4335 HW 6, 7, 9, and 12 Review for Test 2

Which of the following would not be a reason for Bic to decide to compete in Mont Blanc's market?

Bic is a large publicly traded company with significant financial resources. You need to evaluate any strategic trade-offs that would encourage or discourage Bic from competing in Mont Blanc's target market.

Instead of a board of directors, who serves as the primary governance mechanism for Northwestern Mutual?

Board of Trustees

Which of the following is true of business ethics?

Certain notions such as fairness, honesty, and reciprocity are universal norms.

When organizations go into detail about how they expect their employees to behave and represent the company in business dealings, it's called ____________

Code of Conduct

________ is a mechanism to direct and control an enterprise and attempts to address the principal-agent problem, which can occur any time an agent performs activities on behalf of a principal.

Corporate governance

Which of the following is true about corporate governance?

Corporate governance provides a structure for monitoring firm performance.

What is meant by "bad apples vs. bad barrels"?

A company's culture can create a climate for unethical behavior.

Which of the following descriptions best exemplifies adverse selection?

A manager cannot ascertain the contributions of individual team members in team production.

Blue Ocean strategies don't require firms to make any tradeoffs.

False Although Blue Ocean strategies combine aspects of cost leadership and differentiation, firms must still make tradeoffs, or choose to do some things and not others.

Which industry combines the razor-razor blade model with the subscription model?

Telecommunications

How is the characteristic of separation of legal ownership and management control disadvantageous to publicly traded companies?

The managers delegated to make decisions on behalf of shareholders might pursue their personal interests.

While the industry for 5G compatible devices is in the introduction stage, the industry for 3G compatible devices are in the maturity stage. What does this imply?

The market for 3G compatible devices has reached its maximum size, whereas the market for 5G compatible devices is still small in size. The market for 3G compatible devices has reached its maximum size, whereas the market for 5G compatible devices is still small in size. During the fourth stage of the industry life cycle, the industry structure morphs into an oligopoly with only a few large firms. The market has reached its maximum size, and industry demand is likely to be zero or even negative going forward. In the introduction stage, however, the initial market size is very small.

The use of complementary software applications (apps) for smartphones not only created a new "apps" industry but also spurred market demand for smartphones themselves. Thus, apps for smartphones largely

created a virtuous cycle reinforcing smartphones globally. The use of apps in the smartphone industry led to positive network effects building more demand for smartphones and spilling over into the tablet market also.

What is an example of an industry that uses the business model where users pay for only the services they consume?

Utilities

New firms that are in need of skills and resources to complete the value chain from upstream innovation to downstream commercialization might enter strategic alliances to

access critical complementary assets.

Why do firms engage in acquisitions?

access new markets, access new distribution channels, access new capabilities and competencies

There are several benefits of horizontal integration. Which of the following below is not a benefit?

access to new marketing and sales divisions

In order to gain a competitive advantage over its rivals, Disney

acquired Pixar.

Builder's Square, a do-it-yourself home improvement store, recently purchased Tiny Tool Inc, a smaller incumbent. This would be best described as a(n)

acquisition.

Trek Inc., a large conglomerate, took over a small startup company that had made some breakthrough innovations in the field of telecommunications. This purchase would help Trek to gain access to the startup company's superior technology and human capital. This transaction is an example of a(n)

acquisition.

Mont Blanc uses a differentiation strategy that focuses on the social and emotional aspects of their product to appeal to a specific consumer segment. Which of the following initiatives would most be in keeping with their strategy?

an engraving service for pen owners who may wish to will their pens to loved ones Remember that the service would have to increase the owner's feeling of social status or their emotional attachment to the product, thereby increasing their perceived value of the product.

Timex and Rolex both compete in the wristwatch market, but they follow different business strategies. Rolex creates a high-quality timepiece with unique features that last a lifetime. Timex efficiently produces a watch of acceptable quality. What generic business strategy is Rolex using?

focused differentiation Rolex is using a focused differentiation strategy in the wristwatch market.

The four generic business strategies are generated by comparing the strategic position with the scope of competition. Tesla, an electric car manufacturer, is presented in the text as fitting into which of these categories?

focused differentiation Tesla offers highly differentiated products and plans for a small niche portion of the automobile market.

Hit Me Up is an instant messaging mobile application. Users have access to a basic version with limited message recipients for free, but they have to pay a fee to have unlimited message recipients or to use advanced features. Which of the following business models does this best illustrate?

freemium

Firms focusing on operating a cost-leadership strategy are most likely to develop their product or service to emphasize the

functional aspects By focusing on functional aspects that meet the minimum customer demands, costs are minimized. Adding other elements of emphasis would increase cost and not be in keeping with the firm's strategy.

Pursuing Blue Ocean strategies is difficult because existing firms cannot typically choose their ________.

industry Firms can choose their strategy, suppliers, and employees. However, existing firms already exist in an industry. Walmart can't suddenly become a streaming service.

The risk of employee opportunism, on behalf of agents, is exacerbated by the concept of

information asymmetry.

The first mover advantage is established during the ___________ phase.

innovation First mover advantages are established in the innovation phase and can give innovators a number of first mover advantages such as economies of scale and experience and learning curve effects.

What are some of the disadvantages of following a horizontal integration strategy?

integration failure and potential for legal repercussions

Manufacturing is important in nearly every stage. In which stage is it NOT important?

introduction In the introduction stage product volumes are low. Understanding the customer and innovating are more important in the introduction stage.

A patent is established during the _________ phase.

invention A patent is a form of intellectual property and is established during the invention phase and gives the inventor exclusive rights to benefit from commercializing a technology for a specified period of time.

A temporary monopoly position can be established by a company during the __________ phase.

invention A temporary monopoly position is established during the invention phase when the exclusive rights to produce a product or service translates into a competitive advantage until a patent expires.

Redwood Corp. follows a business model in which the performance of the company is based not only on how much profits were generated but also on how the community in general benefited from its operations. Thus, the company under its "Plant a Life" campaign promises to plant a tree with every customer purchase. Which of the following terms best describes the performance valuation model of Redwood Corp.?

social entrepreneurship Redwood Corp. uses the performance valuation entrepreneurship business model. Social entrepreneurship is the pursuit of social goals by using entrepreneurship. Social entrepreneurs evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution.

The growth stage is marked by ______.

standardized expectations In the growth stage, customers understand the product and have standardized expectations which lets competitors enter the market and scale more quickly.

A value innovation strategy requires trade-offs between differentiation and low costs. These are two distinct business-level positions that often require very different internal value chain activities. An example of a low-cost activity that may not be appropriate for a differentiator is

standardizing the production processes for higher output levels with fewer model changes. Standardizing the production processes may reduce the costs per unit, but it could also reduce the flexibility needed to produce a variety of products in a timely manner. This would likely reduce the customer's value of the product.

Firms can use strategic alliances to change the industry structure in their favor. For example, firms frequently use strategic alliances when competing in so-called battles for industry standards. This is an example of entering an alliance to

strengthen a competitive position.

When a company has neither a clear differentiation nor a clear cost leadership position, it is referred to as

stuck in the middle. When company's fail to resolve strategic trade-offs between differentiation and cost, they end up "stuck in the middle."

Which of the following is one of the reasons that firms make acquisitions?

to access a new capability or competency

Differentiation business strategies are often associated with premium prices. There are, however, reasons why a firm would NOT want to charge higher prices than the competition. Which of the following is the best example of why a firm would want to keep prices in line with competitors?

to drive up market share Firms with increased customer value may still choose to keep prices lower than the customer's willingness to pay to increase the market share control by the firm.

Musk describes his early days in his first startup, Zip2, as very tight with cash. For example, he and the two other founders began the firm on a very small budget by sleeping on futons in the office. This matches which part of the text's description of entrepreneurship?

to undertake economic risk To start the firm with his own limited funds was a financially-high economic risk decision.

Zahra is a manufacturing strategist at Do-Right Drugs. She has invented a new way to process and pack the company's over-the-counter medications that would avoid the usage of wasteful blister packs. Which of the following terms best describes Zahra?

an intrapreneur Zahra is an intrapreneur. When innovating within existing companies, change agents are often called intrapreneurs: They are pursuing corporate entrepreneurship.

In public stock companies, inside directors

are appointed by shareholders to provide the board with necessary company information.

Southwest and Delta both compete in the airline industry, but they follow different business strategies. Delta's transportation infrastructure is based upon a high-value hub-and-spoke system and offers upscale services to high mileage flyers. Southwest Airlines uses a point-to-point basic system to offer affordable travel for nationwide air transport. What generic business strategy is Southwest using?

broad cost leadership

The local real estate companies in a city have joined together and arranged a "Property Fair." The sponsors will equally share the expenses of the event. Although many companies compete against each other, they have joined together because the medium will help the companies market themselves through a dedicated forum at an extremely low cost. This arrangement is best referred to as

co-opetition.

Which of the following is one of the implications of information asymmetry between principals and agents?

Agents can pass on the information to select principals who can trade stocks based on this information.

Which of the following best illustrates a strategic alliance?

All Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines

Apple's first-generation iPad was priced at over $800 when it launched in 2010. Three years later the same model was priced at under $300. This change was supported by all of the statements below except

Apple was using a harvest strategy for cash flow focus. The tablet industry was not in the decline stage, and thus Apple was not pursuing a harvest strategy with its iPad product. As the industry moves into the growth stage, competitive advantage tends to shift to manufacturing and process innovations.

Amazon took advantage of the flexibility inherent in the wholesale business model to offer ebooks at a discounted price. This is an example of ________.

Disruption

Do mergers and acquisitions create competitive advantage?

In most cases, they do not.

Which of the following is not a recommended strategic option for firms competing during the decline stage of an industry life cycle?

Invest in a large marketing campaign. It is often unwise to invest a large amount of capital or effort on an existing product or a large marketing campaign during the decline stage of an industry life cycle.

In the video, what is the business reason that Northwestern Mutual makes for acting ethically?

It promotes long-term customer growth and retention.

What ethical weaknesses existed in the Volkswagen culture?

It was a culture that overlooked an attitude of unethical self-interest.

As noted in the case, a firm can adjust its value drivers to improve its strategic position. Which of the following examples highlights a differentiation strategy driven by product features?

OXO ergonomic kitchen utensils designed with soft black rubber grips Ergonomic, black rubber grips are unique product features that differentiate OXO from other kitchen utensil brands. The Toyota and Zappos examples represent value driven by excellent customer service, and the Google Pixel example represents value driven by complements.

Which of the following scenarios describes a thin market?

Lydia hoped to buy replacement spoons to match her grandmother's silverware from 1968.

Which of the following examples shows how business models may be combined in response to a market disruption?

Mobile-Tech provides phones at low or no cost to consumers who purchase a two-year service plan.

In the shakeout stage of the industry, competitive characteristics in the industry change. Which of the following is not a change expected during this stage?

New firms enter with features that shakeup the incumbents. During the shakeout stage, firms compete directly for market share of a slowing market growth rate. The strongest firms are able to cut prices and increase features which drives some other firms out of the market altogether. There is not usually a volume of new firms entering the industry at this time.

Are laws and ethics synonymous?

No, staying within the laws is a minimum accepted standard or ethics.

How does governance at Northwestern Mutual differ from 99% of other insurance companies?

Northwestern Mutual is owned by its policy holders.

How can Northwestern Mutual's governance create a potential competitive advantage?

Reduced conflicts of interest reduce the potential for moral hazard in company leaders.

Which of the following best illustrates horizontal integration?

Rich Industries Inc. acquires its competitor, Keenbean Electronics Inc., to gain access to its core competencies.

During the growth stage of an industry life cycle, the focus is on product innovation until an industry standard or dominant design is established. Once this standard has been set, a firm should do which of the following during the growth stage in order to maintain its competitive advantage(s)?

Shift to process innovation focus. Once an industry standard has been established during the growth stage of an industry life cycle, the basis of competition shifts from product innovations toward process innovations. Competencies also tend to shift from product design to manufacturing and marketing.

What does it mean that directors have a fiduciary responsibility toward the shareholders?

They have a legal duty to act in the shareholders' interests.

Musk is a serial entrepreneur. The case compares Zip2 (his first startup) to PayPal (his second startup). He finds several similar characteristics for the firms, such as building with a small group of people, a non-hierarchical organization, and

a focus on the customer experience. Just as in strategic management where customer focused vision statements are superior to merely product focused ones (see Chapter 2), Musk sees customer focus as an entrepreneurial strength.

The management at Fast Autos Inc. and All Start Automobiles Inc. realized that, by combining the two entities, the stakeholders of both the companies would benefit. Their core competencies would act as complementary assets to each other. Consequently, All Start Automobiles joined with FastAutos to form a combined entity called Just All Start Inc. Which of the following does this scenario best illustrate?

a merger

The case illustrates that Toyota overall maintains a differentiated position in the market and continues to be successful across the globe. Which of the following business levers is highlighted in this effort to sustain a competitive advantage?

customer service Toyota has had several major product recalls and has maintained a superior ranking in survey responses through a high level of customer service. There are no particular product features or complements discussed in the case.

Which of the following is NOT a type of innovation?

developmental innovation There are four types of innovation: incremental, architectural, radical, and disruptive.

Blue Ocean strategies are difficult to execute because they combine cost leadership and ________ strategies.

differentiation Cost leadership and differentiation are Michael Porter's basic strategies, but Blue Ocean strategies can be very profitable by using tradeoffs that simultaneously increases value and lowers cost.

A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins resources and knowledge that are

difficult to imitate.

Which of the following developments has been an especially disruptive force for bricks-and-mortar retailers?

digitization of content

Which of the following innovations is said to invade an existing market from the bottom up by leveraging new technologies to attack existing markets?

disruptive innovation Disruptive innovation leverages new technologies to attack existing markets.

Impossible Foods' initial Impossible Meat products represent what type of innovation?

disruptive innovation Impossible foods is a new technology in an existing market that is entering at the low-end with fast food restaurants like Burger King so it is a disruptive innovation.

Which of the following is NOT a strategy in a declining industry?

entrench The four main strategies in declining industries are harvest, exit, consolidate, and maintain.

A merger is used to describe the combining of two companies that are

equal in size.

Which of the following is NOT a stage in the industry lifecycle?

equilibrium The stages of the industry lifecycle are introduction, growth, shakeout, maturity, and decline.

Which of the following is NOT a way firms typically innovate in pursuit of Blue Ocean strategies?

extract In pursuing Blue Ocean strategies firms create, raise, eliminate or reduce factors. They do not extract any factors.

When a firm wishes to consolidate the industry in which they compete by merging with their competitors, they are engaging in

horizontal integration.

Commercialization of research is created during the _______ phase.

idea The innovation process begins with an idea phase. Basic research is often transformed into applied research with commercial applications

The starting point of the Build-Borrow-Buy framework is

identifying a strategic resource gap that will impede future growth.

The entry of new competition occurs during the ______________ phase.

imitation If an innovation is successful in the marketplace, competitors will attempt to copy it.

Following a blue ocean strategy requires a company to

increase value and decrease costs. A blue ocean strategy is difficult to implement because it requires the reconciliation of fundamentally different strategic positions—differentiation and low cost—which in turn require distinct internal value chain activities that allow the firm to increase value and lower cost at the same time.

Suppose that a company has successfully used architectural innovation to reconfigure a product and is now the market leader. In order to improve its product offering, extend the time that it can extract profits from its products, and maintain high entry barriers for new rivals, it will most likely engage in ________ innovation next

incremental Firms use incremental innovation typically to improve their product offerings, extend the time that profits can be extracted from such offerings, and protect entry barriers from new entrants

Organizational inertia drives which type of innovation?

incremental innovation Organizational inertia represents the existing relationships and structures that encourage a firm to continue down an existing path which drives incremental innovation.

Competitors entering the market has driven Impossible Foods to create more varieties of their products. These products represent what type of innovation?

incremental innovation The creation of "meat products" like chicken and seafood are incremental advancements on the impossible meat that was initially created by Impossible Foods.

Disruptive innovation typically occurs by serving users what segment of the market?

low end Disruptive innovation typically begins with low end solutions for underserved customers and then moves upstream over time serving more and more customer segments.

Types of innovation can be classified by whether firms are innovating with new or existing ______and new or existing ______.

markets; technologies The four types of innovation are found by contrasting the markets (new or existing) with the technologies (new or existing) that a firm is using to pursue innovation.

Who is the target market for Impossible Foods?

meat eaters Impossible Foods targets those who are meat eaters, as their goal is to create a product that tastes just like meat.

Riley works remotely for Harker Communications, and her work requires her to travel extensively. Because she has no direct supervision in many of the locations, Riley takes advantage of the situation to work on personal projects instead of company projects. This scenario exemplifies a(n)

moral hazard.

A (n) ________ is the most common type of strategic alliance because it is easy to initiate and terminate.

non-equity alliance

An alliance qualifies as strategic only if it has the potential to affect a firm's competitive advantage—in other words, when it joins together resources and knowledge in a combination that

obeys the VRIO principles.

A strategy canvas comparing JetBlue to the differentiated and low-cost airlines provides a visual depiction of some of the issues found in the JetBlue discussion throughout the chapter. Which three factors in the canvas most prominently show the key problems at JetBlue?

price, connections, and customer service JetBlue's current value innovation has the firm in the poorly-positioned middle on price, connections, and customer service. These are areas the company needs to work on improving to get back to a successful blue ocean strategy.

Blue ocean strategies do all of the following except

protect market position. Blue ocean is a metaphor that represents untapped market space, the creation of additional demand, and the resulting opportunities for highly profitable growth.

What are the benefits of following a horizontal integration strategy

reduce competition, lower costs, increased differentiation

Toyota has undergone difficult times in recent years, as explained in the case. What attribute does Toyota seize as a way to move forward?

refocusing on their core value creation tools Toyota/Lexus have reaffirmed important values long held by the organization and have taken steps to improve their business by increasing their customer focus.

All of the following are strategies an established firm can adopt in order to protect itself from disruptive innovation by rivals except

rely primarily on architectural innovation to frequently offer "reconfigured" products. An established firm can protect itself from disruptive innovation by protecting the low-end market segment, listening to more than just its current customer base, engaging in disruptive innovation, and staying nimble and open to change.

Which of the following is an example of explicit knowledge?

research findings published in a scientific journal

Elon Musk's approach to social entrepreneurship is quite different than that of Jimmy Wales, who founded Wikipedia, the open source, free encyclopedia funded solely by donations. However, both men looked beyond the financials to a greater social good for their organizations. The major difference in the organization Jimmy Wales founded from those started by Elon Musk is that Musk's approach was

to undertake economic risk. To start the firm with his own limited funds was a financially high economic risk decision.

A strategic position is the firm's profile based on value creation and cost. Effective managers will create a large gap between the ________ and the cost required to produce it

value the firm creates with its product or service The goal of a strategic position is to create as large a gap as possible between the value of the firm's product (service) and the cost required to produce it

What is an example of a business model that provides a base product for free, and the producer finds other ways to monetize the usage?

video games

One of the major differences between inside directors and outside directors of a company is that outside directors are more likely to

watch out for the interests of the shareholders of the company.

What is meant by horizontal integration?

when one business joins with another business at the same stage of the supply chain