Strategic Management Final

Global Reach Corp. is a public company whose shares are currently trading in the market at $150 each. The company manufactures smartphones at the cost of $300 per unit and sells them in the market for $500 each. What is the company's producer surplus?

$200 Global Reach's producer surplus is $200. The difference between the price charged for a product (P) and the cost to produce it (C) is the producer surplus (P - C). The firm captures this amount as profit per unit sold.

Which of the following statements about competitive advantage is not true?

A firm's competitive advantage is always absolute, not relative. Competitive advantage is always relative, not absolute. To assess competitive advantage, compare firm performance to a benchmark—that is, either the performance of other firms in the same industry or an industry average.

Which of the following real-world examples best supports the statement that strategic commitments to a specific industry may be the result of political rather than economic considerations?

A number of European governments created Airbus through direct subsidies to provide a countervailing power to Boeing. In some cases, strategic commitments to a specific industry may be the result of more political than economic considerations. For example, a number of European governments created Airbus through direct subsidies in order to provide a countervailing power to Boeing. Given these political considerations and large-scale strategic commitments, neither Airbus nor Boeing is likely to exist in the aircraft manufacturing industry even if industry profit potential falls to zero.

Which of the following statements is true?

A platform business exists to help make matches among users and facilitate the exchange of goods, services or social currency. Platforms can be defined along three dimensions: A platform is a business that enables value-creating interactions between external producers and consumers. The platform's overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants. The platform provides an infrastructure for these interactions and sets governance conditions for them. The business phenomenon of platforms, however, is not a new one.Platforms, often also called multi-sided markets, have been around for millennia.

Which of the following is an advantage of accounting data?

Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms. Key financial ratios based on accounting data give us an important tool with which to assess competitive advantage. In particular, they help us measure relative profitability, which is useful when comparing firms of different size over time. While not perfect, these ratios are an important starting point when analyzing the competitive performance of firms.

Which of the following best illustrates horizontal integration?

Denali Electronics Inc. acquires its competitor, Mariana Electronics Inc., to gain access to its core competencies. Denali Electronics acquiring its competitor, Mariana Electronics, to gain access to its core competencies best illustrates horizontal integration. Horizontal integration is the process of merging with a competitor at the same stage of the value chain.

Which of the following explains how dynamic capabilities are different from the resource-based view?

Dynamic capabilities deal with applying resources over time. Dynamic capabilities deal with applying resources over time; the resource-based view does not.

FL Systems Inc. and Oryxo Systems Inc. are two competing firms. FL Systems Inc. has $300,000 in tangible assets and $200,000 in intangible assets. Oryxo Systems Inc. has $150,000 in tangible assets and $347,000 in intangible assets. In the context of the resource-based view, which of the following is the most likely implication of the asset values of the two companies?

FL Systems Inc. will find it harder than Oryxo Systems Inc. to attain competitive advantage. The most likely implication of the asset values of the two companies is that FL Systems Inc. will find it harder than Oryxo Systems Inc. to attain competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources.

Which of the following statements best supports the fact that even during a period of low demand in the U.S. automotive industry, excess capacity remained?

GM and Chrysler, despite their bankruptcy, restructured instead of exiting the industry. When demand is slowing, excess capacity tends to develop and companies begin to initiate a cut-throat price competition to move inventory. This happened to the automotive industry in the 2000s. However, even though both GM and Chrysler went into bankruptcy in 2009, neither exited the industry but rather restructured, causing excess capacity to remain in the industry.

Genie Software Inc. has been operating in the country of Jamtland for almost a decade. The nation is currently experiencing an economic downturn. Which of the following is the most likely benefit of this economic condition for Genie Software Inc.?

Genie will have better access to highly skilled human capital at a lower cost. Genie Software Inc. will most likely have better access to highly skilled human capital at a lower cost. In economic downturns, unemployment rises. As more people search for employment, skilled human capital is abundant and wages usually fall. A period of high unemployment could be a good time for firms to expand or upgrade their human capital base.

Which of the following is a feature of a fragmented industry?

It consists of many small firms. A fragmented industry consists of many small firms and tends to generate low profitability.

Which of the following is not a disadvantage of the balanced scorecard approach?

It fails to allow managers to prepare the company for future growth. The balanced scorecard approach allows managers to assess past performance, identify areas for improvement, and position the company for future growth. Including a broader perspective than financials allows managers and executives a more balanced view of organizational performance.

Revved Rider Inc., a motorcycle company, is the market leader due to its superior engine technology and service orientation. These unique qualities have helped the company generate revenues that are consistently higher than other firms in the same industry. Which of the following can be concluded about Revved Rider Inc. from this scenario?

It has a competitive advantage over the other firms. Revved Rider Inc. has a competitive advantage over the other firms. A firm that achieves superior performance relative to other competitors in the same industry or the industry average has a competitive advantage.

Which of the following statements is true of an oligopoly?

It is often analyzed using game theory. An oligopoly is often analyzed using game theory, which attempts to predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated.

Which of the following statements accurately brings out the difference between economies of scale and learning effects?

Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased. Learning effects occur over time as output is accumulated, while economies of scale are captured at one point in time when output is increased.

Larry has been recently promoted to the position of a team lead at an insurance company. This promotion was based on his boss's assessment that Larry is capable of conveying the company's vision and mission to groups. As a result, he can guide groups to superior performance. From this scenario, we can say that Larry is currently at _____ of the Level-5 leadership pyramid.

Level 4 Level 4 leaders present compelling vision and mission to guide groups toward superior performance.

In the financial year 2016, for every $100 in revenues, Microsoft earned $21.5 in profit, while Apple earned $20.6 in profit. This demonstrates that

Microsoft's return on revenue was higher than that of Apple. Return on revenue (ROR) indicates how much of a firm's sales is converted into profits. Microsoft's ROR was about 1 percentage point higher than that of Apple.

Red Hot Inc. and Maverick Cycles Inc. are two competing motorcycle companies. While Red Hot's Cost of goods sold/Revenue is 63.4 percent, the Cost of goods sold/Revenue of Maverick Cycles is 54.2 percent. What do you infer from this financial data?

Red Hot is less efficient than Maverick Cycles in producing goods. From the financial data provided, it can be concluded that Red Hot is less efficient than Maverick Cycles in producing goods. Cost of goods sold/Revenue indicates how efficiently a company can produce a good.

In which of the following cases was a company put at a major competitive disadvantage?

The Environmental Protection Agency (EPA) banned BP from any new contracts with the U.S. government. As mentioned in Strategy Highlight 2.2, claiming that BP displayed a "lack of business integrity" in handling the Gulf oil spill, the Environmental Protection Agency (EPA) banned BP from any new contracts with the U.S. government. The ban put BP at a major competitive disadvantage, because it was unable to acquire new leases for oil field exploration in the United States, or to continue as a major supplier of refined fuel to the armed forces.

If a company chooses to keep its vision customer-oriented rather than product-oriented, what will be the implication of that decision?

The company will tend to be more flexible when adapting to changing environments. Companies that have customer-oriented visions tend to be more flexible when adapting to changing environments. In contrast, companies that define themselves based on product-oriented statements tend to be less flexible and thus more likely to fail.

Which of the following statements about the five forces in the U.S. airline industry is true?

The competitive forces taken together are quite unfavorable for generating a profit potential in the airline industry. As discussed in Strategy Highlight 3.2, taken together, the competitive forces are quite unfavorable for generating a profit potential in the airline industry: low entry barriers, high supplier power, high buyer power combined with low customer switching costs, and the availability of low-cost substitutes. This type of hostile environment leads to intense rivalry among existing airlines and low overall industry profit potential.

How are the early majority and late majority different in their attitudes toward technology?

The early majority is confident in their ability to master the new technology; the late majority is not. The early majority is confident in their ability to master the new technology; the late majority is not.

Which of the following statements is true of the growth stage in the industry life cycle?

The prices begin to fall during this stage when compared to the introduction stage. Prices begin to fall in the growth stage, often rapidly, as standard business processes are put in place and firms begin to reap economies of scale and learning.

Which of the following statements will effectively guide a strategist?

The principles of strategic management can be applied universally to all organizations. The principles of strategic management can be applied universally to all organizations. They work in organizations from government to free enterprise, from publicly-owned companies to privately-owned ones, from for-profit to nonprofit organizations, and in developed as well as emerging economies.

Onivo Auto Inc. has been the leader in low-cost and fuel-efficient engine technology for many years. It has been able to sustain its competitive advantage primarily because of its highly efficient automobile engines, which competitors have been unable to develop or buy at a reasonable price. In the context of the VRIO framework, which of the following resource attributes most likely underpins Onivo's competitive advantage?

The resource is costly to imitate. The resource attribute that most likely underpins Onivo's competitive advantage is that it is costly to imitate. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a reasonable price.

Which of the following statements is typically true of early adopters?

They appreciate new technology that can add value to their personal and professional lives. Early adopters recognize and appreciate the possibilities the new technology can afford them in their professional and personal lives. Early adopters' demand is fueled more by intuition and vision rather than technology concerns.

Incumbent firms can benefit from several important sources of entry barriers. Economies of scale are one such source. Which of the following is an implication of economies of scale for incumbent firms?

They can demand better terms from their suppliers. Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

Why are black swan events such as accounting scandals and the global financial crisis perceived as caused by cheap credit and subprime mortgages offered by financial institutions, bad for business?

They erode the implicit trust between the corporate world and society. The implicit trust relationship between the corporate world and society at large deteriorates because of the arrival of black swans in the business world.

How do complements affect a primary product or service?

They increase the demand for the primary product. Complements increase the demand for a primary product, thereby enhancing the profit potential for the industry and the firm.

Best Mobile and Turbo Tech Inc. are two competitors in the mobile phone market. The cost incurred by each company to manufacture smartphones is $200 per unit. Although both the companies sell their smartphones at the same price, Turbo Tech has a larger market share in the smartphone industry. What does this imply?

Turbo Tech has been able to offer more perceived value than Best Mobile. In this scenario, Turbo Tech has been able to offer more perceived value than Best Mobile. 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.

Which of the following is the best example of a platform business?

Uber ride-hailing services Platforms can be defined along three dimensions: A platform is a business that enables value-creating interactions between external producers and consumers. The platform's overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants. The platform provides an infrastructure for these interactions and sets governance conditions for them. Uber is the best example of a platform business.

Which of the following best illustrates a strategic alliance?

Velociraptor Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines Velociraptor Pharma teaming up with a research company to invent and market breakthrough vaccines best illustrates a strategic alliance. Strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Which of the following statements related to a firm's stakeholders is not true?

While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits. All stakeholders make specific contributions to a firm, which in turn provides different types of benefits to different stakeholders. Stakeholders expect that companies will pay taxes, provide employment, and not pollute the environment. The firm, therefore, is embedded in a multifaceted exchange relationship with a number of diverse internal and external stakeholders.

Which of the following statements accurately brings out the distinction between a firm's resources and capabilities?

While resources reinforce core competencies, capabilities allow managers to orchestrate their core competencies. In the interplay of resources and capabilities, resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies. Resources are any assets such as cash, buildings, machinery, or intellectual property that a company can draw on when crafting and executing a strategy. Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically.

In developed countries, the industry for flash drives is in the maturity stage, and the industry for floppy disks is in the decline stage. What does this imply?

While the flash drive industry has reached its maximum market size, the market size for floppy disks is small and contracting. Changes in the external environment often take industries from maturity to decline. In this final stage of the industry life cycle, the size of the market contracts as demand falls.

Which of the following firms most likely has the lowest bargaining power as a buyer?

a cell phone company that requires highly customized software for its phones The firm that most likely has the lowest bargaining power as a buyer is a cell phone company that requires highly customized software for its phones. The power of buyers is high when the industry's products are standardized or undifferentiated commodities. When suppliers offer products that are differentiated, the bargaining power of buyers reduces.

Which of the following best illustrates backward vertical integration?

a chocolate manufacturing company setting up its own cocoa plantations A chocolate manufacturing company setting up its own cocoa plantations best illustrates backward vertical integration. Backward vertical integration involves moving ownership of activities upstream to the originating inputs of the value chain.

The tenet behind the triple bottom line is that

a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy. Three dimensions—economic, social, and ecological—make up the triple bottom line. According to this approach, achieving positive results in all three areas can lead to a sustainable strategy—a strategy that can endure over time.

In order to rejuvenate its floundering product lineup, Disney

acquired Pixar. In order to rejuvenate its floundering product lineup, Disney acquired Pixar. Also, Disney financed Pixar's computer-animated movies.

Anderson Products Inc., a large conglomerate, took over a small startup company that had made some breakthrough innovations in the field of telecommunications. This purchase would help Anderson Products to gain access to the startup company's superior technology and human capital. This transaction is an example of a(n)

acquisition This transaction is an example of an acquisition. When large, incumbent firms such as the GE, Cisco, or Microsoft buy startup companies, the transaction is generally described as an acquisition.

Which of the following is an example of related-constrained diversification?

an automobile company that manufactures petrol cars expanding into the diesel car industry An automobile company that manufactures petrol cars expanding into the diesel car industry is an example of related-constrained diversification. When executives consider business opportunities only where they can leverage their existing competencies and resources, the firm is using related-constrained diversification. The choices of alternative business activities are limited or constrained by the fact that they need to be related through common resources, capabilities, and competencies.

Generally speaking, which of these situations is likely to lead to greater profits?

an industry with fewer but larger competitors Since a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through horizontal mergers and acquisitions. Having fewer competitors generally equates to higher industry profitability. Industry incumbents, therefore, have an incentive to reduce the number of competitors in the industry. With fewer but larger competitors, incumbent firms can mitigate the threat of strong competitive forces such as supplier or buyer power more effectively.

Bela is a marketing and sales employee at Hopscotch Foods Inc. She has invented a new way to process and pack the company's food products that would avoid the usage of chemical preservatives. Which of the following terms best describes Bela?

an intrapreneur Bela is an intrapreneur. When innovating within existing companies, change agents are often called intrapreneurs: those pursuing corporate entrepreneurship.

Downtown Coffee Roasters is a premium cafe that is reputed for its superior customer service. The coffee shop also serves gourmet food to its customers, which allows it to charge a premium price. Budget Beans, in contrast, is a chain of coffee shops that charges the lowest price in the industry due to its self-service policy. However, Perky's Coffee Inc. has found a balance between these two strategic groups by using automated ordering to free up its employees to work as master baristas and bakers, thus focusing on creating excellent products. It charges a price slightly above that of Budget Beans. In this scenario, Perky's Coffee is following a

blue ocean strategy. In this scenario, Perky's Coffee is following the blue ocean strategy. A blue ocean strategy allows a firm to offer a differentiated product or service at low cost.

How has Walmart staked out a unique strategic position?

by cutting costs to offer lower prices than competitors. Walmart's strategic activities strengthen its position as cost leader: Big retail stores in rural locations, extremely high purchasing power, sophisticated IT systems, regional distribution centers, low corporate overhead, and low base wages and salaries combined with employee profit sharing reinforce each other, to maintain the company's cost leadership.

If costs are equal, when a firm has a higher value gap than its competitor, it can be inferred that the firm

can charge a premium price for its products and services. A firm can achieve a competitive advantage when it has a higher value gap, which allows it to charge a premium price, reflecting its higher value creation.

The local real estate companies in a city have joined together and arranged a "Property Fair." The sponsors will equally share the expenses of the event. Though many companies compete against each other, they have joined together because the medium will help the companies market themselves through a dedicated forum at an extremely low cost. This arrangement is best referred to as

co-opetition. This arrangement is best referred to as co-opetition. Co-opetition is a portmanteau describing cooperation by competitors. It is described as cooperation by competitors to achieve a strategic objective.

There are several cost drivers that can be managed in order to establish a low-cost leadership advantage. One of the primary cost drivers is

combining experience-based learning and process innovation to move onto a steeper learning curve. By choosing a cost-leadership strategy, managers must focus their attention on lowering the overall costs of producing a product or service while maintaining an acceptable level of quality that will serve the needs of the customer. Combining experience-based learning and process innovation allows the firm to leapfrog to a steeper learning curve, thereby driving down its per-unit costs.

Strategic group mapping establishes that

competitive rivalry is strongest between firms that are within the same strategic group. 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.

Rey estimated that a pair of NuFit jeans would be worth $60 for its brand and durability. However, at the NuFit store, the pair of jeans he wanted was available for $45. The difference of $15 in this scenario is referred to as the

consumer surplus The difference of $15 in this scenario is referred to as the consumer surplus. Consumer surplus is the 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).

In the context of the SWOT matrix, which of the following best exemplifies an external opportunity for a firm?

decreasing government interference in the target market Decreasing government interference in the target market best exemplifies an external opportunity for a firm. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.

In a focused differentiation strategy, a firm seeks to

deliver products or services with unique features to a specific, narrow part of the market. The goal of a differentiation strategy is to add unique features that will increase the perceived value of goods and services in the minds of consumers so they are willing to pay a higher price. A focused differentiation strategy is same as the differentiation strategy except with a narrow focus on a niche market.

The viability of a differentiation strategy is severely undermined when the

differentiated products become commoditized throughout the industry. The viability of a differentiation strategy is severely undermined when the focus of competition shifts to price rather than value-creating features. This can happen when differentiated products become commoditized and an acceptable standard of quality has emerged across rival firms.

A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins resources and knowledge that are

difficult to imitate. A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins together resources and knowledge in a combination that obeys the VRIO principles. The basis for competitive advantage is formed when a strategic alliance creates resource combinations that are valuable, rare, and difficult to imitate; and the alliance is organized appropriately to allow for value capture.

In the context of SWOT analysis, a firm can develop a defensive strategic option primarily by

eliminating an internal weakness to mitigate an external threat. In the context of SWOT analysis, strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization. A firm can develop a defensive strategic option primarily by eliminating an internal weakness to mitigate an external threat.

Which of these is a way to reconfigure a value chain?

entering an industry by offering sporting events on streaming video when competitors are offering them through cable hookups Reconfiguring a value chain to offer sporting events on streaming video instead of through cable television allows new companies to avoid direct competition with incumbents.

When Gilded Products planned to start its operations in Upper Medici, an emerging nation, it realized that it would have to set up its own distribution channels. This would be a risky and expensive strategic move. The company had an option of hiring a small supply chain management company, Canopy Logistics, to reach its ultimate customers. However, this would require Canopy Logistics to make huge investments, which would be of no use to it if Gilded Products decided to exit the market. Thus, to gain Canopy Logistics' confidence, Gilded Products purchased 40 percent of the stock of Canopy Logistics. What does this scenario best illustrate?

equity alliance A form of strategic alliance is an equity alliance—a partnership in which at least one partner takes partial ownership in the other partner. Gilded Products purchased partial ownership in Canopy Logistics by buying stock, and thus made an equity investment. The taking of equity tends to signal greater commitment to the partnership.

Widgets Inc. is a vendor who supplies machine parts to an appliance manufacturing company. In return, Widgets Inc. relies on the company for its revenue and is affected by any decisions taken by the company. In this scenario, Widgets Inc. is a(n) _____ for the appliance manufacturing company.

external stakeholder In this scenario, Widgets Inc. is an external stakeholder for the appliance manufacturing company.

Qwik Process Inc. is a company that supplies microprocessors to Nuevono Inc., a computer hardware company. When Nuevono Inc. demands lower prices for the microprocessors, Qwik Process Inc. makes it clear that it would profit more from launching its own brand of laptops and desktops in the market. Fearing the competition it would then face from Qwik Process Inc., Nuevono Inc. decides to buy the microprocessors at the quoted price itself. In this scenario, Qwik Process Inc., as a supplier, has exercised its bargaining power by threatening to

forward integrate. In this scenario, Qwik Process Inc. as a supplier has exercised its bargaining power by threatening to forward integrate. The relative bargaining power of suppliers is high when they can credibly threaten to forward integrate into the industry.

Quick Connect is an instant messaging mobile application. Users have access to a basic version with limited message recipients for free, but they have to pay a fee to have unlimited message recipients or to use advanced features. Which of the following business models does this best illustrate?

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.

The greater the difference between value creation and cost, the

greater a firm's economic contribution. The greater the difference between value creation and cost, the greater the firm's economic contribution and the more likely it will gain competitive advantage.

An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that

high and low levels of diversification are generally associated with lower overall performance. The diversification-performance relationship is a function of the underlying type of diversification. A cumulative body of research indicates an inverted U-shaped relationship between the type of diversification and overall firm performance. High and low levels of diversification are generally associated with lower overall performance, while moderate levels of diversification are associated with higher firm performance.

The starting point of the build-borrow-or-buy framework is management's

identification of a strategic resource gap that will impede future growth. The build-borrow-or-buy framework provides a conceptual model that aids strategists in deciding whether to pursue internal development (build), enter a contract arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy). The starting point is management's identification of a strategic resource gap that will impede future growth.

The relative bargaining power of suppliers is most likely low when

incumbent firms face low switching costs when changing suppliers. The relative bargaining power of suppliers is most likely low when incumbent firms face low switching costs when changing suppliers

EZ Electronics Inc., Neo Digital Inc., and Techno Products Corp. are all companies that manufacture and sell consumer electronics. They procure their component parts from a similar set of suppliers in China and sell the final product to customers with similar needs. Thus, the three companies together are a part of a(n)

industry The three companies together are a part of an industry. An industry is a group of (incumbent) companies that face more or less the same set of suppliers and buyers. Firms competing in the same industry tend to offer similar products or services to meet specific customer needs.

Gerda, a real estate agent, is selling a moderately priced house in a subdivision. She knows from her uncle that the factory being built half a mile from the subdivision will be manufacturing dog food, using a process that creates a very strong odor that permeates the surrounding neighborhood. A buyer, who is unaware of the type of factory under construction, makes an offer on one of the houses Gerda is selling, and within a short time, the deal goes through. What does this scenario best illustrate?

information asymmetries The scenario best illustrates information asymmetries. Frequently, sellers have better information about products and services than buyers, which in turn creates information asymmetries, situations in which one party is more informed than another, because of the possession of private information.

The amount that savers are paid for use of their money and the amount that borrowers pay for that use is best described as a(n)

interest rate. A key macroeconomic variable for managers to track is interest rates—the amount that savers are paid for use of their money and the amount that borrowers pay for that use.

A non-equity alliance is the most common type of strategic alliance because

it is easy to initiate and terminate. The most common type of alliance is a non-equity alliance, which is based on contracts between firms. Because of their contractual nature, non-equity alliances are flexible and easy to initiate and terminate.

A large conglomerate is deciding on the range of new products and services it can offer to its customers to further expand its operations. This decision determines the firm's

level of diversification. The decision about what range of products and services to offer determines a firm's level of diversification.

North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm

leveraging existing core competencies to improve current market position. North Carolina National Bank (NCNB) leverages existing core competencies to improve current market position. When combining existing core competencies with existing markets, managers must come up with ideas of how to leverage existing core competencies to improve the firm's current market position.

If a company has 25 million shares outstanding, and each share is traded at $400, the ______ is $10 billion.

market capitalization Market capitalization (or market cap) captures the total dollar market value of a company's outstanding shares at any given point in time (Market cap = Number of outstanding shares × Share price).

In the restaurant industry, a large number of restaurants cater to similar customer needs. However, each restaurant makes its product unique by offering a different cuisine, a different ambience, organic ingredients, or different services like home delivery. This differentiation allows each restaurant to set its own prices. Thus, the restaurant industry best illustrates a(n)

monopolistically competitive structure. The restaurant industry best illustrates a monopolistically competitive structure. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

According to the upper-echelons theory,

organizational outcomes reflect the values of the top management team. According to the upper-echelons theory, organizational outcomes including strategic choices and performance levels reflect the values of the top management team (the individuals at the upper echelons, or levels, of an organization).

Owners of coffee plantations in the country of Jabatina grow their own coffee beans and supply them to various stores and restaurants all over the country. There are many plantation owners supplying to a huge number of companies, and they are typically unable to differentiate their products from one another. They also do not have the power to fix their own prices in the industry. In addition, these suppliers can only achieve competitive parity and not a competitive advantage. Thus, the coffee bean industry in Jabatina best illustrates a(n)___ structure.

perfectly competitive The coffee bean industry in Jabatina best illustrates a perfectly competitive industry structure. A perfectly competitive industry is characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices.

Restrictions imposed by the government, such as export quotas on certain products, are a part of the _______ environment of the PESTEL framework.

political The political environment describes the processes and actions of government bodies that can influence the decisions and behavior of firms. Governments, for example, can affect firm performance by exerting political pressure on companies.

There exist important trade-offs between value creation and low cost because value creation and cost tend to be

positively correlated. To achieve a desired strategic position, managers must make strategic trade-offs—choices between a cost or value position. Differentiation and cost leadership require distinct strategic positions in order to increase a firm's chances to gain and sustain a competitive advantage. Because value creation and cost tend to be positively correlated, there exist important trade-offs between value creation and low cost.

Economic contribution is created when the

price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it. Economic value created is the difference between value (V) and cost (C); sometimes also called economic contribution.

A firm is likely to have a competitive advantage when it

provides services that consumers will value more than those of its rivals. To gain a competitive advantage, a firm needs to provide either goods or services consumers value more highly than those of its competitors, or goods or services similar to the competitors' at a lower price.

If a pharmaceutical company develops a first-of-its-kind vaccine to prevent HIV/AIDS and thus creates a whole new market for the product (non-infected civilians), it would be a(n)

radical innovation. The innovation explained in this scenario would fall in the category of radical innovations. A 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.

Which of the following has contributed to Tesla's competitive advantage in terms of stock appreciation?

reinvesting profits to continually design and produce better electric vehicles As discussed in the Chapter Case, Tesla's strategy of constantly reinvesting profits to improve on its products and capabilities is key to its ability to achieve a competitive advantage. Rather than keep its proprietary technologies secret, Tesla has made them available to the public to expand the overall market for electric cars.

Amazon expanded its single-product business by leveraging spare capacity into cloud computing and by offering its Kindle line of tablet computers and Echo line of digital assistants. This is an example of

related-linked diversification. As the world's largest online retailer, and given the need to build huge data centers to service its peak holiday demand, Amazon decided to leverage spare capacity into cloud computing, benefiting from economies of scope and scale. Amazon now also offers its Kindle line of tablet computers and proprietary content, as well as its Echo line of digital assistants and instant video streaming via its Prime service. Amazon follows a related-linked diversification strategy.

A firm that follows the differentiation strategy is protected from the threat of new entrants primarily due to its

reputation for quality. A successful differentiation strategy is likely to be based on unique or specialized features of the product, on an effective marketing campaign, or on intangible resources such as a reputation for innovation, quality, and customer service. A rival would need to improve the product features as well as build a similar or more effective reputation in order to gain market share. The threat of entry is reduced: Competitors will find such intangible advantages time-consuming and costly, and maybe impossible, to imitate.

Even though Easy Speak Inc. and KM Com Inc. operate in the same industry—telecommunications—each firm has a different and loyal customer base. While Easy Speak Inc. attracts young students and professionals through its efficient network coverage and pricing, KM Com Inc. attracts elderly customers solely due to its excellent customer service. Thus, both firms draw their strengths from distinct resource bundles. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate?

resource heterogeneity This scenario best illustrates resource heterogeneity. This critical assumption in the resource-based model of competitive advantage is that bundles of resources, capabilities, and competencies differ across firms.

A consolidated industry turns into a fragmented industry when

restrictive government policies are introduced in the industry. Consolidated industry structures may break up and become more fragmented. This generally happens when there are external shocks to an industry such as deregulation, new legislation, technological innovation, or globalization. Industry convergence is often brought on by technological advances.

The annual net profit after taxes for RSL Corp., a multinational conglomerate, is $5.5 billion. As legal owners, which of the following stakeholder groups has the most legitimate claim on this profit?

shareholders As the legal owners, shareholders have the most legitimate claim on the company's profits. A firm has to ensure that its primary stakeholders—the firm's shareholders and other investors—achieve their objectives.

Which of the following is an example of a firm's capabilities?

skills involved in training and managing a workforce Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. A firm's capabilities include skills involved in training and managing a workforce.

Cantaloupe Technologies follows a business model in which the performance of the company is not only based on how much profits were generated, but also on how the community in general benefited from its operations. Thus, the company under its "Plant a Life" campaign promises to plant a tree with every customer purchase. Which of the following terms best describes the performance valuation model of Cantaloupe Technologies?

social entrepreneurship Cantaloupe Technologies uses the performance valuation entrepreneurship business model. Social entrepreneurship describes the pursuit of social goals by using entrepreneurship. Social entrepreneurs evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution.

Within the context of strategic management it is important to understand that black swan events in the past have demonstrated that

stakeholders can affect or be affected by a firm's actions. With regard to black swan events, two common features are pertinent to the study of strategic management. First, these events demonstrate that managerial actions can affect the economic well-being of large numbers of people around the globe. The second pertinent feature relates to stakeholders—organizations, groups, and individuals who can affect or be affected by a firm's actions.

GiftBasket.com has successfully created a higher perceived value in the e-commerce industry, though it offers the same products at slightly higher prices than the competitors. This has been mainly attributed to the company's easy-to-navigate website, simple return procedures, fast delivery, and cash on delivery option. Thus, the value driver for GiftBasket.com is its

superior customer service. The value driver for GiftBasket.com is its superior customer service. Managers can increase the perceived value of their firms' product or service offerings by focusing on customer service and responsiveness.

Which of the following groups will not be considered a company's internal stakeholder?

suppliers A firm's external stakeholders include customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels. Its internal stakeholders are stockholders, employees (including executives, managers, and workers), and board members.

Which of the following will most likely be considered as an automobile company's core competency?

the company's ability to make its cars more fuel efficient than most of its competitors The company's ability to make its cars more fuel efficient than most of its competitors will most likely be considered as an automobile company's core competency. Core competencies are unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.

Which of the following is an example of internal transaction costs?

the costs pertaining to setting up a shop floor Transaction costs can occur within a firm. Considered internal transaction costs, these include costs pertaining to organizing an economic exchange within a firm—for example, the costs of recruiting and retaining employees, paying salaries and benefits, setting up a shop floor, providing office space and computers, and organizing, monitoring, and supervising work.

Which of the following actions of an automobile firm will be considered as a strategic commitment?

the firm investing eight years and $4 billion to develop a range of hybrid cars with which it will compete in the future To be effective, firms need to back up their visions and missions with strategic commitments, actions that are costly, long-term oriented, and difficult to reverse. The firm investing eight years and $4 billion to develop a range of hybrid cars will be a costly, long-term affair that will be difficult to reverse.

According to the crossing-the-chasm framework, a firm's transition between the different parts of the industry life cycle is difficult because

there is a big gulf separating the early adopters from customer segments that make up the mass market. Significant differences exist between the customer groups that enter early during the introductory stage of the industry life cycle versus customers that enter later during the growth stage. These differences make a firm's smooth transition between the different parts of the industry life cycle difficult. These distinct differences between customer groups lead to a big gulf or chasm into which companies and their innovations frequently fall.

While most of Savvy Inc.'s competitors were moving toward developing and emerging markets, Savvy Inc. decided to keep its operations limited to its home country so that it could gain some advantage. A few years later, however, Savvy Inc. lost its footing in the home market due to a sharp fall in demand. It then decided to invest in large-scale operations in the same developing nations as its competitors, within a short period of six months. However, its costs kept increasing, so it could not compete against the already established brands. In this scenario, the failure of Savvy Inc. can be best attributed to

time compression diseconomies. This failure of Savvy Inc. can be best attributed to time compression diseconomies. When attempting to compress lots of effort and resources such as research and development into a short time period, it will not be as effective as when a firm spreads out its effort and investments over a longer period of time. Trying to achieve the same outcome in a short time period, even with higher investments, tends to lead to inferior results.

Which of the following is one of the reasons that firms make acquisitions?

to gain access to a new capability or competency Firms make acquisitions for two main reasons: to gain access to a new capability or competency, and to preempt rivals.

Which of the following was one of the primary reasons why Adidas acquired Reebok?

to overcome a competitive disadvantage The reason Adidas acquired Reebok was to compete more effectively with Nike. This acquisition allowed the now-larger Adidas group to benefit from economies of scale and scope that were unachievable when Adidas and Reebok operated independently. The hope was that this would help in overcoming Adidas' competitive disadvantage vis-à-vis Nike.

Evaluating the data collected from environmental analysis, the corporate executives of F&S Pharma Inc. realized that it was the right time to expand the business. The company's vision was accordingly adjusted from "To Be the Best in the Pharmaceutical Industry" to "To Make Good Health Accessible to Everyone around the Globe." To support the new vision, the executives decided that the company would first enter the Asian market where its growth potential would be huge. To further support these decisions, the general managers of different SBUs and the functional managers formulated their own strategies. Which of the following approaches to the development of strategy does this best illustrate?

top-down strategic planning This best illustrates a top-down strategic planning. Top-down strategic planning is a rational, top-down process through which executives attempt to program future success. In this approach, all strategic intelligence and decision-making responsibilities are concentrated in the office of the CEO. The CEO, much like a military general, leads the company strategically through competitive battles.

When a firm integrates the competitive strategies of cost-leadership and differentiation, it will most likely result in

trade-offs that work against each other. Although the idea of combining different business strategies seems appealing, it is actually quite difficult to execute an integrated cost-leadership and differentiation position. Cost-leadership and differentiation are distinct strategic positions. Pursuing them at the same time results in trade-offs that work against each other.

Which of the following best illustrates human-asset specificity?

training employees on how to operate a customized furnace Human-asset specificity refers to investments made in human capital to acquire unique knowledge and skills (such as training employees on how to operate a customized furnace), which are not transferable to a different employer.