Strategic Management Final Exam
Which of the following is an implication of high employee turnover in a company? It makes the source of the company's competitive advantage causally ambiguous. It makes the source of the company's competitive advantage socially complex. It results in greater immobility and heterogeneity of the company's resources. It results in a reduction in the company's intangible-resource stocks.
An implication of high turnover in a company is that it results in a reduction in the company's intangible-resource stocks. The outflows of resources represent a reduction in a firm's intangible-resource stocks. Significant resource leakage can erode a firm's competitive advantage.
Firms that are classified as operating in an oligopoly tend to have some pricing power if they are able to differentiate their product or service offerings from those of their competitors, so the recommended mode of competition is service-based competition. non-price-based competition. hypercompetition. price-based competition.
Because of their interdependence, firms must not get stuck in a price war with each other because industry profitability will decrease; instead they must look for ways to compete in non-price related ways.
All of the following are external stakeholders except which of the following? alliance partners customers competitors creditors
Competitors are not considered internal or external stakeholders in the firm.
A firm that uses a functional structure will typically have efficient top-down and bottom-up communication, but communication may be hampered among the horizontal, distinct organizational functions. dual reporting relationships typically blur lines of authority. career paths and professional development are limited. the top management team may fail in their coordination and control efforts of functional-level employees.
Functional areas allows for an efficient top-down and bottom-up communication, but not horizontal cross-functional communication.
Paul runs an organization that implements a cost-leadership strategy. This business-level strategy supports both a ________ and ________ structure. M-form; vertical functional; mechanistic matrix; organic simple; organic
A cost-leadership strategy usually focuses on offering standardized products to mainstream customers. Usually a functional and mechanistic organizational structure is preferred here to promote scale economies.
What is the main reason that most mergers and acquisitions negatively affect shareholder value? Market conditions change too quickly. The entire market becomes an oligopoly or a monopoly. Companies that resist acquisitions are subject to the "winner's curse." Promised synergies never take place.
Do mergers and acquisitions create competitive advantage? Despite their popularity, the answer, surprisingly, is that in most cases they do not. In fact, the M&A performance track record is rather mixed. Many mergers destroy shareholder value because the anticipated synergies never materialize.
Which of the following statements is true of organizational culture? Changes in culture are too frequent to have any impact on strategic implementation. It is always better to focus on output control and performance than on organizational culture. It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages. According to research, more than 50 percent of firms change culture successfully.
It is best to develop a strong and strategically relevant culture in the first few years of a firm's existence. It has been documented that the initial structure, culture, and control mechanisms established in a new firm can be a significant predictor of later success
Oceanic Airlines Inc., a transportation firm, is headed by Denise Cordova, the CEO. Each functional department of the company—marketing, finance, and HR—has a president who reports to the CEO directly. Each department has various managers who manage teams. The managers report to the presidents, and the team leads report to the managers. Finally, the employees at the lowest level report to their team leads. It is rare for a lower-level employee to interact with the CEO of the company. In this scenario, Oceanic Airlines Inc. can be said to have a(n) tall hierarchical structure. organic organizational structure. flat hierarchical structure. decentralized organizational structure.
In this scenario, Oceanic Airlines Inc. can be said to have a tall hierarchical structure. Hierarchy determines the formal, position-based reporting lines and thus stipulates who reports to whom. If many levels of hierarchy exist between the front-line employee and the CEO in a firm, it has a tall structure.
To reduce the amount of time it takes to apply packaging to its finished products, North Star Foods is implementing new equipment at its production plants. By doing this, North Star is addressing a _____ in the value chain analysis. primary activity premier activity support activity secondary activity
Production plants are part of a firm's operations. Operations are primary activities in the value chain analysis.
Batt Packs recently came under criticism when a newspaper article revealed that the company's production plant had leaked a chemical compound into a sensitive wetland ecosystem. Although use of the chemical was not technically prohibited by law, the local government levied a small fine for cleaning up the spill. Environmental groups, however, argued that continued use of the chemical was damaging to the local wildlife and threatened to organize a boycott against Batt Packs. What should Batt Packs do to ensure that it meets its ethical responsibilities? move its production facilities to an area that is less concerned with environmental issues take out an advertisement arguing that use of the chemical is perfectly legal design batteries without the chemical and market them as environmentally friendly pay the fine levied by the local government and resume operations
A firm's ethical responsibilities go beyond its legal responsibilities. In this case, Batt Packs had a legal responsibility to pay the fine, but its ethical responsibilities to its stakeholders required the firm to eliminate use of the controversial chemical entirely. By doing so, the firm was motivated to produce a new line of environmentally friendly products and turned a threat into an opportunity.
Stratton Oakmont pursues a related diversification strategy, deriving less than 70 percent of revenues from its original business unit, Stratton Piedmont, and maintaining several related units including Stratton Wellmont and Stratton Fredmont. Which of the following structures is most likely to support this strategy? functional with centralized decision-making power functional with decentralized decision-making power M-Form with decentralized decision-making power (competitive multidivisional) M-Form with centralized decision-making power (cooperative multidivisional)
For firms that pursue either related or unrelated diversification, the M-form is the preferred organizational structure. Firms using the M-form organizational structure to support a related-diversification strategy tend to concentrate decision making at the top of the organization. Doing so allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related diversification.
One of Black Mesa's core values is to provide unbeatable customer service, a commitment introduced to the company by its founder more than 10 years ago. This value is expressed in the company's "Always You" campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer's initials onto any item for free using a patented sewing technique, two features that are not offered by any of Black Mesa's competitors. Although the campaign has resulted in a 10 percent decline in profits, Black Mesa has decided to continue to pursue its founder's vision to reward customers and maintain employees' sense of purpose. Why does Black Mesa's culture, exemplified by the "Always You" campaign, fail to support a competitive advantage? Always lacks founder imprinting. The culture is not difficult to imitate. It is not a rare resource. It does not increase economic value creation for the firm.
For organizational culture to be the basis of a firm's competitive advantage, the firm's unique culture must help it in some way to increase its economic value creation (V - C). That is, it must either help in increasing the perceived value of the product/service and/or lower its cost of production/delivery. Moreover, according to the resource-based view of the firm, the resource—in this case, organizational culture—must be valuable, rare, difficult to imitate, and the firm must be organized to capture the value created. Black Mesa's culture fails to support a competitive advantage because it does not increase economic value creation for the firm, as evidenced by the 10 percent decline in profits.
Rosa is a senior manager at Veridian Dynamics, a motorcycle manufacturer. Veridian Dynamicshas entered an equity alliance with Parker Industries, a moped manufacturer. "Don't worry, Rosa," her counterpart at Parker Industries tells her. "I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Rosa request from Parker Industries? nothing, because the information transfer described is complete and appropriate personnel exchanges to share tacit knowledge a gradual change from an equity alliance to a nonequity alliance to show greater commitment a licensing agreement so that Veridian Dynamics can exchange codified knowledge with Supremo
In an equity alliance, at least one partner takes partial ownership in the other partner. Because they are based on partial ownership rather than contracts, equity alliances are used to signal stronger commitments. Moreover, equity alliances allow for the sharing of tacit knowledge—knowledge that cannot be codified. Tacit knowledge concerns knowing how to do a certain task. It can be acquired only through actively participating in the process. In an equity alliance, therefore, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
Which of the following best describes a Level 5 manager in the Level-5 leadership pyramid? Tom is an employee at Now Inc.; he has helped his team achieve their targets by contributing to the team's efforts. Sivan is an employee who just started her career at DK Inc.; she has already been appreciated for her knowledge and skills in the new company. Bill is part of the marketing team at Ransome Inc.; he has been given the charge of managing a team of three, so he will be promoted to a manager's position next month. Jim is the CEO of Eco Inc.; he has helped his company in gaining and sustaining a competitive advantage through ethical decision making.
Jim who is the CEO of Eco Inc. is a Level 5 manager in the Level-5 leadership pyramid. In the Level-5 leadership pyramid, the Level 5 manager reaches a leadership pinnacle, turning into a strategic leader. An effective strategic leader is an executive who builds enduring greatness into the organizations he or she leads.
Los Pollos Hermanos is a nationwide fast-food chain. Decision power resides at the top of the organization. Each job is documented in minute detail. The firm has many levels of supervision, including vice presidents and regional managers. The firm's headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board. Based on this scenario, which of the following is an accurate statement about Tony's? Los Pollos Hermanos has a low degree of specialization, formalization, and centralization and relies on a flat hierarchy. Los Pollos Hermanos has a low degree of specialization and formalization, a high degree of centralization, and relies on a flat hierarchy. Los Pollos Hermanos has a high degree of specialization and formalization, a low degree of centralization, and relies on a tall hierarchy. Los Pollos Hermanos has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy.
Los Pollos Hermanos has a high degree of specialization (employees are assigned specific tasks such as food prep, cook, cashier), formalization (each job documented in minute detail; detailed instructions to each of its franchisees), and centralization (decision power resides at the top) and relies on a tall hierarchy (many levels of supervision).
AT&T, IBM, Siemens, and Pfizer, have been shifting their innovation strategy toward a model designed to blend internal knowledge with external knowledge by sourcing strategic alliances. This example best represents the open innovation framework. absorptive capacity model. not-invented-here syndrome. closed innovation framework.
Open innovation is a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from ideas and innovation from external sources. Even the largest companies, such as AT&T, IBM, Siemens, and Pfizer, are shifting their innovation strategy toward a model that blends internal with external knowledge sourcing via licensing agreements, strategic alliances, joint ventures, and acquisitions.
AT&T, IBM, Siemens, and Pfizer, have been shifting their innovation strategy toward a model designed to blend internal knowledge with external knowledge by sourcing strategic alliances. This example best represents the absorptive capacity model. open innovation framework. not-invented-here syndrome. closed innovation framework.
Open innovation is a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from ideas and innovation from external sources. Even the largest companies, such as AT&T, IBM, Siemens, and Pfizer, are shifting their innovation strategy toward a model that blends internal with external knowledge sourcing via licensing agreements, strategic alliances, joint ventures, and acquisitions.
Duke & Duke is the parent company of GetItDone.com and NownNever Inc. To cut costs, Duke & Duke integrated GetItDone.com's and NownNever Inc.'s management functions with Duke & Duke's management, while keeping other functions such as product development independent. Duke & Duke has encourage the senior teams at both GetItDone and NownNever to exploit the success of their existing products while exploring new products for the future. This scenario best exemplifies a(n) organic organization. simple structure. ambidextrous organization. multidivisional structure.
The goal for managers who want to pursue a blue ocean strategy is to build an ambidextrous organization, one that enables managers to balance and harness different activities in trade-off situations. Here, the trade-offs to be addressed involve the simultaneous pursuit of low-cost and differentiation strategies. Ambidexterity describes a firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation—applying current knowledge to enhance firm performance in the short term—with exploration—searching for new knowledge that may enhance a firm's future performance.
Hot Caffeine, a leading coffee roaster, anticipated that the prices of coffee beans from Costa Rica, where its main suppliers were located, would double in less than three years. This would significantly affect Hot Caffeine' profit margins. Thus, Hot Caffeine decided to develop a new partnership with a supplier in Indonesia. As predicted, the price of Costa Rican coffee beans increased twofold. Because the price of Indonesian coffee beans was much lower, Hot Caffeine was able to maintain its profit margins in turbulent times. Which of the following isolating mechanisms does this scenario best illustrate? better expectations of future resource value causal ambiguity time compression diseconomies intellectual property protection
The scenario illustrates better expectations of future resource value. Sometimes firms can acquire resources at a low cost, which lays the foundation for a competitive advantage later when expectations about the future of the resource turn out to be more accurate.
Although eHook Inc. and eFury Inc. operate in the same consumer electronic industry, eHook Inc. has better sales and brand equity. This is attributed to eHook Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which eFuryInc. lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated? resource heterogeneity resource immobility resource value resource imitation
The scenario illustrates resource heterogeneity. In the resource-based view, a firm is assumed to be a bundle of resources, capabilities, and competencies. The first critical assumption—resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. Resource immobility, the tendency of resources to be "sticky," is not discussed in this example. Value and imitability are aspects of the VRIO framework, not critical assumptions of the resource-based view.
The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator? low price, low comfort, low customer service, low concessions variety, low hours of operation low price, high comfort, high customer service, high concessions variety, low hours of operation high price, low comfort, low customer service, high concessions variety, low hours of operation high price, high comfort, high customer service, high concessions variety, low hours of operation
The value curve is the basic component of the strategy canvas. It graphically depicts a company's relative performance across its industry's factors of competition. When pursuing a generic differentiation strategy, all these scores along the different competitive elements in an industry go along with a relative higher cost structure. A theater pursuing differentiation, then, would have higher prices to go along with higher levels of comfort, service, and concessions variety, but may score lower in hours of operation to reflect its position as a more exclusive destination for moviegoers.
The government of Pentsu has mandated that the standard minimum wage in the country be increased to $8,000 per year. Which of the following factors in a firm's general environment does this mandate best indicate? legal factors technological factors ecological factors sociocultural factors
This mandate best indicates legal factors in a firm's general environment. The legal environment captures the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions—all of which can have a direct bearing on a firm's profit potential.
A firm always has a competitive disadvantage when its return on invested capital is below the industry average. about the same as its closest competitor. declining steadily over two or more years. 2 percent or lower in a declining industry.
A firm always has a competitive disadvantage when its return on invested capital is below the industry average.
Frozen Gold is a fast-growing chain of ice cream shops. It has acquired an edge over its competitors through its ability to provide a wide array of unique flavors and a hip atmosphere in stores. This advantage of Frozen Gold best exemplifies a resource flow. core competency. markup. capital gain.
Core competencies 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.
Tom Terry is the CEO of BuildIt.com but wants a physical retail presence. In order to accomplish this, Tom formed a joint venture with a major real estate tycoon who has a significant foothold in the commercial property sector. This venture will require exchanging more than just codified information; as such, Tom should expect to share his knowledge of financial markets. his firm's supply chain. only explicit knowledge. both tacit and explicit knowledge.
Due to the level of commitment that is inherent with a joint venture, Tom can expect to exchange both tacit and explicit knowledge.
Dynamic capabilities are especially relevant for surviving and competing in markets that shift slowly. shift quickly. remain unpredictable. remain constant.
Dynamic capabilities are especially relevant for surviving and competing in markets that shift quickly.
________ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it. Break-even point Economic value created Consumer surplus Cost of capital
Economic value created is the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it.
Employees learn about an organization's culture through the process of socialization. acculturation. co-opetition. exploitation.
Employees learn about an organization's culture through socialization, a process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations. Successful socialization, in turn, allows employees to function productively and to take on specific roles within the organization.
In Strategy Highlight 2.2, what type of strategy did Diana, the Starbucks store manager in southern California, use to develop the new iced beverage for her store? She used an emergent strategy. She used a rational planning approach to strategy planning. She used scenario planning. She created a dominant strategy plan.
Functional managers like Diana, the Starbucks store manager featured in Strategy Highlight 2.2, are much closer to the final products, services, and customers than corporate- or business-level managers. As a result, functional managers may initiate strategic initiatives based on autonomous actions that can influence the direction of the company. An emergent strategy describes any unplanned strategic initiative undertaken by mid-level employees of their own volition. If successful, emergent strategies have the potential to influence and shape a firm's strategy.
In the five forces model developed by Michael Porter, ________ is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes. a barrier to entry regulation a stakeholder competition
In Porter's five forces model, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes.
When does a merger between companies typically occur? when two firms of comparable size join to form a combined entity when large, incumbent firms buy start-up companies when two or more firms enter a temporary vertical strategic alliance when a target firm does not want to be acquired
In defining mergers and acquisitions, size can matter as well. The combining of two firms of comparable size is often described as a merger even though it might in fact be an acquisition.
Flectronics has used $700,000 from its total annual earnings of $1,650,000 to invest in upgrading its manufacturing facilities. Its accounts receivable from customers is estimated to be $130,000 and accounts payable $75,000. In monetary terms, what would Flectronics's resource flows be? $75,000 $700,000 $130,000 $1,650,000
In monetary terms, Flectronics' resource flows would be $700,000. Resource flows are a firm's level of investments to maintain or build a resource.
PolyCon's, a large and successful retail chain on the East Coast, decides to expand its operations across the United States. Which of the following organizational structures should PolyCon's use? functional simple multidivisional basic
PolyCon's should use a multidivisional organizational structure. Over time, as a firm diversifies into different product lines and geographies, it implements a multidivisional or a matrix structure. The multidivisional structure (or M-form) consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.
Which of the following statements with regard to industry structures is true? They are stable over time, not dynamic. Having few but large competitors increases the threat of strong competitive forces such as supplier or buyer power. Having a large number of competitors generally equates to higher industry profitability. A consolidated industry tends to be more profitable than a fragmented one.
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.
Dev is a strategist for the firm Stark Industries, which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called LENS Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Dev to suggest? Stark Industries should enter into co-opetition with LENS. Stark Industries should form a short-term agreement with LENS. Stark Industries should acquire LENS. Stark Industries should form a long-term agreement with LENS.
Stark Industries should acquire LENS. If the resource in question is not easily tradable, then the strategist needs to consider an outright acquisition.
________ is best described as an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage. Supply chain management Strategic management Integrated technology management Inventory management
Strategic management is the integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage. Mastery of strategic management enables an individual to view a firm in its entirety. It also enables an individual to think like a general manager to help position his or her firm for superior performance.
The balanced-scorecard can accommodate only short-term performance metrics. only long-term performance metrics. both short- and long-term performance metrics. neither short- or long-term performance metrics.
The balanced-scorecard can accommodate both short- and long-term performance metrics. It provides a concise report that tracks chosen metrics and measures and compares them to target values. This approach allows managers to assess past performance, identify areas for improvement, and position the company for future growth.
The concept of a(n) ________ attempts to capture both learning effects and process improvements at firms. experience curve growth matrix managerial grid diminishing utility curve
The concept of an experience curve attempts to capture both learning effects and process improvements.
Chips & Motherboards Inc., a leading hard drive manufacturer, recently filed for bankruptcy. While most of Chips & Motherboards Inc.'s competitors were shifting away from physical data storage devices toward online cloud storage services, Chips & Motherboards Inc. invested most of its retained earnings in the effort to improve its hard drives. Once the hard-drive market drastically declined, Chips & Motherboards Inc. was unable to capitalize on the new technology. Which of the following does this scenario best illustrate? social complexity path dependence knowledge diffusion causal ambiguity
The scenario best illustrates path dependence. Path dependence is a situation in which the options one faces in the current situation are limited by decisions made in the past.
Although eHook Inc. and eFury Inc. operate in the same consumer electronic industry, eHook Inc. has better sales and brand equity. This is attributed to eHook Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which eFuryInc. lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated? resource value resource immobility resource imitation resource heterogeneity
The scenario illustrates resource heterogeneity. In the resource-based view, a firm is assumed to be a bundle of resources, capabilities, and competencies. The first critical assumption—resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. Resource immobility, the tendency of resources to be "sticky," is not discussed in this example. Value and imitability are aspects of the VRIO framework, not critical assumptions of the resource-based view.
With the emergence of smartphones, users no longer have to carry a separate music player, a video game, a laptop, or a magazine to keep themselves entertained when traveling. A smartphone is loaded with a variety of applications to satisfy all the customer needs that different industries or products individually satisfied earlier. As a result, the smartphone industry has been posing a threat to a lot of other unrelated industries. What is this phenomenon best known as? industry convergence product differentiation backward integration customer myopia
This phenomenon is best known as industry convergence. Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.
One of the reasons that Circuit City filed for bankruptcy was due to its inability to reinvest, hone, and upgrade its once impressive resource base. Ultimately, Circuit City's core competences became costly to imitate. value chain activities. strategic resources. core rigidities.
Core rigidities occur when a firm fails to reinvest their core competencies and thus lose their competitive advantage.
The cost of capital to create a product is a fixed cost because it is not a part of the profit calculations. unaffected by consumer demand. directly proportional to the output level. uniform throughout all firms and industries.
Fixed costs are independent of consumer demand—for example, the cost of capital to build computer manufacturing plants or an online retail presence to take direct orders.
Value drivers contribute to a firm's competitive advantage only if the increase in value creation exceeds the increase in costs. they can restrict the firm from claiming a premium price for its products. they can shrink the firm's value gap. the decrease in perceived value leads to an increase in costs.
Managers must remember that the different value drivers contribute to competitive advantage only if their increase in value creation (ΔV) exceeds the increase in costs (ΔC). The condition of ΔV > ΔC must be fulfilled if a differentiation strategy is to strengthen a firm's strategic position and thus enhance its competitive advantage.
Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as capabilities. capital gains. tangible resources. reserves.
Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as capabilities. Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. Capabilities are by nature intangible.
OpenUrToys Inc. is a consulting firm that opens your toys for you and then films your emotional response. They have many clients and are able to generate above average returns relative to their competitors. In this scenario, we would conclude that OpenUrToys Inc. probably has a a competitive disadvantage. sustainable competitive advantage. competitive advantage. a competitive parity.
Since the firm is able to generate above average returns, they have a competitive advantage.
Which of the following is a disadvantage of the balanced-scorecard approach? It fails to translate the vision into measureable operational goals. It provides limited guidance about which metrics to choose. It fails to link the strategic vision to responsible parties within the organization. It provides limited guidance for designing and planning business processes.
The balanced-scorecard approach provides only limited guidance about which metrics to choose. Different situations call for different metrics.
To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to reduce the immobility and the heterogeneity of the firm's resources. contribute to the firm's strategic position as either low-cost leader or differentiator. reduce the causal ambiguity and the social complexity of the firm's source of success. create a static fit between the company's internal resources and the external environment.
To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to contribute to the firm's strategic position as either low-cost leader or differentiator. Each distinct activity performed needs to either add incremental value to the product or service offering or lower its relative cost.
Elvira is the CEO of All Things Inc. which employs a matrix structure which is the combination of the ________ and ________ structure. functional; M-form network; functional M-form; simple simple; functional
A matrix structure is the combination of the functional and M-form structure.
Wheat and Steak is a restaurant located inside a five-star hotel. It caters mainly to customers who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Wheat and Steak's strategic group? a premium rooftop restaurant in the same city a food kiosk in an adjacent subway station a nearby fast-food restaurant a mobile food cart parked opposite to the five-star hotel
A premium rooftop restaurant in the same city will be a part of Wheat's and Steak's strategic group. A strategic group is a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage. Companies in the same strategic group are direct competitors
The goal of a strategic position is to create the largest gap possible between the ________ that a firm creates through its offerings and the ________ required to create these offerings. market share; defensive strategy value; cost marketing; innovation process gap; ROIC
A strategic position is a strategic profile based on value creation and cost. The goal is to create as large a gap as possible between (V-C).
Beats Electronics has been able to outperform Audio-Technica, Bose, JBL, Skullcandy, Sennheiser, and Sony in the high-end, premium headphone market. Which of the following statements accurately explains one of the main reasons for the success of Beats? It emphasized marketing over core competency. It focused on sponsoring future athletic superstars. It produced the highest-quality headphones. It created a perception that owning its products was cool.
As discussed in Chapter Case 4, Beats has been able to outperform its competitors by creating a perception that owning its headphones is cool. As a result, Beats headphones outsell the higher-quality headphones produced by its competitors.
Why should managers using the M-form organizational structure to support a related-diversification strategy ideally concentrate decision making at the top of the organization? It helps evaluate each SBU as a stand-alone profit-and-loss center. It leads to competition between SBUs. It allows a high level of integration. It helps contain the core competencies within a strategic business unit (SBU).
Managers using the M-form organizational structure to support a related-diversification strategy should ideally concentrate decision making at the top of the organization. Doing so allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related diversification.
________ are considered the ethical standards and norms that govern the behavior of individuals within a firm. Mission statements Organizational core values Strategic leadership Vision statements
Organizational core values are the ethical standards and norms that govern the behavior of individuals within a firm or organization.
Which of the following statements is true of strategy in an organization? Strategy implementation does not affect resource allocation and power distribution within an organization. To implement a strategy successfully, an organization's structure must be rigid. Organizational structure must follow strategy in order for firms to achieve superior performance. Strategy implementation is considered unsuccessful if it requires changes within an organization.
Organizational structure must follow strategy in order for firms to achieve superior performance. This tenet implies that to implement a strategy successfully, organizational design must be flexible enough to accommodate the formulated strategy and future growth and expansion.
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 path immobility. path dependence. dependence complexity. causal dependence.
Path dependence is a process in which the options that one faces in a current situation are affected by decisions made in the past.
Amazon.com's network of distribution centers allow it to drastically reduce its delivery times compared to other online retailers. These distribution centers are examples of Amazon's core competency. intangible resources. capabilities. tangible resources.
Physical infrastructure, such as Amazon.com's distributions centers, is a tangible resource.
Southwest Airlines (SWA) and Alaska Airlines both compete as point-to-point airlines, but they draw upon different resource bundles. This example best illustrates which of the following assumptions regarding the resource-based view? resource immobility resource homogeneity resource heterogeneity resource allocation process
Resource heterogeneity suggests that not all firms have access to the same resources, as is the case with Southwest Airlines.
________ precisely indicates how much of a firm's sales is converted into profits. Working capital turnover Inventory turnover Return on revenue Break-even price
Return on revenue (ROR) indicates how much of a firm's sales is converted into profits.
Simple organizational structures often exhibit low levels of formalization and specialization. Which of the following is not a benefit of employing a simple organizational structure? being able to easily and quickly coordinate and communicate within the firm employing specialists that can develop deep knowledge/expertise in their field not having the need for sophisticated information technology/management systems being able to converse with the CEO and other upper level executives
Simple structures exhibit low levels formalization and specialization, thus prohibiting the development of deep expertise
Which of the following best exemplifies the use of input controls? Zappos' use of monitoring-free customer service calls GM's use of the multidivisional strategy McDonald's use of standard operating procedures Southwest Airlines' use of employee friendliness
Standard operating procedures, or policies and rules, are a frequently used mechanism when relying on input controls. McDonald's relies on detailed operating procedures to ensure consistent quality and service worldwide.
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 motorcycles. hot air balloons. None of these are substitutes. tractors.
Substitutes must exist outside the given industry but still offer an attractive price/performance tradeoff.
Successful ________ requires managers to design and shape structure, culture, and control mechanisms. strategy implementation strategy innovation strategy diversification strategy formulation
Successful strategy implementation requires managers to design and shape structure, culture, and control mechanisms. In doing so, they execute a firm's strategy as they put its accompanying business model into action.
The balanced-scorecard framework is a tool for strategy ________, not ________. analysis; sustainability sustainability, economic value creation formulation, implementation implementation; formulation
The balanced scorecard is a tool for strategy implementation, not for strategy formulation. It is up to a firm's managers to formulate a strategy that will enhance the chances of gaining and sustaining a competitive advantage.
Which of the following options below would serve as a feasible option when deciding how to enter an established industry? raise stakeholder capital by issuing stock initiate a greenfield operation leverage existing assets only enter if it's an oligopoly
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.
Power Juice is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Power Juice has decided to pursue a differentiation strategy. In this case, she should concentrate on improving process technologies to achieve economies of scale. enforce strict budget controls at all levels of the organization. focus on adding unique features to her product that customers will value. devote all resources to reducing the value gap.
The focus of competition in a differentiation strategy tends to be on unique product features, service, and new product launches, or on marketing and promotion rather than price. A differentiator would focus research and development on product features or packaging in order to add uniqueness.
Customer service and ________ are two of the value drivers that managers can utilize when trying to improve a firm's differentiation strategic position. cost of input factors experience curve product uniqueness economies of scale
The most salient value drivers that managers have at their disposal when executing a differentiation strategy are product features, customer service, customization, and complements.
Why is the optimal organizational structure a multidivisional structure? Its focus is on retaining activities within a single geographic area. Its focus is on establishing a flat hierarchy operated in a decentralized fashion. Its focus is on driving down costs. Its focus is on producing differentiated products.
The optimal organizational structure match is a multidivisional structure. Rather than focusing on geographic differences as in the multidomestic strategy, the focus is on driving down costs due to consolidation of activities across different geographic areas.
EverMart Inc. is a large company that sells a variety of products such as cosmetics, jewelry, frozen foods, navigation electronics, and airplanes. Apart from this, the company also has a strong presence in the service industry through its chain of dance studios, casinos, and nightclubs. Each of its product divisions operates as an individual business and is responsible for its own profits and losses. Thus, these product divisions under EverMart can be referred to as functional departments. limited liability companies. strategic business units. corporations.
These product divisions under EverMart can be referred to as strategic business units (SBUs). Business strategy occurs within strategic business units, the standalone divisions of a larger conglomerate, each with its own profit-and-loss responsibility. General managers in SBUs must answer business strategy questions relating to how to compete in order to achieve superior performance.
Delos Inc. is an apparel manufacturer. The management at Delos Inc. prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through input controls. output controls. centralization. multidivisional strategy.
This is an example of implementing control through input controls. Input controls seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures. Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. The use of budgets is a key to input controls.
In order for a firm to formulate an effective business-level strategy, it is important to remember that competitive advantage is determined by the characteristics of the industry in which a firm competes. the amount of market share a firm can gain. the characteristics of the firm alone. the characteristics of both the industry and the firm.
While the majority of performance can be explained by the firm, the industry in which that firm competes also plays a significant role. It is also important to note that industry and firm effects are not independent, but rather they are interdependent.
Yellow Ride Service is a new entrant to the taxi industry. It has achieved success by staking out a unique position in the industry. How did Yellow Ride Service mostly likely achieve this position? providing long-distance cab fares at a higher rate than competitors; servicing a larger area than competitors providing long-distance cab fares at a lower rate than competitors; servicing the same area as competitors providing long-distance cab fares at a higher rate than competitors; servicing the same area as competitors providing long-distance cab fares at a lower rate than competitors; servicing a smaller area than competitors
Yellow Ride Service achieved a unique position in the industry by providing long-distance cab fares at a lower rate than competitors while servicing the same area as competitors. To stake out a unique position, a company must either perform the same activities as competitors in a way that is better for customers or perform different activities. Also, this company must provide an advantage for customers without trading the benefit with a disadvantage.
Why does a functional structure rely on a flat organizational structure? It allows for a higher degree of specialization and domain expertise. It allows for efficient bottom-up and top-down communication. It allows for the implementation of a differentiation strategy. The work in the organization is centrally coordinated by the CEO.
A functional structure allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure.
When large, incumbent firms buy start-up companies, the transaction is generally described as a(n) joint venture. alliance. partnership. acquisition.
A large difference in firm size is one key distinction between mergers and acquisitions. When large, incumbent firms such as GE or Microsoft buy start-up companies, the transaction is generally described as an acquisition.
A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure. functional multidivisional simple global matrix
A matrix structure combines both the M-form and the functional structure. For example, a firm can be organized according to SBUs (along a horizontal axis, like in the M-form), and also have a second dimension of organizational structure (along a vertical axis). In this case, the second dimension could consist of different geographic areas, each of which generally would house a full set of functional activities. This exemplifies a global matrix structure.
Which of the following statements is true about managing alliance-related tasks? A merger is one of the three options for alliance design and governance. Alliance-management capability is based on three alliance-related tasks. In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage. Forming an alliance with another firm prohibits that firm from forming other alliances.
Alliance-management capability is a firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances. The firms in an alliance must choose an appropriate governance mechanism from among the three options: nonequity contractual agreement, equity alliances, or joint venture. To be a source of competitive advantage, the partnership needs to create resource combinations that obey the VRIO criteria.
One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is that they have been able to protect themselves from the threat of buyer power by increasing input prices. they are able to take advantage of physical properties and maximize their scale efficiencies by stocking more merchandise and handling inventory more efficiently. they have both broad and narrow economies of scope. they are able to take advantage of market size and spread investment losses over many locations.
Big box retailers like Home Depot are able to reap economies of scale by taking advantage of physical size ("big box"), stock more inventory, and manage it more efficiently.
When wireless service providers offer free or discounted mobile phones for subscriptions to their wireless voice and data service, the perceived value of the service offering increases. In this case, the value driver would be availability of complements. economies of scale. experience-curve effects. learning-curve effects.
Complements add value to a product or service when they are consumed in tandem. Finding complements, therefore, is an important task for managers in their quest to enhance the value of their offerings.
Under the ________ framework, producer surplus is important in the quest for competitive advantage because this is the profit that a firm captures when producing and selling a good or service. PESTEL accounting profitability economic value creation shareholder value creation
Economic value creation is created when a customer is willing to pay more for a good or service than it costs the firm to produce it.
E Corp is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, E Corp has a relaxed work environment where employees are free to discuss projects with each other. Employees are encouraged to choose the projects that interest them; communication between team members and their supervisors is open and easy. Because of the company's work culture, its employees feel motivated to work harder and display more entrepreneurial behaviors. In this scenario, E Corp Inc. is most likely an organization that is centralized. organic. formalized. mechanistic.
In this scenario, E Corp is most likely an organic organization. Organic structures tend to be correlated with the following: a fluid and flexible information flow among employees in both horizontal and vertical directions; faster decision making; and higher employee motivation, retention, satisfaction, and creativity. Organic organizations also typically exhibit a higher rate of entrepreneurial behaviors and innovation.
How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers? by facilitating excess capacity in the industry by increasing the threat of entry in the industry by preventing mergers from taking place by lowering competitive intensity in the industry overall
Recent horizontal integration in the U.S. airline industry, for example, provided several benefits to the surviving carriers. By reducing excess capacity, the mergers between Delta and Northwest Airlines, United Airlines and Continental, Southwest and AirTran, and American and U.S. Airways lowered competitive intensity in the industry overall.
Several senior managers recently left Fred's Autos Inc. and went to work at Better Autos Inc., a rival company. What does this imply? Fred's Autos Inc.'s tangible assets decreased. The resource stock of Fred's Autos Inc. increased. Fred's Autos Inc. faced resource leakage. The resource flow into Better Autos Inc. was reduced.
Resource leakage might occur through employee turnover, especially if key employees leave. Significant resource leakage can erode a firm's competitive advantage.
Vanessa just graduated from law school and wants to open her own law firm. Vanessa should probably adopt a(n) ______ structure for the firm. matrix simple functional M-form
Simple structures exhibit low formalization and specialization, which is suitable for new start-ups and small professional firms.
BestReads spent 10 million dollars to buy the rights to a best-selling novel. The company then prepared for production by hiring a screenwriter to adapt the novel, casting the main roles, renting cameras and other equipment, and scouting locations in southern Montana. Which of the following pairs of resources are both intangible? money spent to buy rights to the novel; locations in southern Montana best-selling novel; locations in southern Montana best-selling novel; screenwriter's experience adapting novels money spent to buy rights to the novel; screenwriter's experience adapting novels
The best-selling novel is intellectual property and therefore is an intangible resource. Also, a worker's experience is an intangible resource.
Delos Inc. is an apparel manufacturer. The management at Delos Inc. prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through input controls. multidivisional strategy. centralization. output controls.
This is an example of implementing control through input controls. Input controls seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures. Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. The use of budgets is a key to input controls.
An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a ________ structure. functional simple matrix multidivisional
To reap the benefits of both the M-form and the functional structure, many firms employ a mix of these two organizational forms, called a matrix structure. The idea behind the matrix structure is to combine the benefits of the M-form (domain expertise, economies of scale, and the efficient processing of information), with those of the functional structure (responsiveness and decentralized focus).
Hooli, a web development firm, wants to implement an organic structure to foster innovation and attract the most talented creative minds. Which of the following features will make it difficult to do so? flexible job descriptions for employees dedication to a cost-leadership business strategy a wide span of control for managers decision-making power distributed throughout the organization
A cost-leadership strategy is typically associated with mechanistic structures, which allow for standardization and economies of scale. A differentiation strategy is more commonly used by organic firms.
In 2013, CEO Hsieh announced that Zappos would implement a reorganization in which, as Hsieh said, "... employees ... act more like entrepreneurs and self-direct their work ..." Hsieh changed Zappos from a holacracy to a hierarchy. a decentralized structure to a formalized structure. a bottom-up to a top-down style. a hierarchy to a holacracy.
As mentioned in Strategy Highlight 11.1, Zappos' CEO Hsieh changed the organization to a holacracy in 2013 to combat a slow bureaucracy. As of now, however, Zappos has experienced some challenges—employee morale has fallen and Zappos fell to 86 in the "100 Best Companies to Work For" list.
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. product-oriented vision scenario planning organizational core values upper-echelons theory
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.
Which of the following is an example of explicit knowledge? knowing how to create surveys a research summary knowing how to assemble semiconductors a research skill
Explicit knowledge can be codified. Research summaries, patents, user manuals, fact sheets, and scientific publications are all ways to capture explicit knowledge.
Why are controls like budgets and operating procedures that McDonald's implements known as input controls? They are implemented by corporate headquarters. They are ad hoc and not codified. They are independent of an organization's culture. They are considered before employees make any decisions.
Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. They are called input controls because management designs these mechanisms so they are considered before employees make any business decisions.
The working capital turnover of Complete Systems Corp. is 6.0. What does this financial data suggest? For every $6.00 Complete Systems puts to work, the company realizes sales of $1.00. For every dollar Complete Systems puts to work, the company realizes $6.00 in loss. For every $6.00 Complete Systems puts to work, the company incurs a cost of $1.00. For every dollar Complete Systems puts to work, the company realizes $6.00 of sales.
From the given data, it can be concluded that for every dollar Complete Systems puts to work, the company realizes $6.00 of sales. A component of return on invested capital is working capital turnover, which is a measure of how effectively capital is being used by a firm to generate revenue.
Return on risk capital primarily includes account receivables plus account payables. stock price appreciation plus dividends received over a specific period. consumer surplus plus firm profit. economic value created by a firm plus reservation price.
Investors are primarily interested in a company's total return to shareholders, which is the return on risk capital, including stock price appreciation plus dividends received over a specific period.
Mohawk is a leader in sustainable and innovative carpeting and floorings, as evidenced by its signature product, the world's first organic cotton carpet. Its product is unique and has appealing customer attributes. If Mohawk's raw material costs increased by 12 percent this year, what would be the likely outcome? Mohawk would lower profit margins to absorb this cost increase. The company would launch an all-out effort to reduce other costs by 12 percent. Mohawk would seek to find other materials with lower costs, even if it meant losing the carbon-neutral label on the product. Mohawk would pass a major portion of this increase along as a price increase to its customers.
Mohawk's customers reward it with a willingness to pay a higher price for its environmentally friendly products, so the likely impact would be to raise the price to the consumers to cover most of this cost increase.
In the context of the SWOT matrix, which of the following best exemplifies a firm's internal strength? rise in the income of the demographic segment to which a firm caters loss of a competitor's reputation growth in the size of the market in which a firm operates increase in a firm's customer loyalty
The increase in a firm's customer loyalty best exemplifies a firm's internal strength. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.
Condax Autos Inc. merged with its competitor NOW Autos Inc. This allowed Condax Autos to use its technological competencies along with NOW Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate? supply-chain horizontal perfect technological
The scenario best illustrates horizontal integration. Horizontal integration is the process of merging with a competitor at the same stage of the value chain.
ABC Inc., It's Electric Inc., and Wares Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? monopolistic competition oligopoly monopoly perfect competition
This scenario best illustrates an oligopoly. The term oligopoly comes from the Greeks and means "few sellers." An oligopolistic industry is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others.
Blue Cat Restaurant Group relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can the Blue Cat Restaurant Group improve its ability to collaborate without sacrificing the benefits of its current structure? by switching to a simple structure by switching to a competitive M-form structure by decreasing managers' span of control by establishing cross-functional teams
To overcome the lack of cross-departmental collaboration in a functional structure, a firm can set up cross-functional teams. In these temporary teams, members come from different functional areas to work together on a specific project or product, usually from start to completion. Each team member reports to two supervisors: the team leader and the respective functional department head.