surplus

another term for profit the difference between price charged (P) and the cost to produce (C) or (P-C) also known as the profit

triple bottomline

combination of economic, social and ecological concerns or profits, people and planet that can lead to a sustainable strategy

consumer surplus

difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P) or (V-P)

Cost of goods sold (COGS) / Revenue

indicates how efficiently a company can produce a good

PPE/ Revenue

indicates how much of a firm's revenues are dedicated to cover plant, property, and equipment which are critical assets to a firm's operations but cannot be liquidated easily.

Long-term assets/ revenue

indicates how much of each dollar a firm earns in revenues is tied up in long-term assets

SG&A/Revenue

indicates how much of each dollar that the firm earns in sales is invested in sales, general, and administrative (SG&A) expenses. Generally, this ratio is an indicator of the firm's focus on marketing and sales to promote its products and services.

R&D/Revenue

indicates how much of each dollar that the firm earns in sales is invested to conduct research and development

total return to shareholders

return on risk capital that includes stock prices appreciated plus dividends received over a specific period

business model

stipulates how the firm conducts its business with its buyers, suppliers and partner in order to make money

wholesale

the book publishing industry is an example

profit

the difference between the price charged (P) and the cost to produce (C) or (P-C) also called the producer surplus

reservation price

the maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits

Shareholders Value Creation

the measure that matters most is the return on their risk capital, because the money given to the investment cannot recover if the firm goes bankrupt

Capital

the money a company needs to function and to expand

opportunity cost

the value of the best forgone alternative use of the resources employed

Cost

to produce the good or service matters little to the consumer, but it matters a great deal to the producer (supplier) of the good or service since it has a direct bearing on the profit margin.

Multidimensional Perspective for assessing competitive advantage

1. Accounting Profitability (net income earned after subtracting all dollar costs from total revenue.) 2. Shareholder Value (the value given to stockholders in a company based on the firm's ability to sustain and grow profits over time) 3. Economic Value (the value that person places on an economic good based on the benefit that they derive from the good)

A firm's strategic leader must be able to accomplish two critical tasks:

1. Assess the performance of their firm accurately 2. Compare and benchmark their form's performance to other competitors in the same industry or against the industry average

The economic value creation framework show that strategy is about:

1. Creating economic value 2. Capturing as much as of it as possible

Four key questions that strategic leaders use to balanced scorecard

1. How do customers view us? 2. How do we create value? 3. What core competencies do we need? 4. How do shareholders view us?

21) Peloton Interactive is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Peloton Interactive a competitive advantage? A) Implement process innovations that lower per-unit costs. B) Introduce product innovations that differentiate Potomac televisions from the competition. C) Imitate the features of the highest-selling television on the market. D) Increase spending on marketing and attempt to acquire a high-profile celebrity spokesperson.

A) Implement process innovations that lower per-unit costs. The high-definition television industry has entered the shakeout stage of the industry life cycle. The winners in this increasingly competitive environment are often firms that stake out a strong position as cost leaders. Key success factors at this stage are the manufacturing and process engineering capabilities that can be used to drive costs down. The importance of process innovation further increases (albeit at diminishing marginal returns), while the importance of product innovation further declines.

27) Which of the following scenarios would be characteristic of an entrepreneur? A) John implemented a new and more efficient way to produce pottery. B) Karen imitated a new, more efficient method of producing pottery. C) Hugo scaled back the production of pottery because it wasn't cost effective. D) Juliana used a proven marketing method to advertise her pottery.

A) John implemented a new and more efficient way to produce pottery. Entrepreneurs are the agents that introduce change into the competitive system. They do this not only by figuring out how to use inventions but also by introducing new products or services, new production processes, and new forms of organization. Entrepreneurs innovate by commercializing ideas and inventions. By implementing a new and more efficient way to produce pottery, John is introducing a new production process and is therefore practicing entrepreneurship.

29) Lauren is the CEO of TimeEx Inc. and is competing in an industry that is shifting due to disruptive innovation. Which of the following strategies should she consider to most appropriately respond to this disruptive innovation? A) Lauren should guard against the disruptive innovation by protecting the low end of the market. B) Lauran should stop allocating her firm's resources towards continually trying to innovate. C) Lauren should exit the industry before her firm files for bankruptcy. D) Lauren should focus on procuring the "laggards" in her industry.

A) Lauren should guard against the disruptive innovation by protecting the low end of the market. Lauren should guard against the low end of her market by introducing low-cost innovations to preempt stealth competitors.

26) Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle? A) There is more strategic variety in the growth stage when compared to the introduction stage. B) The number of competitors is more in the introduction stage than the growth stage. C) The market size for a new product or service is larger in the introduction stage when compared to the growth stage. D) While achieving market acceptance is the strategic objective during the introduction stage, the objective in the growth stage is to pursue a harvest strategy.

A) There is more strategic variety in the growth stage when compared to the introduction stage. Since market demand is robust in the growth stage and more competitors have entered the market, there tends to be more strategic variety: Some competitors will continue to follow a differentiation strategy, emphasizing unique features, product functionality, and reliability. Other firms employ a cost-leadership strategy in order to offer an acceptable level of value but lower prices to consumers.

5) Power Juice is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Power Juice has decided to pursue a differentiation strategy. In this case, she should A) focus on adding unique features to her product that customers will value. B) concentrate on improving process technologies to achieve economies of scale. C) enforce strict budget controls at all levels of the organization D) devote all resources to reducing the value gap.

A) focus on adding unique features to her product that customers will value The focus of competition in a differentiation strategy tends to be on unique product features, service, and new product launches, or on marketing and promotion rather than price. A differentiator would focus research and development on product features or packaging in order to add uniqueness.

7) Whole Foods focuses on a small market segment, affluent consumers who want to buy high-end, organic groceries. What is the appropriate name for Whole Foods's scope of competition? A) focused B) broad C) specific D) general

A) focused In the generic business model, the two choices for scope of competition are broad and focused. Whole Foods has clearly defined its scope narrowly at wealthy individuals.

1. The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator? A) high price, high comfort, high customer service, high concessions variety, low hours of operation B) low price, high comfort, high customer service, high concessions variety, low hours of operation C) high price, low comfort, low customer service, high concessions variety, low hours of operation D) low price, low comfort, low customer service, low concessions variety, low hours of operation

A) high price, high comfort, high customer service, high concessions variety, low hours of operation The value curve is the basic component of the strategy canvas. It graphically depicts a company's relative performance across its industry's factors of competition. When pursuing a generic differentiation strategy, all these scores along the different competitive elements in an industry go along with a relative higher cost structure. A theater pursuing differentiation, then, would have higher prices to go along with higher levels of comfort, service, and concessions variety, but may score lower in hours of operation to reflect its position as a more exclusive destination for movie goers.

6) In order for a firm to formulate an effective business-level strategy, it is important to remember that competitive advantage is determined by A) the characteristics of both the industry and the firm. B) the characteristics of the firm alone. C) the characteristics of the industry in which a firm competes. D) the amount of market share a firm can gain.

A) the characteristics of both the industry and the firm. While the majority of performance can be explained by the firm, the industry in which that firm competes also plays a significant role. It is also important to note that industry and firm effects are not independent, but rather they are interdependent.

43) During the process of formulating an effective business model, a firm's managers should first A) transform their strategy of how to compete into a blueprint of actions and initiatives. B) implement their strategy at corporate, strategic business unit, and functional levels. C) implement their blueprint of actions and initiatives through structures, processes, culture, and procedures. D) evaluate the firm's strategy already in effect and take corrective actions if necessary.

A) transform their strategy of how to compete into a blueprint of actions and initiatives. To come up with an effective business model, a firm's managers first need to transform their strategy of how to compete into a blueprint of actions and initiatives that support the overarching goals. In a second step, managers implement this blueprint through structures, processes, culture, and procedures.

47) Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance? A) When the need for "hard numbers" arises, managers and analysts rely on economic value creation perspective to measure competitive advantage. B) In economic value perspective, analysts not only consider historical costs, but also opportunity costs. C) Arriving at the economic value created is easy because determining the value of a good in the eyes of consumers is a simple task. D) It is the most efficient tool for assessing corporate-level competitive advantage of highly diversified companies with large product portfolios.

B) In economic value perspective, analysts not only consider historical costs, but also opportunity costs. Rather than merely relying on historical costs, as done when taking the perspective of accounting profitability, in the economic value creation perspective, all costs, including opportunity costs, must be considered.

46) Which of the following is an advantage of the balanced-scorecard? A) It is a tool for both strategic formulation and strategic implementation. B) It allows managers to translate a firm's vision into measure able operational goals. C) The balanced-scorecard is independent of the skills of the managers responsible for its implementation. D) Its implementation is a one-time effort and does not require continuous tracking of metrics or updating of strategic objectives.

B) It allows managers to translate a firm's vision into measure able operational goals. The balanced-scorecard approach is popular in managerial practice because it has several advantages. In particular, the balanced scorecard allows managers to translate the vision into measurable operational goals.

13) Which of the following is an accurate statement about learning effects? A) Learning effects are captured at one point in time. B) Learning effects occur over time as output accumulates. C) Learning effects are significant in all production processes. D) Learning effects can produce diseconomies.

B) Learning effects occur over time as output accumulates. Learning effects occur over time as output accumulates. There are no diseconomies to learning. In some production processes, learning effects are minimal.

35) Jack and Jill both love hot coffee. Jack likes to keep his coffee hot during the day while Jill doesn't mind drinking room temperature coffee. Jack is willing to spend more money on a thermos than Jill is willing to spend. This example illustrates the following major limitation of employing the Economic Value Creation framework because A) overall macroeconomic factors such as the unemployment rate, and interest and exchange rates all have a direct bearing on stock prices. B) determining the value of a good/service through the perspective of a consumers is not a simple task because consumers have different spending habits. C) accounting data focus mainly on tangible assets, which are no longer the most important. D) accounting data are historical and thus backward-looking.

B) determining the value of a good/service through the perspective of a consumers is not a simple task because consumers have different spending habits. Determining the value of a good in the eyes of consumers is not a simple task. Jack is willing to spend more money on a thermos than Jill; we must examine their purchasing habits to reveal their preferences, which should indicate how much each consumer is willing to pay for a product/service.

37) By selling a tablet at $1,000 for which consumers are willing to pay up to $1,200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the A) opportunity cost. B) economic value created. C) reservation price. D) consumer surplus.

B) economic value created. Economic value creation equals consumer surplus plus firm profit, or thesum of consumer and producer surplus.

23) Fulcrum Feet is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate? A) radical innovation B) incremental innovation C) architectural innovation D) disruptive innovation

B) incremental innovation The scenario best illustrates an incremental innovation. An incremental innovation squarely builds on an established knowledge base and steadily improves an existing product or service offering. It targets existing markets using existing technology.

28) When Monopar Therapeutics released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of Monopar Therapeutics' intellectual property rights. Thus, the drug is protected by a A) promissory bill. B) patent. C) franchise. D) royalty.

B) patent. In the given scenario, Monopar Therapeutics' drug is protected by a patent. A patent is a form of intellectual property, and gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.

39) Which of the following scenarios exemplifies a sustainable strategy under the triple-bottom-line approach? A) Rather than complying with the restrictive recycling laws in the United States, Gogozoom outsourced its manufacturing to a country that has fewer environmental restrictions. B) Gogozoom developed a chemical additive that doubled the life of its plastics. The additive was currently legal, but environmental groups argued that it harmed the environment. C) Gogozoom reformulated its products to eliminate chemicals that were widely used in the industry but were being investigated for their potential negative effects on the environment. D) Gogozoom's nearest competitor increased the salaries of its production workers by 30 percent, but Impervious kept its wages the same to gain a cost advantage over its competitor.

C) Gogozoom reformulated its products to eliminate chemicals that were widely used in the industry but were being investigated for their potential negative effects on the environment. Rather than emphasizing sustaining a competitive advantage over time, sustainable strategy means a strategy that can be pursued over time without detrimental effects on people or the planet. By voluntarily eliminating the harmful chemicals, Impervious not only achieved a positive result in the people and planet dimensions of the triple bottom line, but potentially gave itself a profit advantage by avoiding a shutdown if the government ultimately decided to ban the chemicals.

33) Which of the following most accurately describes a difference between incremental innovation and radical innovation? A) Incremental innovation researches new materials; radical innovation researches new processes. B) Incremental innovation targets new markets and technologies; radical innovation reinvents markets and technologies. C) Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base. D) Incremental innovation draws on novel methods; radical innovation draws on proven methods.

C) Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base. An incremental innovation squarely builds on an established knowledgebase and steadily improves an existing product or service offering. It targets existing markets using existing technology. On the other hand, radical innovation draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge, or targets new markets by using new technologies.

38) 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? A) She has not considered the opportunity costs associated with launching an online ordering system. B) She has not addressed the question of which core competencies the firm needs. C) She has failed to account for external factors such as customer perceptions and shareholder perceptions. D) She has not addressed the question of how DigIt will create value.

C) She has failed to account for external factors such as customer perceptions and shareholder perceptions. In the balanced-scorecard approach, the four questions asked by managers are (1) "How do customers view us?" (2) "How do we create value" (3) "What core competencies do we need?" and (4) "How do shareholders view us?" Amber has determined that DigIt will create value through its online ordering system and needs core competencies related to sourcing supplies and web development. But she has not addressed how customers and shareholders view the company's products or services and where they should be improved (e.g., quality, speed...), and how customers and shareholders might perceive and value this news service.

4) In order to achieve a competitive advantage, the Heavenly Hotels, a chain of luxury beach resorts, wants to increase its market share. Which of the following strategies is most likely to do so? A) Maintain prices but significantly increase spending on customer service and other amenities. B) Lower prices but eliminate several of the features that have come to define Heavenly Hotels properties for consumers, such as complimentary meals and in-room massages. C) Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Heavenly Hotels brand image. D) Raise prices without increasing spending on customer service or resort features.

C) Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Heavenly Hotels brand image Economies of scale denote decreases in cost per unit as output increases. Economies of scope describe the savings that come from producing two(or more) outputs at less cost than producing each output individually,even though using the same resources and technology. By opening another chain of hotels that leverage the Heavenly Hotels brand image,the company can increase the perceived value of its products and improve market share while controlling costs

25) When the market for standalone Global Positioning System (GPS) devices declined with the arrival of GPS-enabled mobile phones, InMode Ltd., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has InMode Ltd. adopted in this scenario? A) harvest strategy B) maintain strategy C) consolidation strategy D) differentiation strategy

C) consolidation strategy In the scenario, InMode Ltd. has adopted the consolidation strategy. Although market size shrinks in a declining industry, some firms may choose to consolidate the industry by buying rivals (those who choose to exit). This allows the consolidating firm to stake out a strong position—possibly approaching monopolistic market power, albeit in a declining industry.

31) The type of customers vital to a firm introducing a new innovation are the ________, who are willing to pay higher prices and like to tinker with new products. A) laggards B) early majority C) early adopters D) late majority

C) early adopters Early adopters are important to a firm introducing a new innovation because they are willing to pay higher prices and like to tinker with new products.

3) Food Tiger Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against Food Tiger's low prices. Thus, Food Tiger has a competitive advantage due to its A) superior customer service. B) time compression economies. C) economies of scale. D) learning-curve effects.

C) economies of scale Food Tiger has a competitive advantage due to its economies of scale.Economies of scale allow firms to spread their fixed costs over a larger output, employ specialized systems and equipment, and take advantage of certain physical properties.

12) Trader Joe's differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Trader Joe's focuses on A) decreasing the existing value gap by providing luxury goods to customers. B) maintaining a less steeper learning curve as compared to its competitors. C) increasing the perceived value created for customers, which allows it to charge a premium price. D) lowering its costs compared to its competitors, while offering adequate value for its products and services.

C) increasing the perceived value created for customers, which allows it to charge a premium price. Trader Joe's differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Trader Joe's focuses on increasing the perceived value created for customers, which allows it to charge a premium price.

10) Which of the following best describes a strategic tradeoff? A) the tension between innovation and keeping manufacturing costs down B) the tension between maintaining both high-quality products and service C) the tension between value creation and the pressure to keep costs in check D) the tension between raising prices and keeping a loyal clientele

C) the tension between value creation and the pressure to keep costs in check To achieve a desired strategic position, managers must make strategic tradeoffs—choices between a cost or value position. Managers must address the tension between value creation (which tends to generate higher cost) and the pressure to keep cost in check so as not to erode the firm's economic value creation and profit margin.

44) The top management at Konex Vitamins, through rigorous testing, ensures that the company develops and sells vitamins that are free of harmful side effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Konex Vitamins are applying the ________ approach to measure firm performance. A) economic value creation B) shareholder value creation C) triple-bottom-line D) accounting profitability

C) triple-bottom-line In this scenario, the managers at Konex Vitamins are applying the triple-bottom-line approach to measure firm performance. Using a triple-bottom-line approach, managers audit their company's fulfillment of its social and ecological obligations to stakeholders such as employees,customers, suppliers, and communities as conscientiously as they trackits financial performance.

45) 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 A) accounting profitability approach. B) economic value creation approach. C) triple-bottom-line approach. D) balanced-scorecard approach

C) triple-bottom-line approach. Triple-bottom-line stresses a combination of economic, social, and ecological concerns that can lead to a sustainable strategy, which are reflected in the vision statement for Forever Power.

24) When does a firm fall into the large competitive chasm between early adopters and early majority? A) when it cannot attract technological enthusiasts to try the beta versions of its products B) when it creates strong network effects during the growth stage C) when it fails to successfully launch a mass-market version of its product D) when the early majority create herding effects for its products

C) when it fails to successfully launch a mass-market version of its product The significant differences in the attitudes toward technology of the early majority when compared to the early adopters signify the wide competitive gulf—the chasm—between these two consumer segments. Without adequate demand from the early majority, most innovative products wither away.

14) What does it mean for a firm to have an 80 percent learning curve? A) Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent. B) Every time the cumulative output is doubled, the cost per unit will decline by 80 percent. C) Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent. D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent. An 80 percent learning curve indicates that every time the cumulative output is doubled, the cost per unit will decline by 20 percent. Similarly, a 90 percent learning curve indicates that per-unit cost drops 10 percent every time output is doubled. A 70 percent learning curve indicates a 30 percent drop every time output is doubled.

18) Which of the following businesses ismost susceptible to negative network effects? A) Lite Shoes produces a line of lightweight running shoes that are endorsed by an Olympic gold medalist. B) Chips & Boards Technologies produces computer processing chips and sells them to a variety of manufacturers for use in smartphones and other devices. C) ECO Tools manufactures solar powered gardening implements and sells them online. D) Rite Pics is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.

D) Rite Pics is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos. The ability of a platform to evince and manage positive network effects is critical to producing value for each participant, and it allows it to gain and sustain a competitive advantage. In contrast, negative network effects describe the situation where more and more users exit a platform and the value that each remaining user receives from the platform declines. Because Rite Pics relies on having a high number of users to create value for its customers, it stands to suffer the most from negative network effects if users abandon the platform.

42) Which of the following scenarios best illustrates bundling? A) Yearin Inc. sells its electric toothbrushes for a low cost, but charges a high price for replacement brushes. B) CondaxMedia Inc. sells its cloud computing network by having customers pay for the service as they use it. C) Isdom Inc. sells its basic TV channels for free but charges high prices for any channels that customers add on later. D) Warephase Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually.

D) Warephase Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually. The bundling business model sells products or services for which demand is negatively correlated at a discount. For example, in the Microsoft Office Suite, a user might value Word more than Excel and vice versa. Instead of selling both products for $120 dollars each, Microsoft bundles them in a suite and sells them combined at a discount, say $180.

36) FMC Corp., a chemical manufacturer, has over 5,000 employees spread across several SBUs which collectively generate over $3 billion in annual revenues. FMC's strategic leaders initially focused solely on financial metrics as their key performance measure but is failing to achieve competitive advantage in their industry. Which of the following questions below should their senior leadership not consider while implementing the balanced score card framework? A) How do we become the customer's most valued supplier, and how can my division create this value for the customer? B) What are my division's core competencies and contributions to the company goals? C) How do we become more externally focused? D) When should we decide to divest assets and prepare for an exit strategy?

D) When should we decide to divest assets and prepare for an exit strategy? Implementing a balanced scorecard should allow FMC's managers to align their different perspectives to create a more focused corporation overall; the four key questions senior leadership should ask themselves are: how do shareholders view us, what core competencies do we need, how do we create value, how do customers view us?

19) Which of the following business models in the landscaping industry is likely to scale most efficiently? A) a company that offers three different bundles of services at a low, medium, and high price point depending on the level of care required by the customer B) a company that deploys a team of both skilled and unskilled landscapers to each customer's location regardless of their needs C) a company that charges the same hourly rate for landscaping services no matter what the situation requires D) a company that allows users of its website to schedule appointments with landscapers who specialize in the exact service required

D) a company that allows users of its website to schedule appointments with landscapers who specialize in the exact service required Platform businesses leveraging digital technology can grow much faster—that is, they scale efficiently—because platforms create value by orchestrating resources that reside in the ecosystem. The platform business does not own or control these resources, facilitating rapid and often exponential growth.

15) In the multiplex industry, Home Again Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Movies-for-less Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is Just Right Films Inc., which offers a customer experience comparable to that of Home Again Movies at a price almost as low as that of Movies-for-less. What strategy is Just Right Films pursuing in this scenario? A) liquidation strategy B) product diversification strategy C) market penetration strategy D) blue ocean strategy

D) blue ocean strategy Just Right Films is pursuing the blue ocean strategy. A successful blue ocean strategy requires that trade-offs between differentiation and low cost are reconciled. A blue ocean strategy allows a firm to offer a differentiated product or service at low cost.

32) When a firm uses the tools and concepts learned from strategic management in order to achieve competitive advantage by pursuing innovation, it is said to be engaging in A) a short-term strategy. B) strategic invention. C) a strategic venture. D) strategic entrepreneurship.

D) strategic entrepreneurship. Strategic entrepreneurship is the pursuit of competitive advantage through innovation by employing the tools and concepts from strategic management.

Working capital/ revenue

indicates how much of its working capital the firm has tied up in its operations

risk capital

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

agency

the producer relies on an agent or retailer to sell the product at a predetermined percentage commission