BUS 498 Questions

A firm's _______ are best described as distinct and fine-grained business processes such as order taking, physical delivery of products, or invoicing customers. A. activities B. capabilities C. capital gains D. resource flows

A. activities Explanation Activities are distinct and fine-grained business processes such as order taking, physical delivery of products, or invoicing customers. Each distinct activity enables firms to add incremental value by transforming inputs into goods and services.

If a company chooses to keep its vision customer-oriented rather than product-oriented, what will be the implication of that decision? A. The company will tend to be more flexible when adapting to changing environments. B. The company will clearly define how it means to satisfy a customer need. C. The company will fail to establish a positive relationship between its vision statement and performance. D. The company will have a short-term, unidirectional focus.

A. The company will tend to be more flexible when adapting to changing environments. Explanation Companies that have customer-oriented visions tend to be more flexible when adapting to changing environments. In contrast, companies that define themselves based on product-oriented statements tend to be less flexible and thus more likely to fail.

How do complements affect a primary product or service? A. They increase the demand for the primary product. B. They lower the utility of the primary product. C. They reduce the value of the primary product. D. They act as the strategic equivalent of the primary product.

A. They increase the demand for the primary product. Explanation Complements increase the demand for a primary product, thereby enhancing the profit potential for the industry and the firm.

Which of the following firms most likely has the lowest bargaining power as a buyer? A. a cell phone company that requires highly customized software for its phones B. a government agency that buys large quantities of cement from a private supplier C. a fast food chain that has multiple suppliers for processed meat D. an automobile company that can backwardly integrate to produce its own component parts

A. a cell phone company that requires highly customized software for its phones Explanation The firm that most likely has the lowest bargaining power as a buyer is a cell phone company that requires highly customized software for its phones. The power of buyers is high when the industry's products are standardized or undifferentiated commodities. When suppliers offer products that are differentiated, the bargaining power of buyers reduces.

In the context of the VRIO framework, a resource is said to be valuable if it A. allows a firm to take advantage of an external opportunity. B. helps a firm increase its costs but lower its prices. C. leads to competitive parity within an industry. D. results in a perfectly competitive industry structure.

A. allows a firm to take advantage of an external opportunity. Explanation In the context of the VRIO framework, a resource is said to be valuable if it allows a firm to take advantage of an external opportunity and/or neutralize an external threat. A resource is valuable if it helps a firm increase the perceived value of its product or service in the eyes of consumers, either by adding attractive features, or by lowering price because the resource helps the firm lower its costs.

Generally speaking, which of these situations is likely to lead to greater profits? A. an industry with fewer but larger competitors B. a situation that encourages operating at excess capacity C. an industry that is about to undergo deregulation D. a fragmented industry rather than a consolidated one

A. an industry with fewer but larger competitors Explanation Because a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through horizontal mergers and acquisitions. Having fewer competitors generally equates to higher industry profitability. Industry incumbents, therefore, have an incentive to reduce the number of competitors in the industry. With fewer but larger competitors, incumbent firms can mitigate the threat of strong competitive forces such as supplier or buyer power more effectively.

Supreme Coffee Roasters is a premium cafe that is reputed for its superior customer service. The coffee shop also serves gourmet food to its customers, which allows it to charge a premium price. Cheap Beans, in contrast, is a chain of coffee shops that charges the lowest price in the industry due to its self-service policy. However, Vale's Coffee Inc. has found a balance between these two strategic groups by using automated ordering to free up its employees to work as master baristas and bakers, thus focusing on creating excellent products. It charges a price slightly above that of Cheap Beans. In this scenario, Vale's Coffee is following a A. blue ocean strategy. B. market penetration strategy. C. product diversification strategy. D. liquidation strategy.

A. blue ocean strategy. Explanation In this scenario, Vale's Coffee is following the blue ocean strategy. A blue ocean strategy allows a firm to offer a differentiated product or service at low cost.

In the dynamic capabilities perspective, for an asset or a capability to be included in a firm's resource stock, it should be A. built through investments over time. B. capable of reducing the barriers to entry in an industry. C. commonly shared by other firms in the same industry. D. readily available for purchase using cash.

A. built through investments over time. Explanation Resource stocks are a firm's current level of intangible resources, and intangible resources are built through investments over time. According to the dynamic capabilities perspective, the managers' task is to decide which investments to make over time in order to best position the firm for competitive advantage in a changing environment.

How has Walmart staked out a unique strategic position? A. by cutting costs to offer lower prices than competitors B. by providing excellent customer service in a luxury setting C. by investing 100% of profits in community development programs D. by paying high wages to attract the most talented employees

A. by cutting costs to offer lower prices than competitors Explanation Walmart's strategic activities strengthen its position as cost leader: Big retail stores in rural locations, extremely high purchasing power, sophisticated IT systems, regional distribution centers, low corporate overhead, and low base wages and salaries combined with employee profit sharing reinforce each other, to maintain the company's cost-leadership.

What term is used to describe cooperation by competitors who want to achieve a strategic objective? A. co-opetition B. strategic commitment C. strategic competition D. complementary assets

A. co-opetition Explanation Co-opetition occurs when otherwise competition firms form strategic alliances in order to take on a larger, more established firm.

Oberlo Autos competes against the global leaders in the automobile industry by developing and selling acceptable quality vehicles at a lower price. This has been possible due to the company's large-scale production that reduces its manufacturing expenses. Which of the following generic business strategies is Oberlo Autos applying in this scenario? A. cost-leadership strategy B. differentiation strategy C. liquidation strategy D. product diversification strategy

A. cost-leadership strategy Explanation In this scenario, Oberlo Autos 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.

Measuring how a customer views a firm under the balanced scorecard framework is important because A. customer perspective is directly linked to a firm's revenue and profit. B. knowing how customers view us can help us predict when an economic recession is coming. C. garnering customer feedback signals their importance to the company. D. the customer perspective reveals how rivals operate in the same industry.

A. customer perspective is directly linked to a firm's revenue and profit. Explanation The customer's perspective is very important given the relationship that exist between the value of the products and services offered and the profit potential of the firm.

The metaphor of a black swan best applies to A. events that are considered highly unexpected and highly impactful when they do occur. B. low profitable strategic business units within a large enterprise that are best divested or liquidated. C. highly profitable business units in low growth markets that are to be sustained solely for revenue generation. D. small businesses that become successful enough to raise capital through initial public offering.

A. events that are considered highly unexpected and highly impactful when they do occur. Explanation Today, the metaphor of a black swan describes the high impact of a highly improbable event. Black swan events are considered to be highly improbable and thus unexpected, but when they do occur, each has a very profound impact.

Organizational core values are the answer to which of the following questions? A. What is the value added to a good or service at each step in the production? B. What commitments do we make to act both legally and ethically? C. What is the company's customer lifetime value? D. Which of the value chain activities are primary?

B. What commitments do we make to act both legally and ethically? Explanation The values espoused by a company provide the answer to the question, What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission? They help individuals make choices that are both ethical and effective in advancing the company's goals.

According to the upper-echelons theory, A. strong strategic leadership is solely the result of learning. B. top managers of a company should isolate themselves from the organizational values. C. organizational outcomes reflect the values of the top management team. D. strategic commitments made by upper-level managers are inexpensive and short-term.

C. organizational outcomes reflect the values of the top management team. Explanation According to the upper-echelons theory, organizational outcomes including strategic choices and performance levels reflect the values of the top management team (the individuals at the upper echelons, or levels, of an organization).

MicroChips Corp. is a company that supplies microprocessors to 2020 Processors Inc., a computer hardware company. When 2020 Processors Inc. demands lower prices for the microprocessors, MicroChips Corp. makes it clear that it would profit more from launching its own brand of laptops and desktops in the market. Fearing the competition it would then face from MicroChips Corp., 2020 Processors Inc. decides to buy the microprocessors at the quoted price itself. In this scenario, MicroChips Corp., as a supplier, has exercised its bargaining power by threatening to A. forward integrate. B. outsource. C. backward integrate. D. crowdsource.

A. forward integrate. Explanation In this scenario, MicroChips Corp. as a supplier has exercised its bargaining power by threatening to forward integrate. The relative bargaining power of suppliers is high when they can credibly threaten to forward integrate into the industry.

The amount that savers are paid for use of their money and the amount that borrowers pay for that use is best described as a(n) A. interest rate. B. service tax. C. surcharge. D. royalty fee.

A. interest rate. Explanation A key macroeconomic variable for managers to track is interest rates—the amount that savers are paid for use of their money and the amount that borrowers pay for that use.

One major limitation of using shareholder value appreciation as a measure for assessing competitive advantage is that stock prices often times reflect the irrational and psychological mood and behaviors of investors. Alan Greenspan, former head of the Federal Reserve referred to this as A. irrational exuberance. B. efficient-market hypothesis. C. economic value creation. D. satisficing.

A. irrational exuberance.

An experience curve attempts to capture both A. learning effects and process improvements. B. network effects and diseconomies of scale. C. economies of scope and network effects. D. time compression diseconomies and mass customizations.

A. learning effects and process improvements. Explanation The concept of an experience curve attempts to capture both learning effects and process improvements.

Restrictions imposed by the government, such as export quotas on certain products, are a part of the ________ environment of the PESTEL framework. A. political B. sociocultural C. economic D. ecological

A. political Explanation The political environment describes the processes and actions of government bodies that can influence the decisions and behavior of firms. Governments, for example, can affect firm performance by exerting political pressure on companies.

Economic contribution is created when the A. price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it. B. value a consumer attaches to a good or service is lesser than what he or she paid for it. C. price a customer is willing to pay for a good is less than what it costs the firm to manufacture it. D. revenue generated by selling a unit of a product is equal to the cost incurred by the firm in producing it.

A. price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it. Explanation Economic value created is the difference between value (V) and cost (C); sometimes also called economic contribution.

Which of the following has contributed to Tesla's competitive advantage in terms of stock appreciation? A. reinvesting profits to continually design and produce better electric vehicles B. copying the most popular features of competitors' vehicles C. keeping its proprietary technologies secret D. using inexpensive materials to keep costs low

A. reinvesting profits to continually design and produce better electric vehicles Explanation As discussed in the Chapter Case, Tesla's strategy of constantly reinvesting profits to improve on its products and capabilities is key to its ability to achieve a competitive advantage. Rather than keep its proprietary technologies secret, Tesla has made them available to the public to expand the overall market for electric cars.

The annual net profit after taxes for Tele Corp., a multinational conglomerate, is $5.5 billion. As legal owners, which of the following stakeholder groups has the most legitimate claim on this profit? A. shareholders B. managers C. government D. local communities

A. shareholders Explanation As the legal owners, shareholders have the most legitimate claim on the company's profits. A firm has to ensure that its primary stakeholders—the firm's shareholders and other investors—achieve their objectives.

The auditor of a public company is assessing the value of all the intangible assets owned by the company. Which of the following would most likely be included in this assessment? A. the company's brand equity B. the company's plant and equipment C. the company's cash reserves D. the company's headquarters

A. the company's brand equity Explanation Intangible resources have no physical attributes and thus are invisible. Examples of intangible resources are a firm's culture, its knowledge, brand equity, reputation, and intellectual property.

When a company makes improvements in its social, economic, and ecological performance, it is adopting a ________ approach to assessing competitive advantage. A. triple-bottom-line B. strategic C. balanced scorecard D. customer-centric

A. triple-bottom-line Explanation When a company focuses and makes improvements in its social, economic, and ecological performance, it is adopting a triple-bottom-line approach to gaining competitive advantage.

The two primary competitive levers that managers can use in order to answer the question of how to compete are A. value and cost. B. core competencies and competitive advantage. C. accounting profitability and shareholder returns. D. profit and loss.

A. value and cost. Explanation The two primary competitive levers are value and cost. Value supports a differentiation strategy while cost support a cost-leadership strategy.

Which of the following is not one of the VRIO characteristics of competitive advantage? A. variable B. organized to capture value C. rare D. costly to imitate

A. variable Explanation The correct answer should be valuable, not variable.

Which of the following statements related to a firm's stakeholders is not true? A. Effective stakeholder management is an example of how managers can act to enhance a firm's competitive advantage. B. While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits. C. A firm's stakeholders include organizations and groups along with individuals who can affect or be affected by the firm's actions. D. If internal or external stakeholders withhold participation in the firm's exchange relationships, it can have severe negative performance implications.

B. While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits. Explanation All stakeholders make specific contributions to a firm, which in turn provides different types of benefits to different stakeholders. Stakeholders expect that companies will pay taxes, provide employment, and not pollute the environment. The firm, therefore, is embedded in a multifaceted exchange relationship with a number of diverse internal and external stakeholders.

If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is A. a state of perfect competition. B. a temporary competitive advantage. C. direct imitation. D. strategic equivalence.

B. a temporary competitive advantage. Explanation If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is a temporary competitive advantage. One of the four key criteria in the VRIO framework is being organized to capture value; the characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies.

A diagnosis of the competitive challenge, an element of a good strategy, is primarily accomplished through strategy A. formulation. B. analysis. C. control. D. implementation.

B. analysis. Explanation A good strategy consists of a diagnosis of the competitive challenge. This element is accomplished through strategy analysis of the firm's external and internal environments.

Which of the following groups is most likely to be considered a firm's internal stakeholder? A. customers B. board members C. alliance partners D. creditors

B. board members Explanation Stakeholders can be grouped by whether they are internal or external to a firm. Internal stakeholders include stockholders, employees (including executives, managers, and workers), and board members.

GiftBasket.com has successfully created a higher perceived value in the e-commerce industry, though it offers the same products at slightly higher prices than the competitors. This has been mainly attributed to the company's easy-to-navigate website, simple return procedures, fast delivery, and cash on delivery option. Thus, the value driver for GiftBasket.com is its A. lower value gap. B. economies of scale. C. superior customer service. D. availability of complements.

C. superior customer service. Explanation The value driver for GiftBasket.com is its superior customer service. Managers can increase the perceived value of their firms' product or service offerings by focusing on customer service and responsiveness.

Which of the following does a firm possess when it can outperform other firms in the same industry or the industry average over a prolonged period of time? A. strategic positioning B. consistent power position C. sustainable competitive advantage D. long-term capital gain

C. sustainable competitive advantage Explanation A firm that is able to outperform its competitors or the industry average over a prolonged period of time has a sustainable competitive advantage.

When the Alta Velocidad Española (AVE) was completed, it impacted Spain's local airline industry. Which of the following statements about the five forces does this reflect? A. Entry barriers in Spain's airline industry are relatively high because of the high costs involved. B. The combination of the competitive forces leads to collusion among existing airlines. C. Substitutes made it difficult for generating a profit potential in Spain's airline industry. D. Substitutes were not readily available because customers cannot use other means of transport.

C. Substitutes made it difficult for generating a profit potential in Spain's airline industry. Explanation Because the AVE provided customers with a quicker, more comfortable alternative to flying between Madrid and Barcelona, the threat of substitutes limited the industry's profit potential.

Which of the following statements will effectively guide a strategist? A. Strategy is all about competitive benchmarking and operational effectiveness. B. Industry and firm effects that determine firm performance are independent of each other. C. The principles of strategic management can be applied universally to all organizations. D. It is necessary to isolate the key stakeholders and their needs when formulating a strategy.

C. The principles of strategic management can be applied universally to all organizations. Explanation The principles of strategic management can be applied universally to all organizations. They work in organizations from government to free enterprise, from publicly-owned companies to privately-owned ones, from for-profit to nonprofit organizations, and in developed as well as emerging economies.

Onivo Auto Inc. has been the leader in low-cost and fuel-efficient engine technology for many years. It has been able to sustain its competitive advantage primarily because of its highly efficient automobile engines, which competitors have been unable to develop or buy at a reasonable price. In the context of the VRIO framework, which of the following resource attributes most likely underpins Onivo's competitive advantage? A. The resource neutralizes external opportunities. B. The resource decreases the perceived value of its products. C. The resource is costly to imitate. D. The resource is easy to replicate.

C. The resource is costly to imitate. Explanation The resource attribute that most likely underpins Onivo's competitive advantage is that it is costly to imitate. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a reasonable price.

Which of the following statements is true of customer-oriented visions? A. They state an organization's goals in terms of a good or service provided to customers. B. They are inflexible with regard to adapting to changing environments. C. They define a business in terms of providing solutions to people's needs. D. They tend to force managers to take a myopic view of the business environment.

C. They define a business in terms of providing solutions to people's needs. Explanation A customer-oriented vision defines a business in terms of providing solutions to customer needs. For example, "We are in the business of providing solutions to professional communication needs."

There are several cost drivers that can be managed in order to establish a low-cost leadership advantage. One of the primary cost drivers is A. adding unique features that turn standard commodities into differentiated products. B. combining experience-based learning and process innovation to move onto a steeper learning curve. C. shifting to small-scale production processes in order to create highly customized products. D. creating personalized customer service in order to minimize price sensitivity among customers.

B. combining experience-based learning and process innovation to move onto a steeper learning curve. Explanation By choosing a cost-leadership strategy, managers must focus their attention on lowering the overall costs of producing a product or service while maintaining an acceptable level of quality that will serve the needs of the customer. Combining experience-based learning and process innovation allows the firm to leapfrog to a steeper learning curve, thereby driving down its per-unit costs.

Strategic-group mapping establishes that A. competitive pressures within an industry are similar among all strategic groups. B. competitive rivalry is strongest between firms that are within the same strategic group. C. rivals inside a strategic group serve different customers. D. product features and prices are irrelevant to a strategic group.

B. competitive rivalry is strongest between firms that are within the same strategic group. Explanation Competitive rivalry is strongest between firms that are within the same strategic group. The closer firms are on the strategic-group map, the more directly and intensely they are in competition with one another.

Some scholars have added a sixth force to Porter's Five Forces model. This sixth force, ________, is believed to add value to the original product offering (or service) when the two are used in tandem. A. technological factor B. complement C. mobility barrier D. value chain

B. complement Explanation Complements increase value for the primary product, thereby enhancing the profit potential for the industry and the firm.

When using the balanced scorecard approach to assess a firm's performance, which of the following is not a key question that managers need to answer? A. How do customers view us? B. How do shareholders view us? C. What intangible assets do we need? D. How do we create value?

C. What intangible assets do we need? Explanation Managers using the balanced scorecard develop strategic objectives and appropriate metrics by answering four key questions: (1) How do customers view us?, (2) How do we create value?, (3) What core competencies do we need?, (4) How do shareholders view us?

In a focused differentiation strategy, a firm seeks to A. focus on reducing the value gap to differentiate itself from the competitors. B. deliver products or services with unique features to a specific, narrow part of the market. C. create higher customer value than the competitors in different segments of a mass market. D. offer low-priced products and services with a narrow focus on a niche market.

B. deliver products or services with unique features to a specific, narrow part of the market. Explanation The goal of a differentiation strategy is to add unique features that will increase the perceived value of goods and services in the minds of consumers so they are willing to pay a higher price. A focused differentiation strategy is same as the differentiation strategy except with a narrow focus on a niche market.

For a firm to sustain its competitive advantage, any fit between its internal strengths and the external environment must be A. valuable. B. dynamic. C. static. D. permanent.

B. dynamic. Explanation Dynamic capabilities are required for firms to sustain their competitive advantage because of the constant changing competitive and external environment in which firms operate.

The sum of consumer surplus and producer surplus for a good or service equals the A. total return to shareholders. B. economic value created. C. firm's profit. D. reservation price.

B. economic value created. Explanation Economic value creation equals consumer surplus plus firm profit, or the sum of consumer surplus and producer surplus.

The value of goods/services in the eyes of consumers is static which makes it difficult to accurately assess what someone is willing to pay for that product and service. This limitation is most directly tied to which of the following multi-dimensional perspective below? A. return on invested capital (ROIC) B. economic value creation C. accounting profitability D. shareholder value appreciation

B. economic value creation Explanation The value of a good in the eyes of consumers changes based on income, preferences, time, and other factors.

The idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of the firm's stock is called the A. price-demand function B. efficient-market hypothesis C. upper-echelons theory. D. time compression economies.

B. efficient-market hypothesis Explanation The idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of the firm's stock is called the efficient-market hypothesis. In this perspective, a firm's share price provides an objective performance indicator.

In the context of SWOT analysis, a firm can develop a defensive strategic option primarily by A. maximizing an external strength to exploit an internal opportunity. B. eliminating an internal weakness to mitigate an external threat. C. leveraging an external opportunity to overcome an internal threat. D. using an internal strength to exploit an external opportunity.

B. eliminating an internal weakness to mitigate an external threat. Explanation In the context of SWOT analysis, strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization. A firm can develop a defensive strategic option primarily by eliminating an internal weakness to mitigate an external threat.

All of the following below are examples of external stakeholders except A. customers. B. employees. C. government. D. communities.

B. employees. Explanation External stakeholders include those individuals and groups associated outside the firm such as; customers, suppliers, alliance partners, creditors, unions, communities, governments at various levels, and the media.

Which of the following is a philanthropic responsibility of a firm? A. providing products at appropriate prices B. exhibiting corporate citizenship C. not infringing on other firms' patents D. obeying government regulations

B. exhibiting corporate citizenship Explanation Philanthropic responsibilities are often subsumed under the idea of corporate citizenship, reflecting the notion of voluntarily giving back to society.

The greater the difference between value creation and cost, the A. greater a firm's competitive parity B. greater a firm's economic contribution. C. less likely that a firm's strategic position will be competitive. D. less likely a firm will gain competitive advantage.

B. greater a firm's economic contribution. Explanation The greater the difference between value creation and cost, the greater the firm's economic contribution and the more likely it will gain competitive advantage.

The relative bargaining power of suppliers is most likely low when A. the suppliers' industry is more concentrated than the industry it sells to. B. incumbent firms face low switching costs when changing suppliers. C. the suppliers provide products that are differentiated. D. there are no readily available substitutes for the products and services they offer.

B. incumbent firms face low switching costs when changing suppliers. Explanation The relative bargaining power of suppliers is most likely low when incumbent firms face low switching costs when changing suppliers.

Which of the following is a stakeholder attribute that managers should consider at every step in a stakeholder impact analysis? A. literacy B. legitimacy C. solvency D. supremacy

B. legitimacy Explanation Stakeholder impact analysis takes managers through a five-step process of recognizing stakeholders' claims. In each step, managers must pay particular attention to three important stakeholder attributes: power, legitimacy, and urgency.

If a company has 25 million shares outstanding, and each share is traded at $400, the ________ is $10 billion. A. customer lifetime value B. market capitalization C. return on revenue D. total return to shareholders

B. market capitalization Explanation Market capitalization (or market cap) captures the total dollar market value of a company's outstanding shares at any given point in time (Market cap = Number of outstanding shares × Share price).

A blue ocean strategy typically allows a firm to A. reduce the value gap created by their products. B. offer a differentiated product or service at low cost. C. add product features that raise costs without raising the perceived value. D. provide unique product or service features at a premium price.

B. offer a differentiated product or service at low cost. Explanation A blue ocean strategy allows a firm to offer a differentiated product or service at low cost.

The cost-leadership strategy helps a firm achieve competitive advantage when it does which one of the following? A. helps a firm create as large a gap as possible between the differential value created and the cost required B. permits a firm to perform similar activities differently than its rivals with resulting lower costs C. permits a firm to perform different activities than its rivals with greater value creation D. permits a firm to perform similar activities than its rivals with greater costs or lower value creation

B. permits a firm to perform similar activities differently than its rivals with resulting lower costs Explanation Cost-leadership focus is on achieving industry-leading cost structures, which usually result in these firms performing similar activities to others, but with more efficient or improved cost.

Dr. Shetty is able to drive down the cost of complex medical procedures from $100,000 to $2,000 not by doing one big thing, but rather by doing a thousand small things. This approach focuses on driving down the cost of health care through A. cost of input factors. B. process innovation. C. value of input factors. D. product innovation.

B. process innovation. Explanation In Strategy Highlight 6.1, Dr. Shetty shows that he is able to drive down the cost of complex medical procedures from $100,000 to $2,000 not by doing one big thing, but rather by doing a thousand small things. This approach focuses on driving down the cost of health care through process innovation. Dr. Shetty is applying the concept of the learning curve to make a complex procedure routinely and comparatively inexpensive.

A firm is likely to have a competitive advantage when it A. minimizes the difference between value creation and the costs involved B. provides services that consumers will value more than those of its rivals. C. performs at a level similar to the other firms in the industry. D. provides goods similar to those of its competitors, but at a higher price.

B. provides services that consumers will value more than those of its rivals.

A firm that follows the differentiation strategy is protected from the threat of new entrants primarily due to its A. low pricing. B. reputation for quality. C. low cost per unit. D. diseconomies of scale.

B. reputation for quality. Explanation A successful differentiation strategy is likely to be based on unique or specialized features of the product, on an effective marketing campaign, or on intangible resources such as a reputation for innovation, quality, and customer service. A rival would need to improve the product features as well as build a similar or more effective reputation in order to gain market share. The threat of entry is reduced: Competitors will find such intangible advantages time-consuming and costly, and maybe impossible, to imitate.

According to the value chain analysis, which of the following is a support activity? A. production and operations B. research and development C. supply chain management D. marketing and sales

B. research and development Explanation According to the value chain analysis, research and development is a support activity. Support activities add value indirectly. These activities—such as research and development (R&D), information systems, human resources, accounting and finance, and firm infrastructure including processes, policies, and procedures—support each of the primary activities.

A firm decides to retain $20,000 from its annual earnings and invest it in developing an advanced manufacturing system. According to the dynamic capabilities perspective, the $20,000 would most likely be referred to as the firm's A. marginal utility. B. resource flow. C. capital gain. D. frozen asset.

B. resource flow. Explanation In this scenario, the $20,000 would most likely be referred to as the firm's resource flow. Resource flows are the firm's level of investments to maintain or build a resource.

Which of the following is an example of a firm's capabilities? A. routine activities performed in the firm, like physical delivery of products B. skills involved in training and managing a workforce C. specific tasks involved in the invoicing of customers D. assets such as plant and machinery owned by the firm

B. skills involved in training and managing a workforce Explanation Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. A firm's capabilities include skills involved in training and managing a workforce.

Within the context of strategic management it is important to understand that black swan events in the past have demonstrated that A. companies can successfully integrate cost-leadership and differentiation strategies. B. stakeholders can affect or be affected by a firm's actions. C. capitalism as an economic system is highly reliable. D. globalization has reduced the need for standardized corporate ethics.

B. stakeholders can affect or be affected by a firm's actions. Explanation With regard to black swan events, two common features are pertinent to the study of strategic management. First, these events demonstrate that managerial actions can affect the economic well-being of large numbers of people around the globe. The second pertinent feature relates to stakeholders—organizations, groups, and individuals who can affect or be affected by a firm's actions.

Which of the following SWOT factors are internal to the firm? A. weaknesses and opportunities B. strengths and weaknesses C. threats and strengths D. opportunities and threats

B. strengths and weaknesses Explanation Strengths and weaknesses are internal, meaning that the firm has control over these elements versus opportunities and threats that are external.

All of the following are examples of internal stakeholders except. A. employees. B. suppliers. C. stockholders. D. board members.

B. suppliers. Explanation Internal stakeholders include those individuals and groups associated within the firm such as; employees (executives, managers, and workers), stockholders, and board members

One major limitation of using accounting profitability as a measure for competitive advantage is its focus on ________ versus ________. A. business strategy; corporate strategy B. tangible assets; intangible assets C. ROIC; Net Profit D. resources; capabilities

B. tangible assets; intangible assets Explanation This limitation of accounting data is nicely captured in the adage: Not everything that can be counted counts. Not everything that counts can be counted. Such is the case with Apple's core competency in designing beautiful and user-friendly mobile devices embedded within a large ecosystem of various services which cannot be found in their balance sheet.

In a perfectly competitive industry structure A. resource heterogeneity is high. B. competitors cannot quickly acquire resources used by the current market leader. C. any competitive advantage that one firm has will be short-lived. D. resource immobility is high.

C. any competitive advantage that one firm has will be short-lived. Explanation The critical assumptions of the resource-based model are fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure. In perfect competition, all firms have access to the same resources and capabilities, ensuring that any advantage that one firm has will be short-lived.

When a firm integrates the competitive strategies of cost-leadership and differentiation, it will most likely result in A. competitive parity with firms that have adopted either of the strategies. B. a competitive advantage through superior performance. C. trade-offs that work against each other. D. an increase in the firm's economic contribution.

C. trade-offs that work against each other. Explanation Although the idea of combining different business strategies seems appealing, it is actually quite difficult to execute an integrated cost-leadership and differentiation position. Cost-leadership and differentiation are distinct strategic positions. Pursuing them at the same time results in trade-offs that work against each other.

While most of Savvy Inc.'s competitors were moving toward developing and emerging markets, Savvy Inc. decided to keep its operations limited to its home country so that it could gain some advantage. A few years later, however, Savvy Inc. lost its footing in the home market due to a sharp fall in demand. It then decided to invest in large-scale operations in the same developing nations as its competitors, within a short period of six months. However, its costs kept increasing, so it could not compete against the already established brands. In this scenario, the failure of Savvy Inc. can be best attributed to A. better expectations of future resource value. B. time compression diseconomies. C. resource mobility. D. economies of scale.

B. time compression diseconomies. Explanation This failure of Savvy Inc. can be best attributed to time compression diseconomies. When attempting to compress lots of effort and resources such as research and development into a short time period, it will not be as effective as when a firm spreads out its effort and investments over a longer period of time. Trying to achieve the same outcome in a short time period, even with higher investments, tends to lead to inferior results.

Evaluating the data collected from environmental analysis, the corporate executives of BigPharma Inc. realized that it was the right time to expand the business. The company's vision was accordingly adjusted from "To Be the Best in the Pharmaceutical Industry" to "To Make Good Health Accessible to Everyone around the Globe." To support the new vision, the executives decided that the company would first enter the Asian market where its growth potential would be huge. To further support these decisions, the general managers of different SBUs and the functional managers formulated their own strategies. Which of the following approaches to the development of strategy does this best illustrate? A. scenario planning B. top-down strategic planning C. reverse mentoring D. bottom-up strategic approach

B. top-down strategic planning Explanation This best illustrates a top-down strategic planning. Top-down strategic planning is a rational, top-down process through which executives attempt to program future success. In this approach, all strategic intelligence and decision-making responsibilities are concentrated in the office of the CEO. The CEO, much like a military general, leads the company strategically through competitive battles.

Using the _______, managers can see how competitive advantage flows from a firm's distinct set of activities. A. VRIO framework B. value chain analysis C. SWOT analysis D. resource-based view

B. value chain analysis Explanation Although the resource-based view of the firm helps to identify the integrated set of resources and capabilities that are the building blocks of core competencies, the value chain perspective enables managers to see how competitive advantage flows from the firm's distinct set of activities.

A company's vision primarily states A. how the company plans to accomplish its goals. B. what the company wants to ultimately accomplish. C. what the company actually does to generate revenues. D. how the company plans to compete in its industry.

B. what the company wants to ultimately accomplish. Explanation A statement about what an organization ultimately wants to accomplish is referred to as its vision. It captures the company's aspiration.

In the 1980s, Japanese competitors brought better-quality chips to the market at lower cost, threatening Intel Corporation's position and strategic plan regarding the production of DRAM (dynamic random-access memory) chips. When the functional managers at Intel came up with the simple rule of producing whichever product delivered the higher margin, the front-line managers shifted Intel's production capacity away from the lower-margin DRAM business to the higher-margin semiconductor business. This ________ emerged as a consequence of the firm's resource allocation process. A. unrealized strategy B. intended strategy C. bottom-up strategy D. strategic alliance

C. bottom-up strategy Explanation Intel's focus on semiconductors emerged from the bottom up, based on resource allocation. A bottom-up emergent strategy describes any unplanned strategic initiative undertaken by mid-level employees of their own volition. If successful, emergent strategies have the potential to influence and shape a firm's strategy. In a sense, Intel was using functional-level managers to drive business and corporate strategies in a bottom-up fashion.

According to the Level-5 leadership pyramid, the Level 2 manager is a(n) A. effective leader. B. competent manager. C. contributing team member. D. strategic leader.

C. contributing team member. Explanation According to the Level-5 leadership pyramid, the Level-2 manager masters the skills required at Level 1, but is also a contributing team member who works effectively with others to achieve synergies and team objectives.

The board of directors of Qwik Inc., a company that has a large product mix, has decided to get actively involved in research and development for the next three financial years. Budget for each business unit under the company will be allocated from the headquarters in proportion to its previous performance. The board has also decided to liquidate those units that have failed to perform so far. Which of the following strategies does this scenario best illustrate? A. functional strategy B. business strategy C. corporate strategy D. divisional strategy

C. corporate strategy Explanation This scenario best illustrates a corporate strategy. Corporate executives at headquarters formulate corporate strategy. They need to formulate a strategy that can create synergies across business units that may be quite different, and determine the boundaries of the firm by deciding whether to enter certain industries and markets and whether to sell certain divisions.

The _______ describes the internal activities a firm engages in when transforming inputs into outputs. A. PESTEL analysis B. resource-based view C. value chain view D. SWOT analysis

C. value chain view Explanation The value chain view describes the internal activities a firm engages in when transforming inputs into outputs.

Which of these is a way to reconfigure a value chain? A. preparing to leave an industry rather than supply unreliable or substandard products to customers B. thinking about new combinations of resources and capabilities that a firm already possesses, such as repurposing a movie theater as a location for off-site corporate meetings C. entering an industry by offering sporting events on streaming video when competitors are offering them through cable hookups D. creating a partnership through strategic alliances, such as a bakery partnering with a restaurant

C. entering an industry by offering sporting events on streaming video when competitors are offering them through cable hookups Explanation Reconfiguring a value chain to offer sporting events on streaming video instead of through cable television allows new companies to avoid direct competition with incumbents.

In the ________, firms change the underlying technology while holding cumulative output constant. A. learning curve B. minimum efficient scale C. experience curve D. maximum efficient scale

C. experience curve Explanation In the experience curve, firms change the underlying technology while holding cumulative output constant.

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? A. subscription-based B. pay-as-you-go C. freemium D. razor-razor-blade

C. freemium Explanation This scenario best illustrates the freemium business model. The freemium (= free + premium) business model is a model in which the basic features of a product or service are provided free of charge, but the user must pay for premium services such as advanced features or add-ons.

ABC Hardrives Inc., All Digital Inc., and FastFax Corp. are all companies that manufacture and sell consumer electronics. They procure their component parts from a similar set of suppliers in China and sell the final product to customers with similar needs. Thus, the three companies together are a part of a(n) A. occupational group. B. focus group. C. industry. D. plant.

C. industry. Explanation The three companies together are a part of an industry. An industry is a group of (incumbent) companies that face more or less the same set of suppliers and buyers. Firms competing in the same industry tend to offer similar products or services to meet specific customer needs.

According to the resource-based view, a firm's competitive advantage often stems from its ___________ opposed to its ___________. A. tangible resources; intangible resources B. current assets; long-term assets C. intangible resources; tangible resources D. long-term assets; current assets

C. intangible resources; tangible resources Explanation Intangible resources are usually the course of a firm's competitive advantage because they are much harder to replicate.

Patents, designs, copyrights, trademarks, and trade secrets are five forms of A. path dependence. B. causal ambiguity. C. intellectual property. D. social complexity.

C. intellectual property. Explanation Patents, designs, copyrights, trademarks, and trade secrets are five forms of intellectual property.

A firm's ________ strategy is likely to fall by the wayside because of unpredictable events and turn into unrealized strategy. A. dominant B. realized C. intended D. recognized

C. intended Explanation A firm's intended strategy is likely to fall by the wayside because of unpredictable events and turn into unrealized strategy.

Let's Talk Corp. is a public company whose shares are currently trading in the market at $150 each. The company manufactures smartphones at the cost of $300 per unit and sells them in the market for $500 each. What is the company's producer surplus? A. $650 B. $200 C. $300 D. $150

B. $200 Explanation Let's Talk's producer surplus is $200. The difference between the price charged for a product (P) and the cost to produce it (C) is the producer surplus (P - C). The firm captures this amount as profit per unit sold.

Which of the following statements about competitive advantage is not true? A. A firm can gain a competitive advantage by providing goods similar to its competitors' goods at a lower price. B. A firm's competitive advantage is always absolute, not relative. C. A firm's past performance does not guarantee its future performance. D. A firm will have a sustainable competitive advantage when it outperforms its competitors over a prolonged period of time.

B. A firm's competitive advantage is always absolute, not relative. Explanation Competitive advantage is always relative, not absolute. To assess competitive advantage, compare firm performance to a benchmark—that is, either the performance of other firms in the same industry or an industry average.

Which of the following real-world examples best supports the statement that strategic commitments to a specific industry may be the result of political rather than economic considerations? A. Airbus and Boeing are likely to exit the aircraft manufacturing industry when industry profit potential falls to zero. B. The traditional U.S. airlines Delta, United, and American Airlines have large fixed costs to maintain their network of routes that affords global coverage, frequently in conjunction with foreign partner airlines. C. A number of European governments created Airbus through direct subsidies to provide a countervailing power to Boeing. D. Given their strategic commitments, neither Delta nor United is likely to merge with other airlines.

C. A number of European governments created Airbus through direct subsidies to provide a countervailing power to Boeing. Explanation In some cases, strategic commitments to a specific industry may be the result of more political than economic considerations. For example, a number of European governments created Airbus through direct subsidies in order to provide a countervailing power to Boeing. Given these political considerations and large-scale strategic commitments, neither Airbus nor Boeing is likely to exist in the aircraft manufacturing industry even if industry profit potential falls to zero.

Which of the following statements is true of strategy? A. Statements of desire, on their own, are strategy. B. Tactical tools that are a part of a firm's functional and global initiatives are strategy. C. Actions that allow a firm to address a competitive challenge are strategy. D. Operational effectiveness and competitive benchmarking are strategy.

C. Actions that allow a firm to address a competitive challenge are strategy. Explanation Actions that allow a firm to address a competitive challenge are strategy. Strategy refers to a firm's overall efforts to gain and sustain competitive advantage.

________ tends to be more fierce when exit barriers in the industry are high, resulting in some firms being locked into the industry. A. Strategic Commitments B. Strategic complements C. Competitive rivalry D. Co-opetition

C. Competitive rivalry Explanation Competitive rivalry increases when exit barriers are high because it prevents firms from selling their assets/breaking leases without substantial asset loss.

When an organization briefly describes what they do and how they do it, they have more than likely articulated their A. values statement. B. strategic intent. C. mission statement. D. strategic plan.

C. mission statement. Explanation A mission statement describes what the organization does and why it does what it does.

Which of the following explains how dynamic capabilities are different from the resource-based view? A. Dynamic capabilities deal with tangible resources. B. Dynamic capabilities deal with resource heterogeneity. C. Dynamic capabilities deal with applying resources over time. D. Dynamic capabilities deal with intangible resources.

C. Dynamic capabilities deal with applying resources over time. Explanation Dynamic capabilities deal with applying resources over time; the resource-based view does not.

Which of the following statements is true of the Level-5 leadership pyramid? A. At Level 3, managers are capable of devising a vision and mission to guide the firm toward superior performance. B. Successful companies are led by Level-1 executives. C. Each level of leadership builds upon the previous one in the pyramid. D. Once a manager moves to higher levels, he or she loses the qualities acquired in the previous levels to gain new ones.

C. Each level of leadership builds upon the previous one in the pyramid. Explanation According to the Level-5 leadership pyramid, effective strategic leaders go through a natural progression of five different levels. Each level builds upon the previous one; the manager can move on to the next level of leadership only when the current level has been mastered.

EatNow is a fast-food restaurant that has recently entered the hospitality industry. Since most of its competitors are pursuing a low-cost position and doing well, EatNow also wants to adopt the same strategy. Which of the following will be a likely implication of this decision? A. EatNow will be better placed to gain a competitive advantage in the industry. B. EatNow will be able to create higher value for its customers. C. EatNow will face low profit potential. D. EatNow will not face any direct competition in the industry.

C. EatNow will face low profit potential. Explanation EatNow will face low profit potential. The key to successful strategy is to combine a set of activities to stake out a unique position within an industry. Competing to be similar but just a bit better than a competitor is likely to be a recipe for cutthroat competition and low profit potential.

Which of the following questions would a firm's business strategy ideally answer? A. How should we implement the functional strategy? B. Why should we compete? C. How should we compete? D. Where should we compete?

C. How should we compete? Explanation Strategy formulation concerns the choice of strategy in terms of where and how to compete. It is helpful to break down strategy formulation into three distinct areas: corporate, business, and functional. Business strategy concerns the question of how to compete (cost-leadership, differentiation, or integration).

Which of the following statements is true of an oligopoly? A. It is characterized by low entry barriers. B. Price-competition is the preferred mode of competition. C. It is often analyzed using game theory. D. Competing firms are most often independent of one another.

C. It is often analyzed using game theory. Explanation An oligopoly is often analyzed using game theory, which attempts to predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated.

_________ are industry-specific factors that separate one strategic group from another. A. Barriers to entry B. Competitive differences C. Mobility barriers D. Complementary products/services

C. Mobility barriers Explanation Mobility barriers prevent some firms that operate in one strategic group to cross over to another strategic group because of industry-specific investments and/or strategic positioning.

While SMART Tech Inc. incurs $350 to manufacture a laptop, its competitor, Better Electronics Inc., incurs $300. However, laptops of both the companies have been able to create the same value among customers. From the given scenario, it can be inferred that A. SMART Tech has a competitive advantage over Better Electronics. B. Better Electronics and SMART Tech share a differentiation parity. C. Better Electronics can charge a higher price for its laptops. D. SMART Tech is a cost leader when compared to Better Electronics.

B. Better Electronics and SMART Tech share a differentiation parity. Explanation From the given scenario, it can be inferred that Better Electronics and SMART Tech share differentiation parity. A cost leader can achieve a competitive advantage as long as its economic value created is greater than that of its competitors. A firm achieves differentiation parity when it creates the same perceived value as its rival firm.

Ez Solutions Inc. has been operating in the country of Jamtland for almost a decade. The nation is currently experiencing an economic downturn. Which of the following is the most likely benefit of this economic condition for Ez Solutions Inc.? A. Ez Solutions Inc. will have to expand its operations to meet the increasing consumer demand. B. Ez Solutions Inc. will have better access to highly skilled human capital at a lower cost. C. Ez Solutions Inc. will experience less competition from rival companies. D. Ez Solutions Inc. will find it easier to raise prices to increase profits.

B. Ez Solutions Inc. will have better access to highly skilled human capital at a lower cost. Explanation Ez Solutions Inc. will most likely have better access to highly skilled human capital at a lower cost. In economic downturns, unemployment rises. As more people search for employment, skilled human capital is abundant and wages usually fall. A period of high unemployment could be a good time for firms to expand or upgrade their human capital base.

In the restaurant industry, a large number of restaurants cater to similar customer needs. However, each restaurant makes its product unique by offering a different cuisine, a different ambience, organic ingredients, or different services like home delivery. This differentiation allows each restaurant to set its own prices. Thus, the restaurant industry best illustrates a(n) A. monogopoly. B. oligopoly. C. monopolistically competitive structure. D. perfectly competitive structure.

C. monopolistically competitive structure. Explanation The restaurant industry best illustrates a monopolistically competitive structure. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

Too Fast Inc., a motorcycle company, is the market leader due to its superior engine technology and service orientation. These unique qualities have helped the company generate revenues that are consistently higher than other firms in the same industry. Which of the following can be concluded about Too Fast Inc. from this scenario? A. It has competitive parity with the other firms. B. It has a competitive advantage over the other firms. C. It has an exchange relationship with the other firms. D. It has a direct investment in the other firms.

B. It has a competitive advantage over the other firms. Explanation Too Fast Inc. has a competitive advantage over the other firms. A firm that achieves superior performance relative to other competitors in the same industry or the industry average has a competitive advantage.

Which of the following is a disadvantage of the balanced scorecard approach to measure firm performance? A. It fails to allow managers and executives to find a balance between financial and strategic goals. B. It provides only limited guidance about which performance metrics to choose. C. It fails to allow managers to align their different perspectives to create a more focused corporation overall. D. It only relies on an internal view of the firm, ignoring the external view.

B. It provides only limited guidance about which performance metrics to choose. Explanation The balanced scorecard approach provides only limited guidance about which performance metrics to choose. Different situations call for different metrics. The balanced scorecard is only as good as the skills of the managers who use it.

Which of the following statements accurately brings out the difference between economies of scale and learning effects? A. Economies of scale reduce cost per unit, whereas learning effects increase cost per unit. B. Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased. C. While there are no diseconomies to scale, there are diseconomies to learning. D. Firms experience economies of scale when output increases, and they experience learning effects when output decreases.

B. Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased. Explanation Learning effects occur over time as output is accumulated, while economies of scale are captured at one point in time when output is increased.

________ is an important tool because it allows a manager to recognize, prioritize and address the needs of various stakeholders. A. Stockholder appreciation B. Shareholder voting proxies C. Stakeholder impact analysis D. Shareholder Right's Plan

C. Stakeholder impact analysis Explanation Provides a decision tool with which strategic leaders can recognize, prioritize, and address the needs of different stakeholders. This tool helps the firm achieve a competitive advantage while acting as a good corporate citizen.

When asked to explore the strengths and weaknesses of a firm, which of the following would be the best framework to employ? A. Value Chain analysis B. None of these answers are correct. C. Five Forces analysis D. PESTEL analysis

B. None of these answers are correct. Explanation SWOT analysis is used to determine strengths and weaknesses; none of the tools listed are designed to identify a firm's strengths AND weaknesses.

Which of the following statements does the upper-echelons theory support? A. Executives interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. B. The leadership actions of executives are independent of their characteristics like age, education, and career experiences. C. Organizational outcomes including strategic choices and performance levels reflect the values of external stakeholders. D. Strong leadership is solely the result of innate abilities and not learning.

A. Executives interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. Explanation The upper-echelons theory states that executives interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. Their leadership actions reflect characteristics of age, education, and career experiences, filtered through personal interpretations of the situations they face.

Which of the following is a feature of a fragmented industry? A. It consists of many small firms. B. It allows firms to set prices. C. One large firm dominates the industry. D. It tends to generate high profitability.

A. It consists of many small firms. Explanation A fragmented industry consists of many small firms and tends to generate low profitability.

Which of the following is not true concerning a customer-oriented mission? A. It defines the means of how a customer need will be met. B. It has more flexibility than a product-oriented mission. C. It has a higher likelihood of remaining relevant in the long-term. D. Organizations that have customer-oriented missions are more likely to be successful.

A. It defines the means of how a customer need will be met. Explanation A mission statement does not look at the methods to accomplish the customer need.

Which of the following is not a disadvantage of the balanced scorecard approach? A. It fails to allow managers to prepare the company for future growth. B. It provides only limited guidance about which metrics to choose to measure competitive advantage. C. It is a tool merely for strategy implementation, not for strategy formulation. D. It fails to provide much insight into how metrics that deviate from the set goals can be put back on track.

A. It fails to allow managers to prepare the company for future growth. Explanation The balanced scorecard approach allows managers to assess past performance, identify areas for improvement, and position the company for future growth. Including a broader perspective than financials allows managers and executives a more balanced view of organizational performance.

Let's Roll Inc. and Ride 4 Ever Cycles Inc. are two competing motorcycle companies. While Let's Roll's Cost of goods sold/Revenue is 63.4 percent, the Cost of goods sold/Revenue of Ride 4 Ever Cycles is 54.2 percent. What do you infer from this financial data? A. Let's Roll is less efficient than Ride 4 Ever Cycles in producing goods. B. Let's Roll is able to command a greater price premium for its products than Ride 4 Ever Cycles. C. Let's Roll has a higher profit margin than Ride 4 Ever Cycles. D. Let's Roll and Ride 4 Ever Cycles have achieved a competitive parity.

A. Let's Roll is less efficient than Ride 4 Ever Cycles in producing goods. Explanation From the financial data provided, it can be concluded that Let's Roll is less efficient than Ride 4 Ever Cycles in producing goods. Cost of goods sold/Revenue indicates how efficiently a company can produce a good.

In the financial year 2016, for every $100 in revenues, Microsoft earned $21.5 in profit, while Apple earned $20.6 in profit. This demonstrates that A. Microsoft's return on revenue was higher than that of Apple. B. Apple's inventory turnover was more than that of Microsoft's. C. Microsoft was more efficient than Apple in producing its goods. D. Microsoft was using its capital more efficiently to generate revenue than Apple.

A. Microsoft's return on revenue was higher than that of Apple. Explanation Return on revenue (ROR) indicates how much of a firm's sales is converted into profits. Microsoft's ROR was about 1 percentage point higher than that of Apple.

________ is best described as executives' use of power and influence to direct the activities of others when pursuing organizational competitive advantage. A. Intrapreneurship B. Strategic leadership C. Venture capitalism D. Machiavellianism

B. Strategic leadership Explanation Strategic leadership pertains to executives' use of power and influence to direct the activities of others when pursuing an organization's goals.

By selling a laptop at $1,200 for which consumers are willing to pay up to $1,300, a consumer electronics firm makes a profit of $500 per unit. What is the economic value created in this scenario? A. $700 B. $1,300 C. $1,200 D. $600

D. $600 In this scenario, the economic value created is $600. Economic value creation equals consumer surplus plus firm profit, or the sum of consumer surplus and producer surplus. In this case, the economic value created will be ($1,300 $1,200) + ($500).

Which of the following is an advantage of accounting data? A. Accounting profitability ratios not only show us the outcomes from past decisions, but also provide information to guarantee future performance. B. Accounting data focus mainly on intangible assets, which are more important than tangible assets in firms' stock market valuations. C. Accounting data consider off-balance sheet items, which makes comparing companies with different capital structures easy. D. Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms.

D. Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms. Explanation Key financial ratios based on accounting data give us an important tool with which to assess competitive advantage. In particular, they help us measure relative profitability, which is useful when comparing firms of different size over time. While not perfect, these ratios are an important starting point when analyzing the competitive performance of firms.

_________ is best described as the difference between the value a consumer attaches to a good or service and what he or she paid for it. A. Consumer equity B. Consumer lifetime value C. Consumer price index D. Consumer surplus

D. Consumer surplus Explanation Consumer surplus is the difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P).

Delish Corp is a chain of supermarkets that sells its fruits and vegetables at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Delish Corp adopted in this scenario? A. Delish Corp is probably pursuing a market penetration strategy. B. Delish Corp is probably pursuing a growth strategy. C. Delish Corp is probably pursuing a cost-leadership strategy. D. Delish Corp is probably pursuing a differentiation strategy.

D. Delish Corp is probably pursuing a differentiation strategy. Explanation Since the goal of a differentiation strategy is to increase the perceived value of goods and services in the minds of consumers, Delish Corp. is charging a higher price for their products.

FL Systems Inc. and Oryxo Systems Inc. are two competing firms. FL Systems Inc. has $300,000 in tangible assets and $200,000 in intangible assets. Oryxo Systems Inc. has $150,000 in tangible assets and $347,000 in intangible assets. In the context of the resource-based view, which of the following is the most likely implication of the asset values of the two companies? A. Oryxo Systems Inc. has less invisible assets than FL Systems Inc. B. FL Systems Inc. will find it easier than Oryxo Systems Inc. to sustain competitive advantage. C. Oryxo Systems Inc. has less valuable resources than FL Systems Inc. D. FL Systems Inc. will find it harder than Oryxo Systems Inc. to attain competitive advantage.

D. FL Systems Inc. will find it harder than Oryxo Systems Inc. to attain competitive advantage. Explanation The most likely implication of the asset values of the two companies is that FL Systems Inc. will find it harder than Oryxo Systems Inc. to attain competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources.

Which of the following statements best supports the fact that even during a period of low demand in the U.S. automotive industry, excess capacity remained? A. Complementary products and services like battery charging and service stations were pervasive. B. Suppliers in the automotive industry had low bargaining power. C. Other American automakers of plug-in hybrid sports cars, like Fisker Automotive, filed for bankruptcy. D. GM and Chrysler, despite their bankruptcy, restructured instead of exiting the industry.

D. GM and Chrysler, despite their bankruptcy, restructured instead of exiting the industry. Explanation When demand is slowing, excess capacity tends to develop, and companies begin to initiate a cut-throat price-competition to move inventory. This happened to the automotive industry in the 2000s. However, even though both GM and Chrysler went into bankruptcy in 2009, neither exited the industry but rather restructured, causing excess capacity to remain in the industry.

Stan has been recently promoted to the position of a team lead at an insurance company. This promotion was based on his boss's assessment that Stan is capable of conveying the company's vision and mission to groups. As a result, he can guide groups to superior performance. From this scenario, we can say that Stan is currently at __________ of the Level-5 leadership pyramid. A. Level 5 B. Level 1 C. Level 3 D. Level 4

D. Level 4

Though the microwaves manufactured by Nuked Inc. and Hot Box Inc. sell at the same price of $600 per unit, the economic value created by Nuked Inc. is more than that of Hot Box Inc. In the context of this scenario, which of the following statements is true? A. Nuked and Hot Box Inc. have achieved a competitive parity. B. Hot Box Inc. has differentiated its products more than Nuked Inc. has. C. Hot Box Inc. has been able to create more producer surplus for itself than Hot Box Inc. D. Nuked has a relative cost advantage over Hot Box Inc..

D. Nuked has a relative cost advantage over Hot Box Inc.. Explanation Nuked has a relative cost advantage over Hot Box Inc. in this scenario. Competitive advantage can result from a relative cost advantage over rivals, assuming both firms can create the same total perceived consumer benefits. In this case, the source of the competitive advantage is a relative cost advantage over rivals.

Fones Inc. and Speed Dial Corp. are two competitors in the mobile phone market. The cost incurred by each company to manufacture smartphones is $200 per unit. Although both the companies sell their smartphones at the same price, Speed Dial Corp. has a larger market share in the smartphone industry. What does this imply? A. Fones Inc. has created a higher value gap than Speed Dial Corp. B. Speed Dial Corp. has a cost advantage over Fones Inc. C. Fones Inc. has a competitive advantage over Speed Dial Corp. D. Speed Dial Corp. has been able to offer more perceived value than Fones Inc.

D. Speed Dial Corp. has been able to offer more perceived value than Fones Inc. Explanation In this scenario, Speed Dial Corp. has been able to offer more perceived value than Fones Inc. When a firm is able to offer a differentiated product or service and can control its costs at the same time, it is able to gain market share from other firms by charging a similar price but offering more perceived value.

Incumbent firms can benefit from several important sources of entry barriers. Economies of scale are one such source. Which of the following is an implication of economies of scale for incumbent firms? A. They cannot employ technology efficiently. B. They benefit from a less specialized division of labor. C. They can spread fixed costs over lesser units. D. They can demand better terms from their suppliers.

D. They can demand better terms from their suppliers. Explanation Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

Why are black swan events such as accounting scandals and the global financial crisis perceived as caused by cheap credit and subprime mortgages offered by financial institutions, bad for business? A. They allow companies to gain a competitive advantage unfairly. B. They foster a false sense of prosperity, which results in economic depression. C. They contribute to competitive parity, which hinders economic growth. D. They erode the implicit trust between the corporate world and society.

D. They erode the implicit trust between the corporate world and society. Explanation The implicit trust relationship between the corporate world and society at large deteriorates because of the arrival of black swans in the business world.

Which of the following statements accurately brings out the difference between an organization's vision and mission? A. Vision is short-term: oriented and related to the organization's present, whereas the mission is futuristic. B. Vision is valid at the functional level of the organization, whereas mission covers the entire organization. C. Mission is the organization's aspirations for the future and vision is about how these aspirations can be made true over time. D. Vision defines what the organization wants to accomplish ultimately, whereas the mission defines the means by which vision is accomplished.

D. Vision defines what the organization wants to accomplish ultimately, whereas the mission defines the means by which vision is accomplished. Explanation Although the terms vision and mission are often used interchangeably, they are different: Vision defines what an organization wants to accomplish ultimately, and thus the goal can be described by the verb "to." In contrast, mission describes what an organization does; it defines the means "by" which vision is accomplished.

Which of the following statements accurately brings out the distinction between a firm's resources and capabilities? A. While a firm's resources are always tangible, its capabilities are by their very nature intangible. B. Unlike capabilities, the resources of the firm cannot be imitated by its competitors. C. Unlike resources, capabilities do not find their expression in the firm's structure, routines, and culture. D. While resources reinforce core competencies, capabilities allow managers to orchestrate their core competencies.

D. While resources reinforce core competencies, capabilities allow managers to orchestrate their core competencies. Explanation In the interplay of resources and capabilities, resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies. Resources are any assets such as cash, buildings, machinery, or intellectual property that a company can draw on when crafting and executing a strategy. Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically.

In which of the following cases was a company at a major competitive disadvantage? A. Sam's Club decided to prescreen its customers via required membership to establish creditworthiness. B. Strategy executives at UPS used scenario planning to identify issues critical to shaping the firm's future. C. Facebook hired Sheryl Sandberg because Mark Zuckerberg, Facebook's founder, lacked important business skills. D. Without a clear strategic position, Sears tried to be too many things for too many types of customers.

D. Without a clear strategic position, Sears tried to be too many things for too many types of customers. Explanation As mentioned in the text, even though Sears had 130 years in the department store business and created the mail-order catalog, recently the company failed to adapt to new competitive challenges and eventually filed for bankruptcy in 2018.

The tenet behind the triple bottom line is that A. a firm's return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue. B. a firm should solely focus on increasing the economic value created for its customers. C. a firm's primary objective should be increasing the total returns to its shareholders. D. a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

D. a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy. Explanation Three dimensions—economic, social, and ecological—make up the triple bottom line. According to this approach, achieving positive results in all three areas can lead to a sustainable strategy—a strategy that can endure over time.

If costs are equal, when a firm has a higher value gap than its competitor, it can be inferred that the firm A. has achieved a competitive parity in its chosen industry. B. can adopt a cost-leadership strategy. C. has lost its competitive advantage to its competitor. D. can charge a premium price for its products and services.

D. can charge a premium price for its products and services. Explanation A firm can achieve a competitive advantage when it has a higher value gap, which allows it to charge a premium price, reflecting its higher value creation.

William estimated that a pair of Perfect Fit jeans would be worth $60 for its brand and durability. However, at the Perfect Fit store, the pair of jeans he wanted was available for $45. The difference of $15 in this scenario is referred to as the A. producer surplus. B. break-even price. C. reservation price. D. consumer surplus.

D. consumer surplus. Explanation The difference of $15 in this scenario is referred to as the consumer surplus. Consumer surplus is the difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P), or (V - P).

In the context of the SWOT matrix, which of the following best exemplifies an external opportunity for a firm? A. increasing inflation rates in the target market B. increasing productivity of the employees C. decreasing employee attrition within the firm D. decreasing government interference in the target market

D. decreasing government interference in the target market Explanation Decreasing government interference in the target market best exemplifies an external opportunity for a firm. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.

Firms pursuing a cost-leadership strategy seek to A. keep their cost structures at the same or similar levels as that of the competitors. B. create higher value for customers and offer premium pricing. C. gain competitive advantage by reducing the value gap. D. deliver products or services at a lower cost than competitors.

D. deliver products or services at a lower cost than competitors. Explanation 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.

The viability of a differentiation strategy is severely undermined when the A. focus of competition shifts to value-creating features rather than price. B. difference between perceived value and costs is significant. C. differential appeal is based more on intangible resources than tangible resources. D. differentiated products become commoditized throughout the industry.

D. differentiated products become commoditized throughout the industry. Explanation 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.

ACME Inc. has retained you to review their low-cost strategy for their company. Based on several consultations with the client, you realize that their per unit costs are actually increasing as their business grows and expands. You conclude that this firm is experiencing A. diseconomies of scope. B. economies of scale. C. economies of scope. D. diseconomies of scale.

D. diseconomies of scale. Explanation As firms get too big, the complexity of managing and coordinating the production process raises the cost, negating any benefits to scale. Diseconomies of scale occur when cost increase as output increases.

Gadgets n' Stuff Inc. is a vendor who supplies machine parts to an appliance manufacturing company. In return, Gadgets n' Stuff Inc. relies on the company for its revenue and is affected by any decisions taken by the company. In this scenario, Gadgets n' Stuff Inc. is a(n) _________ for the appliance manufacturing company. A. representative sample B. focus group C. internal stakeholder D. external stakeholder

D. external stakeholder Explanation In this scenario, Gadgets n' Stuff Inc. is an external stakeholder for the appliance manufacturing company.

A fragmented industry turns into a consolidated industry when A. the barriers to enter the industry are reduced. B. the products/services are seen as commodities. C. there are no restrictive government policies introduced in the industry. D. firms reduce competition within the industry through mergers and acquisitions.

D. firms reduce competition within the industry through mergers and acquisitions. Explanation A fragmented industry becomes a consolidated one through horizontal integration (mergers and acquisitions).

Product-oriented vision statements provide managers with A. strategic flexibility. B. ways to solve customer problems. C. goals for employee development. D. goals to improve service.

D. goals to improve service. Explanation Product-oriented vision statements focus employees on improving existing products and services without consideration of underlying customer problems to be solved.

The pattern of faulty and biased decision making that occurs in groups whose members strive for agreement at the expense of good decision making is called A. devil's advocacy. B. satisficing. C. bounded rationality. D. groupthink. E. brainstorming.

D. groupthink. Explanation Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision.

An organization's ________ describes what the organization actually does—the products and services it plans to provide, and the markets in which it will compete. A. code of conduct B. vision C. promissory note D. mission

D. mission Explanation Building on the vision, organizations establish a mission, which describes what an organization actually does—that is, the products and services it plans to provide, and the markets in which it will compete.

All of the following are tools primarily used to achieve cost-leadership except A. controlling the cost of inputs. B. learning by doing. C. leveraging economies of scale. D. offering products at a premium price.

D. offering products at a premium price. Explanation The goal of a cost-leadership strategy is to reduce the firm's cost below that of its competitors while offering adequate value. The cost leader, as the name implies, focuses its attention and resources on reducing the cost to manufacture a product or deliver service in order to offer lower prices to its customers.

Owners of coffee plantations in the country of Cantonica grow their own coffee beans and supply them to various stores and restaurants all over the country. There are many plantation owners supplying to a huge number of companies, and they are typically unable to differentiate their products from one another. They also do not have the power to fix their own prices in the industry. In addition, these suppliers can only achieve competitive parity and not a competitive advantage. Thus, the coffee bean industry in Cantonica best illustrates a(n) ________ structure. A. monopolistic B. monopolistically competitive C. oligopolistic D. perfectly competitive

D. perfectly competitive Explanation The coffee bean industry in Cantonica best illustrates a perfectly competitive industry structure. A perfectly competitive industry is characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices.

There exist important trade-offs between value creation and low cost because value creation and cost tend to be A. independent of each other. B. negatively correlated. C. inversely related. D. positively correlated.

D. positively correlated. Explanation To achieve a desired strategic position, managers must make strategic trade-offs—choices between a cost or value position. Differentiation and cost-leadership require distinct strategic positions in order to increase a firm's chances to gain and sustain a competitive advantage. Because value creation and cost tend to be positively correlated, there exist important trade-offs between value creation and low cost.

As differentiation and cost-leadership are distinct strategic positions that require important trade-offs, it is A. easy to increase value and lower cost at the same time. B. best for firms to avoid pursuing a generic business-level strategy. C. easy to build an ambidextrous organization. D. quite difficult to translate a blue ocean strategy into reality.

D. quite difficult to translate a blue ocean strategy into reality. Explanation Although appealing in a theoretical sense, a blue ocean strategy is actually quite difficult to translate into reality. The reason is that differentiation and cost-leadership are distinct strategic positions that require important trade-offs.

Even though Easy Speak Inc. and KM Com Inc. operate in the same industry—telecommunications—each firm has a different and loyal customer base. While Easy Speak Inc. attracts young students and professionals through its efficient network coverage and pricing, KM Com Inc. attracts elderly customers solely due to its excellent customer service. Thus, both firms draw their strengths from distinct resource bundles. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate? A. resource substitution B. resource imitation C. resource mobility D. resource heterogeneity

D. resource heterogeneity Explanation This scenario best illustrates resource heterogeneity. This critical assumption in the resource-based model of competitive advantage is that bundles of resources, capabilities, and competencies differ across firms.

A consolidated industry turns into a fragmented industry when A. firms reduce competition within the industry through mergers and acquisitions. B. technological advances lead to industry convergence. C. network effects enjoyed by incumbent firms within the industry become stronger. D. restrictive government policies are introduced in the industry.

D. restrictive government policies are introduced in the industry. Consolidated industry structures may break up and become more fragmented. This generally happens when there are external shocks to an industry such as deregulation, new legislation, technological innovation, or globalization. Industry convergence is often brought on by technological advances.

When a blue ocean strategy is successfully formulated and implemented, investments in differentiation and low costs are not A. cost drivers but value drivers. B. complements but substitutes. C. value drivers but cost drivers. D. substitutes but complements.

D. substitutes but complements. Explanation When a blue ocean strategy is successfully formulated and implemented, investments in differentiation and low costs are not substitutes but complements, providing important positive spill-over effects.

Which of the following groups will not be considered a company's internal stakeholder? A. shareholders B. board members C. managers D. suppliers

D. suppliers Explanation A firm's external stakeholders include customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels. Its internal stakeholders are stockholders, employees (including executives, managers, and workers), and board members.

Which of the following actions of an automobile firm will be considered as a strategic commitment? A. the firm spending $100,000 on renting a manufacturing facility to meet the temporary demand for its cars B. the firm promoting its new model of coupe through a free European trip worth $15,000 to be won as an early-bird offer C. the firm launching an existing model of a car in red as a limited edition for six months D. the firm investing eight years and $4 billion to develop a range of hybrid cars with which it will compete in the future

D. the firm investing eight years and $4 billion to develop a range of hybrid cars with which it will compete in the future Explanation To be effective, firms need to back up their visions and missions with strategic commitments, actions that are costly, long-term oriented, and difficult to reverse. The firm investing eight years and $4 billion to develop a range of hybrid cars will be a costly, long-term affair that will be difficult to reverse.

A good strategy should be able to provide products and services to customers at an attractive price point while maintaining internal costs, resulting in A. sustainable competitive advantage. B. competitive benchmarking. C. shareholder appreciation. D. value creation.

D. value creation. Explanation Value creation occurs when a firm's costs are less than its selling price, thus creating profit. Both parties benefit from this trade as each captures a part of the value created.