Innovation CH 7

Based on C. K. Prahalad and G. Hamel's visualization of a firm's core competence, arrange the organizational entities that develop from the core competencies of a firm in the correct order of occurrence

1. Core Products 2. Business units 3. End products

To qualitatively assess potential projects, a firm uses the Q-sort method, which involves a group of individuals. Arrange the steps involved in this method in the correct order of occurrence. (Place the first step at the top.)

1. Individuals in a group are each given a stack of cards with an object or idea on each card. In the case of new product development, each card could identify a potential project. 2. Then a series of project selection criteria are presented (e.g., technical feasibility, market impact, fit with strategic intent), and for each criterion, 3. the individuals sort their cards in rank order (e.g., best fit with strategic intent) or in categories (e.g., technically feasible versus infeasible) according to that criterion. 4. Individuals then compare their rank orderings and use these comparisons to structure a debate about the projects. 5. After several rounds of sorting and debating, the group is expected to arrive at a consensus about the best projects.20

Which of the following situations leads to an increase in the bargaining power of suppliers in an industry?

A supplier threatens to forward vertically integrate into a firm's business.

Match the types of abilities that are often combined by a firm's core competencies with their examples.

Abilities in managing the market interface matches Advertising and distribution Abilities in building and managing an effective infrastructure matches Information systems and logistics management Technological abilities matches Applied science and process design

In an organizational context, match the types of development projects that commonly appear on a project map (in the left column) with their descriptions (in the right column).

Advanced research and development (R&D) projects matches Choice, They are required to develop cutting-edge strategic technologies and are the precursor to commercial development projects. They are required to develop cutting-edge strategic technologies and are the precursor to commercial development projects. Breakthrough projects matches Choice, They involve development of products that include revolutionary new product and process technologies. They involve development of products that include revolutionary new product and process technologies. Platform projects matches Choice, They generally provide fundamental improvements in the cost, quality, and performance of a technology over preceding generations. They generally provide fundamental improvements in the cost, quality, and performance of a technology over preceding generations. Derivative projects matches Choice, They involve incremental changes in processes and/or products. They involve incremental changes in processes and/or products.

Match the approaches to Michael Porter's five-force model of analyzing firms' external environment (in the left column) with their descriptions (in the right column).

Assessing the attractiveness of the line of business matches Choice, The analysis concentrates on the industry level, treating all competitors as roughly the same. Assessing a particular organization's external environment matches Choice, The analysis may take the view of a specific firm, often identifying ways in which the forces outside the firm differentially affect the firm vis-à-vis its competitors.

A firm expects the cash inflows from a development project in perpetuity. Which of the following formulas can the firm use to calculate the perpetuity present value of C dollars per period with discount rate r?

C × 1r

Which of the following is the formula used for calculating the annuity present value of the cash inflows from a development project? C stands for dollars per period, t stands for periods, and r stands for discount rate.

C × 1−{1(1+r)t}r

Backward vertical integration

Choice, Getting into the business of one's suppliers Getting into the business of one's suppliers

A strategic stakeholder analysis

Choice, It places emphasis on the stakeholder management issues that are likely to impact the firm's financial performance. It places emphasis on the stakeholder management issues that are likely to impact the firm's financial performance.

A normative stakeholder analysis

Choice, It places emphasis on the stakeholder management issues the firm ought to attend to due to their ethical or moral implications. It places emphasis on the stakeholder management issues the firm ought to attend to due to their ethical or moral implications.

The firm faces switching costs to work with other buyers.

Choice, The buyer's bargaining power will be increased. The buyer's bargaining power will be increased.

The buyer faces switching costs.

Choice, The buyer's bargaining power will be reduced. The buyer's bargaining power will be reduced.

A supplier's sales constitute a large portion of a firm's purchases.

Choice, The firm will be heavily dependent on the supplier, and the supplier will have more bargaining power. The firm will be heavily dependent on the supplier, and the supplier will have more bargaining power.

A firm's purchases constitute the bulk of a supplier's sales.

Choice, The supplier will be heavily dependent on the firm, and the supplier will have little bargaining power. The supplier will be heavily dependent on the firm, and the supplier will have little bargaining power.

True or false: The threat of substitution of a product or service is inversely proportional to the potential of the available substitutes.

False

Support Activities

Firm infrastructure, procurement, human resource management, and technology development

Forward vertical integration

Getting into the business of one's buyers

Customer perspective.

Goals might be to "improve customer loyalty," "offer best-in-class customer service," or "increase customer satisfaction." Measures might include market share, percentage of repeat purchases, customer satisfaction surveys, and so on.

Innovation and learning perspective

Goals might include such things as "accelerate and improve new product development" or "improve employee skills." Measures might include the percentage of sales from products developed within the past five years, average length of the new product development cycle, or employee training targets.

financial perspective

Goals might include such things as "meet shareholder's expectations" or "double our corporate value in seven years." Measures might include return on capital, net cash flow, and earnings growth.

Internal perspective

Goals might include such things as "reduce internal safety incidents," "build best-in-class franchise teams," or "improve inventory management." Measures might include the number of safety incidents per month, franchise quality ratings, stockout rates, and inventory costs

In the context of Michael Porter's model of a value chain, match the primary activities of a value chain (in the left column) with their descriptions (in the right column).

Inbound logistics matches Choice, All activities needed to receive, store, and disseminate inputs All activities needed to receive, store, and disseminate inputs Operations matches Choice, Activities that are part of the transformation of inputs into outputs Activities that are part of the transformation of inputs into outputs Outbound logistics matches Choice, Activities needed to collect, store, and distribute outputs Activities needed to collect, store, and distribute outputs Marketing and sales matches Choice, Activities to let buyers know about products and services and to induce their purchase Activities to let buyers know about products and services and to induce their purchase Service matches Choice, After-sales activities needed to keep products or services working effectively After-sales activities needed to keep products or services working effectively

primary activities

Inbound logistics, outbound logistics, operations, marketing, and service

Identify the true statements about internal rate of return (IRR)

It is normally calculated as the discount rate that makes the net present value of an investment equal zero. It asks, "Given a particular level of expenditure and particular level(s) and rate of cash inflows, what rate of return does this project yield?"

Which of the following statements are true about a firm's strategic intent?

It typically draws from all levels of the firm. It builds upon and extends the firm's existing core competencies.

In the context of the qualitative assessment of a firm's potential projects, identify a true statement about data envelopment analysis (DEA).

Its biggest advantage is that it allows comparisons of projects using multiple kinds of measures.

The initial investment for a firm's development project is $3,000. The accumulated discounted cash flows from the project are $900 for the first year, $1,900 for the second year, $2,500 for the third year, and $3,300 for the fourth year. Based on the given data, calculate the approximate discounted payback period.

Just over three years and seven months

In declining industries, high exit barriers can strengthen rivalry by making firms reluctant to abandon the industry. Which of the following are examples of exit barriers?

Large fixed-asset investments Emotional commitment to the industry

In the context of the threat of potential entrants to an industry, which of the following are examples of entry barriers?

Large start-up costs Brand loyalty and government regulation

In the context of the qualitative assessment of a firm's potential projects, which of the following is a simple method for ranking objects or ideas on a number of different dimensions?

Q-sort

During the qualitative assessment of a firm's potential project, a management team can develop screening questions to structure the discussion of the project's potential costs and benefits. Drag and drop the categories of such screening questions (in the left column) against their corresponding examples (in the right column). Instructions

Role of customers->Will the product need installation or assembly? Role of capabilities->matches Choice, Should the firm attempt to form a collaboration with a potential competitor? Project timing and cost matches Choice, Are there already suitable distribution channels and suppliers?

_____ are goods or services that are not viewed as competitors, but fulfill a strategically equivalent role for the customer.

Substitutes

In the context of a firm's sustainable competitive advantage, match the characteristics of the firm's resources that make the resources extremely difficult to imitate with their descriptions

Tacit matches Choice, The resources cannot be easily codified in written form. Path dependent matches Choice, The resources rely on a particular historical sequence of events. Socially complex matches Choice, The resources arise through the complicated interaction of multiple people. Causally ambiguous matches Choice, The way in which the resources give rise to value is uncertain.

Match the situations related to a firm or a buyer (in the left column) with their effects on the buyer's bargaining power (in the right column).

The buyer can threaten to backward vertically integrate. matches Choice, The buyer's bargaining power will be increased. The firm can threaten to forward vertically integrate. matches Choice, The buyer's bargaining power will be reduced.

Efficiency Frontier

The qualitative method of data envelopment analysis (DEA) uses linear programming to combine different measures from a firm's projects to create a range of hypothetical configurations that optimize a combination of features.

Identify the requirements for a firm's resources to be a potential source of sustainable competitive advantage.

The resources should be durable. The resources should be rare. The resources should be valuable and inimitable.

Identify the true statements about quantitative methods used for analyzing potential innovation projects.

They offer the possibility of making the returns of a project seem unambiguous. They can explicitly consider the timing of cash flows and investment.

Identify the true statements about the core competencies of a firm

They refer to those aspects that differentiate the firm strategically. They rely on building high-quality relationships across different functions and business units of the firm.

core competencies

They rely on building high-quality relationships across different functions and business units of the firm. They refer to those aspects that differentiate the firm strategically.

True or false: In real options, the assets underlying the value of a stock option are financial resources of a firm.

This is false. In real options, the assets underlying the value of a stock option are nonfinancial resources. Some managers and scholars have begun arguing that new product development decisions should be evaluated as real options.

The threats and opportunities posed by an industry are influenced by the availability, quality, and price of complements.

This is true. The availability, quality, and price of complements will influence the threats and opportunities posed by an industry. It is important to consider how important complements are in the industry, whether complements are differentially available for the products of various rivals (impacting the attractiveness of their goods), and who captures the value offered by the complements.

A firm's dynamic capabilities enable it to quickly adapt to major technological discontinuities or emerging markets.

True

Articulating a firm's strategic intent allows the firm to concentrate its development efforts and pick the investments necessary to develop strategic technologies and include them in the firm's new products.

True

marketing and sales

activities associated with purchases of products and services by end users and the inducements used to get them to make purchases

service

after sales activities required to keep the product or service working effectively

In an organizational context, the allocation of a finite quantity of resources over different possible uses is known as _____.

capital rationing

outbound logistics

collecting, storing, and physically distributing the products to buyers

Products or services that enhance the usefulness or desirability of another product are known as _____.

complements

In the context of assessing a firm's current position, Michael Porter's five-force model was originally developed to _____.

evaluate industry attractiveness

In the context of the qualitative assessment of a firm's potential projects, the most common use of conjoint analysis is to _____.

examine the relative importance to customers of different product attributes

In the context of a company's core competence, C. K. Prahalad and G. Hamel state that _____.

few companies are likely to be leaders in more than five or six core competencies

In the context of the quantitative methods used for analyzing potential innovation projects, Professor Freek Vermeulen states that one of the most common mistakes managers make in their innovation strategy is to _____.

insist on "seeing the numbers," i.e., the returns of innovation

Conjoint Analysis

is a family of techniques (including discrete choice, choice modeling, hierarchical choice, trade-off matrices, and pairwise comparisons) used to estimate the specific value individuals place on some attribute of a choice, such as the relative value of features of a product or the relative importance of different outcomes of a development project.

inbound logistics

receiving, storing, and disseminating inputs to the products

operations

the activities and processes used in making both tangible and intangible products

Internal Rate of Return (IRR)

the discount rate that makes the NPV of an investment zero

Discounted Payback Period

the length of time required for an investment's discounted cash flows to equal its initial cost

Net Present Value (NPV)

the sum of the present values of expected future cash flows from an investment, minus the cost of that investment. NPV = Present value of cash inflow − Present value of cash outflows