Integrated Business Policy & Strategy Midterm

The first step to gain and sustain a competitive advantage is to

define a firm's vision, mission, and values.

How is differentiation parity different from cost parity?

Differentiation parity deals with value not cost.

What does it mean for a firm to have an 80 percent learning curve?

Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

A SWOT analysis would provide a definitive answer as to whether a firm's growing footprint in overseas markets is a strength or weakness.

False

Amazon's tendency to reinvest a large share of its profits into new services and capabilities exemplifies a low level of resource flows.

False

Social entrepreneurs forego the pursuit of profits to achieve social and environmental goals.

False

Strategic leaders spend the majority of their time working alone to devise new strategies.

False

_____ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.

Isolating mechanisms

Which of the following best exemplifies social complexity as an isolating mechanism?

Kristin's Cosmetics attempted to imitate how Monica's Makeup combined its management and product development systems with little success.

How did Marriott use economies of scope to achieve greater economic value than its competitors?

Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.

_____ are best described as the value of the best forgone alternative use of the resources employed.

Opportunity costs

Zoom Zoom Car Rental follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor?

Reliable Rental Cars, which follows a low-cost strategy

Which of the following statements accurately describes a firm's resource stock?

Resource stocks are a firm's current level of intangible resources.

Which of the following statements is true of strategic initiatives?

Strategic initiatives can be the result of a response to external trends or come from internal sources.

In which of the following situations is the power of suppliers high in an industry?

Suppliers' industry is more concentrated than the industry it sells to.

Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?

The weaker firms are forced out of the industry in this stage.

How do strong ethical values benefit a firm?

They serve as the guardrails put in place to keep the company on track when pursuing its mission

A mission describes how a firm will accomplish the broad goals set out in a vision statement.

True

Which of the following best qualifies as a firm's internal stakeholder?

a manager taking care of the firm's operations in a foreign market

The balanced-scorecard can accommodate

both short- and long-term performance metrics.

In an industry, the threat of entry is high when

capital requirements are low.

When a firm pursues a maintain strategy, it

continues to support marketing efforts even if the demand for the product is declining.

A resource-based view of a firm provides a model that systematically aids in identifying

core competencies.

In a focused cost-leadership strategy, a firm

delivers low-cost products and services to a specific, narrow part of the market.

Companies in the same strategic group are _____ to each other.

direct competitors

The interaction between a firm and its diverse internal and external stakeholders is best described as a(n)

exchange relationship.

The best example of a firm's external stakeholder is a(n)

government agency that regulates the prices of products manufactured by the firm.

A new product often has a high price when it is launched because of a

large investment in designing a product while producing small quantities.

Strategic commitments are actions that are

long-term oriented.

A firm's resistance to changes in the status quo is referred to as

organizational inertia.

The ratio Cost of goods sold/Revenue indicates how efficiently a company can

produce a good.

Due to resource immobility, a critical assumption in the resource-based model of a firm, the

resource differences between firms last for a long time.

A customer-oriented vision statement focuses employees to think about how best to

solve a problem for a consumer.

The key objective for firms during the growth phase is to

stake out a strong strategic position not easily imitated by rivals.

Return on risk capital primarily includes

stock price appreciation plus dividends received over a specific period.

A traditional top-down strategic planning process typically begins with

strategic leaders adjusting a company's vision and mission based on environmental analysis.

Strategic thinking is different from strategic planning in that

strategic thinking includes all types of information sources while strategic planning does not.

When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as

stuck in the middle.

Which of the following external forces is a part of a firm's task environment?

the composition of the strategic group to which the firm belongs

Which of the following best describes a strategic trade-off?

the tension between value creation and the pressure to keep costs in check

When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger?

the threat of substitutes

_____ is best described as a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

Strategy

The typical four-step innovation process begins with

the presentation of an idea as findings derived from basic research

What is an invention?

the transformation of an idea into a new product or process

For-profit businesses operating in long-standing fields such as energy and transportation usually operate in an environment of price stability.

False

High demand for online video streaming options is one of Netflix's core competencies.

False

Intellectual property (IP) protections such as trademarks or patents are proven methods of establishing permanent barriers to imitation.

False

It is helpful to break down strategy formulation and strategy implementation into five distinct areas.

False

Once a firm chooses a business model, it must stick with it for the life of the firm.

False

Once a strategy has been formulated and implemented, it is important that the firm sticks to it no matter what happens

False

The goal of the differentiator is to have a smaller value gap than competitors.

False

The pace of innovation has slowed in the 21st century.

False

The three tasks of the AFI strategy framework are to Assemble a prototype, Find a buyer, and Incorporate feedback.

False

How do low interest rates affect a business?

Firms can easily borrow money to finance future growth

Which of the following statements with regard to industry structures is true?

A consolidated industry tends to be more profitable than a fragmented one.

Which of the following statements is true of corporate strategy?

A corporate strategy must be able to create synergies across business units that are quite different.

At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $70. Once the cumulative output doubled, the cost per unit reduced to $63. All other factors remaining constant, the firm has been able to achieve a(n)

90 percent learning curve.

Which of the following is a drawback of the SWOT analysis?

A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat.

Which of the following summarizes the difference between a firm's vision and mission?

A vision states what a firm wants to accomplish; a mission states how a firm plans to accomplish this vision.

A firm will always see its stock price appreciate when it demonstrates measurable growth.

False

A good strategy is a set of actions that enables a firm to achieve its own internal goals without regard to the external environment.

False

A manager's only responsibility is to monitor and assess the performance of his or her firm.

False

Because they are a crucial component of a firm's success, customers are considered internal stakeholders.

False

Competitive advantage goes to the firm that maximizes the difference between the cost of producing a good and the retail price that consumers pay.

False

Which of the following businesses is most likely to disrupt an existing industry?

Closer Connex developed an earphone that receives emails and text messages and converts them to voice messages. The first models had poor reception, but they rapidly improved over time.

Which of the following statements is true of customer-oriented visions?

Customer-oriented vision statements are not the same as listening to your customer.

Differentiation and cost leadership strategies are only effective in manufacturing industries.

False

Firms within the same industry automatically belong to the same strategic group.

False

_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.

Economic value created

A company's total asset base consists of its current assets plus plant, property, and equipment (PPE).

False

A cost leader is the firm most likely to survive a price war.

False

Which of the following expressions accurately describes market cap?

It is the product of the number of outstanding shares and the share price.

How does causal ambiguity act as an isolating mechanism for organizations?

It makes it difficult for the competitors to understand why a company has been so successful.

What must a cost-leadership strategy accomplish to be successful?

It must reduce the firm's cost below that of its competitors while offering adequate value.

Which of the following is a disadvantage of the balanced-scorecard approach?

It provides limited guidance about which metrics to choose.

Which of the following best explains why a blue ocean strategy is difficult to implement?

It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.

Which of the following is an implication of high employee turnover in a company?

It results in a reduction in the company's intangible-resource stocks.

Which of the following is a primary feature of the five forces model?

It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.

Which of the following is a drawback of Porter's five forces model?

Managers cannot determine the changing speed of an industry or the rate of innovation.

How is a firm's task environment different from its general environment?

Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment.

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

PESTEL framework

_____ describes a process in which the options one faces in a current situation are limited by decisions made in the past

Path dependence

Which of the following businesses is most susceptible to negative network effects?

Pics Match is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.

Which of the following statements is true about strategic groups?

Profitability varies between different strategic groups.

_____ precisely indicates how much of a firm's sales is converted into profits.

Return on revenue

What is the strategic management process?

Strategic leaders design a method to formulate and implement strategy.

Which of the following statements accurately brings out the difference between tangible and intangible resources?

Tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased.

Which of the following is an advantage of a triple-bottom-line approach?

The approach takes an integrative and holistic view in assessing a company's performance.

Which of the following is a feature of the growth stage of the industry life cycle?

The consumer demand increases.

Which of the conditions prevail when an industry is at the end of its life cycle?

The level of process innovation reaches its maximum as firms attempt to lower cost.

Which of the following applies to the Strength-Threats quadrant of the SWOT matrix?

The local fast-food chain Easy Hot Dogs used its wholesome image to maintain its competitive advantage against stiff competition.

Which of the following is likely to happen due to horizontal mergers between competitors such as Delta and Northwest airlines?

The overall industry profitability will increase.

Which of the following statements about product-oriented visions is true?

They tend to force managers to take a myopic view of the competitive landscape.

Which of the following statements is true of the early majority section of consumers?

They weigh the benefits and costs carefully when adopting a new product.

How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces?

Threat of new entrants will be low.

Which of the following provides an example of how a firm's valuable resource can be imitated?

To compete with Build Your Own's model of the Eiffel Tower, Best Replica came out with a model of the Leaning Tower of Pisa.

A company that owns failing movie theaters could leverage existing assets by turning the buildings into performance spaces and conference sites.

True

A vision describes in broad, inspirational terms what an organization hopes to accomplish in the future.

True

An employee lacking some of the innate abilities to be a top-level manager can still become an effective strategic leader through hard work and experience.

True

Differentiators tend to score highly on most competitive elements on a strategy canvas, while cost leaders tend to hover near the bottom of the strategy canvas.

True

For ideas and inventions to be innovative, they must first be commercialized.

True

The core competencies of a firm are determined by the interplay of its tangible resources and intangible capabilities.

True

Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?

Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision rather than technology concerns.

_____ denotes the dollar amount a consumer would attach to a good or service.

Value

Which of the following is an assumption that top-down strategic planning rests on?

We can predict the future from the past.

Which of the following examples uses a focused differentiation strategy?

a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle

Which of the following scenarios illustrates a firm that has a sustainable competitive advantage?

Zhang Corp. was able to hold its market share of 68 percent in the social networking industry for more than three years.

Which of the following strategies best illustrates a generic business strategy?

a decision to niche market the jewelry sold by a company while the apparel division under the same company sells its products through mass marketing

In the context of SWOT analysis, which of the following best exemplifies a firm's external opportunity?

an increase in its customers' disposable income

A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

business-level strategy

How has Apple been able to sustain its competitive advantage in the smartphone industry?

by regularly introducing incremental improvements in its products

Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as

capabilities.

In an economic context, strategy for producers is primarily about

capturing the economic value created as much as possible.

In the top-down strategic planning approach, all strategic intelligence and decision-making responsibilities rest primarily on the

chief executive officer.

A firm that achieves superior performance relative to other firms in the same industry or the industry average has a(n)

competitive advantage.

Economic value creation is best expressed as

consumer surplus plus firm profit.

Which of the following competitively important assets is typically excluded from a firm's balance sheet?

customer experience

In the final step of the stakeholder impact analysis, a firm

decides a course of action to address the stakeholders' concerns.

In the context of SWOT analysis, which of the following best exemplifies a firm's internal weakness?

decline in the firm's market share

In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

demographic trends

A(n) _____ leverages new technologies to attack existing markets.

disruptive innovation

The customers entering the market in the growth stage are primarily

early adopters.

In the pyramid of corporate social responsibility, _____ responsibilities are the foundational building block.

economic

To support the rise of emergent strategies, an organization should

empower lower-level employees to take up autonomous actions.

The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms.

experience curve

A differentiation strategy works best when a

firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the

firm will have a sustained competitive advantage because of its unique resources that are difficult for others to replicate that are difficult for others to replicate.

A strategic group will typically include

firms within the same industry.

To implement specific business strategies, general managers of strategic business units rely on

functional managers.

Trader Joe's successfully used a blue ocean strategy by offering lower cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to

gain a market share and make up the loss in margin through increased sales

Intel's Celeron chip and Atom chip are initiatives to

guard the company against disruptive innovation by protecting the low end of the market.

As a part of strategy formulation, a firm's functional strategy primarily concerns questions relating to

how to implement business strategy.

After a firm has identified its key stakeholders in stakeholder impact analysis, the immediate next step is to

identify stakeholders' interests and claims.

The first step in stakeholder impact analysis involves

identifying the stakeholders that currently have, or potentially can have, a material effect on a company.

The four-step innovation process ends with

imitation

A factor favoring the success of disruptive innovation is that

incumbent firms are slow to change.

According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?

innovation that allows competitors to emerge with more economical replacements

General Electric (GE) disrupted itself in the healthcare industry by

introducing inexpensive and smaller diagnostic devices in developing countries

Economies of scale are cost advantages that accrue for firms with

larger output.

Competitive advantage goes to the firm that achieves the

largest economic value created.

Value drivers contribute to a firm's competitive advantage only if

the increase in value creation exceeds the increase in costs.

According to the value chain analysis, which of the following is a primary activity?

marketing and sales

Combining economies of learning with the existing production technology allows a firm to

move down a given learning curve.

In a radical innovation, a firm targets

new markets by using new technologies.

A blue ocean strategy differs from a low-cost strategy in that

the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.

The primary goal of a firm pursuing a blue ocean strategy should be to

offer a differentiated product or service at a low cost.

Which of the following is typically an economic responsibility of a firm?

paying adequate returns to the firm's stockholders on the capital invested by them

The competitive advantage that one firm has will be short-lived in an industry in which

perfect competition exists.

A firm's business strategy can lead to a competitive advantage if it allows the firm to

perform different activities than its rivals.

Competitive rivalry based solely on _____ is destructive to firms as it transfers most of the value created in the industry to the customers

price-cutting

A firm is said to gain a competitive advantage when it can

provide products similar to its competitors, but at lower prices.

Jake's Taxi Service is a new entrant to the taxi industry. It has achieved success by staking out a unique position in the industry. How did Jake's Taxi Service mostly likely achieve this position?

providing long-distance cab fares at a lower rate than competitors; servicing the same area as competitors

Incumbent firms favor incremental innovation over radical innovation because

radical innovation will disturb the existing power distribution within the firms.

Brain Boost Inc. is a leading educational toy company. Competitors across the globe have failed to imitate Brain Boost's production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Brain Boost Inc. for a long time. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate?

resource immobility

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the

return on risk capital.

_____ are the legal owners of public companies.

shareholders

Dynamic capabilities are especially relevant for surviving and competing in markets that

shift quickly.

If a company wants to gain a competitive advantage in a highly competitive industry, it should ideally

stake out a unique position within the industry.

A _____ is best described as any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures.

strategic initiative

According to AFI strategy framework, in which of the following tasks of strategic management is a firm's vision, mission, and values identified?

strategy analysis

Which of the following stages of the strategic management process involves an evaluation of a firm's external and internal environments?

strategy analysis

In _____, a firm frames a guiding policy to address the competitive challenge.

strategy formulation

Through _____, a firm puts its guiding policy into practice by employing a set of coherent actions.

strategy implementation

A high percentage of R&D/Revenue ratio indicates a(n)

strong focus on innovation to improve current products and services.

In a large company, who is most responsible for devising the corporate strategy?

the CEO of the company

Due to economic regression in Freedonia, the profitability of the large corporation Happiness Products Inc. (HPI) was poor. An analysis of the company's business showed that the company could become profitable if it divested a few strategic business units under its banner. From which of the following businesses would HPI find it most easy to exit?

the e-commerce retail business, where investments on assets are low

A firm's strategic position is likely to be strong when

the gap between the value the firm's product generates and the cost to produce it is large.

Visionary companies are able to outperform their competitors because

they provide more aspirational visions.

Which of the following is a customer-oriented vision?

to enable businesses to improve their employee communications

During the process of formulating an effective business model, a firm's managers should first

transform their strategy of how to compete into a blueprint of actions and initiatives.

During strategy implementation, managers primarily focus on deciding the

type of corporate governance that is most effective and ways in which it can put the formulated strategy into practice.

The primary objective of Porter's five forces model is to

understand the profit potential of industries.

A defining characteristic of the subscription-based business model is that the

user pays for access to a product or service whether he or she uses it during the payment term or not.

A defining characteristic of the pay-as-you-go business model is that the

users pay for only the services they consume

Product features, customer service, and complements are all examples of important

value drivers.