Chapter 5: Competitive Advantage, Firm Performance, and Business Models
the Luminarium Corporation has a market capitalization of $100,000,000 and each share is worth $100. How many outstanding shares of Luminarium Corporation are there?
1,000,000
The difference between the cost of producing a product and the price consumers are willing to pay for that product is known as
economic value created
When a company operates on a freemium model, premium services cost money but basic services are
free
The acronym SG&A stands for sales, general, and ___________ expenses.
administrative
The consumer is willing to pay for a product is equivalent to the product's
total perceived consumer benefits
The most a consumer is willing to pay for a product is equivalent to the product's
total perceived consumer benefits
Opportunity costs refer to the value of what could have been gained had a person pursued
an alternative use of their resources
When a person decides to quit their job and start a company, the salary they give up at their former job can be considered
an opportunity cost
In order to ensure that a firm is implementing the triple-bottom-line approach successfully, managers must
audit the company's results in fulfilling its social and ecological obligations
Which of the following frameworks provide a relatively holistic perspective on firm performance?
balanced scorecard and triple bottom line
With a(n) __________ firms describe how they turn stratgey into action.
business model
Amazon disrupted the traditional wholesale model for book publishers how?
by selling e-books for its e-reader at a loss to promote sales of the e-reader.
Benchmarks are useful in determining a firm's
competitive advantage
Answering the Balanced Scorecard question of "how we create value?" challenges managers to develop strategic objectives that ensure future
competitiveness, innovation and organizational learning
When implementing the razor-razorblade strategy, copmanies make their profit from
complementary goods
A firm's actual __________ of assets minus depreciation is called the book value
costs
Not everything that can be counted counts. Not everything that __________ can be ___________.
counts, counted
What would be labeled variable costs by a computer manufacturer?
display screens, microprocessors, hard drives, and keyboards.
The acronym BHAG stands for
Big hairy audacious goal
To determine how efficiently a company can produce a good, managers look to the
COGS/Revenue ratio
When a user values two products equally, they are negatively correlated.
False
At 3M one strategic objective that has been implemented is that 30% of revenues must be obtained from new product innovations. This is an objective that would rise as an answer to which of the following balanced score questions.
How do we create value
When a firm tries to meet the prices of its competitors, it typically sacrifices?
Profitability per unit.
When one wants to further explore the difference in return on revenue (ROR) for two competitors, one can look at which of the following ratios?
SG&A, COGS/revenue and R&D expense/revenue
When a trade occurs, the consumer and producer both capture?
Some of the economic value
which of the Market index would provide the best benchmark of a computer firm's performance relative to other high-tech firms?
The NASDAQ computer index
What correctly describes the information used for comparing the performance of public companies based on accounting profitability?
The information is filed in a 10-K report, the relative performance is evaluated using standardized financial reports, and the information is derived from such data as income statements and balance sheets
What is best illustrated by the decade-long business rivalry between technology giants Apple and Microsoft?
a firm's competitive advantage is transitory
What elements of the social dimension are of the triple bottom line?
human sustainability and achieving work/life balance
A balanced scorecard is a tool for strategy
implementation
Fixed costs are __________ consumer demand
independent of
What is true about a sustainable strategy for a business?
it is a strategy that can be pursued over time without harmful effects on people or the environment.
What industries use subscription services?
magazines, cellphone and internet providers
For a balanced scorecard to be effective, managers must
manage objectives according to the balanced-scorecard approach, formulate an effective strategy for achieving and competitive advantage and translate their strategy into measurable objectives.
Since about the year 2000, assets not captured in firms' accounting data have become ___________ to a firm's competitive advantage.
much more important
A balanced scorecard offers both common financial metrics and a variety of __________ on customer satisfaction, internal processes, and the company's innovation and improvement activities.
operational measures
When a firm does favorably, compared to similar firms, it is said to
outperform
In order to be considered a legal owner of a public company, a person or organization must
own at least one share of the company's stock
Because external factors create volatility in stock prices, a better measure of a firm's performance over the long term is the
total return to shareholders
Wholesaling is considered a ___________ model for retail.
traditional
The freemium business model can be considered an evolutionary variation on the razor-razor-blade model.
true
Another name for producer surplus is ___________
profit
To determine a product's producer surplus, what two things must be compared?
1. Cost of Production 2. Price charged
What are among the standard dimensions for measuring competitive advantage?
economic value, shareholder value, and accounting profitability
According to the efficient market hypothesis, information about what 3 things is embedded in a stock price?
firm's past, current state, and expected future performance
A company's stock price increases if the company
grows faster than expected
What are the standard performance dimensions for a company?
how much economic value a firm generates, how much shareholder value a firm creates and the firm's accounting profitability
Which of the following performance dimensions matter in judging the effectiveness of a firm's strategy?
quantitative and qualitative
The subjectively determined maximum amount a customer would pay for a product is its ___________ price.
reservation
Which of the following are among the most commonly used metric for comparing the performance of different companies?
return on equity, assets and revenue
The money a shareholder spends for inequity share in a company is known as __________ capital
risk
From the view of a shareholder, the measure of competitive advantage that matters most is return on
risk capital
A company's total return to shareholders consists of which of the following?
stock price appreciation, and dividends
Economic value creation is calculated as
the sum of consumer and producer surplus
When managers analyze a wide variety of international and external performance metrics in order to balance financial and strategic goals, they often turn to a framework known as
the balanced scorecard
Achieving competitive advantage means maximizing the difference between
the consumers' willingness to pay and the cost to produce the good or service
What statement about the disadvantages of the value creation perspective is not correct?
the meaning of value creation differs between services and products
Economic value created is the ___________ the cost to produce a product/service and the amount the buy is willing to pay for it.
difference between
A firm pursuing a successful __________ strategy will have a competitive advantage over a competitor that creates a product at an equal cost but with a lower reservation price.
differentiation