MGT 487 Final Exam

55) Which of the following best illustrates forward vertical integration? A) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. B) A chain of ice cream parlors launches a brand of toys and accessories for children. C) A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. D) A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

A A firm that manufactures car engines and sells it to major automobile companies launching its own line of cars best illustrates forward vertical integration. Forward vertical integration involves moving ownership of activities closer to the end customer.

46) Because Facebook receives almost all of its revenues from online advertising, we would conclude that it would be characterized as a(n)________ firm, which has the lowest levels of corporate diversification. A) single business B) dominate business C) related diversification D) unrelated diversification

A A single-business firm is characterized by a low level of diversification, if any, because it derives more than 95 percent of its revenues from one business.

27) In a successful________ strategy, the trade-offs between differentiation and low cost are reconciled. A) blue ocean B) focused differentiation C) liquidation D) divestment

A A successful blue ocean strategy requires that trade-offs between differentiation and low cost are reconciled.

3) A value chain analysis consists of systematically analyzing a firm's key activities that for analysis purposes are categorized into two groups: A) primary activities and support activities. B) products and service activities. C) customers and suppliers. D) profits and losses.

A A value chain represents all the internal activities a firm engages in to produce goods and services. The value chain is formed of primary activities that add value to the final product directly and support activities that add value indirectly.

78) Which of the following is true of acquisitions? A) They can be friendly or hostile. B) They occur only when the involved entities are of comparable size. C) An acquisition occurs when two independent companies join to form a separate third entity. D) Acquisitions increase the competitive intensity in an industry.

A Acquisitions can be friendly or hostile. When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.

76) Johnson is an executive vice president at Conecom Hardware. He researches a proposal by a larger company, Openlane Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Openlane employees, Johnson concludes that Openlane has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Johnson and Conecom Hardware take? A) Turn down the acquisition offer, and prepare to resist a hostile takeover. B) Attempt a friendly merger, and use managerial hubris to improve results at Openlane. C) Welcome the acquisition, and use knowledge transfer to impart Conecom Hardware's management practices. D) Do nothing; the two companies cannot combine without Conecom Hardware's explicit consent.

A An acquisition is the purchase or takeover of one company by another. It can be friendly or hostile. When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.

33) Which of the following lists the stages of the industry life cycle in the correct order? A) introduction, growth, shakeout, maturity, and decline B) introduction, shakeout, growth, maturity, and decline C) introduction, growth, maturity, shakeout, and decline D) introduction, shakeout, maturity, growth, and decline

A As an industry evolves over time, it tends to follow a predictable industry life cycle with five distinct stages in the following order: introduction, growth, shakeout, maturity, and decline.

36) Which of the following statements accurately describes the distinction between the introduction and growth stages of the industry life cycle? A) There is more strategic variety in the growth stage when compared to the introduction stage. B) The number of competitors is more in the introduction stage than the growth stage. C) The market size for a new product or service is larger in the introduction stage when compared to the growth stage. D) While achieving market acceptance is the strategic objective during the introduction stage, the objective in the growth stage is to pursue a harvest strategy.

A Because market demand is robust in the growth stage and more competitors have entered the market, there tends to be more strategic variety: Some competitors will continue to follow a differentiation strategy, emphasizing unique features, product functionality, and reliability. Other firms employ a cost-leadership strategy in order to offer an acceptable level of value but lower prices to consumers.

7) Five Guys has become successful in a highly competitive industry dominated by fast-food giants like McDonald's and Burger King, as well as direct competitors claiming to be "better burger" joints such as Smashburger, Burgerfi, and Shake Shack. Which of the following statements accurately explains the main reason for the success of Five Guys? A) It created customized, made-to-order food using the highest-quality ingredients. B) It created a perception that eating its products was cool. C) It emphasized marketing over core competency. D) It focused keeping prices as low as possible.

A By some estimates, Five Guys has captured 50% of the "better burger" segment and has achieved a loyal following despite its higher menu prices and longer wait times. How? The answer is found in Five Guys' core competency: delivering a customized, made-to-order burger and hand-cut fries using on the highest-quality ingredients.

5) One of the reasons that Circuit City filed for bankruptcy was due to its inability to reinvest, hone, and upgrade its once-impressive resource base. Ultimately, Circuit City's core competences became A) core rigidities. B) value chain activities. C) strategic resources. D) costly to imitate.

A Core rigidities occur when a firm fails to reinvest its core competencies and thus lose its competitive advantage.

57) Which of the following best illustrates site specificity? A) equipment necessary for mining bauxite and aluminum smelting B) bottling machinery to manufacture bottles with trademarked shapes C) investment made in human capital to master procedures of a specific organization D) investment made to train employees to operate computers

A Equipment necessary for mining bauxite and aluminum smelting best illustrates site specificity. Site specificity, a form of specialized assets, refers to assets that are required to be jointly located in the same specific place (co-locating).

59) DreamHome operates in a number of countries and sells a wide variety of home goods, from garden furniture to kitchenware, to achieve continuous growth. From this data, we can conclude that DreamHome has been involved in A) product-market diversification. B) process diversification. C) strategic outsourcing. D) lean manufacturing.

A From this data, we can conclude that DreamHome has been involved in product-market diversification. A company that pursues both a product and a geographic diversification strategy simultaneously follows a product-market diversification strategy.

65) Ganjaflex Industries is a major multinational conglomerate. Its business units compete in a range of industries, including home appliances, pharmaceuticals, commercial real estate, and plastics manufacturing. Although its largest business unit, which produces kitchen appliances, is among the most profitable in the industry, it generates only 35 percent of the company's revenues. Which of the following is most likely true of Ganjaflex's stock price? A) It is valued at less than the sum of its individual business units. B) It is valued at greater than the sum of individual business units. C) It is valued at the exact sum of individual business units. D) It is consistently lower than the industry average.

A Ganjaflex Industries has pursued an unrelated diversification strategy. Firms that pursue unrelated diversification are often unable to create additional value. They experience a diversification discount: The stock price of such highly diversified firms is valued at less than the sum of their individual business units.

29) 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 A) stuck in the middle. B) buried at the bottom. C) burned at the top. D) caught in the transition.

A If a blue ocean strategy has gone bad, the firm ends up being stuck in the middle, meaning the firm has neither a clear differentiation nor a clear cost-leadership profile. Being stuck in the middle leads to inferior performance and a resulting competitive disadvantage.

19) Which of the following examples uses a focused differentiation strategy? A) a tennis pro shop that sells high-quality, custom racquets priced at $350 dollars per racquet B) a coffee shop that offers mediocre lattes and brewed coffee at a price of $5 per small cup C) a hotel chain that offers high-quality furnishings and service with room rates under $75 per night D) a clothing brand that offers gender-neutral hoodies and sweatpants priced at $20 per item

A In a focused differentiation strategy, a firm seeks to create higher value for customers than the value that competitors create, by delivering products or services with high-quality features at a high price. This description applies to the tennis pro shop.

75) When does a merger between companies typically occur? A) when two firms of comparable size join to form a combined entity B) when large, incumbent firms buy startup companies C) when a target firm does not want to be acquired D) when two or more firms enter a temporary vertical strategic alliance

A In defining mergers and acquisitions, size can matter as well. The combining of two firms of comparable size is often described as a merger, even though it might in fact be an acquisition.

54) Each stage of the vertical value chain typically represents a distinct________ in which a number of different firms are competing. A) industry B) functional department C) economy D) customer segment

A Industry value chains are also called vertical value chains, because they depict the transformation of raw materials into finished goods and services along distinct vertical stages. Each stage of the vertical value chain typically represents a distinct industry in which a number of different firms are competing.

35) Which of the following is a feature of the growth stage of the industry life cycle? A) The consumer demand increases. B) The prices of goods begin to rise. C) The basis of competition moves away from process innovation. D) The number of competitors decreases.

A Market expansion accelerates in the growth stage of the industry life cycle. After the initial innovation has gained market acceptance, demand increases rapidly as first-time buyers rush to enter the market, convinced by the proof of concept demonstrated in the introductory stage.

43) Jill is the CEO of Notes Etc., a stationery manufacturer. She decides to open up a retail store to sell her products directly to consumers instead of just selling wholesale to retailers. To do this, Jill will need to engage in A) forward vertical integration. B) backward vertical integration. C) horizontal integration. D) differentiation.

A Since Jill is moving downstream in her industry value chain and wants to have contact with the end user, this example best represents forward vertical integration.

45) A company that engages in strategic outsourcing reduces its level of A) vertical integration. B) taper integration. C) vertical market failure. D) credible commitment.

A Strategic outsourcing involves moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain. A firm that engages in strategic outsourcing reduces its level of vertical integration.

13) Which of the following is considered a limitation of employing the balance-scorecard framework? A) providing guidance about the right metrics to use B) accommodating both short- and long-term metrics C) designing and planning business processes D) translating the company vision into measurable goals

A The balanced-scorecard approach provides only limited guidance about which metrics to choose. Different situations call for different metrics.

31) Which of the following describes the group of customers referred to as the early majority? A) They come into the market during the shakeout stage. B) They are the last to come into the market. C) They enter the market during the maturity stage. D) They enter the market during the growth stage.

A The customers coming into the market in the shakeout stage are called the early majority.

15) Customer service and________ are two of the value drivers that managers can utilize when trying to improve a firm's differentiation strategic position. A) product uniqueness B) experience curve C) cost of input factors D) economies of scale

A The most salient value drivers that strategic leaders have at their disposal when executing a differentiation strategy are product features, customer service, and complements.

48) Decisions relating to the range of products and services a firm will offer determine the firm's A) level of diversification. B) geographic scope. C) vertical integration. D) absorptive capacity.

A The range of products and services that a firm decides to offer determines its level of diversification.

50) Initech developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Accent Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate? A) licensing B) franchising C) crowdsourcing D) bootlegging

A This scenario best illustrates licensing. Licensing is a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property such as a patent.

18) University Home Goods is a home furnishings company that caters to college students and other highly price-conscious customers. Through its simple designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is University Home Goods applying? A) cost-leadership B) differentiation C) niche marketing D) product diversification

A University Home Goods is applying the cost-leadership strategy. A cost-leadership strategy seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.

67) NoRu Inc. is a publicly traded firm that does not wish to be acquired by FRESHPoP Corporation, a much larger publicly traded firm, who is planning an acquisition of NoRu Inc. This is an example of a A) hostile takeover. B) friendly takeover. C) joint venture. D) strategic alliance.

A When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.

74) Which of the following best illustrates a hostile takeover between the two companies Windfield Inc. and Zyco Inc.? A) Windfield Inc. purchases Zyco Inc. for $95 billion despite Zyco Inc. being against the purchase. B) Windfield Inc. and Zyco Inc. join together to form a third new entity, while they also operate separately. C) Windfield Inc. outsources a few of its business activities to Zyco Inc. for competitive advantage. D) Windfield Inc. and Zyco Inc. join together to form a single new company called WindfieldZyco Inc.

A Windfield Inc. purchasing Zyco Inc. despite Zyco Inc. being against the purchase best illustrates a hostile takeover. When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.

73) Which of the following statements is true about managing alliance-related tasks? A) Forming an alliance with another firm prohibits that firm from forming other alliances. B) Alliance management capability is based on three alliance-related tasks. C) A merger is one of the three options for alliance design and governance. D) In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

B Alliance management capability is a firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances. The firms in an alliance must choose an appropriate governance mechanism from among the three options: non-equity contractual agreement, equity alliance, or joint venture. To be a source of competitive advantage, the partnership needs to create resource combinations that obey the VRIO criteria.

1) How is an equity alliance different from a joint venture? A) An equity alliance involves ownership that facilitates transaction-specific ventures; a joint venture involves taking ownership by buying stock. B) An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm. C) An equity alliance involves taking ownership in a partner; a joint venture involves taking ownership by buying stock. D) An equity alliance involves partners contributing equity to a joint venture; a joint venture involves two or more entities owning a firm.

B An equity alliance involves taking ownership in a partner; a joint venture involves two or more people owning a firm.

9) According to an evaluation using the VRIO framework, Crocs, inventor of the iconic plastic clog, was unable to sustain its competitive advantage primarily because its products were A) invaluable and common. B) easy to imitate. C) extremely rare. D) non-substitutable.

B Competitive advantage cannot be sustained if the underlying capability can easily be replicated and can thus be directly imitated. Despite Crocs' patents and celebrity endorsements, other firms copied the shoe and bit strongly into Crocs' its profits.

86) Which of the following is a disadvantage of a horizontal integration corporate strategy? A) It increases competitive intensity within an industry. B) It increases the potential for integration failure. C) It increases the potential for flexibility. D) It increases the threat of new entrants in an industry.

B Disadvantages of horizontal integration include reduced flexibility, increased potential for legal repercussions, and integration failure.

89) What is the main reason that most mergers and acquisitions negatively affect shareholder value? A) The entire market becomes an oligopoly or a monopoly. B) Promised synergies never take place. C) Market conditions change too quickly. D) Companies that resist acquisitions are subject to the "winner's curse."

B Do mergers and acquisitions create competitive advantage? Despite their popularity, the answer, surprisingly, is that in most cases they do not. In fact, the M&A performance track record is rather mixed. Many mergers destroy shareholder value because the anticipated synergies never materialize.

79) DalTech Inc., a publicly traded company, designs and manufactures wearable technology. What approach should DalTech take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently. A) Compete based on price in order to drive out remaining competitors and create a monopoly. B) Focus on research and development as a form of non-price competition. C) Encourage new competitors to enter the market to improve competition. D) Prepare to resist a hostile takeover by buying back as much stock as possible.

B Horizontal integration changes the underlying industry structure in favor of the surviving firms. Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants. As a whole, the industry structure becomes more consolidated and potentially more profitable. If the surviving firms find themselves in an oligopolistic industry structure and maintain a focus on non-price competition (e.g., focus on R&D spending, customer service, or advertising), the industry can indeed be quite profitable, and rivalry would likely decrease among existing firms.

80) What is the term for the process of merging with a competitor at the same stage of the industry value chain? A) hierarchical integration B) horizontal integration C) cross integration D) vertical integration

B Horizontal integration is the process of merging with a competitor at the same stage of the industry value chain.

85) Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing A) perfect competition. B) differentiation. C) oligarchy. D) natural monopoly.

B Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing the differentiation of their product and service offerings.

34) Which of the following describes a firm pursuing a harvest strategy? A) The firm exits the industry by bankruptcy, liquidation, or divestments. B) The firm reduces investments in product support and allocates only a minimum of human and other resources. C) The firm continues to support marketing efforts at a given level despite the fact that consumption for its product has been declining. D) The firm buys out industry rivals to stake out a strong position.

B In pursuing a harvest strategy, a firm reduces investments in product support and allocates only a minimum of human and other resources.

70) When Aviato Inc. wanted to sell its cars in the country of Serbia, it lacked access to distribution channels and marketing expertise in the country. Thus, Aviato Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario? A) increasing competitive intensity B) accessing critical complementary assets C) procuring additional capital investments D) reducing differentiation of product and service offerings

B In this scenario, Aviato's decision to enter into an alliance can be best attributed to the need for accessing critical complementary assets. Building downstream complementary assets such as marketing and regulatory expertise or a sales force is often prohibitively expensive and time-consuming, and thus frequently not an option for new ventures. Strategic alliances allow firms to match complementary skills and resources to complete the value chain.

11) ________ 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

B Path dependence is a situation in which the options one faces in the current situation are limited by decisions made in the past.

64) The Tata group of India, Warren Buffet's Berkshire Hathaway, and the Japanese Yamaha group have several strategic business units under one corporate umbrella and are pursuing an unrelated diversification strategy. We would refer to these businesses as A) differentiators. B) conglomerates. C) internal competitors. D) vertically integrated.

B The Tata group of India, Warren Buffet's Berkshire Hathaway, and the Japanese Yamaha group are all considered conglomerates due to their unrelated diversification strategy.

53) U.S.-based consumer electronics corporation DGM owns a smaller company in Taiwan where most of DGM's cell phone technology is made before being released worldwide. Which of the following alternatives to integration does this best illustrate? A) venture capitalism B) parent-subsidiary relationship C) joint venture D) franchising

B The parent-subsidiary relationship describes the most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control.

25) According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy? A) competition switching from non-price attributes to pricing B) innovation that allows competitors to emerge with more economical replacements C) new entrants with small production scale D) suppliers requesting a 2 percent price increase across the industry

B The risk of replacement for a firm pursuing a low-cost strategy is particularly pertinent if a potent substitute emerges due to an innovation.

69) Deluxe Yachts Inc., a large luxury yacht manufacturer, made an initial small investment in a startup company that was developing an ecologically friendly waste-water recycling system. This gave Deluxe Yachts controlling interests in the startup company. However, Deluxe Yachts had no obligations to make continued investments in the experiments of the startup company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Deluxe Yachts would have the right to buy out the startup company. This approach to strategic alliance is referred to as A) a break-even analysis. B) a real-options perspective. C) credible commitment. D) transaction cost economics.

B This approach to strategic alliance is referred to as a real-options perspective. The real-options perspective allows a firm to obtain additional information at predetermined stages. At each stage, after new information is revealed, the firm evaluates whether to make further investments. In a sense, a real option—which is the right, but not the obligation, to continue making investments—allows the firm to buy time until sufficient information for a go versus no-go decision is revealed.

68) Several notable firms, including Eli Lilly, HP, Procter & Gamble, and IBM, each wish to become the alliance "partner of choice" for small technology ventures, colleges, and inventors. They each know that________ is a necessary and critical element for an alliance to be a success. A) sharing explicit knowledge B) building interorganizational trust C) a hostile takeover D) partner implementation

B Trust is a critical aspect of any alliance. Interfirm trust entails the expectation that each alliance partner will behave in good faith and develop norms of reciprocity and fairness.

51) Wenonah Capital Partners asked one of its partners, a research and development (R&D) firm, to concentrate on developing new medications for Parkinson's disease. But the project requires a huge capital investment, and the R&D partner has some reservations about Wenonah's long-term commitment to the project. To prove its commitment, Wenonah pledges an investment of $200 million over five years. This investment by Wenonah in the project will result in a A) cartel. B) credible commitment. C) corrective action. D) parent-subsidiary relationship.

B Wenonah's decision would be referred to as a credible commitment. A credible commitment is a long-term strategic decision that is both difficult and costly to reverse.

49) Massive Dynamic Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Massive Dynamic has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Massive Dynamic should A) continue to outsource production. B) vertically integrate. C) exit the laptop industry. D) diversify its activities.

B When the costs of pursuing an activity in-house are less than the costs of transacting for that activity in the market, then the firm should vertically integrate by owning production of the needed inputs or the channels for the distribution of outputs. In other words, when firms are more efficient in organizing economic activity than are markets, which rely on contracts among many independent actors, firms should vertically integrate.

20) In a focused cost-leadership strategy, a firm A) caters to the segment of the market that is least cost sensitive. B) provides high-priced products for many different segments of the mass market. C) delivers low-cost products and services to a specific, narrow part of the market. D) focuses on reducing the economic value created to drive down costs.

C A focused cost-leadership strategy is the same as the cost-leadership strategy except with a narrow focus on a niche market.

91) Which of the following is an element of good strategy? A) a summary of the firm's history within its industry B) a guiding policy to address employee satisfaction C) a set of coherent actions to implement the firm's guiding policy D) an approach that underestimates the competition

C A good strategy consists of a diagnosis of the competitive challenge, a guiding policy to address the competitive challenge, and a set of coherent actions to implement the firm's guiding policy.

87) Alphabet's Google made a string of acquisitions of new ventures, such as DeepMind, in order to A) imitate the actions of its competitors such as Apple and Facebook. B) solve its principal-agent problems. C) preempt rivals. D) expand through unrelated diversification.

C Alphabet's Google made a string of acquisitions of new ventures, such as DeepMind, to preempt rivals. In strategic preemption, incumbent firms acquire promising startups that have the potential to be a competitive threat before this potential is fully realized.

84) It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because A) the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive. B) the surviving firms will need to be protected against the increasing bargaining power of the suppliers. C) the horizontal integration activity has the potential to reduce competitive intensity in an industry. D) the surviving firms will need protection against the relaxed entry barriers.

C Because of the potential to reduce competitive intensity in an industry, government authorities such as the FTC and/or the European Commission usually must approve any large horizontal integration activity.

28) The primary goal of a firm pursuing a blue ocean strategy should be to A) create the highest perceived value in its respective industry. B) build a reputation of being the lowest-cost producer in its chosen industry. C) offer a differentiated product or service at a low cost. D) achieve a less steep learning curve.

C Being successful at a blue ocean strategy doesn't imply that the firm must be the highest value creator and the lowest-cost producer in its respective industry. The goal of an integration strategy is therefore to offer a differentiated product or service at a low cost.

1) Capabilities are the________ and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically. A) financial B) strategic C) organizational D) competitive

C Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically.

6) Crocs, inventor of the iconic plastic clog, was unable to sustain its competitive advantage over its rivals because its key strategic resource was A) overly sophisticated marketing. B) not patented in a timely manner. C) simple to imitate. D) valuable in the eyes of the consumer. C

C Crocs fell victim to direct imitation. Despite its patents and celebrity endorsements, other firms were able to more or less directly copy the shoe, taking a big bite out of Crocs' profits.

24) In order to achieve a competitive advantage, the Heavenly Hotels, a chain of luxury beach resorts, wants to increase its market share. Which of the following strategies is most likely to do so? A) Maintain prices but significantly increase spending on customer service and other amenities. B) Lower prices but eliminate several of the features that have come to define Heavenly Hotels properties for consumers, such as complimentary meals and in-room massages. C) Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Heavenly Hotels brand image. D) Raise prices without increasing spending on customer service or resort features.

C Economies of scale denote decreases in cost per unit as output increases. Economies of scope describe the savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology. By opening another chain of hotels that leverage the Heavenly Hotels brand image, the company can increase the perceived value of its products and improve market share while controlling costs.

62) Finjob is following a related-linked diversification strategy, and Rangreen is following a related-constrained diversification strategy. How do the two firms differ from each other? A) Rangreen Inc. generates 70 percent of its revenues from its primary business, while Finjob generates only 10 percent of its revenues from its primary business. B) Rangreen pursues a backward diversification strategy, while Finjob pursues a forward diversification strategy. C) Finjob will share fewer common competencies and resources between its various businesses when compared with Rangreen D) Finjob pursues a differentiation strategy, and Rangreen pursues a cost-leadership strategy, to gain a competitive advantage.

C Finjob will share fewer common competencies and resources between its various businesses when compared with Rangreen. In related-linked diversification, only some businesses share competencies in products, services, technology, or distribution. In related-constrained diversification, all businesses share competencies in products, services, technology, or distribution.

40) The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently? A) growth stage B) maturity stage C) decline stage D) commercialization stage

C Flip phones are in the decline stage of the industry life cycle. Changes in the external environment often move industries from maturity to decline. In this final stage of the industry life cycle, the size of the market contracts further as demand falls, often rapidly.

41) When a firm pursues a(n)________ strategy, it continues to support marketing efforts even if the demand for the product is declining. A) exit B) consolidate C) maintain D) harvest

C If a firm has been following a maintain strategy, it will continue to support marketing efforts at a given level despite the fact that the industry has been declining.

88) The managers at Statholdings Mobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Statholdings Mobile Inc. is most likely a result of A) time compression diseconomies. B) experience-curve effects. C) principal-agent problems. D) resource ambiguity.

C In this scenario, this acquisition by Statholdings Mobile Inc. is most likely a result of principal-agent problems. Managers, as agents, are supposed to act in the best interest of the principals, the shareholders. However, managers may have incentives to grow their firms through acquisitions—not for anticipated shareholder value appreciation, but to build a larger empire, which is positively correlated with prestige, power, and pay.

10) ________ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. A) Embargoes B) Cartel arrangements C) Isolating mechanisms D) Market niches

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

66) Shapiro-Rennart is a large conglomerate. In the context of the Boston Consulting Group (BCG) growth-share matrix, the company's healthy-living strategic business unit (SBU) has been categorized as a "cash cow," and its tobacco SBU has been categorized as a "dog." Which of the following can be inferred from this scenario? A) While the tobacco SBU operates in a low-growth market, the healthy-living SBU operates in a high-growth market. B) The management of the company should use the cash inflow from the healthy-living SBU and invest it in the tobacco SBU. C) While the market share of the company in the healthy-living industry will be high, the market share in the tobacco industry will be low. D) The tobacco SBU should follow a backward integration strategy, and the healthy-living SBU should pursue a forward integration strategy.

C It can be inferred that while the market share of the company in the healthy-living industry will be high, the market share in the tobacco industry will be low. "Cash cows" are strategic business units that compete in a low-growth market but hold considerable market share. "Dogs" hold a small market share in a low-growth market; they have low and unstable earnings, combined with neutral or negative cash flows.

38) To be successful and to survive the shakeout stage of the industry life cycle, a firm should A) charge higher prices than its competitors. B) focus on product innovation rather than process innovation. C) gain economies of scale. D) shift from price to nonprice competition.

C Key success factors during the shakeout stage are the manufacturing and process engineering capabilities that can be used to drive costs down. Generally, the firms that survive the shakeout stage tend to enjoy economies of scale, as the industry consolidated and most excess capacity was removed.

37) Which of the following is a feature of the shakeout phase of the industry life cycle? A) Standards begin to emerge in the industry. B) Market demand in this stage primarily consists of first-time adopters. C) Firms begin to compete directly against each other. D) The mode of competition shifts from price to nonprice in this stage.

C Limited market demand in the shakeout phase increases competitive intensity within the industry. Firms begin to compete directly against one another for market share rather than trying to capture a share of an increasing pie.

16) One of the risks of pursuing a blue ocean strategy is that a firm can find itself A) losing sight of its mission and vision. B) competing with only a differentiation strategy. C) stuck in the middle without a clear strategic position. D) ineffective when competing on an international scale.

C Many firms fail at achieving a blue ocean strategy because they end up getting stuck in the middle and are not able to differentiate or establish a cost-leadership position.

42) Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms? A) Unlike incumbent firms, new entrants do not have to initially face the high entry barriers. B) New entrants are embedded in an innovation ecosystem, while incumbent firms are not. C) Unlike incumbent firms, new entrants do not have formal organizational structures and processes. D) Incumbent firms do not have the advantages of network effects that new entrants have.

C New entrants do not have formal organizational structures and processes, giving them more freedom to launch an initial breakthrough.

90) Tony's Pizza Shop is able to net $10,000 a week; this makes the shop profitable. Its number one competitor, Leo's Pies, is also profitable, netting $12,000 a week. Lil Anthony's Pizza Palace nets $13,000 a week. Since Tony's Pizza Shop is profitable, we can conclude that it has a competitive advantage in its industry. A) True—competitive advantage is achieved through profitability alone. B) True—competitive advantage is achieved since Tony has a positive net income. C) False—competitive advantage is only achieved by generating above average returns, relative to competition. D) False—Tony more than likely has a sustained competitive advantage since he's been in business longer.

C Profitability does not necessarily equate to competitive advantage. A firm has competitive advantage when it has superior performance to other competitors in the same field.

83) How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers? A) by facilitating excess capacity in the industry B) by preventing mergers from taking place C) by lowering competitive intensity in the industry overall D) by increasing the threat of entry in the industry

C Recent horizontal integration in the U.S. airline industry provided several benefits to the surviving carriers. By reducing excess capacity, the mergers between Delta and Northwest Airlines, United Airlines and Continental, Southwest and AirTran, and American and U.S. Airways lowered competitive intensity in the industry overall.

30) Which of the following describes an airline that is most likely stuck in the middle? A) Stratosphere offers complimentary drinks and meals, coast-to-coast coverage via connecting hubs, plush airport lounges, and high prices. B) Cloud Rider offers international routes and global coverage, high customer service, high reliability, and high prices. C) Skypath offers high-quality beverages and meals, plush airport lounges, only a few connections via domestic hubs, poor customer service, and low prices. D) Wingspan offers no assigned seating, no in-flight amenities, no drinks or meals, no airport lounges, and low prices.

C Skypath is most likely stuck in the middle because it is attempting to reconcile fundamentally different strategic positions—high-quality features with low price. The other airlines consistently follow either a differentiation or low-cost strategy.

60) Sonron Corporation generates 85 percent of its annual revenues by manufacturing luxury cars. The company derives 15 percent of its annual revenues by selling sports merchandise such as apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Sonron Corporation? A) a conglomerate B) a subsidiary C) a dominant-business firm D) a single-business firm

C Sonron Corporation is a dominant-business firm. A dominant-business firm derives between 70 percent and 95 percent of its revenues from a single business, but it pursues at least one other business activity. The dominant business shares competencies in products, services, technology, or distribution.

47) Decisions relating to the question of what stages of the industry value chain to participate in determine a firm's A) level of diversification. B) geographic scope. C) vertical integration. D) competitive strategy.

C The industry value chain refers to the transformation of raw materials into finished goods and services along distinct vertical stages. This decision determines the firm's vertical integration.

77) The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion. All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate? A) a merger B) a joint venture C) an acquisition D) an equity alliance

C The scenario best illustrates an acquisition. An acquisition is the purchase or takeover of one company by another. Acquisitions can be friendly or hostile.

26) Center Street Supply Co. has successfully achieved a competitive advantage in the detergent and cleaning solution industry as a differentiator. Which of the following scenarios would undermine Center Street's position? A) Center Street improves the formula for its most popular cleaner without increasing the price. B) Center Street introduces a new biodegradable bottle that raises cost and perceived value. C) Center Street's customers start to consider cleaning solutions a commodity. D) Center Street's product has not established an acceptable standard of quality.

C The viability of a differentiation strategy is severely undermined when the focus of competition shifts to price rather than value-creating features. This can happen when differentiated products become commoditized, and an acceptable standard of quality has emerged across rival firms.

71) Solaramus Inc., Sun Energy Inc., and SkyHigh Solar Inc. are three rival firms who have set up an alliance to conduct research and find a way to run vehicles with solar power. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other solar products. What is this arrangement best referred to as? A) takeover B) buyout C) co-opetition D) acquisition

C This arrangement is best referred to as co-opetition. Co-opetition is a portmanteau word describing cooperation by competitors. It is described as cooperation by competitors to achieve a strategic objective.

58) Which of the following is a drawback of vertical integration? A) It increases the difficulty of securing critical supplies. B) It impedes scheduling and planning. C) It increases the potential of legal repercussions. D) It impedes investments in special assets.

C Vertical integration increases the potential of legal repercussions. Due to monopoly concerns, vertical integration has not gone completely unchallenged by the Federal Trade Commission and the Justice Department.

2) When a firm does not continually upgrade or improve core competencies, its competitors are likely to A) grow their company at any cost. B) across the board. C) develop equivalent or superior skills. D) expand their product line.

C When a firm does not continually upgrade or improve core competencies, its competitors are more likely to develop equivalent or superior skills. This insight allows us to explain differences between firms in the same industry and competitive dynamics over time.

56) Which of the following best illustrates physical-asset specificity? A) a unique training program developed in an organization B) a ship container designed to carry more than the average load of iron ore C) a generic machine that can be used to churn different mixtures D) a machine solely designed to give a candy its trademarked shape

D A machine solely designed to give a candy its trademarked shape best illustrates physical-asset specificity. Physical-asset specificity is a form of specialized assets that refers to assets whose physical and engineering properties are designed to satisfy a particular customer.

21) Bath & Chill is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Bath & Chill is following a A) product diversification strategy. B) liquidation strategy. C) broad differentiation strategy. D) focused differentiation strategy. D

D Bath & Chill is following a focused differentiation strategy. The focused differentiation strategy is the same as the differentiation strategy except with a narrow focus on a niche market, in this case highly health-conscious consumers. A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while containing costs.

14) Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm? A) the economic value creation model B) the accounting profitability model C) the shareholder value creation model D) the balanced-scorecard model

D By relying on both an internal and an external view of a firm, the balanced scorecard combines the strengths provided by the individual approaches to assessing competitive advantage: economic value creation, accounting profitability, and shareholder value creation.

22) When wireless service providers offer free or discounted mobile phones for subscribers to their wireless voice and data service, the perceived value of the service offering increases. In this case, the value driver would be A) economies of scale. B) learning-curve effects. C) experience-curve effects. D) availability of complements.

D Complements add value to a product or service when they are consumed in tandem. Finding complements, therefore, is an important task for strategic leaders in their quest to enhance the value of their offerings.

63) Funholding is a large multinational company active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company? A) a flagship brand B) a single-business firm C) a dominant-business firm D) a conglomerate

D Funholding is a conglomerate. A company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy is called a conglomerate.

82) How does horizontal integration within an industry affect the surviving firms? A) by increasing the threat the surviving firms will face from new entrants B) by strengthening the rivalry among existing firms C) by requiring the surviving firms to shift their focus from non-price to price competition D) by strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

D Horizontal integration can favorably affect several of Porter's five forces for the surviving firms: strengthening bargaining power vis-à-vis suppliers and buyers, reducing the threat of entry, and reducing rivalry among existing firms.

39) Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage? A) The barriers to entry increase during this stage. B) The firms in the industry yield the highest profits during this phase. C) Rivalry among competitors decreases in this stage. D) The weaker firms are forced out of the industry in this stage.

D In the shakeout stage, as competitive intensity increases, the weaker firms are forced out of the industry.

93) BuyNow Inc. is an e-commerce retail firm that sells a variety of merchandise online. Through services like cash on delivery, easy return, and online tracking, the company has created more customer value than its competitors (brick-and-mortar businesses) at the same price. Also, the company's costs are substantially lower than its competitors because of minimal investments in operation and administration. In this scenario, BuyNow Inc. has most likely been able to provide superior value and cost control through A) strategic parity. B) strategic profiling. C) strategic liquidation. D) strategic positioning.

D In this scenario, BuyNow Inc. has been able to provide superior value and control its costs through strategic positioning. Strategy is about creating superior value, while containing the cost to create it. Managers achieve this combination of value and cost through strategic positioning. That is, they stake out a unique position within an industry that allows the firm to provide value to customers, while controlling costs.

32) Which of the following below is considered an advantage of using a platform business model? A) Platforms scale efficiently by implementing gatekeepers. B) Platforms work within an existing industry based on physical assets. C) Platforms benefit from a traditional system of horizontal business organization. D) Platforms unlock new sources of value creation and supply.

D Platforms unlock new sources of value creation and supply.

61) Plexzap Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Plexzap pursuing in this scenario? A) taper integration strategy B) niche marketing strategy C) related-constrained strategy D) related-linked strategy

D Plexzap is pursuing a related-linked strategy. If executives consider new business activities that share only a limited number of linkages, the firm is using related-linked diversification.

4) Southwest Airlines (SWA) and Alaska Airlines (ASA) both compete in the same strategic group as low-cost, point-to-point airlines, but they draw upon different resource bundles. SWA's employee productivity tends to be higher than ASA's because the two companies differ in their human and organizational resources. This example best illustrates which of the following assumptions regarding the resource-based view? A) resource immobility B) resource allocation C) resource homogeneity D) resource heterogeneity

D Resource heterogeneity suggests that not all firms have access to the same bundles of resources. For example, at SWA, job descriptions are informal, and employees pitch in to "get the job done." Pilots may help load luggage and flight attendants may help clean airplanes to ensure an on-time departure.

17) Evaluate the following statement: Strategic leaders should always try to pursue a blue ocean strategy because it is the most complex, coveted, and most desirable strategy that exists. A) I agree; firms should always pursue a blue ocean strategy because the benefits outweigh the cost. B) I agree; firms should pursue a blue ocean strategy because it's harder for competitors to replicate. C) I disagree; firms should never pursue a blue ocean strategy because it's much too complex. D) I disagree; firms should only pursue this strategy if they are able to reconcile the tradeoffs of each generic strategy.

D Should strategic leaders try to do both at the same time? In general, the answer is no. To do so, they would need to integrate two different strategic positions: differentiation and low cost. Unless they are able to reconcile the conflicting requirements of each generic strategy, managers should not pursue this complex strategy because of the inherent trade-offs in different strategic positions.

12) 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.

D Tangible assets are the primary focus of accounting data even though intangibles are most important to competitive advantage.

72) Which of the following examples describes the task of an alliance manager? A) Reem oversaw the agreement between her company and a potential alliance partner and offered support when needed. B) Harry used his knowledge of drone technology to help him manage the day-to-day operations of his firm's alliance. C) Nargis reviewed the alliance portfolio to make sure it fit with the corporate strategy of her firm. D) Omar trained the employees of his alliance partner in the skills needed to create a display for a wide-screen television.

D The alliance manager, positioned within the Office of Alliance Management, serves as an alliance process resource and business integrator between the two alliance partners and provides alliance training and development, as well as diagnostic tools. Therefore, by training the employees of his alliance partner, Omar is doing the job of an alliance manager.

23) Spotless Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is at very low wages is plentiful. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Spotless Inc.'s strategic position? A) network effects B) superior customer service C) availability of complements D) low-cost input factors

D The key driver behind Spotless Inc.'s strategic position is low-cost input factors. One of the most basic advantages a firm can have over its rivals is access to lower-cost input factors such as raw materials, capital, labor, and IT services.

8) Greener Cleener is a leading maker of environmentally friendly household cleaning products. Competitors across the globe have failed to imitate Greener Cleener's production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Greener Cleener for a long time. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate? A) resource homogeneity B) resource cost C) resource substitution D) resource immobility

D The scenario best illustrates resource immobility. A critical assumption of the resource-based model—resource immobility—is that resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and therefore can last for a long time.

81) Which of the following scenarios best illustrates horizontal integration? A) Silis Inc. enters into a licensing contract with a distributor in a new international market. B) Silis Inc. acquires a component parts manufacturer that previously supplied to Silis' competitor. C) Silis Inc. sets up its own distribution channel and retail stores. D) Silis Inc. joins with Cancity Inc., one of its direct competitors.

D The scenario that best illustrates horizontal integration is Silis Inc. joining with Cancity Inc., one of its direct competitors. Horizontal integration is the process of merging with a competitor at the same stage of the industry value chain.

44) Sanjay, owner of WashTubs, a washing machine company, is looking for an alternative to vertical integration. He decides to manufacture some of his own machine parts while keeping a few key suppliers in his industry value chain. This is known as A) a balanced scorecard. B) forward vertical integration. C) strategic offshoring. D) taper integration.

D This is an example of taper integration, a way of orchestrating value activities. Sanjay is using industry suppliers and has decided to manufacture his own parts as well.

92) Which of the following is an example of competitive parity? A) A firm manufactures higher-quality wall clocks than its competitors. B) A firm provides wall clocks that its consumers value more than other wall clocks. C) A firm sells wall clocks at a lower price than its competitors. D) A firm produces a similar number of wall clocks at a similar cost as its competitors.

D Two or more firms performing at the same level have competitive parity. Therefore, a firm has competitive parity if it produces wall clocks at the same rate as its competitors.