BSAD 4780 Exam 1 (CH3-5)
Which of the following would be a good argument for why a resource or capability position would be rare?
A resource or capability is rare because it developed over time along a unique path. Explanation Resources or capabilities that are developed over time following a unique path are more rare because the way they were created is difficult or impossible to imitate.
Which of the following explains how dynamic capabilities are different from the resource-based view?
Dynamic capabilities deal with applying resources over time. Explanation Dynamic capabilities deal with applying resources over time; the resource-based view does not.
In the video, McDonald's introduction of all-day breakfast was said to be an "adjust" strategy as well as a "turn around" strategy. How is this strategic action a "turn around" strategy?
Offering all-day breakfast was expected to stem McDonald's revenue decline. Explanation Turn-around strategies overcome internal weaknesses that if not addressed will allow external threats to impact the firm. By stopping the revenue decline, McDonald's is reversing the weakness of its deteriorating sales.
________costs capture the value of the _______ alternative use of the resources employed.
Opportunity; best Explanation Opportunity costs capture the value of the best forgone alternative use of the resources employed.
The impact of baby boomers getting older on an industry would be classified in which PESTEL factor?
Sociocultural Explanation Demographic changes in the population are generally categorized within this Sociocultural factor of the PESTEL.
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. Explanation 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.
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. Explanation 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 Explanation 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.
If a company has 25 million shares outstanding, and each share is traded at $400, the ______ is $10 billion.
market capitalization Explanation 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).
Capital intensity
measures the amount of revenue generated for every dollar of invested capital. Explanation The more revenue generated per dollar of invested capital, the more intensely the capital is being used to generate revenue.
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 Explanation 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.
By selling a television at $1,200 for which consumers are willing to pay up to $1,300, a consumer electronics firm makes a profit of $500 per unit. What is the economic value created in this scenario?
$600 Explanation In this scenario, the economic value created is $600. Economic value creation equals consumer surplus plus firm profit, or the sum of consumer surplus and producer surplus. In this case, the economic value created will be ($1,300 $1,200) + ($500).
The textbook notes that a resource is valuable if it helps the firm exploit an external opportunity. This will typically result in enhanced economic value. Which of the following is an example of economic value?
Beats sells headsets for more than $150 when the cost is approximately $15. Explanation Economic value considers both the worth of the item (its value) and the cost of the item. Value must be higher than price for a transaction to occur. Thus the large gap between the price and cost is an example of economic value at Beats.
competitive advantage
Competitive advantage is a relative measurement, and the departure of CEO Dick Costolo and other senior executives is symptomatic of Twitter's lack of growth relative to firms such as Facebook and Snapchat.
Nvidia went through a major rethinking of its strategy after its initial market failures. Based on the case just mentioned, what is the major diagnosis of the competitive challenge they found?
Customers would be willing to buy new and better graphics solutions frequently. Explanation Nvidia's analysis convinced them that the performance of graphics chips in 1996 was significantly lower than many customers wanted. Thus, frequently improved performance would be welcomed in the marketplace.
According to the video, which of the following is an example of a threat of substitute product or service?
Driving instead of flying between two nearby cities Explanation The power of substitutes examines the ability of products from nearby industries to substitute for the industry's products, reducing sales and impacting profits. As the Transportation Security Administration (TSA) has increased the inconvenience in time associated with flying, driving has become the more effective substitute for some shorter flights that could be driven in about 5 to 6 hours. In the soft drink industry, strong brand positions reduce the value of potential products in the eyes of customers.
Though the microwaves manufactured by Emergo Inc. and Sensation Electronics Inc. sell at the same price of $600 per unit, the economic value created by Emergo Inc. is more than that of Sensation Electronics Inc. In the context of this scenario, which of the following statements is true?
Emergo has a relative cost advantage over Sensation Electronics. Explanation Emergo has a relative cost advantage over Sensation Electronics in this scenario. Competitive advantage can result from a relative cost advantage over rivals, assuming both firms can create the same total perceived consumer benefits. In this case, the source of the competitive advantage is a relative cost advantage over rivals.
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. Explanation 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.
Total costs include fixed and variable costs. ________________________ costs are independent of consumer demand, whereas __________________ costs change with the level of consumer demand.
Fixed; variable Explanation Total costs include fixed and variable costs. Fixed costs are independent of consumer demand, whereas variable costs change with the level of consumer demand.
The video explains the military origins of the term strategy, but then goes on to explain how Michael Porter closed the gap between military and business thinking with his definition of business strategy. Select the option that best defines strategy in the context of business.
Generals make battle plans based upon the forces available to them and their understanding of the enemy's forces. Business leaders create strategies based upon their firm's capabilities and their understanding of their competitor's capabilities. Explanation: Businesses do not compete directly against each other as armies do, degrading each other's ability to fight. Instead, they compete indirectly, for customers also called market share, by offering a more compelling value proposition.
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. Explanation 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.
Nintendo and Groupon (Strategy Highlight 4.1 in the text) have both had a rise and fall in their respective industries. However, the reason for each of their falls is different. Which of the following statements best captures this difference?
Groupon's model was easy to imitate, while Nintendo has not responded to the shift to mobile games. Explanation Nintendo has struggled to revamp its business model to leverage the massive movement of games onto mobile devices. The move to mobile devices was a small factor for Groupon; the larger issue was that their competency in online coupons was not hard to imitate and several better-positioned competitors (i.e., Amazon and Google) easily moved into the market space.
In SWOT analysis it is important to clearly differentiate between "internal" and "external" issues. Select the response that most accurately defines "internal" and "external" issues
If a firm no longer exists, but the issues remain, then the issues are external. However, if the issues also no longer exist, then they are internal. Explanation External issues remain even if the firm no longer exists. If they remain, then these issues were related to the firm only.
According to the video, which of the following is true of price-based competition?
It is intense in the airline industry due to high information transparence and low marginal costs. Explanation Price-based competition is intense in the airline industry due to high information transparence, low switching costs, low marginal costs, etc. In the soft drink industry, price is not the main competitive factor, but brand and marketing is. Strong brand preference keeps consumers from switching between products. So, price-based rivalry is much stronger in the airline industry than it is in the soft drink industry.
According to the video, which of the following is an example of a buyer who will be able to successfully negotiate for lower prices?
Large corporate customers with extensive service requirements Explanation Buyer power considers the ability of the buyers of the industry's products to successfully negotiate lower prices, reducing industry profitability. In the air travel industry, large corporate customers with extensive business travel earn a good position to negotiate flight discounts from airlines wanting to serve all the firms' flight needs. In the soft drink industry, individual consumers buy in such small quantities that they are not able to negotiate price discounts.
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. Explanation 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.
The textbook notes that the formulation stage of the AFI framework has parallels to the guiding policy of a good strategy. What is the key guiding policy developed by Nvidia, as mentioned earlier?
Nvidia would release a better chip in one-third the time of the traditional industry. Explanation Nvidia set a policy to release a new chip every 6 months, while the standard in the industry was 18 months.
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. Explanation 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 the video, business strategy was identified as a decision to choose "a different set of activities to deliver a unique mix of value." Which of the automotive firms follows this proposition most closely?
Tesla Explanation While Tesla is doing many things differently, an important difference is their direct sales model. Tesla's automobiles are sold directly to consumers instead of through dealerships. This sales model requires a very different set of activities to be successful such as locations in retail malls instead of dealerships in areas where land costs are low.
In the 'Art of War' Sun Tzu emphasized the fluid nature of competitive situations and the need for the strategist to recognize and incorporate that reality into their strategic planning. Which of the following has created the greatest uncertainty in the business environment across industries over the last 20 years?
The Internet Explanation : While all of the answers have shaped how business is done, only the internet (and its continuing evolution) has radically re-shaped the traditional business models of many industries across the world.
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. Explanation 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 would be a good argument for why a resource or capability would be valuable?
The resource or capability enables the firm to address customer wants. Explanation Implied in our understanding of customer wants is the idea of "differentiation" or "low cost". A resource or capability that would enable the firm to address the customer wants of the firm's target market is valuable, whether that is driving differentiation or low cost.
How do complements affect a primary product or service?
They increase the demand for the primary product. Explanation Complements increase the demand for a primary product, thereby enhancing the profit potential for the industry and the firm.
__________ denotes the dollar amount a consumer would attach to a good or service (that is, willingness to pay).
Value Explanation Value denotes the dollar amount a consumer is willing to pay for a good or service. It is also called the reservation price. The difference between a buyer's willingness to pay for a product or service and a firm's cost to produce it is the economic value created.
The video refers to strategic actions. Select the best definition of a strategic action with respect to SWOT.
a coherent set of goal-directed decisions that addresses the environment the firm competes within by utilizing firm resources and capabilities Explanation Strategic actions generated using the SWOT should address the firm's environment and take advantage of the firm's resources and capabilities.
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. Explanation 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.
If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is
a temporary competitive advantage. Explanation If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is a temporary competitive advantage. One of the four key criteria in the VRIO framework is being organized to capture value; the characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies.
In a perfectly competitive industry structure
any competitive advantage that one firm has will be short-lived. Explanation The critical assumptions of the resource-based model are fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure. In perfect competition, all firms have access to the same resources and capabilities, ensuring that any advantage that one firm has will be short-lived.
The kinds of factors that might be reviewed when considering the 'Economic' aspect of the PESTEL include
changes in disposable income per capita. Explanation Changes in disposable income per capita is an economic—rather than a sociocultural, political or technological—factor.
Strategic group mapping establishes that
competitive rivalry is strongest between firms that are within the same strategic group. Explanation 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 Explanation 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 Explanation 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.
Effective use of the PESTEL framework can help us identify
emerging opportunities and threats within an industry. Explanation Correctly used the PESTEL can help us understand emerging opportunities and threats in an industry.
The relative bargaining power of suppliers is most likely low when
incumbent firms face low switching costs when changing suppliers. Explanation 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. Explanation 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.
Intangible resources or capabilities may be a good basis for creating a competitive advantage because
intangible resources or capabilities are generally sticky to the firm. Explanation Intangible resources or capabilities are difficult to sell because they tend to stick strongly to the firm. For example, Mc Donald's brand recognition cannot be bought from McDonald's without acquiring the whole firm.
Tax efficiency
measures the effectiveness of the firm to keep its profits on an after-tax basis. Explanation Firms with a higher tax efficiency are able to keep more of their profitability on an after-tax basis.
Operating profit margin
measures the percentage of revenue left over after operating expenses to cover other expenses. Explanation Operating profit margin measures the effect of operating expenses such as the cost of goods sold on the firm's profitability. After paying operating expenses the remaining funds are available to pay other expenses and contribute to profitability.
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. Explanation 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.
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 Explanation 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.
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. Explanation Economic value created is the difference between value (V) and cost (C); sometimes also called economic contribution.
The final and perhaps hardest part of a good strategy is to deploy a set of coherent actions for the implementation of the strategy. Which of the following is not an implementation action taken by Nvidia?
releasing a new chip every 6 months rather than every 18 months Explanation Releasing a better chip every six months was the critical guiding policy Nvidia used to help create its success. The other options here are all implementation actions taken in support of this policy.
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 Explanation 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. Explanation 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.
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 Explanation 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.
The auditor of a public company is assessing the value of all the intangible assets owned by the company. Which of the following would most likely be included in this assessment?
the company's brand equity Explanation Intangible resources have no physical attributes and thus are invisible. Examples of intangible resources are a firm's culture, its knowledge, brand equity, reputation, and intellectual property.
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. Explanation 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.
In the preceding case about Nintendo, their original entry into the video-gaming market was built upon a resource that became VRIO relative to their main competitors Sony and Microsoft. What was the main focus of this resource?
to build and exploit a knowledge of casual gamers Explanation Nintendo successfully launched handheld and Wii consoles that were targeted at the casual gamer, while the competition was primarily focused on hardcore gamers.
