Strategic Management EXAM 1

Which of the following does not contribute to buyers' bargaining power?

A high level of differentiation among the products that buyers purchase.

If an industry earns a return on capital in excess of its cost of capital it will

Attract the attention of potential entrants and, unless protected by high barriers to entry, the return on capital will fall.

Michael Porter and Mark Kramer's notion of "shared value" reconceptualizes

CSR (corporate social responsibility) by emphasizing CSR as a value creating activity.

The two main categories of real options are growth options and flexibility options. Which of the following investments is not a growth option?

Ford's acquisition of programmable robots that allow different models of car to be produced on a single assembly line.

There are two primary sources of profit (or "economic rent")

Market power and superior resources

Strategy needs to take account of both the requirements of the firm's external environment and the firm's own resources and capabilities.

Resources and capabilities rather than requirements of the external environment offer a stronger basis for strategy formulation when the external environment is in a state of flux.

by reducing the number of choices being considered, integrating, and pooling the knowledge of different members of the organization, facilitating the use of analytic tools.

Strategy improves decision-making

Identifying key success factors within an industry requires answers to the following questions.

What do customers want and what should the firm do to survive competition.

For most business enterprises a market is an abstract concept-from the point of view of competition it is

a continuum from a firm's closest competitor towards more distant competitors, a sociological concept that is defined mainly by convention and institutions, geographical concept defined by the location of customers and competitors - all the above.

During the 1990s, the focus of strategy analysis shifted to the role of resources and capabilities as

a foundation for firm strategy.

In practice, drawing industry boundaries is

a matter of judgment that depends upon the purpose of the analysis.

The relationship between intended strategy and intended strategy is best described as:

a process in which intended strategy is adapted as it is implemented.

The difference between a resource and a capability is

a resource and a capability is a resource is a productive asset; a capability refers to what the firm can do.

"Benchmarking" is

a way to compare a firm's resources and capabilities against those of competitors.

The principal difference between accounting profit and economic profit is

accounting profit includes both economic profit and the normal return on capital to the providers of equity capital.

The main strategic lesson to be drawn from the Biblical story of David and Goliath is

adapt strategy to your relative strengths.

The difficulties faced by Eastman Kodak, Smith Corona, and Olivetti in

adapting to radical technological change within their market points to the difficulties established firms experience in building the new capabilities.

When identifying a company's strategy, its statements of a strategy found in its public documents need to be checked

against the company's decisions and actions.

An industry's current profitability on its own tends to

be a poor predictor of future profitability.

If an organization possesses strengths in a resource or capability that

bears little relationship to the industry's key success factors it should seek in innovative approach to making that resource or capability strategically relevant.

The suppliers of agricultural products tend to lack bargaining power relative to buyers

because the farming industry tends to be fragmented and supply commodity products.

Industries where a decline in demand is most likely to cause industry-wide losses tend to have the following

characteristics high exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs.

For both individuals and organizations, successful strategies are characterized by:

clear, long-term goals; understanding the competitive environment; awareness of internal strengths and weaknesses; and effective implementation.

Viewing strategy as a portfolio of options rather than a portfolio of investments relies upon the rationale that uncertainty means that flexibility is valuable,

committing to a long term program of investment can be disastrous is circumstances change and most investment projects can be divided into a sequence of stages where, at any point of time, it is only necessary to decide the next step.

Key success factors are the sources of

competitive advantage within an industry.

The primary distinction between corporate strategy and business strategy is

corporate strategy is concerned with where the firm competes; business strategy with how it competes.

Airlines' frequent flyer programs and retailer loyalty schemes are both examples of

efforts to establish product differentiation by measures that reward customer loyalty.

Strategy can help decision making by

facilitating the use of analytical tools.

The main problem of a company establishing shareholder value creation as its primary performance goal is

focusing on shareholder value does not necessarily encourage managers to concentrate on the actions and activities that create profits that are the source of shareholder value.

The applicability of the tools and techniques of strategy analysis to not-for-profit organizations is:

greater for organizations that face competition than those that do not.

For purposes of strategy formulation, seeking to identify key success factors can

guide a company toward the sources of competitive advantage, but must be combined with unique choices for exploiting these success factors.

The internal environment is

how a firm's resources and capabilities are deployed to deliver its business strategy.

The extent to which an organization's strategy is determined by decentralized emergence rather than by centralized design depends mainly upon:

how turbulent and unpredictable is the external environment of the organization.

Every business enterprise has a distinct purpose;

however, common to all businesses is the goal of creating value.

The main problem in implementing stakeholder value maximization

is the difficulties of quantifying value creation and creating a governance system that can manage the trade-offs among the interests of different stakeholders.

The most useful approach to forecasting industry probability in the future

is to understand how the industry's structure has determined competitive intensity and profitability in the past, then to use information on an industry's changing structure to predict how profitability is likely to change in the future.

For the purposes of strategy analysis

it is convenient to view business strategy is primarily a quest for profit.

The main problem of SWOT as a framework for strategy analysis is that:

it is often difficult to distinguish opportunities from threats and strengths from weaknesses.

To diagnose the sources of a firm's poor financial performance,

it is useful to disaggregate overall return on capital into its component items.

To identify a firm's resources and capabilities,

it is useful to first identify the key success factors within the firm's industry then identify the resources and capabilities needed to satisfy these success factors and identify the firms value chain, then identify the main resources and capabilities at each state of the value chain.

For a firm to survive and prosper,

it must create value for customers, and then appropriate some of that value as profit.

A well-established brand can be a source of sustainable competitive advantage because

it tends to be durable, loses value when transferred between firms, and is costly to replicate.

The core of a firm's business environment is comprised by

its relationships with customers, competitors, and suppliers.

In practice, drawing the boundaries of industries and markets is

largely a matter of judgement and experience contingent on the purpose of

As competitions in an industry become more diverse in terms of their goals, cost structures, and strategies, it is

likely that they will compete more fiercely on price.

A bank is establishing a fixed income trading department, it is considering whether to hire a team of star traders or to invest a similar sum of money in developing a proprietary, automated trading system. The most valid reason for investing in the automated trading system in preference to hiring star traders is the proprietary trading system is

likely to generate better returns since star traders are in a powerful position to negotiate pay packages which appropriate the major part of the profit they create.

Resources lack transferability between firms when

market transactions are impeded by imperfect information.

The producer of a complementary product can

maximize its relative bargaining power by means of commoditizing the market for the complementary good.

Initiatives to improve an industry's profitability through changing its structure are

more difficult in fragmented industries than in concentrated industries.

Intangible resources then to be

more valuable than tangible resources because they are more likely to provide sustainable competitive advantage.

Public statements by companies and their executives about their strategy:

need to be combined with more objective data relating to companies' actions and decisions.

Economies of scale are a barrier to entry because

new entrants face high unit costs either because they enter at sub-optimal scale, or they make a large-scale entry that initially operates with substantial excess capacity.

The strategic management of not-for-profit organizations tends to be more complex than that of business organizations because:

not-for-profit organizations tend to have multiple objectives.

Legal requirements that banks, providers of wireless telecommunication services, and taxis must

obtain a government issued license before going into business impact the profitability of their respective industries positively because they restrict entry to the industry.

The main value of analytical approaches to strategy formulation is:

providing a framework for understanding the issues relating to strategic decisions building.

For most organizations, geographical location should be

regarded as a key resource whose characteristics need to be given careful attention when formulating strategy.

To assess whether or not a firm is earning an adequate rate of profit, return on capital employed (ROCE) is a better indicator than

return on sales because return on sales varies between industries according to their capital intensity.

Organizational culture comprises

shared beliefs, values, assumptions, meanings, myths, rituals, and symbols.

The reason that Diageo's use to EVA to measure the profitability of its individual products resulted in

shifting more of its advertising budget toward fast-maturing drinks such as gin and vodka was accounting profitability had failed to take account of the capital tied up in slow-maturing drinks such as malt whiskey or cognac.

Strategic goals should be

simple, consistent, long term.

When the environment becomes more turbulent and unpredictable:

strategy becomes and increasingly important as a source of direction.

The main value of analytical approaches

strategy formulation is to provide understanding of strategic issues.

A market's boundaries are defined by

substitutability on both the demand side and the supply side.

The difference between substitute and complementary products may be summarized as follow

substitutes reduce the value of a product, whereas complements increase value.

To exploit its tangible assets more effectively requires

that a firm economizes on underutilized assets and redeploys assets into more profitable uses.

One implication of the resource-based perspective is

that by aligning their strategies to their resources and capabilities, firms emphasize their differences rather than their similarities.

A key limitation of Porter's five forces model of competition is

that competitors' strategies may shape industry structure, rather than structure shaping the competition.

The resourced-based view of a firm implies

that resources and capabilities are the principal basis for firm strategy and the primary source of profitability.

In 1990, C.K. Prahalad and Gary Hamel introduced the concept of "core Competence." Their argument was

that strategy should be focused on both exploiting and developing firms' core competencies.

In new product development, a "phases and gates" approach means

that the process is divided into consecutive stages, at the end of each decision is made as to whether to continue to the next stage of development.

The distinguishing attributes of core competences is

that they provide a basis for entering new markets and make a disproportionate contribution to the customer value.

Strategic fit refers to:

the consistency of a firm's strategy with its external and internal environments.

Value added can be defined as

the difference between the sales value of a firm's output and the cost of physical inputs used to product that output.

The firm's ability to appropriate the rents generated by its organizational capabilities depends upon

the extent to those capabilities are embedded in team-based process that are heavily dependent upon corporate systems.

The basic premise of industry analysis is that

the level of profitability within an industry is determined by the systematic influenced of the industry structure that determines the intensity of competition in the industry.

In strategic management, the expression "blue ocean" refers to

the potential offered by uncontested market space.

Profit and enterprise value are two concepts that are closely linked because

the present value of a firm's expected future profits approximates to the market value of its securities.

A major reason why many companies have the high valuation ratios (ratio of stock market value to balance sheet net asset value) is

the undervaluation of intangible resources on companies' balance sheet.

The profits earned by firms in an industry are determined by

the value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers, and their buyers.

Firms supplying niche markets are often highly profitable because

they tend to be sufficiently small that a single firm can often establish a dominant position.

Individuals that achieve outstanding success in one area of their lives (in their career, in acquiring wealth, in social success, in spiritual development, or in family relationships) also tend:

to be unsuccessful in other areas of their lives.

When a company has weaknesses relative to competitors among strategically important resources and capabilities, the appropriate strategic response is

to outsource those activities where third parties can offer superior capabilities while positioning the business to reduce vulnerable to remaining weaknesses.

The most useful approach to forecasting industry profitability in the future is

to understand how the industry's structure has determined competitive profitability in the past, then use information on an industry's changing structure to predict how profitability is likely to change in the future.

Parallel pricing-the tendency for companies in an industry to move prices more or less simultaneously- is

typically an indicator of the desire of oligopolists to avoid price competition.

Firms with outstanding capabilities are

typically those which are able to integrate their resources most effectively.

Enterprise Resource Planning software (such as that supplied by SAP) is

unlikely, on its own, to be source of competitive advantage because it is available to any firm that wishes to purchase it; hence, it is not scarce.

To determine whether the cement industry is national or global in scope, we need to consider whether the buyers of cement are

willing to substitute between cement supplied by domestic producers and that supplied by foreign producers on the basis of price OR whether the cement producers are willing to shift the supply of cement between countries on the basis of price difference between then.

Bargaining power rests, ultimately, on the relative costs that each party

would incur from walking away from the deal.