MGT 247 Exam 2

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage (Valuable, Rare, Inimitable & Non-substitutable, Organized)

Generic Strategies

Cost leadership, Focused cost leadership, Differentiation, Focused differentiation

Cost Advantage

Decreasing Cost (C) while willingness to pay (V) comparable to competitors Usually, firms translate this advantage to profits by charging lower prices

Consumption Chain

How do consumers find your offering? How do customers order and purchase your product? How is your product delivered? How is your product installed? How is your product stored? How is your product moved around? What do customers need help with when they use your product? What about returns and exchange? How is it repaired? What happens when your product is no longer used?

Dual or Integrated Advantage

Increasing WTP (V) and decreasing cost (C) comparable to competitors

Differentiation Advantage

Increasing willingness to pay (V) while keeping cost (C) comparable to competitors Usually, firms translate this advantage to profits by charging higher prices

_____ describes a process in which the options one faces in a current situation are limited by decisions made in the past. A. Social complexity B. Path dependence C. Cannibalization D. Causal ambiguity

Path dependence

Common business models

Razor-razorblades Subscription Pay as you go Freemium Wholesale Agency Bundling

Resource heterogeneity

Resources and capabilities vary across firms

Resource immobility

Some resources don't easily move across firms

When examining all the generic strategies, which of the following below is inherently superior in every industry? A. broad differentiation B. focused differentiation C. blue ocean D. There is no single superior business-level strategy.

There is no single superior business-level strategy.

_______, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period. A. Total return to shareholders B. Earnings per share C. Receivables turnover D. Dividend yield

Total return to shareholders

A firm operating on a 70 percent learning curve will achieve lower per-unit costs after doubling its output than a firm operating on an 80 percent learning curve will. A. True B. False

True. In an 80 percent learning curve, per-unit cost drops 20 percent every time output is doubled. The steeper 70 percent learning curve indicates a 30 percent drop every time output is doubled.

economic value created

V-C

Competitors have found it extremely difficult to imitate Gene Electronics Inc.'s valuable resources, capabilities, or competencies. This is primarily because the source for the company's success has been unclear. The competitors are uncertain if Gene Electronics Inc.'s success is due to its strong leadership, the skills of its research and development team, or the timing of the company's product introductions. Gene Electronics Inc. has been protected from losing its competitive advantage as a result of A. time compression diseconomies. B. resource homogeneity. C. causal ambiguity. D. path dependence.

causal ambiguity.

Power Juice is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Power Juice has decided to pursue a differentiation strategy. In this case, she should A. focus on adding unique features to her product that customers will value. B. concentrate on improving process technologies to achieve economies of scale. C. enforce strict budget controls at all levels of the organization. D. devote all resources to reducing the value gap.

focus on adding unique features to her product that customers will value.

Lightning Drive is a leading automobile company. The company has been able to sustain its competitive advantage primarily due to its high-quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped Lightning Drive sustain its competitive advantage? A. resource mobility B. inexhaustible nature C. intangibility of the company's resource D. high costs involved in imitation

high costs involved in imitation

Facing stiff competition in the e-reader market, Smart Reads wants to protect its competitive advantage by increasing the perceived value of its reader. Smart Reads' best strategy to accomplish this would be to A. increase the cost of production to add innovative new features. B. highlight the number of celebrities who use Smart Reads e-readers. C. lower the retail price of its e-reader to attract new customers. D. try to imitate some of the features found in competing products

highlight the number of celebrities who use Smart Reads e-readers.

Firms that can employ and establish _________________, are more likely to protect their competitive advantage from being copied and/or eroding away. A. isolating mechanisms B. key human capital C. cash equivalents D. a strong competitor response

isolating mechanisms

Nam-zim sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is Nam-zim implementing? A. subscription-based B. razor-razorblade C. pay-as-you-go D. direct sales

razor-razorblade

The types of assets that are the primary focus of accounting data but are no longer most important to competitive advantage are A. market brand value. B. organizational culture. C. intangible. D. tangible.

tangible.

Sarah paid $900 for a camera that she thought was worth $1100 for all the features included in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. What is the consumer surplus in this scenario? A. $900 B. $1,100 C. $550 D. $200

$200 (V - P) $1100 - $900 = $200

The success of business-level strategies

(1) how well the strategy leverages the firm's internal strengths while mitigating its weaknesses (2) how well it helps the firm exploit external opportunities while avoiding external threats.

Return on Invested Capital (ROIC)

(Net Operating Profit after Tax (NOPAT))/(Invested Capital (IC))

Shareholder Value Creation

-Attempts to measure competitive advantage from the shareholders' perspective, whose primary concern is the return on (risk) capital. -However, this measure may mirror volatile fluctuations in the stock market and irrational investor behavior.

Accounting Profitability

-Profitability ratios -Breaking down operating margins -Breaking down capital efficiency -Limitations: historical and thus backward-looking does not consider off-balance-sheet items focuses on tangible assets

Razor-Razorblade Model

-initial product is often sold at a loss or given away for free -helps drive demand for complementary goods -money made primarily on replacement parts

Competitive Scope is based on:

1. Number and types of products offered (broad selection vs. limited variety) 2. Types of customers served 3. Geographic areas covered etc.

Competitive Advantage is based on:

1. economic value created 2. accounting profitability 3. shareholder value created

CooCoo Cola has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine CooCoo's position? A. CooCoo improves the recipe for its most popular soda without increasing the price. B. CooCoo introduces a new biodegradable bottle that raises cost and perceived value. C. CooCoo's customers start to consider soda a commodity. D. CooCoo's product has not established an acceptable standard of quality.

CooCoo's customers start to consider soda a commodity.

A firm that has put together a set of value generating resources in a complex way will: A. Potentially have a sustainable competitive advantage because rivals will have difficulty imitating how the firm creates value B. Potentially have a sustainable competitive advantage because the firm can deter rivals by using its significant scale advantage C. Potentially have a sustainable competitive advantage because it is less dynamically capable D. Will be disadvantaged because complexity is hard to understand

Potentially have a sustainable competitive advantage because rivals will have difficulty imitating how the firm creates value

Value Drivers

Product (or service) features Interaction with the customer Complementary products or services

Which of the following competitively important assets is typically excluded from a firm's balance sheet? A. land and building B. accounts payable C. patents D. customer experience

customer experience

Competitive advantage goes to the firm that achieves the A. largest economic value created. B. lowest producer surplus. C. highest payable turnover. D. highest Cost of goods sold/Revenue ratio.

largest economic value created

Due to resource immobility, a critical assumption in the resource-based model of a firm, the A. competitive advantage of a firm exists for a short period of time. B. resource bundles of a firm can be easily imitated by competitors. C. resource differences between firms last for a long time. D. competencies and capabilities of all firms in an industry are similar.

resource differences between firms last for a long time