Chapter 1-6

business strategy defines

Both of the above (how it competes in the market, and how it establishes competitive advantage)

The division of responsibility between corporate and business strategy is consistent with the following principle: A. The hierarchical nature of authority within organizations B. Corporate level strategy is the domain of the parent company; functional managers are responsible for business strategies C. Corporate level strategy is the domain of headquarters executives; divisional managers are responsible for business strategies D. Delegation is the key to reconciling responsiveness and adaptability with overall integration

C. Corporate level strategy is the domain of headquarters executives; divisional managers are responsible for business strategies

When the environment becomes more turbulent and unpredictable: A. Strategy becomes less important than intuition B. External consultants need to play a greater role in strategy making C. Strategy becomes an increasingly important as a source of direction D. Strategy becomes an impossible exercise

C. Strategy becomes an increasingly important as a source of direction

In strategic management, the expression "blue oceans" refers to: A. The ability to cut costs through moving production to offshore locations B. Radical innovation C. The potential offered by uncontested market space D. A key theme in the US Navy's strategic planning process

C. The potential offered by uncontested market space

The two questions of "where" and "how" to compete define: A. a firm's values and culture B. a firm's vision and mission C. a firm's corporate and business strategies D. a firm's strategic management process

C. a firm's corporate and business strategies

Chapter 5

Chapter 5

Chapter 6

Chapter 6

Strategic fit refers to: A. The need for a firm's strategy to fit the needs of all its stakeholders, not just shareholders B. The need for a firm's strategy to be consistent with its vision, mission, and culture C. The need for a firm's strategy to be unique D. The consistency of a firm's strategy with its external and internal environments

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

Roles and directives, mutual adjustment, and routines are:[See p.150] a. Mechanisms for overcoming goal misalignment among organizational members b. Means for controlling employees in an organization c. Means for people to build a hierarchy within the firm d. Mechanisms for achieving coordination among organizational members

Mechanisms for achieving coordination among organizational members

"Strategic innovation" involves:

Pioneering in at least one of the three dimensions: new industry, new customer segment, or new source of competitive advantage

The central task of a differentiation strategy is:

To ask how all your customers' interactions with your product could be enhanced even more

For most organizations, geographical location should be regarded as:[See pg..131-133] a. A key resource whose characteristics need to be given careful attention when formulating strategy b. A formerly important resource which is becoming increasingly irrelevant in a digital world c. An organizational characteristic, not a resource d. A source of competitive advantage only its gives the organization access to an industry ecosystem such as Silicon Valley for IT firms and New York for advertising firms

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

Advertising costs as a percentage of sales revenue for soft drink brands with large market shares (such as Coca-Cola and Pepsi-Cola) are lower than for brands with small market shares (Dr. Pepper, Schweppes, Fresca). This is because:[See p.182] a. Advertising campaigns are subject to a large minimum budgets ("indivisibilities") b. Big brands can negotiate lower rates with advertising agencies and media owners c. Economies of learning—long-established brands such as Coca-Cola and Pepsi have learned how to be more efficient in their advertising campaigns d. Economies of global advertising campaigns

a. Advertising campaigns are subject to a large minimum budgets ("indivisibilities")

Isolating mechanisms are:[See p.173] a. Barriers to the erosion of interfirm profit differentials b. Mechanisms that impede the equilibration of rents between industries c. The same as "barriers to mobility" d. Sources of disequilibrium that cause the profitability of different firms in an industry to diverge over time

a. Barriers to the erosion of interfirm profit differentials

.Michael Porter and Mark Kramer's notion of "shared value" reconceptualises CSR (corporate social responsibility) by emphasizing:[See p.50] a. CSR as a value creating activity. b. CSR as a source of legitimacy for a company. c. CSR a means of transferring value from shareholders to less fortunate members of society. d. CSR as a counterweight to greed and amorality among managers and investors.

a. CSR as a value creating activity.

Porter says that firms get stuck in the middle because:

a. The mindsets of cost-minimization and differentiation are culturally opposed, and firms cannot optimize the investments needed for both at once b. Along with the above choice, firms need very different organizational processes to achieve the lowest costs or effective differentiation in the industry (BOTH A AND B)

The major determinant of the organizational culture of most companies is:[See p.152 a. The personality and beliefs of the founder b. The impact of the company's local environment c. The personal traits of employees d. The cultural change initiatives promoted by top management.

a. The personality and beliefs of the founder

A major impediment to the stakeholder view of the firm is: a. The practical problem of taking account of multiple goals in strategic decision making b. The fact that customers and employees are likely to be even more short-term oriented than shareholders c. The difficulties of quantifying the performance of the stakeholder-focused firm d. The need to represent each stakeholder group on the board of directors.

a. The practical problem of taking account of multiple goals in strategic decision making

According to Henry Mintzberg, organizational structure can be defined as:[See p.144] a. The ways in which labor is divided into distinct tasks, and coordination is achieved among these tasks b. The ways in which tasks are divided among divisions and managerial coordination achieved from the highest level of the organization c. The allocation of an organization's resources to divisions and departments d. The way in which coordination and cooperation between productive tasks is organized

a. The ways in which labor is divided into distinct tasks, and coordination is achieved among these tasks

In most large companies the strategic planning cycle begins with:[See p.142] a. Top management setting strategic priorities b. Business units developing business plans c. The financial requirements set by investors and the stock market d. Guidelines developed by the board of directors

a. Top management setting strategic priorities

Compared with simple products like flour or toilet paper, complex products such as cars or hotels:[See p.188] a. Fewer opportunities for differentiation b. Greater potential for differentiation c. Offer similar opportunities for differentiation--it all depends upon the creativity of product designers and marketers d. Fewer incentives for differentiation because of their high costs

b. Greater potential for differentiation

.The creation of business enterprises where a head office managed geographically-separate operational units was facilitated by:[See p.148 a. The development of management as a practical science b. Improvements in transportation and communication—especially the railroad and telegraph c. The development of the multidivisional corporation d. The introduction of limited liability

b. Improvements in transportation and communication—especially the railroad and telegraph

For hierarchical organizations to be adaptable requires:[See p.155 a. Separation between centralized strategic decisions and decentralized operating decisions b. Some degree of decomposability c. Shared values d. Adequate resources

b. Some degree of decomposability

.The basic premise of industry analysis is that:[See p.66] a. Perfect competition and monopoly are the basic models, most industries lie between these two extremes b. The level of profitability within an industry is determined by the systematic influence of the industry structure which determines the intensity of competition in the industry c. Industry profitability depends upon the interaction among competing firms d. Technology and consumer demand are the basic forces that shape industry structure

b. The level of profitability within an industry is determined by the systematic influence of the industry structure which determines the intensity of competition in the industry

The difference between a "generic" and a "contextual" management practices is:[See pg..175-176] a. None: the concepts are identical in practice. b. The performance impact of a generic practice is independent of the firm's other practices; the impact of a contextual practice depends upon the firm's other practices. c. Generic practices relate to basic functions; contextual practices tend to be more idiosyncratic. d. A generic practices offers incremental performance improvement; a contextual practices leads to a new fitness peak. b

b. The performance impact of a generic practice is independent of the firm's other practices; the impact of a contextual practice depends upon the firm's other practices.

Firms organized around functional structures tend to experience management problems when:[See p.156] a. Top managers must envision their succession. b. The range of products expands. c. The business environment becomes more turbulent. d. A global strategy is pursued.

b. The range of products expands.

The success of the multidivisional structure as an organizational form was because:[See p.148 a. Line-and-staff structures allowed companies to serve to a broader geographical area b. The separation of strategic from operational decision allowed corporate management to exercise more effective strategic and financial control c. Divisions were forced to compete with one another for corporate resources d. It permitted decision making ot be decentralized

b. The separation of strategic from operational decision allowed corporate management to exercise more effective strategic and financial control

Key success factors are:[See p.82] a. Factors that allow rivals to undermine a firm's competitive advantage b. The sources of competitive advantage within an industry c. The forces of competition that are most influential in determining industry profitability d. The generic strategy that is most closely aligned with customer preferences

b. The sources of competitive advantage within an industry

Banks spend more money on their head office buildings than most other large corporations because:[See p.195] a. They tend to be located in financial centers where property prices are high. b. They offer "experience goods", hence they need to signal wealth and stability. c. Their CEOs are more committed to the display of wealth than other CEOs. d. Because their products are essentially commodities, they need to find alternative ways of differentiating.

b. They offer "experience goods", hence they need to signal wealth and stability.

When an industry is subject to externally generated changes, the firms which are most likely to establish a competitive advantage are:[See p.169] a. Those with the highest market share. b. Those that that respond most quickly to the change and have the resources and capabilities that are most closely aligned to the emerging success factors. c. Those with the greatest agility and capacity for innovation. d. A combination of (a), (b), and (c).

b. Those that that respond most quickly to the change and have the resources and capabilities that are most closely aligned to the emerging success factors.

.Competitive advantage can be defined as:[See pg..168-169] a. A firm's ability to establish market leadership. b. A firm's ability to grow faster than its competitors. c. A firm's potential to earn a rate of profit that is persistently higher than its rivals. d. A firm's potential for launching innovative new products.

c. A firm's potential to earn a rate of profit that is persistently higher than its rivals.

"Benchmarking" is:[See p.129] a. A process to ensure that a firm is as similar to competitors as possible b. An HR manager's tool to set and justify the firm's salary scheme versus the industry norm c. A way to compare a firm's resources and capabilities against those of competitors d. All of the above

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

Organic organizational forms are preferable to mechanistic organizational forms:[See pg..152-153 a. For large, diversified firms. b. For firms supplying consumer goods. c. For firms in dynamic, uncertain environments. d. In countries with well-educated workforce.

c. For firms in dynamic, uncertain environments.

.A firm can pre-empt competitors from invading its market space by:[See p.174] a. Vigorous legal action b. Threatening to imitate its imitators c. Introducing new products to fill each niche, investing in capacity ahead of market growth and filing many patents d. None of these: competitive imitators is inevitable and unstoppable

c. Introducing new products to fill each niche, investing in capacity ahead of market growth and filing many patents

.In doubles tennis, the main mechanism through which the players coordinate their actions is:[See p.150] a. Rules and directives b. Organizational routines c. Mutual adjustment d. Shared values

c. Mutual adjustment

In supplying "lifestyle" products which are designed to meet consumers' social and psychological needs, the key to differentiation advantage is:[See pg..190-193] a. A relentless pursuit of quality. b. Thorough market research. c. Product integrity. d. Market segmentation.

c. Product integrity.

Being 'stuck in the middle' gives low profits because: a. The firm loses those customers who want the lowest prices b. The firm loses those customers who want the best product on the market c. Employees become confused about what the firm's goals and strategy really are d. All of the Above

d. All of the Above

Firms pursuing differentiation advantages will implement their strategies differently from those pursuing cost advantages. The implementation of differentiation strategy is likely to feature:[See p.199] a. Employee remuneration based upon individual productivity. b. Frequent performance reporting. c. High levels of outsourcing. d. Low levels of job specialization

d. Low levels of job specialization

Resources lack transferability between firms when:[See pg..127-128] a. They are embodied in fixed capital b. They are difficult to replicate c. They are subject to time compression diseconomies d. Market transactions are impeded by imperfect information

d. Market transactions are impeded by imperfect information

During the 19th century the principle source of ideas about how to organize large business enterprises derived from:[See p.146] a. Max Weber's principles of bureaucracy b. The ideas of industrial leaders such as Andrew Carnegie, John D. Rockefeller and Alfred Krupp c. Frederick Taylor's "scientific management" The introduction of limited liability, the railroad, and the telegraph d. The military

d. The military

The tendency for societies to revert to subsistence economies when the fabric of civilization breaks down is because:[See p.145] a. Shops cannot operate when there is a risk of looting b. Uncertainty reinforces the role of the family and family-based production c. Specialization and the division of labor require an exchange economy which depends upon mutual trust and the rule of law d. The modern economy requires money which requires a stable national government

c. Specialization and the division of labor require an exchange economy which depends upon mutual trust and the rule of law

A fundamental task of organization is to manage:[See p.144] a. Cooperation and coordination b. The division of labor into separate tasks c. The division of labor into separate tasks and their subsequent integration d. The problem of agency

c. The division of labor into separate tasks and their subsequent integration

The "agency problem" refers to:[See p.145] a. The inability the owners of a company to control the managers they appoint to run the company b. The misalignment of goals between the shareholders and managers of a company c. The misalignment of goals between a principal and his/her agent d. The tendency for the CEOs of public corporations to receive excessive compensation

c. The misalignment of goals between a principal and his/her agent

The main difference between corporate strategy and business strategy is A. Corporate strategy is concerned with where the firm competes; business strategy with how it competes B. Corporate strategy is concerned with the long-term performance of the firm; business strategy with resource deployment. C. Corporate strategy is concerned with establishing competitive advantage; business strategy with strategy implementation in individual businesses D. Corporate strategy is the responsibility of the CEO; business strategy is formulated by the heads of business units

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

The relationship between design and emergence in strategy making is best described as: A. A tension between the forces of centralization and decentralization B. An example of the agency problem in which the interests of salaried managers displace the interests of owners C. A process in which intended strategy is adapted as it is implemented D. An interactive process between strategic planners and line managers

C. A process in which intended strategy is adapted as it is implemented

Chapter 1

Chapter 1

Chapter 2

Chapter 2

Chapter 3

Chapter 3

Chapter 4

Chapter 4

A. Consistent B. Long Term C. Simple D. ALl of the above

D. ALl of the above

Strategy has its origins in A. Thought B. Discussion C. Analytical Discussion D. Ethics

A. Thought

The Balanced Scorecard is a technique of performance management that establishes and monitors four dimensions of performance:[See p.49] a. Financial, strategic, operational, and ethical performance b. Financial, customer, internal, and learning/innovation performance c. Profit, sales, productivity, and asset management performance d. Shareholder, customer, employee, supplier, and social performance

Financial, customer, internal, and learning/innovation performance

The divergence between accounting profit and economic profit is likely to:

Greater for capital-intensive firms than for labor-intensive firms (implicit costs higher under capital-intensive)

when identifying a company's strategy, its statements of a strategy found in its public documents needs to be

Checked against the company's decisions and actions

Profit and value of the firm are two concepts which are:

Closely linked because the present value of a firm's future profits approximates to the market value of its securities

The firms create value through production-transforming less valuable inputs into more valuable outputs-and also through:

Commerce: transferring products across space and time from where they are valued less to where they are valued more

The producer of a complementary product can maximize its relative bargaining power by means of:

Commoditizing the market for the complementary good

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

Competitor's strategies may shape industry structure, rather than structure shaping competition

The main difference between corporate level strategy and business level strategy is: A. Corporate strategy defines the scope of a firm's activities, while business strategy focuses on how to beat the competition in specific product markets B. Corporate strategy comprises the overall strategic plan, while business strategy focuses on implementing that strategy in each product market C. Corporate strategy defines a firm's overall structure, while business strategy describes its actions D. Corporate level strategy is concerned with long term goals, while business level strategy focuses on short term competitiveness

A. Corporate strategy defines the scope of a firm's activities, while business strategy focuses on how to beat the competition in specific product markets

The main problem of SWOT as a framework for strategy analysis is that: A. Distinguishing opportunities from threats and strengths from weaknesses is often difficult B. It has now been superseded by more sophisticated analytical frameworks C. It is so widely used that it no longer has any novelty D. It is focused on strategy formulation and fails to take account of strategy implementation

A. Distinguishing opportunities from threats and strengths from weaknesses is often difficult

The principal difference between accounting profit and economic profit is:

Accounting backward looking excludes implicit costs, economic forward looking

For both individuals and businesses, successful strategies are characterized by: A. Unrelenting commitment to ambitious goals B. Clear goals, understanding their competitive environment, awareness of internal strengths and weaknesses, and effective implementation C. Meticulous planning D. Possessing superior abilities and resources that are then deployed to build competitive advantage

B. Clear goals, understanding their competitive environment, awareness of internal strengths and weaknesses, and effective implementation

the extent to which an organization's strategy is determined by decentralized emergence rather than by centralized design depends mainly upon: A. How the organization is structured B. How turbulent and unpredictable is the external environment of the organization C. The commitment of the organization to experimentation. D. Whether the organization has a formalized process of strategic planning

B. How turbulent and unpredictable is the external environment of the organization

Capturing the value for the firm requires that a firm:

Creates value for customers, then appropriate some of that value as profit

The main reason for the transition from corporate planning to strategic management during the latter half of the 1970s was: A. Disappointing outcomes of corporate diversification. B. The increasing costs of corporate planning departments. C. Growing disillusionment with central planning D. A more turbulent business environment that became increasingly difficult to predict

D. A more turbulent business environment that became increasingly difficult to predict

Strategy improves decision-making by: A. Reducing the number of choices being considered B. Integrating and pooling the knowledge of different members of the organization C. Facilitating the use of analytic tools D. All of these

D. All of these

Ryanair's strategic position is as Europe's lowest-cost airline may be attributed to: A. The willingness of its CEO, Michael o leary, to challenge conventional notions of customer and employee satisfaction B. Its use of secondary airports, where costs are lower C. The high operating costs of major airlines such as British Airways, Lufthansa, and Air France--KLM on short-haul routes D. An integrated, consistent set of activities designed to maximize productivity and minimize operating costs.

D. An integrated, consistent set of activities designed to maximize productivity and minimize operating costs.

A conceptualization the firm as an "activity system" is a means of depicting: A. The extent to which a management is motivated to implement a firm's strategy B. The extent to which a firm's resources and capabilities are aligned with its strategic goals C. The extent to which a firm's strategic goals are aligned with its industry environment D. Consistency among a firm's activities

D. Consistency among a firm's activities

Value added can be defined as: a. The difference between sales and expenses b. The difference between the sales value of a firm's output and the cost of physical inputs used to produce that output c. The difference between sales and wages d. The retained profits

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

The Primary Purpose of Strategy Is: To maximize shareholder value To achieve Success To create value for all stakeholders To be a responsible Corporate citizen

To achieve Success

The main value of analytical approaches to strategy formulation is:

To provide understanding of strategic issues

.The core of a firm's business environment is comprised by:[See pg..65-66] a. Its relationships with customers, competitors and suppliers b. Its technological environment c. Its relationships with all stakeholders d. The socioeconomic system within which the firm must exist

a. Its relationships with customers, competitors and suppliers

There are two primary sources of profit (or "economic rent"):[See pg..117-118] a. Market power and superior resources. b. Market power and competitive advantage. c. Competitive advantage and disequilibrium rents. d. Cost advantage and differentiation advantage.

a. Market power and superior resources.

An industry's current profitability:[See p.77] a. On its own tends to be a poor predictor of future profitability b. Is an excellent predictor of its future profitability since changes in industries' profitability occur slowly c. Is the result of many different factors interacting in unpredictable ways d. Is largely set by the profitability of the biggest company within that industry

a. On its own tends to be a poor predictor of future profitability

.The distinguishing attributes of core competences is that:[See p.122] a. They provide a basis for entering new markets and make a disproportionate contribution to the customer value b. They provide a basis for building new technological processes and offer a valuable product or service to a firm's customers c. They are found primarily in Japanese companies such as Honda, Canon, and Sony d. They allow top managers to understand the human resources of their firm and to define and implement a technological strategy

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

The biggest problem in designing a performance management system arises as a result of:[See pg..45-46] a. The tendency for performance management systems to be based entirely on financial targets b. A performance management system needs short-term indicators to monitor performance, yet the ultimate goal is to enhance the long-term performance of the firm c. Performance targets are always ineffective because individuals will "game the system" d. The personal interests of organizational members need to be taken into account

b. A performance management system needs short-term indicators to monitor performance, yet the ultimate goal is to enhance the long-term performance of the firm

Every business enterprise has a distinct purpose, however, common to all businesses is the goal of: a. Making customers satisfied and happy b. Creating value c. Satisfying as many stakeholders as possible d. Maximizing dividend payments to shareholders over the long term.

b. Creating value

Influential scholars such as Milton Friedman, Charles Handy, Michael Porter and CK Prahalad:[See p.49] a. Agree that CSR is an essential "moral imperative" b. Have fundamental disagreements about the justification for CSR c. Believe that the capitalist system would operate better if all firms adopted CSR d. Regard most firms' CSR initiatives as primarily exercises in public relations

b. Have fundamental disagreements about the justification for CSR

Industries where a decline in demand is most likely to cause industry-wide losses tend to have the following characteristics:[See p.73] a. High concentration, lack of product differentiation and scale economies b. High exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs c. High exit barriers, lack of product differentiation, and powerful buyers d. Powerful buyers and suppliers and high exit barriers

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

.Enterprise Resource Planning software (such as that supplied by SAP) is unlikely, on its own, to be source of competitive advantage because:[See p.127] a. It is expensive to install hence its benefits are offset by its costs b. It is available to any firm that wishes to purchase it; hence, it is not scarce c. It needs to be updated periodically, hence it lacks durability d. Its benefits are limited to those activities that require substantial information processing

b. It is available to any firm that wishes to purchase it; hence, it is not scarce

Initiatives to improve an industry's profitability through changing its structure are:[See p.79] a. Only feasible for the dominant player within an industry b. More difficult in fragmented industries than in concentrated industries c. Feasible in any industry that is subject to ruinous price competition d. Always risky because they attract the attention of antitrust authorities

b. More difficult in fragmented industries than in concentrated industries

Business strategy is primarily a quest for: a. Attractive markets b. Profit c. Superior technology d. Motivated and talented personnel

b. Profit

in appraising a firm's profit performance:[See pg..41-42] a. Return on sales is a better indicator than return on invested capital. b. Return on invested capital is a better indicator than return on sales. c. Net margin is a better indicator than operating margin. d. Narrow measures of profit (such as after-tax net income) are better indicators than broad-based measures (such as EBITDA—earnings before interest, tax, depreciation and amortization).

b. Return on invested capital is a better indicator than return on sales

Strategy needs to take account of both the requirements of the firm's external environment and the firm's own resources and capabilities. Resources and capabilities rather than requirements of the external environment offer a stronger basis for strategy formulation when:[See pg..114-115] a. The firm is engaged in the exploitation of natural resources such as petroleum or metal. b. The external environment is in a state of flux. c. When the firm is supplying producer goods rather than consumer goods. d. When the firm is a multinational corporation.

b. The external environment is in a state of flux.

The suppliers of agricultural products tend to lack bargaining power relative to buyers because:[See p.76] a. Farmers tend to be uneducated b. The farming industry tends to be fragmented and supply commodity products c. Agricultural products are essential food products that must be kept at affordable prices d. Most farmers are not forward integrated

b. The farming industry tends to be fragmented and supply commodity products

Firms supplying niche markets are often highly profitable because:[See pg..66-67] a. They tend to supply specialty products for high income consumers b. They tend to be sufficiently small that a single firm can often establish a dominant position c. They tend to be disregarded by major corporations d. They tend to have high entry barriers

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

66.As the competitors in an industry become more diverse in terms of their goals, cost structures, and strategies, it is likely that:[See p.73] a. Their incentives to collude on price increase b. They will compete more fiercely on price c. Their products will become increasingly differentiated d. Mergers, acquisitions and alliances among them will increase

b. They will compete more fiercely on price

Which of the following does not contribute to buyers' bargaining power?[See pg..74-75] a. Low switching costs for buyers b. The size of buyers relative to that of sellers c. A high level of differentiation among the products that buyers purchase d. The ability of buyers to backward integrate

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

To identify a firm's resources and capabilities, it is useful:[See pg..118-123] a. To first identify the key success factors within the firm's industry then identify the resources and capabilities needed to satisfy these success factors. b. Identify the firm's value chain, then identify the main resources and capabilities at each stage of the value chain. c. Both (a) and (b). d. Classify resources into tangible, intangible and human.

c. Both (a) and (b).

The main problem of a company establishing shareholder value creation as its primary performance goal is:[See pg..49-51] a. Shareholder value maximization is appropriate only for financial service companies b. Pursuing shareholder value inevitably leads to unethical behavior by senior managers c. Focusing on shareholder value does not necessarily encourage managers to concentrate on the actions and activities that create the profits that are the source of shareholder value d. Pursuing shareholder value is likely to be detrimental to employee morale and customer satisfaction

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

If an industry earns a return on capital in excess of its cost of capital:[See p.66] a. It will soon attracts the attention of competition authorities b. Workers will push for higher pay and benefits causing the level of profitability to fall c. It will attract the attention of potential entrants and, unless protected by high barriers to entry, the return on capital will fall d. Firms within the industry will over-invest causing the return on capital to fall

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

The resource-based view of firm implies that:[See pg..114-115] a. The boundaries of the firm are determined by the firm's resources rather than by transaction costs b. The resources of the firm are the foundation for its capabilities c. Resources and capabilities are the principal basis for firm strategy and the primary source of profitability d. Ricardian rents are a more important source of firm profitability than monopoly rents Schumpeter

c. Resources and capabilities are the principal basis for firm strategy and the primary source of profitability

in 1990, C.K. Prahalad and Gary Hamel introduced the concept of "core competence." Their argument was that:[See p.116] a. Competence was more important than capability as a basis for sustainable competitive advantage b. Management should build strategy on competences rather than resources c. Strategy should be focused on both exploiting and developing firm's' core competencies d. Competitive advantage rather than industry attractiveness was the primary source of superior profitability

c. Strategy should be focused on both exploiting and developing firm's' core competencies

To assess the adequacy of the return on capital employed (ROCE) that a firm earned in its most recent financial year, which of the following would not be an appropriate benchmark:[See pg..44-45] a. The ROCE earned by the same firm in previous years b. The ROCE earned by competitors during the same period c. The firm's cost of equity capital d. The firm's weighted average cost of capital

c. The firm's cost of equity capital

Intangible resources tend to be more valuable than tangible resources because:[See p.121] a. They are easier to acquire b. They are cheaper to acquire c. They are more likely to provide sustainable competitive advantage d. All of the above

c. They are more likely to provide sustainable competitive advantage

Maximizing enterprise value and maximizing shareholder value are linked because: a. Enterprise value and shareholder value are the same thing b. shareholder value is calculated by adding debt and other non-equity financial claims to the DCF value of the firm c. shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm d. It is obvious that they must be linked

c. shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm

In using accounting ratios to appraise a firm's performance, it is helpful to use:[See pg..42-43] a. Benchmarks b. Trends in these ratios over the past 5 years or more c. Multiple indicators d. All of these

d. All of these

For most business enterprises a market is:[See pg..81-82] a. An abstract concept—from the point of view of competition it is a continuum from a firm's closest competitor towards more distant competitors b. A sociological concept that is defined mainly by convention and institutions c. Geographical concept defined by the location of customers and competitors d. All the above

d. All the above

.The firm's ability to appropriate the rents generated by its organizational capabilities:[See p.129] a. Is guaranteed by the fact that firms have full ownership of their capabilities b. Is greater for firms in high technology than in low technology industries c. Is weakened if a firm uses independent contractors instead of full-time employees d. Depends upon the extent to those capabilities are embedded in team-based process that are heavily dependent upon corporate systems

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

To diagnose the sources of a firm's poor financial performance, it is useful to:[See pg..45-46] a. Focus on the firm's cash flow statement rather than its income statement and balance sheet b. Concentrate on sales growth and market share rather than profit data c. Adopt a forward-looking approach through analyzing share price performance rather than looking at backward-looking accounting statements d. Disaggregate overall return on capital into its component items

d. Disaggregate overall return on capital into its component items

Parallel pricing—the tendency for companies in an industry to move prices more or less simultaneously—is typically an indicator of:[See p.72] a. Healthy price competition b. The sensitivity of the firms in an industry to the unpopularity of price increases c. Lack of product differentiation d. The desire of oligopolists to avoid price competition

d. The desire of oligopolists to avoid price competition

The difficulties faced by Eastman Kodak, Smith Corona. and Olivetti in adapting to radical technological change within their markets point to:[See p.116] a. The short-sightedness of senior managers in recognizing the implications of new technologies. b. The power of digital technology as a force for creative destruction. c. The need for firms to devote more resources to technological forecasting. d. The difficulties established firms experience in building the new capabilities.

d. The difficulties established firms experience in building the new capabilities.

Economic value is created when a. The price that the customer is willing to pay for a product exceeds the costs of the material inputs used to produce the product b. The surplus of value is distributed between customers and producers in the industry by the forces of competition c. The value of a product to consumers exceeds the price they paid for it. d. The price that the customer is willing to pay for a product exceeds the cost of supplying it.

d. The price that the customer is willing to pay for a product exceeds the cost of supplying it.

Strategy improves decision-making by: A. Expanding the range of decision alternatives under consideration B. Ensuring that strategic decisions are restricted to the CEO C. strategy can help decision making by D. All of these

facilitating the range of decision alternatives under consideration

A description of a company's organizational purpose is called a A. Vision Statement B. Mission Statement C. Values Statement D. All of the above

B. Mission Statement

The difference between substitute and complementary products may be summarized as follows:

Substitutes reduce the value of a product, whereas complements increase value

Identifying key success factors within an industry requires answers to the following questions:[See p.82 ]a. What do customers want and what should the firm do to survive competition? b. What is a firm's unique selling proposition? c. Which of the five forces of competition most threaten a firm's survival and how could the firm deal with them? d. What are the main sources of a company's cost efficiency?

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

Firm's with outstanding capabilities are typically those which:[See p.124] a. Possess the best resources. b. Have developed their organizational routines over the longest periods of time. c. Are able to integrate their resources most effectively. d. Have the most effective leaders.

c. Are able to integrate their resources most effectively.

Organizational culture comprises:[See p.122] a. A shared cognitive framework among organizational members b. Senior managers' beliefs and vision c. Shared beliefs, values, assumptions, meanings, myths, rituals, and symbols d. Organizational identity

c. Shared beliefs, values, assumptions, meanings, myths, rituals, and symbols

an organization possesses strengths in a resource or capability that bears little relationship to the industry's key success factors it should:

Seek an innovative approach to making that resource or capability strategically relevant

Which of the following product categories offers the greatest potential for differentiation?[See pg..188-189] a. Clothes and restaurants b. Cement and wheat c. Jet fuel for airline jets d. Sulfur and ethylene

a. Clothes and restaurants

Experience goods" are those which:[See p.194] a. Have performance attributes that are difficult to ascertain at the moment of purchase b. Only customers with previous experience of using these goods would rationally consider purchasing c. Only firms with wide experience in an industry would rationally consider making d. Have been produced by the firm furthest down the learning curve

a. Have performance attributes that are difficult to ascertain at the moment of purchase

What is the difference between differentiation and segmentation?[See p.189] a. There is no difference between the two b. Differentiation deals with the "how" a firm chooses to compete, while segmentation describes "where" in the entire market a firm chooses to compete c. Differentiation is a firm's strategic choice, whereas segmentation is given by its environment d. Segmentation is the head of the marketing department's responsibility, whereas the CEO is in charge of differentiation

b. Differentiation deals with the "how" a firm chooses to compete, while segmentation describes "where" in the entire market a firm chooses to compete

In retailing, the cost advantages of large retail chains (such as Wal-Mart in the US, Tesco in Britain, Metro in Germany, and Carrefour in France) is primarily the result of:[See pg..179-185] a. Scale economies in operating large individual retail units. b. Lower costs of bought-in products as a result of superior bargaining power. c. Higher capacity utilization in retailing and distribution. d. Using superior bargaining power to pay lower wage rates.

b. Lower costs of bought-in products as a result of superior bargaining power.

Hierarchy is a feature of:[See p.151] a. All human societies b. Most complex systems c. Most companies before the digital era d. Authority-based organizations only

b. Most complex systems

The primary mechanisms through which companies translate strategic plans into action are:[See p.143] a. Statements of vision and mission. b. Operating plans and capital expenditure budgets. c. CEO leadership. d. Resolutions by the board of directors.

b. Operating plans and capital expenditure budgets.

The epithet "Great strategy; lousy implementation" is typically wrong because:[See p.141] a. Strategies are typically formulated in the course of their implementation (i.e. they are "emergent") b. Strategies whose formulation does not take account of their potential for implementation are not great strategies c. Both (a) and (b) d. Neither (a) nor (b)

b. Strategies whose formulation does not take account of their potential for implementation are not great strategies

An important role of shared values within an organization is to:[See p.148] a. Increase employee productivity. b. Support cooperation and goal alignment among organizational members. c. Economize on the need for financial incentives. d. Resolve stakeholder conflict

b. Support cooperation and goal alignment among organizational members.

It is important for in incoming CEO to be intimately familiar with the culture of the organization he/she is joining because:[See p.149] a. Culture is a vital lever that the CEO can manipulate b. Top management initiatives that conflict with the culture of the organization are likely to fail c. A critical task for a new CEO is to adapt the organization's culture to the strategy that the CEO wishes to pursue d. The fact that "Culture eats strategy for lunch" means that managing culture is a more important task for a CEO than managing strategy

b. Top management initiatives that conflict with the culture of the organization are likely to fail

Causal ambiguity allows a firm's competitive advantage to be sustained because potential rivals are: a. Deterred from directly competing with the advantaged firm b. Unable to identify the sources of the advantaged firm's superior performance c. Unable to acquire the resources needed to compete against the advantaged firm d. All the above

b. Unable to identify the sources of the advantaged firm's superior performance

.In most large companies strategic planning is:[See p.142] a. Primarily a top-down process b. Primarily a process of managed emergence c. A process that combines top-down initiatives and directives and bottom-up proposals d. A formalized ritual that has little to do with real strategy formulation

c. A process that combines top-down initiatives and directives and bottom-up proposals

Which of the following is not an isolating mechanism?[See p.173] a. Private ownership of a company which means that it is not obliged to publish its financial statements. b. Competitive advantage which is based upon the interaction of a number of different resources and capabilities. c. Competitive advantage based upon exploiting pricing anomalies. d. Competitive advantage based upon resources that are difficult to transfer and slow to replicate.

c. Competitive advantage based upon exploiting pricing anomalies.

According to Porter, cost leadership and differentiation are:[See p.198] a. What leads a firm to "be stuck in the middle" b. Two names for the same fundamental strategy c. Distinct generic strategies d. Strategies that can be pursued simultaneously

c. Distinct generic strategies

Large corporations with matrix structures where control is shared among different organizational dimensions have experienced:[See pg..158-159] a. Benefits from superior coordination b. The need to put primary emphasis upon their regional and country-based organizational units c. Excessive headquarters cost and complexity d. Lower levels of politicization s compared with functional and divisional structures

c. Excessive headquarters cost and complexity

.Jay Galbraith and Ed Lawler's comment that: "Ultimately, there may be no long-term sustainable advantage that the ability to organize and manage" may be justified by:[See p. 139] a. The impact of disruptive technologies in most industries b. The realities of Schumpeterian competition c. The need for firms to continually develop and renew their organizational capabilities d. Of all the most strategically important resources, good managers are the scarcest

c. The need for firms to continually develop and renew their organizational capabilities

The main reason that most entrepreneurial start-up companies adopt a formalized process of strategic planning processes at some stage of their development is:[See p.141] a. To allow quantitative analysis to be applied to strategic decision b. To limit the power of founders c. To facilitate coordination and control as a company grows in size and complexity d. To enable decisions to become focused more on long term development

c. To facilitate coordination and control as a company grows in size and complexity

The pioneers of the multidivisional structure were:[See p.146] a. Ford and General Motors b. Standard Oil and Shell c. Sears Roebuck and General Electric d. DuPont and General Motors

d. DuPont and General Motors

As markets become more turbulent and unpredictable, quick-response capability depends primarily upon:[See p.170] a. Good forecasting b. Early identification of emerging changes c. Speed of response d. Early identification of emerging changes together with speed in responding to them

d. Early identification of emerging changes together with speed in responding to them

A firm's competitive advantage is not necessarily revealed in higher profitability; it may be reflected in:[See p.169] a. Expanding market share b. An aggressive quest for acquisitions c. Increasing employee bonuses d. Expanding market share and/or increasing employee bonuses

d. Expanding market share and/or increasing employee bonuses

The Tata Group, the Virgin Group, and Alphabet Inc. are examples of:[See p.146] a. Multidivisional corporations .b. Adhocracies. c. Line-and-staff organizations. d. Holding companies.

d. Holding companies.

The examples of Ikea and Southwest Airlines demonstrate:[See p.199] a. The power of brand as a factor of success b. The quality of the top management of these firms c. The power of advertising d. How a cost-leadership strategy can be combined with distinctive product differentiation

d. How a cost-leadership strategy can be combined with distinctive product differentiation

During the 1990s, the focus of strategy analysis shifted: A. From corporate planning to strategic management B. To the role of resources and capabilities as a foundation for firm strategy C. To the application of microeconomics to analyze the sources of a firm profitablity D. To the analysis of value-added as the basis for strategic decisions.

B. To the role of resources and capabilities as a foundation for firm strategy

During the 21st century, the complexity of the challenges posed by disruptive, digital technologies and accelerating rates of change has encouraged companies to: A. Shift their strategic focus towards the growth markets of Asia, Africa, and Latin America B. Rejecting shareholder value maximization in favor of maximizing stakeholder interests. C. Depend increasingly upon strategic alliances and other forms of collaboration D. prefer mergers and acquisitions to organic growth

C. Depend increasingly upon strategic alliances and other forms of collaboration

Although firms may pursue a variety of goals, the assumption that primary goal of strategy is to maximize profits over the long term may be justified by:

The external pressures on firms for profitability that arises from (i) strong competition in product markets and (ii) the threat that firms that do not maximize profits will be acquired by forms that do

The difference between a resource and a capability is:[See p.116] a. A resource is a productive asset; a capability refers to what the firm can do b. A resources tend to be immobile assets; capabilities are dynamic c. A resource is a weak source of competitive advantage whereas a capability is a strong one d. A capability is a type of resource

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

Which of the following activities by Starbucks Inc. is least likely to be an example of Michael Porter and Mark Kramer "shared value creation"?[See p.54] a. The 2015 "Race Together" initiative to combat racism and promote racial harmony b. The introduction in 2014 of college tuition benefits to employees c. Participating in the Coffee and Farm Equity program to benefit growers d. Financial and media support for American Red Cross efforts to aid refugees

a. The 2015 "Race Together" initiative to combat racism and promote racial harmony

A bank is establishing a fixed income trading department. It is considering whether to hire a team of star traders or to invest a similar sum of money in developing a proprietary, automated trading system. The most valid reason for investing in the automated trading system in preference to hiring star traders is:[See p.128] a. The proprietary trading system is likely to generate better returns since star traders are in a powerful position to negotiate pay packages which appropriate the major part of the profit they create. b. Advanced software is better than human intuition at identifying mispricing in financial markets. c. Star traders are difficult to manage and can easily become "rogue traders". d. It's difficult to motivate traders once they have earned their first few million.

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

.The main strategic lesson to be drawn from the Biblical story of David and Goliath is:[See p.115] a. The importance of first-mover advantage. b. Adapt strategy to your relative strengths .c. Conventional strategies don't work for newcomers. d. The Israelis usually win.

b. Adapt strategy to your relative strengths

One implication of the resource-based perspective is that:[See pg..115-116] a. Firms tend to adopt similar or close strategies b. By aligning their strategies to their resources and capabilities, firms emphasize their differences rather than their similarities c. Firms focus on building a stronger portfolio of capabilities than their rivals d. Firms focus on reducing their vulnerability by correcting their weaknesses

b. By aligning their strategies to their resources and capabilities, firms emphasize their differences rather than their similarities

To exploit its tangible assets more effectively requires that a firm:[See p.120] a. Economizes on these assets by changing its depreciation policy b. Economizes on underutilized assets and redeploys assets into more profitable uses c. Expands sales in order to ensure they are fully deployed d. Leases assets rather than owning them in order to boost return on capital employed

b. Economizes on underutilized assets and redeploys assets into more profitable uses

Airlines' frequent flyer programs and retailer loyalty schemes are both examples of efforts to:[See pg..78-79] a. Offer disguised price reductions to customers b. Establish product differentiation by measures that reward customer loyalty c. Establish competitive advantage that failed because they could be easily imitated by competitors d. Promote a company's product to new customers

b. Establish product differentiation by measures that reward customer loyalty

Legal requirements that banks, providers of wireless telecommunication services, and taxis must obtain a government issued license before going into business impact the profitability of their respective industries:[See p.71] a. Negatively because governments charge high fees for such licenses b. Positively because they restrict entry to the industry c. Negatively because such licensing is usually accompanied by regulation of prices d. Positively if such licenses can be sold on a secondary market

b. Positively because they restrict entry to the industry

42.To assess whether or not a firm is earning an adequate rate of profit, return on capital employed (ROCE) is a better indicator than return on sales because:[See p.45] a. Sales are more variable than capital employed b. Return on sales varies between industries according to their capital intensity c A firm's return on sales depends upon the choice between gross margin, operating margin, and net margin d. ROCE is based upon cash flow

b. Return on sales varies between industries according to their capital intensity

A major reason why many companies have the high valuation ratios (ratio of stock market value to balance sheet net asset value) is:[See p.121] a. Stock market irrationality which results in some companies becoming overvalued. b. The undervaluation of intangible resources on companies' balance sheets. c. Stock market doubts over the valuation of financial assets by companies and their auditors. d. The rise of intellectual property valuation as a result of recent patent litigation.

b. The undervaluation of intangible resources on companies' balance sheets.

In practice, drawing the boundaries of industries and markets is:[See p.82] a. A matter of the personal preferences of top managers b. Almost impossible to carry out with rigor because it requires many "rules of thumb" and approximations c. Largely a matter of judgment and experience contingent on the purpose of the analysis d. Critical to the output of the analysis and therefore should only be undertaken with the help of an academic or consultant

c. Largely a matter of judgment and experience contingent on the purpose of the analysis

When a company has weaknesses relative to competitors among strategically important resources and capabilities, the appropriate strategic response is to:[See pg..131-132] a. Invest heavy in order to upgrade weaknesses. b. Diversify in order to find new areas of business where these resources and capabilities are unimportant to competitive advantage. c. Outsource those activities where third parties can offer superior capabilities while positioning the business to reduce vulnerable to remaining weaknesses. d. Employ management consultants to seek a solution.

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

In new product development, a "phases and gates" approach means that: a. A firm's market is divided into specific segments (or "phases") linked by "gates" which allow synergies to be exploited b. A firm's product development relies on time segments that must be linked through gates c. The process is divided into consecutive stages, at the end of each a decision is made as to whether to continue to the next stage of development d. The product is divided into separate modules where the interface between them are viewed as gates

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

A well-established brand can be a source of sustainable competitive advantage because:[See p.127] a. Consumers will always pay a premium for a recognized brand. b. Brands can be protected by the law relating to trademarks. c. A brand protects a firm form competition from low-cost new entrants. d. It tends to be durable, loses value when transferred between firms, and is costly to replicate.

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

Economies of scale are a barrier to entry because:[See pg..70-71] a. New entrants are positioned at the top of their learning curve b. New entrants are uncertain about their future costs which discourages then from making investments c. New entrants face a risk of retaliation from the incumbents whose large scale of operation allows them to flood the market d. New entrants face high unit costs either because they enter at suboptimal scale, or they make a large-scale entry that initially operates with substantial excess capacity

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

A market's boundaries are defined by:[See p.81] a. The geographies of the markets that are supplied by the incumbents b. The type of product which is sold, and the type of customers willing to pay for the product c. Price homogeneity—within the confines of a market, a single price rules d. Substitutability on both the demand side and the supply side

d. Substitutability on both the demand side and the supply side

69.Bargaining power rests, ultimately, on:[See p.75] a. The negotiating skills of the buyer versus the seller b. Tradition c. The respective effectiveness and cohesion of top management teams d. The relative costs that each party would incur from walking away from the deal

d. The relative costs that each party would incur from walking away from the deal

The most useful approach to forecasting industry profitability in the future is:[See p.77] a. To estimate the industry's revenues and costs in future years b. To use an industry's probability at similar stages of the business cycle in the past as an indicator of future profitability c. To extrapolate the trend of industry profitability into the future d. To understand how the industry's structure has determined competitive intensity and profitability in the past, then to use information on an industry's changing structure to predict how profitability is likely to change in the future

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