4490 Chapter 5

sustainable strategy

A strategy along the economic, social, and ecological dimensions that can be pursued over time without detrimental effects on people or the planet.

True or false: The best measure of competitive advantage can be found in the performance of specific departments.

False

True or false: The freemium business model can be considered an evolutionary variation on the razor--razor-blade model.

True

With a(n) ______, firms describe how they turn strategy into action.

business model

Triple Bottom Line

combination of economic, social, and ecological concerns - or profits, people, and planet- that can lead to a sustainable strategy

Fixed costs are ______ consumer demand.

independent of

Which of the following performance dimensions matter in judging the effectiveness of a firm's strategy? (Check all that apply.) qualitative international natural quantitative

qualitative quantitative

The business model used by telecommunication companies when they provide a basic cell phone at no charge when the customer signs a two-year contract is a combination of which of the following types of business models? (Check all that apply.) razor--razor-blade pay-as-you-go subscription freemium

razor--razor-blade subscription

Which of the following are among the most commonly used metrics for comparing the performance of different companies? (Check all that apply.) return on strategic intent return on assets return on opportunity return on revenue return on equity

return on assets return on revenue return on equity

From the view of a shareholder, the measure of competitive advantage that matters most is return on ______.

risk capital

Which of the following would provide the best benchmark of a computer firm's performance relative to other high-tech firms?

the NASDAQ computer index

When managers analyze a wide variety of internal and external performance metrics in order to set financial and strategic goals, they often turn to a framework known as ______.

the balanced scorecard

A company's total return to shareholders consists of which of the following? (Check all that apply.) Wages Stock price appreciation Capital depreciation Dividends received

Stock price appreciation Dividends received

Which of the following statements about the disadvantages of the value creation perspective are correct? The value that a consumer places on a good can vary according to how the consumer feels at a particular moment. It is difficult to determine the value that consumers place on a given good. For large firms, it is difficult to estimate the economic value created for all products and services offered by the firm. The meaning of value creation differs between services and products.

The value that a consumer places on a good can vary according to how the consumer feels at a particular moment. It is difficult to determine the value that consumers place on a given good. For large firms, it is difficult to estimate the economic value created for all products and services offered by the firm.

Which business model evolved from the razor—razor-blade model and involves a firm providing a base product for free, then finding ways to monetize the usage?

the freemium business model

The subjectively determined maximum amount a customer would pay for a product is its ______ price.

reservation

The legal owners of publicly traded companies are called ______.

shareholders

Which of the following dimensions make up the triple bottom line? (Check all that apply.) social economic ecological international

social economic ecological

business model

stipulates how the firm conducts its business with its buyers, suppliers, and partners in order to make money

The most a consumer is willing to pay for a product is equivalent to the product's ______.

total perceived consumer benefits

Investors in a company are mostly concerned about the company's ______.

total return to shareholders

The Luminarium Corporation has a market capitalization of $100,000,000, and each share is worth $100. How many outstanding shares of Luminarium Corporation are there?

1,000,000

economic value created

Difference between value (V) and cost (C), or (V - C).

In a subscription-based business model, customers pay for ______.

access to a product or service

The financial metric ROIC stands for return on invested _________. (Remember to enter only one word in the blank.)

capital

If Tom would have paid $1,000 for a new laptop but was able to purchase one for $800, the $200 he saved is considered his ______.

consumer surplus

Which of the following are the key questions for understanding the balanced scorecard? (Check all that apply.) How do shareholders view us? What are the optimal prices of our products and services? What core competencies do we need? How do customers view us? How do we create value?

How do shareholders view us? What core competencies do we need? How do customers view us? How do we create value?

A firm's actual ______ minus depreciation is called the book value.

costs of assets

To determine a product's producer surplus, which of the following must be compared? (Check the two that apply.) The overhead costs The cost of production The price charged The number of products sold

The cost of production The price charged

Which of the following is true about shareholders of a public company?

They can be individuals or organizations.

To measure firm-level competitive advantage, a company must ______.

estimate the economic value created for all products and services offered by the firm

To determine the value of a good in the eyes of consumers, a firm can ______.

examine consumers' purchasing habits for their revealed preferences

The difference between the cost of producing a product and the price consumers are willing to pay for that product is known as ______.

economic value created

The money a firm spends to set up a sales website can be considered a ______ cost.

fixed

Premium services cost money with complimentary basic services, is a description of which type of business model?

freemium

For a product that has a large economic value, a firm can choose to charge the same price as competitors in order to ______.

gain market share

Answering the balanced scorecard question of "how do we create value?" challenges managers to develop strategic objectives that ensure future ______. (Check all that apply.) profit margins innovation organizational learning competitiveness

innovation organizational learning competitiveness

To understand how effectively a firm uses its capital, one can use the ratio ______.

net profits/invested capital

When a firm does favorably compared to similar firms, it is said to ______.

outperform

Another name for producer surplus is _. (Remember to enter only one word in the blank.)

profit

Which of the following statements is true about a firm's stock price?

The price determines in part the stock's market valuation.

When competitive advantage is assessed from an analysis of publicly available data, a firm measures its ______.

accounting profitability

Economic value created is the ______ the cost to produce a product/service and the amount the buyer is willing to pay for it.

difference between

Everybody can use the basic version of Dropbox for free, but needs to pay for premium services. Dropbox operates on a ______ business model.

freemium

The balanced scorecard framework draws from which of the following?

from multiple internal and external performance metrics

When a trade occurs, the consumer and producer both capture ______.

some of the economic value

Combining the razor-razor-blade model and the subscription model means that telecom providers make their money through lengthy service plans, which in turn means that it is crucial that they keep their ______ rate, or the proportion of subscribers who leave, down.

churn

When you join the vehicle-sharing company Zoooomm, you are allowed to use a motorized scooter whenever you like, though you do not have to own the machine. You have to pay by the hours of usage. Zoooomm operates on a ______ model.

pay-as-you-go

Which statements about creating and implementing an effective business model are true? Firms must implement their competitive strategy blueprint through processes, procedures, culture, and structure. Firms must transform their competitive strategy into a blueprint of initiatives and actions that support their goals. Firms that wish to be truly innovative and original must avoid using a blueprint, which might be limiting. Firms must use a blueprint to come up with strategies for how the firms will compete in the market.

Firms must implement their competitive strategy blueprint through processes, procedures, culture, and structure. Firms must transform their competitive strategy into a blueprint of initiatives and actions that support their goals.

Which of the following are true of a firm's book value? (Check all that apply.) Its importance has declined over time. It captures the historical cost of a firm's assets. It is calculated as costs of assets minus accumulated depreciation. It is based on future valuations of a firm.

Its importance has declined over time. It captures the historical cost of a firm's assets. It is calculated as costs of assets minus accumulated depreciation.

Which of the following industries use a subscription model? (Check all that apply.) Magazines Car rental Internet providers Cellphone providers

Magazines Internet providers Cellphone providers

Which statements about stock market valuations are true? Viewed over the long term, stock market valuation is a useful metric for assessing competitive advantage. Investors generally take a poor view of stock market valuation because it includes all shares in its calculation. Stock market valuation is the estimated increase in a stock's value during the next fiscal year. Stock market valuation is equal to the number of outstanding shares multiplied by the share price.

Viewed over the long term, stock market valuation is a useful metric for assessing competitive advantage. Stock market valuation is equal to the number of outstanding shares multiplied by the share price.

According to the efficient-market hypothesis, information about which of the following is embedded in a stock price? (Check all that apply.) a firm's political views a firm's current state a firm's past expectations of the firm's future performance

a firm's current state a firm's past expectations of the firm's future performance

When a firm goes bankrupt, shareholders ______.

cannot recover their risk capital

Which of the following would be labeled variable costs by a computer manufacturer? (Check all that apply.) manufacturing facilities hard drives the administrative assistant display screens

hard drives display screens

Which of the following are standard performance dimensions for a company? (Check all that apply.) how a firm's mission statement relates to its strategic intent how much shareholder value a firm creates how much economic value a firm generates the fixed and variable costs a firm's accounting profitability

how much shareholder value a firm creates how much economic value a firm generates a firm's accounting profitability

Which of the following are elements of the social dimension of the triple bottom line? (Check all that apply.) improving recycling efforts reducing overhead costs human sustainability achieving work/life balance

human sustainability achieving work/life balance

In order to determine market capitalization, one multiplies which of the following together? (Check all that apply.) value of the dollar total market value number of outstanding shares share price

number of outstanding shares share price

In order to be considered a legal owner of a public company, a person or organization must ______.

own at least one share of the company's stock

Which of the following statements about the disadvantages of the accounting profitability perspective are correct? Accounting data are highly volatile and thus difficult to use Accounting data are historical and therefore backward-looking Accounting data focus primarily on tangible assets Accounting data focus mostly on intangible assets

Accounting data are historical and therefore backward-looking Accounting data focus primarily on tangible assets

At 3M one strategic objective that has been implemented is that 30% of revenues must be obtained from new product introductions. This is an objective that would arise as an answer to which of the following balanced scored questions?

How do we create value?

When implementing the razor-razorblade strategy, companies make their profit from ______.

complementary goods

The pay-as-you-go model is ______.

gaining momentum

Achieving competitive advantage means maximizing the difference between which of the following? (Check the two that apply.) advertising costs the number of rival firms cost to produce the good or service consumers' willingness to pay

cost to produce the good or service consumers' willingness to pay

Which of the following correctly describe the information used for comparing the performance of public companies based on accounting profitability? (Check all that apply.) The relative performance is evaluated using standardized financial metrics. The information must be purchased from private investment banks. The information is derived from such data as income statements and balance sheets. The information is filed in a 10-K report.

The relative performance is evaluated using standardized financial metrics. The information is derived from such data as income statements and balance sheets. The information is filed in a 10-K report.

value

the dollar amount (V) a consumer attaches to a good or service; the consumer's maximum willingness to pay; also called reservation price

Economic value creation is calculated as ______.

the sum of consumer and producer surplus

Which of the following statements are true concerning a firm's business model? (Check all that apply.) It reports the firm's latest accounting profitability. It indicates the way the firm works with buyers and suppliers. It details the firm's competitive tactics and initiatives. It essentially explains how the firm intends to make money.

It indicates the way the firm works with buyers and suppliers. It details the firm's competitive tactics and initiatives. It essentially explains how the firm intends to make money.

If a firm has a successful ______ strategy, its product will have a higher perceived value and the firm will have a competitive advantage over a competitor that creates a product at equal cost but with a lower reservation price.

product differentiation

When a company offers video-game consoles at a steep discount, but charges customers high fees for games, they are operating on a ______ business model.

razor—razor-blade

Netflix had a successful business model based on a large library of streaming content but then achieved even more success by also producing and distributing original content. This is an example of the potential value of ______.

business model innovation

Managers implement the blueprint of their business model through which of the following? (Check all that apply.) voice memos culture processes structures

culture processes structures

True or false: Stock market valuations are often unreliable due to market fluctuations and are therefore not used to assess competitive advantage.

False

If Firm A and Firm B both produce a laptop at the same total cost, but the reservation price for Firm A's laptop is $1,000 and the reservation price for Firm B's laptop is $1,200, who has the competitive advantage?

Firm B

Compared to the past, the importance of firms' intangibles has increased. Therefore the importance of a firm's book value has ______ as part of the firm's total stock market valuation.

decreased