MGMT Exam 1
We Ensure Inc., an insurance firm, replaced its existing project management software with new software from another supplier. Since the new software has different features and abilities, We Ensure has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents We Ensure's A) opportunity cost. B) switching cost. C) octroi charge. D) excise duty.
B In this scenario, $10,000 represents We Ensure's switching cost. Switching costs are incurred by moving from one supplier to another. Changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes.
Industrial Drills, 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 Industrial Drills' ________ responsibility. A) economic B) legal C) ethical D) demographic
C This reflects Industrial Drills' ethical responsibility. A firm's ethical responsibilities go beyond its legal responsibilities. They embody the full scope of expectations, norms, and values of its stakeholders. Managers are called upon to do what society deems just and fair.
All of the following are external stakeholders except which of the following A) customers B) creditors C) alliance partners D) competitors
D Competitors are not considered internal or external stakeholders in the firm.
Which of the following is a customer-oriented vision? A) to be the most progressive insurance company B) to be the best automobile company in the world C) to enable businesses to improve their employee communications D) to manufacture innovative products through continuous learning
C A customer-oriented vision defines a business in terms of providing solutions to customer needs. The statement "to enable businesses to improve their employee communications" is a customer-oriented vision.
The management of Venture Manufacturing showed a commitment to ________ by increasing the salary of many female employees to meet its goal of having equal pay for women and men who perform comparable work. A) scenario planning B) upper-echelons theory C) product-oriented vision D) organizational core values
D Equal pay for women and men employees for comparable work is an organizational value. The management of Venture Manufacturing showed a commitment to this value by increasing the salary of many female employees.
Managers at SunTrustUs Properties are surprised to hear that interest rates are likely to remain low for the next six months. Which of the following is an implication of low interest rates? A) Cost of capital for firms will be high. B) Firms will invest less in future growth. C) Economic growth rate will fall. D) Consumer demand will increase.
D Low interest rates have a direct bearing on consumer demand. When credit is cheap (because interest rates are low), consumers buy homes, automobiles, computers, and even vacations on credit; in turn, all of this demand fuels economic growth. During periods of low interest rates, firms can easily borrow money to finance future growth. Borrowing at lower rates lowers the cost of capital and enhances a firm's competitiveness.
A firm will fail to create a sustained competitive advantage when the A) fit between its internal strengths and the external environment is static. B) source of its competitive advantage is causally ambiguous. C) source of its competitive advantage is socially complex. D) resource bundles exhibit heterogeneity and immobility.
A A firm must be able to change its resource base as the external environment changes. Rather than creating a static fit, the firm's internal strengths should change with its external environment in a dynamic fashion.
Which of the following statements is true of the social responsibilities of a business? A) A firm's ethical responsibilities go beyond its legal responsibilities. B) Shareholders mandatorily require a firm to perform its ethical and philanthropic responsibilities. C) Ethical responsibilities are the foundational building block of a firm's social responsibility. D) Legal responsibilities are often subsumed under the idea of corporate citizenship, reflecting the notion of voluntarily giving back to society.
A A firm's ethical responsibilities go beyond its legal responsibilities. They embody the full scope of expectations, norms, and values of its stakeholders. Managers are called upon to do what society deems just and fair.
Which of the following below is NOT categorized as a primary activity on Porter's Value Chain? A) procurement B) operations C) after sales service D) marketing and sales
A All of the answers listed are primary activities except for procurement, which is a support activity.
The minimum wage in the country of Hanns is $8 an hour. Delish, a restaurant in Hanns' 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 Hanns, which of the following responsibilities is Delish satisfying? A) legal responsibilities B) philanthropic responsibilities C) ethical responsibilities D) demographic responsibilities
A By adhering to the rules set by the government of Hanns, Delish is satisfying its legal responsibilities. Laws and regulations are a society's codified ethics, embodying notions of right and wrong. They also establish the rules of the game.
While implementing strategic group mapping for the U.S. domestic airline industry, two strategic groups become apparent: low-cost, point-to-point airlines (Virgin Atlantic, Alaska Airlines, JetBlue, and Southwest Airlines) versus differentiated airlines using a hub-and-spoke system (American, Delta, and United). Which of the following statements is true about these two strategic groups? A) Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines. B) American, United, and Delta Airlines will be affected differently by Porter's five competitive forces. C) Alaska Airlines and Delta Airlines will be affected by the external environment in very similar ways. D) Competitive rivalry between Virgin Atlantic and Delta Airlines is likely to be higher than that between American, Delta, and United.
A Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines. Competitive rivalry is strongest between firms that are within the same strategic group. The closer firms are on the strategic group map, the more directly and intensely they are in competition with one another.
Jennifer was just named the CEO of a pen company called National Pens Inc. She immediately changed the name to "Jenn's Pens." When asked why she made this change by the board of directors, who showed research that there was no correlation between success and CEP names, she responded by saying, "my previous company had the name of their CEO in the title, and they were very successful." This fallacy on Jenifer's part reveals her A) confirmation bias. B) optimal decision making. C) escalation of commitment. D) groupthink.
A Confirmation bias is the tendency of individuals to search for information that confirms their existing beliefs. When confronted with evidence that contradicts these beliefs, they either ignore the evidence or interpret it such that it supports their beliefs.
The ___________________ suggest(s) that because the external environment changes, strategic leaders must choose their current and future investments carefully over time in order to best maintain their firm's competitive advantage. A) dynamic capabilities perspective B) VRIO framework C) SWOT analysis framework D) law of diminishing returns
A Dynamic capabilities allow a firm to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.
Andrew is a management consultant. Hard Supplies Inc. asks him to evaluate their company, and he finds that the difference between the cost of producing the firm's products and the value of those products is extremely narrow. What should Andrew suggest that Hard Supplies Inc. management do? A) Find a way to widen the gap between cost and value. B) Find a way to pass on as much profit as possible to suppliers and customers. C) Shore up the company's strong position by erecting entry barriers. D) Encourage customers to buy complements to their products.
A Firms create economic value by expanding as much as possible the gap between the value the firm's product or service generates and the cost to produce it.
________ are considered the ethical standards and norms that govern the behavior of individuals within a firm. A) Organizational core values B) Mission statements C) Vision statements D) Strategic leadership
A Organizational core values are the ethical standards and norms that govern the behavior of individuals within a firm or organization.
We Build & Build's' 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. Management used the process of A) path dependence. B) dependence complexity. C) causal dependence. D) path immobility.
A Path dependence is a process in which the options that one faces in a current situation are affected by decisions made in the past.
Which of the following tasks in the AFI strategy framework involves evaluating the internal and external environments in which a firm operates? A) analysis B) formulation C) implementation D) competitive advantage
A Strategic analysis, the "A" in the AFI strategy framework, includes analyzing the internal and external environments of a firm.
WeBreak4Bikes Inc. has a new U.S.-based client in the bicycle industry. The client's company produces only bicycles for riding on the road. The bicycles are used for reliable general purpose transportation. When asked to identify a potential substitute for the bicycle industry from the Five Forces perspective, you would select A) motorcycles. B) hot air balloons. C) tractors. D) None of these are substitutes.
A Substitutes must exist outside the given industry but still offer an attractive price/performance tradeoff.
Suger & Sweet Sodas has seen its market share erode in recent years, as consumers increasingly turn toward healthier beverage choices such as unsweetened sparkling water. Hoping to rekindle interest in sugary sodas, Suger & Sweet decides to produce a limited run of "throwback" cans using labeling first introduced in the 1980s. What is wrong with this strategy? A) It fails to face the competitive challenge. B) It does not involve concrete actions. C) It lacks strategic commitments. D) It tries to be everything to everybody.
A Suger & Sweet's strategy fails to face the competitive challenge of changing consumer tastes. Instead of trying to give customers what they want by producing its own line of sparkling waters, Suger & Sweet simply continues to produce the same sugary sodas and is likely to see its market share continue to decline.
TalkaLot Inc. is a cell phone manufacturing company. Its latest range of smartphones are visually similar to the Y-series range of smartphones from Talkie Gen Inc., in terms of its shape and look-and-feel. Which of the following strategies has TalkaLot Inc. used to replicate the valuable and rare resource of Talkie Gen Inc.? A) direct imitation B) strategic equivalence C) substitution D) innovation
A TalkaLot Inc. has used direct imitation to replicate the valuable and rare resource of Talkie Gen Inc. A competing firm can succeed in replicating a firm's valuable and rare resource by directly imitating the resource in question (direct imitation) or through working around it to provide a comparable product or service (substitution).
The distribution department at Wheat, Barley and Whey Corp. has decided to adopt the FIFO (first in, first out) method of inventory to dispatch its bags of wheat. Which of the following strategies does this scenario best illustrate? A) functional strategy B) corporate strategy C) master strategy D) business strategy
A The distribution department of Wheat, Barley and Whey Corp. has decided to implement a functional strategy. Within each strategic business unit are various business functions: accounting, finance, human resources, product development, operations, manufacturing, marketing, and customer service. Each functional manager is responsible for decisions and actions within a single functional area.
Which of the following options below would serve as a feasible option when deciding how to enter an established industry? A) leverage existing assets B) initiate a greenfield operation C) raise stakeholder capital by issuing stock D) only enter if it's an oligopoly
A The first mechanism that firms can use to determine how thy should enter an industry would require them to examine their current assets; if they can utilize their current assets in a way that would add to their competitiveness, then they should consider industry entry.
The CEO of All Star Corp. has decided to enter the markets of emerging nations like China and Brazil. This means that the books, magazines, and websites published under the Chyron Media banner would be made available in these nations. Which of the following strategies does this scenario best illustrate? A) corporate strategy B) functional strategy C) business strategy D) divisional strategy
A The given scenario of All Star Corp. describes a corporate strategy. Corporate strategy concerns questions relating to where to compete (industry, markets, and geography). Corporate executives at headquarters formulate corporate strategy.
Bill Lewis wants to become a business strategy consultant and doesn't understand how emerging consultants get started. Bill should familiarize himself with the ________ framework that outlines the important process when examining the concept of strategic management. A) AFI: Analyze-Formulate-Implement B) AFE: Analyze-Formulate-Execute C) API: Analyze-Plan-Implement D) APE: Analyze-Plan-Execute
A There are three steps in the strategic management process: analysis, formulation, and implementation.
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 A) co-opetition. B) perfect competition. C) monopolization. D) conglomeration.
A This scenario best illustrates the process of co-opetition. Co-opetition is cooperation by competitors to achieve a strategic objective.
Which of the following is an assumption that top-down strategic planning rests on? A) We can predict the future from the past. B) Time cannot be compressed at will. C) Decisions made in the past do not affect our future. D) Change is constant.
A Top-down strategic planning rests on the assumption that the future can be predicted from the past. The approach works reasonably well when the environment does not change much.
Value chain analysis consists of systematically analyzing a firm's key activities that for analysis purposes are categorized into two groups: A) primary activities and support activities. B) products and service activities. C) customers and suppliers. D) profits and losses.
A Value chain represents all the internal activities a firm engages in to produce goods and services. Value chain is formed of primary activities that add value to the final product directly and support activities that add value indirectly.
Alan has been an employee with StartsInc. for 15 years. He started with an entry-level job, and today he is a manager of an entire division. Over the years, Alan has acquired a reputation for doing the right things in the company. Hence, as an efficient leader, he is capable of effectively communicating and motivating his subordinates to work toward the company's vision and mission. According to the Level-5 leadership pyramid, which is the highest level of leadership Alan has reached so far? A) Level 5 B) Level 4 C) Level 3 D) Level 2
B Alan has reached Level 4 of the Level-5 leadership pyramid so far. At Level 4, the effective Level 3 manager becomes a leader who determines what the right decisions are. The Level 4 manager effectively communicates a compelling vision and mission to guide the firm toward superior performance. He or she "does the right things."
Good Ole Cinemas Inc. and HD Inc. are two companies that own and run movie theaters in malls and other commercial areas. While Good Ole Cinemas Inc. pursues a cost-leadership strategy, HD Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario? A) Good Ole Cinemas will charge a premium price for its customers, while HD will implement everyday low pricing. B) HD and Good Ole Cinemas will not be direct competitors to each other, and their customer segments will overlap very little. C) HD will keep its customer service at an acceptable level, while Good Ole Cinemas will provide superior customer service. D) Good Ole Cinemas and HD will use a similar approach to create value for customers by attempting to offer everything to everybody.
B Although these companies are in the same industry, their customer segments will most likely overlap very little, and they will not be direct competitors. That is because each firm has chosen a distinct but different strategic position; both can win if they have a distinct and well-executed competitive strategy.
Food Shipp Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Food Shipp. To accomplish this, they are using ________ to influence the political process. A) ecological factors B) lobbying forces C) interest rates D) demographic research
B Many large companies use powerful lobbying forces to influence the political process.
Online retailer eBuy had been drastically losing market share to its competitors. The management hired a reputed consulting firm to advise the company. The experts from the consulting firm pointed out that the company primarily lost out on its competitive advantage due to its poor customer service, including slow response times to customer inquiries and unclear return policies. These ineffective policies and procedures led to many disgruntled customers and a steady migration to more customer-friendly retailers. eBuy can best solve its problem by working on its A) immobile assets. B) support activities. C) resource flows. D) resource stocks.
B Support activities are firm activities that add value indirectly, but are necessary to sustain primary activities. Thus, eBuy could solve its problem by working on its support activities.
Bill's Auto & Airplane Repair shop is able to generate a positive net income of $10,000 a week; this is the industry average. We can conclude that since he has a positive net income, he also has a competitive parity in the industry. A) Correct—competitive advantage is achieved through profitability alone. B) Correct—competitive advantage is achieved since Bill's Auto & Airplane Repair shop has a positive net income. C) Correct—competitive parity is achieved by generating average returns, relative to competition in a given industry. D) Incorrect—Bill's Auto & Airplane Repair shop more than likely has a sustained competitive advantage since his business is diversified.
C A competitive parity is defined as a firm's ability to generate average returns relative to the industry in which they operate.
Which of the following best qualifies as a firm's internal stakeholder? A) an auditor assigned to the firm by a federal government agency B) a labor union with whom the firm's employees can affiliate C) a manager taking care of the firm's operations in a foreign market D) a competitor manufacturing the same products as that of the firm
C A manager taking care of the firm's operations in a foreign market best qualifies as the firm's internal stakeholder. A firm's internal stakeholders include stockholders, employees (including executives, managers, and workers), and board members.
HomeAgain is a nonprofit organization that works toward rehabilitating the homeless. The credo of the organization is "help us help you." For an organization like HomeAgain, which of the following statements would make an appropriate mission? A) Help us help you find a home. B) One day, everyone in this nation will have a home to protect themselves. C) We help the homeless gain and sustain financial independence by providing employment opportunities. D) Our mission is to turn this not-for-profit organization into a for-profit organization so that the stakeholders benefit.
C Building on the vision, organizations establish a mission, which describes what an organization actually does—that is, the products and services it plans to provide, and the markets in which it will compete. "We help the homeless gain and sustain financial independence by providing employment opportunities" would make an appropriate mission for True Help.
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 of 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 The AVE example highlights the two fundamental insights provided by Porter's five forces framework. First, competition must be defined more broadly to go beyond direct industry competitors. Second, any of the five forces on its own, if sufficiently strong, can extract industry profitability.
Which of the following applies to the Strength-Threats quadrant of the SWOT matrix? A) The local fast-food chain Easy Hot Dogs expanded its limited menu to maintain its advantage against stiff competition. B) The local fast-food chain Easy Hot Dogs added a salad bar to maintain its competitive advantage against stiff competition. C) The local fast-food chain Easy Hot Dogs used its wholesome image to maintain its competitive advantage against stiff competition. D) The local fast-food chain Easy Hot Dogs revised its image of being a cheap-food place to being a wholesome family place to maintain its competitive advantage against stiff competition.
C The Strength-Threats quadrant of the SWOT matrix uses an external strength, such as a wholesome image, to minimize the effect of an external threat, such as stiff competition.
STRIKEBYTE Inc. is a software company that has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of STRIKEBYTE Inc. will best enable it to gain and sustain a competitive advantage? A) the cloud computing service that it uses B) the capital the company raised from its shareholders C) the expertise acquired by the employees in the company D) the headquarters building owned by the company
C The expertise acquired by the employees in the company is the asset that will best enable Smooth Fusion Inc. to gain and sustain a competitive advantage. The resource-based view is a model that sees certain types of resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources.
In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? A) if the company is able to put up a credible threat of retaliation B) if the capital requirements in the industry are high C) if the customer switching costs in the industry are high D) if the industry has recently become deregulated
D A company will most likely face the highest threat of entry if the telecommunications industry has recently become deregulated.
Corporate executives at Fly High Inc. decide to compete in the remote model airplane industry by making the largest model planes available. By doing this, they completed part of their ________ strategy. A) implementation B) corporate C) functional D) business
D Business strategy deals with differentiation, such as making a product that is in some way different from the product of competitors. Fly High, Inc. is doing this by making the largest model planes available.
Who among the following is responsible for making business strategies in a large conglomerate? A) the board of directors at the headquarters B) the shareholder of the company C) the lower-level employees in the company D) the general managers of individual business units
D General managers in strategic business units (SBUs) must answer business strategy questions relating to how to compete in order to achieve superior performance.
Cartzy Inc., Cartific Inc., and Clustercart Inc., are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true? A) Resource immobility of the firms will be low. B) The industry structure will be far from perfect competition. C) Barriers to entry within the industry will be high. D) Any advantage that one firm has will be short-lived.
D If a resource is common, it will result in perfect competition where no firm is able to maintain a competitive advantage. In perfect competition, all firms have access to the same resources and capabilities, ensuring that any advantage that one firm has will be short-lived.
The first step in stakeholder impact analysis involves A) formulating a stakeholder strategy to balance the different needs of various stakeholders. B) identifying the opportunities and threats the stakeholders present. C) describing the economic, legal, ethical, and philanthropic responsibilities of the firm toward society. D) identifying the stakeholders that currently have, or potentially can have, a material effect on a company.
D In the first step of stakeholder impact analysis, the firm focuses on stakeholders that currently have, or potentially can have, a material effect on a company. This prioritization identifies the most powerful stakeholders (both internal and external) and their needs.
The management of a company is assessing the value of all the tangible resources the company owns. Which of the following will be included in this assessment? A) a reputation for fast customer service B) a culture of proactive communication C) patents for electronic components D) the punch presses that produce parts
D The company's plant and machinery will be included in the assessment of the value of all the tangible resources the company owns. Tangible resources have physical attributes and are visible. Examples of tangible resources are labor, capital, land, buildings, plant, equipment, and supplies.
Due to several black swan events in the past, the A) shareholders of public companies have become more confident in investing their resources in businesses. B) need for corporate governance and transparency has decreased within various industries. C) nations around the globe have explicitly appreciated and accepted capitalism as an economic system. D) implicit trust relationship between the corporate world and society at large has deteriorated.
D The implicit trust relationship between the corporate world and society at large has deteriorated due to the arrival of several black swans.
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 The key to successful strategy is to combine a set of activities to stake out a unique position within an industry. Competitive advantage has to come from performing different activities or performing the same activities differently than rivals are doing. Competing to be similar but just a bit better than a competitor is likely to be a recipe for cutthroat competition and low profit potential.
Which of the following features about a buyer indicates that the buyer has high bargaining power? A) when the buyer cannot credibly threaten to backwardly integrate into the industry B) when the buyer cannot purchase specific products from other sellers C) when the buyer faces high switching costs D) when the buyer purchases inputs that are standardized or undifferentiated commodities
D The power of buyers is high when the industry's products are standardized or undifferentiated commodities.
Toyago Inc. is a leading educational toy company. Competitors across the globe have failed to imitate Toyago's production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Toyago Inc. for a long time. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate? A) resource homogeneity B) resource cost C) resource substitution D) resource immobility
D The scenario best illustrates resource immobility. A critical assumption of the resource-based model—resource immobility—is that resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time.
Hank runs a company that manufactures satellites for commercial and government use. It has few rivals. At the moment, the power of buyers, the power of suppliers, and the threat of substitutes are all low. Based on this information, what can Hank conclude? 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 stronger the forces (threat of entry, power of buyers and suppliers, and threat of substitutes) are, the stronger the expected competitive intensity, which in turn limits the industry's profit potential. Therefore, the weaker these forces are, the more profitable a firm in this industry is likely to be.
