Midterm Review
Mission statement
describes what the firm actually does; why and how
A firm always has a competitive disadvantage when its return on invested capital is: A. below the industry average. B. 2 percent or lower in a declining industry. C. about the same as its closest competitor. D. declining steadily over two or more years.
B
AFI Framework
analysis, formulation, implementation
Primary activities
directly add value: supply chain management, operations, distribution, marketing, sales, and after-sale service
Customer switching costs
entry barrier: due to learning, investment, loyalty
PESTEL factors
political, economic, sociocultural, technological, ecological, legal
Strategic groups
set of firms within an industry that pursue a similar strategy
Strategic positions
sources of competitive advantage
The ultimate goal of strategic management is to achieve ______________________________.
sustainable competitive advantage
Economies of scale
the more output a firm produces, the lower the per unit cost
Corporate strategy
where to compete
Scope of competition
whether to pursue a specific market niche or go after the broader market
Value innovation
a process that will lead managers to align the proposed business strategy with total perceived consumer benefits, price and cost
Dynamic capabilities
allow firm to create, edit, and deploy its resource base to gain and sustain competitive advantage in a constantly changing environment
Cost leadership strategy
broad competitive scope, goal is to reduce firm's cost below that of its competitors
What type of strategy is the following statement related to? "Should GE jet engines have better fuel efficiency than Rolls Royce?"
business
Vision statement
captures a firm's aspirations; inspires and motivates members of firm
Strategic trade-offs
choices between a cost or value position; trade-offs maximize the firm's economic value creation or profit margin
What type of strategy is the following statement related to? "Should GE move more aggressively into the health care industry?"
corporate
Core values
define ethical standards and norms that should govern behavior within the firm
Value chain
describes the internal activities a firm engaged in when transforming inputs into outputs
How is lowering a firm's costs primarily achieved by?
eliminating and reducing the taken-for-granted factors on which the firm's industry rivals compete
Network effects
entry barrier: positive effect that one user has on the value of a product for others
Customer-oriented vision statement
firm defined by providing solutions to customer needs
Product-oriented vision statement
firm defined by the goods/services they provide
Sustained competitive advantage
firm is able to outperform competitors for prolonged periods of time
SWOT analysis
formulating a strategy that increases the chances of gaining and sustaining a competitive advantage is based on synthesizing insights obtained from an internal analysis of the company's strengths (S) and weaknesses (W) with those from an analysis of external opportunities (O) and threats (T) The strategic implications of a SWOT analysis should help the firm to leverage its internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats.
What type of strategy is the following statement related to? "Should GE human resources recruit more science graduates?"
functional
Blue ocean strategy
generally refers to the creation by a firm of a new, uncontested market space that makes competitors irrelevant and that creates new consumer value often while decreasing costs
Differentiation strategy
goal is to increase perceived value so customers will pay a higher price for additional features
Strategy
goal-directed actions a firm takes to gain and sustain superior performance relative to competitors
Business strategy
how to compete to achieve superior performance
Function strategy
how to implement business strategy within a single functional area
Support activities
indirectly add value, but necessary to sustain primary activities: human resources, accounting, finance, firm infrastructure
Stakeholders
individuals or groups that have a claim or interest in the firm and make specific contributions for which they expect rewards in return
Competitive advantage
judged relative to competitors or the industry average
The following statement is a vision or mission statement: "To passionately create innovation for our stakeholders at the intersection of chemistry, biology and physics."
mission
Cost leadership strategy tradeoffs
process innovation, rigid labor supervision, easy to manufacture, centralized organization
Differentiation strategy tradeoffs
product innovation, creative/innovative, customized product, decentralized organization
How is increasing perceived buyer value primarily achieved by?
raising existing key success factors and by creating new elements that the industry has not yet offered
Strategic positioning
requires that managers address strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost
Mobility barriers
restrict movement between strategic groups; industry-specific factors that separate one strategic group from another
Porter's Five Forces
rivalry among existing competitors, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes
Competitive parity
two or more firms that perform at the same level
Core competencies
unique strengths embedded deep within a firm that allow firms to differentiate products or services from rivals
VRIO Framework
used to uses the competitive implications of a firm's resources; firm must have all four attributes to be on the basis of a competitive advantage. valuable, rare, costly to imitate, organized to capture the value of the resource
The following statement is a vision or mission statement: "To organize all of the data in the world and make it accessible for everyone in a useful way."
vision
When is a change in vision statement necessary?
when the industry has changed in a significant way that renders the firm's current vision obsolete
A firm that achieves superior performance relative to other firms in the same industry or the industry average has a(n): A. competitive advantage. B. balanced scorecard. C. power position. D. equity leverage.
A
An observer may conclude that the organizational culture of Zappos, an online retailer for shoes and clothing, might be the basis for its competitive advantage. However, reverse social engineering to crack Zappos' code of success might be much more difficult for a company trying to exactly imitate its strategy. Thus, the source of Zappos competitive advantage is said to be: A. socially complex. B. inexhaustible. C. non-substitutable. D. nonambiguous.
A
Dynamic capabilities are especially relevant for surviving and competing in markets that: A. shift quickly. B. shift slowly. C. remain constant. D. remain unpredictable.
A
If SA Pharmaceuticals obtains an 18 percent return on invested capital, which of the following will help determine if it has a competitive advantage over other pharmaceutical companies? A. comparing the return to the return on invested capital obtained by other firms in the industry B. assessing the value based on the shareholders' expectations of return on their capital C. evaluating the liquidity ratios for other pharmaceutical companies D. comparing the value to the history of the firm's return of investment over a number of years
A
In a large company, who is most responsible for devising the corporate strategy? A. the CEO of the company B. the lower-level employees in the company C. the head of the production department in the company D. the human resource manager in the company
A
In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because: A. entering the aircraft manufacturing industry requires huge capital investments. B. there is expected to be a huge return on investment within this industry. C. there is no credible threat of retaliation from the incumbents. D. entering the aircraft manufacturing industry means violating government policies.
A
In the luxury cruise industry, the small cruise lines Tropics Inc. and Sunset Inc. merged to form TropicalSunset Inc. After the merge, the competition between TropicalSunset Inc. and the two mega cruise lines, Pacifico and West Winds, has increased significantly. Which of the following statements best explains why this happened? A. Competitive rivalry is strongest between firms that are within the same strategic group. B. Competition always increases when two small firms merge into a mega firm. C. Competition always increases if there are only two or three mega firms competing. D. Competitive rivalry is strongest between firms that service the same region.
A
Keeping in mind the five forces in the airline industry, which of the following bestexplains the situation in the industry? A. Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry. B. Suppliers have weak bargaining power because they offer products that are not differentiated. C. Entry barriers in the industry are high resulting in hardly any new airlines popping up. D. Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry.
A
The CEO of True West Products Inc. (TWP) is a company that sells a wide range of products. It has decided to enter the markets of emerging nations like China and Brazil. This means that the cars, consumer electronics, and services such as hotels included under the TWP banner would be made available in these nations. Which of the following strategies does this scenario best illustrate? A. corporate strategy B. functional strategy C. business strategy D. divisional strategy
A
The production department at Coral Cements that is a subsidiary of the large conglomerate Five East Corp. has decided to adopt the FIFO (first in, first out) method of inventory to dispatch its cement bags. Which of the following strategies does this scenario best illustrate? A. functional strategy B. corporate strategy C. master strategy D. business strategy
A
To be effective, firms need to: A. back up their visions with strategic commitments that are costly and difficult to reverse. B. increase their strategic flexibility by developing product-oriented vision statements. C. isolate top managers from the organizational values. D. pursue visions that are exclusively financial and not aspirational.
A
Which of the following is an example of an organizational value? A. Burtell Oil, Inc. increases the inspection of pipelines above the legal requirement to prevent oil spills. B. Burtell Oil, Inc. lowers gas prices to gain an advantage over their closest competitor. C. Burtell Oil, Inc. finances research for finding oil deposits within the United States. D. Burtell Oil, Inc. launches an ad campaign that promotes the company as being environmentally friendly.
A
Which of the following scenarios would be characteristic of an entrepreneur? A. Rachel implemented a new and more efficient way to produce pottery. B. Mary imitated a new, more efficient method of producing pottery. C. Alissa scaled back the production of pottery because it wasn't cost effective. D. Ursula used a proven marketing method to advertise her pottery.
A
Which of the following summarizes the difference between a firm's vision and mission? A. A vision states what a firm wants to accomplish;a mission states how a firm plans to accomplish this vision. B. A vision states the ethical values of a firm;a mission states the monetary goals of a firm. C. A vision states how much a firm wants to earn;a mission states how these earnings will be accomplished. D. A vision states the management values of a firm;a mission states the values of the other workers.
A
A firm is said to gain a competitive advantage when it can: A. exceed its own previous performances. B. provide products similar to its competitors, but at lower prices. C. perform at the same level as that of its competitors. D. minimize the difference between value creation and cost.
B
A firm's resource is most likely to be an internal strength and a core competency when the resource is: A. valuable but common. B. valuable and costly to imitate. C. easily accessible and mobile. D. easy to substitute.
B
Companies in the same strategic group are _____ to each other. A. complementors B. direct competitors C. strategic partners D. shareholders
B
In 2008, BlackBerry's market cap peaked at $75 billion. By 2015 this valuation had fallen morethan 90 percent, to less than $7 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline? A. BlackBerry failed to offer strong security features for its device. B. BlackBerry failed to change its device into one that could perform multiple tasks effectively. C. BlackBerry failed to adapt to a groundswell that involved workers bringing mobile devices to work. D. BlackBerry failed to produce an efficient emailing system using a keyboard.
B
Rice Dazzle Inc. has been making the same breakfast cereal for 50 years. Recently, sales have plummeted. To counteract this, the company created a new package that included an endorsement by a celebrity. As a result, sales increased close to previous highs. However, the cereal itself remained the same. According the VRIO framework, is the new packaging a valuable resource for Rice Dazzle? A. Yes, because the new packaging has an endorsement by a celebrity. B. Yes, because the new packaging made the product more attractive in the eyes of consumers. C. No, because the new packaging did not improve the product itself. D. No, because the new packaging did help to not increase sales past the previous high for sales.
B
Stakeholder strategy is an integrative approach to managing a diverse set of stakeholders effectively in order to: A. single-mindedly focus on the stockholders alone. B. gain and sustain competitive advantage. C. minimize the joint value created. D. minimize the difference between value creation and cost.
B
Strategic commitments are actions that are: A. inexpensive. B. long-term oriented. C. easy to reverse. D. easy to imitate.
B
The CEO of Sam's Club, Rosalind Brewer, reports to Walmart's CEO, C. Douglas McMillon, who as corporate executive oversees Walmart's entire operations. Sam's Club, therefore, is a _____ of Walmart. A. corporate partner B. strategic business unit C. branch office D. house brand manufacturer
B
The _____ is a model that links strategy analysis, strategy formulation, and strategy implementation, which together helps managers plan and implement a strategy that can improve performance and result in competitive advantage. A. Ansoff's growth strategy matrix B. AFI strategy framework C. Sarbanes-Oxley Act D. stakeholder impact analysis
B
The primary objective of Porter's five forces model is to: A. replace a firm's competitive advantage with competitive parity. B. understand the profit potential of different industries. C. reduce the gap between the value of a firm's product and its cost of production. D. break down a firm's value chain activities into primary and support.
B
The telecom industry in the country of New Taria is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the: A. threat of substitutes is most likely high. B. threat of new entrants is most likely low. C. bargaining power of buyers is most likely low. D. entry barriers are most likely nonexistent.
B
Visionary companies are able to outperform their competitors because: A. their vision statements are more product-oriented. B. they provide more aspirational visions. C. their visions are exclusively financial. D. they isolate internal stakeholders in defining their visions.
B
When is the rivalry among existing competitors in an industry likely to be more intense? A. when the industry growth rate is high B. when firms make strategic commitments to compete in an industry C. when firms engage in non-price competition as opposed to price-cutting D. when the industry has low exit barriers
B
Which of the following represents an economic factor in a firm's external general environment? A. the government regulations and laws in the country in which the firm exists B. the stage of the business cycle that the country is in C. the values and norms prevalent in the society in which the firm operates D. the bargaining power of the firm's suppliers and buyers
B
Which of the following statements accurately describes firm effects? A. They attribute firm performance to the industry in which the firm competes. B. They attribute firm performance to the actions managers take within a chosen industry. C. They refer to the value-creation potential of a large, diversified enterprise. D. They refer to the external circumstances surrounding all the firms in an industry.
B
A company is best described as a _____ to an existing company if customers value the existing company's product or service offering more when they are able to combine it with the other company's product or service. A. competitor B. shareholder C. complementor D. strategic equivalent
C
A new company named Far Reach Inc. entered the radio retail business. In response, two incumbent radio retailers, Smooth Waves and Clear Signal, lowered the cost of their travel alarm radios and long-distance radios. Also, they spent more money to improve these radios. By doing this, Smooth Waves and Clear Signal: A. decreased industry exit barriers. B. increased industry exit barriers. C. decreased industry profit potential. D. increased industry profit potential.
C
Clear Calls Inc., a telephone service provider,has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls network, his or her entire network of family and friends is likely to switch to the same network to avail the benefit of free calls and messages. In addition, an existing user who gets a new user to register with Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.? A. economies of scale B. high capital requirement C. network effects D. high fixed costs
C
For a firm that operates in an industry where competition is high, which of the following practices will result in inferior performance? A. choosing a distinct but different strategic position in the industry B. working toward increasing the difference between value creation and cost C. trying to be everything to everybody by combining different competitive strategies D. focusing on creating value for customers rather than destroying rivals
C
Golden Harvest is a restaurant located inside a five-star hotel. It caters mainly to customers who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Golden Harvest's strategic group? A. a nearby fast-food restaurant B. a food kiosk in an adjacent subway station C. a premium rooftop restaurant in the same city D. a mobile food cart parked opposite to the five-star hotel
C
Home Savings, Good Deals, Hank's Store, and King Bargains are all departmental stores that compete for advantage against each other through everyday low-pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together Home Savings, Good Deals, Hank's Store, and King Bargains form a: A. focus group. B. command group. C. strategic group. D. cross-functional group.
C
Pink Couture Inc. and Pink Blush Inc. are two companies in the apparel industry. While Pink Couture Inc. focuses on providing unique product features and superior customer service, Pink Blush Inc. focuses on low prices and minimal customer service. Both companies have been able to gain a competitive advantage. This is most likely because the companies have: A. executed integrated strategies. B. entered into a cartel arrangement. C. pursued distinct strategic positions. D. engaged in direct imitation and substitution.
C
Which of the following do the sociocultural forces in a firm's external environment best represent? A. the interest rates prevalent in an economy B. the laws protecting small enterprises in a nation C. the family size of the firm's target market D. the rate of employee attrition within the firm
C
Which of the following firms will most likely notbe a complementor to a firm that manufactures computers? A. a company that develops operating software B. a company that develops application software C. a company thatmanufactures its own brand of desktops and laptops D. a company that manufactures portable external disks
C
Which of the following is a customer-oriented vision? A. to be the most progressive insurance company B. to be the best automobile company in the world C. to enable people throughout the globe to identify their capabilities D. to manufacture innovative products through continuous learning
C
Which of the following scenarios best illustrates a good stakeholder strategy? A. VP Inc. follows a strategy in which maximization of the shareholder's wealth is the primary concern of the managers. B. Carrvero Inc. ensures that its employees are paid the least in the industry so that its external stakeholders can get the best price. C. PA Corp. distributes only 70 percent of its annual profit after taxes to shareholders, while the remaining is distributed among employees and the local community, and invested for further research. D. Gen Pharma Corp. ensures that it fully exploits free natural resources, so that most of its profits go to shareholders in the form of dividends.
C
Which of the following statements is true about strategic groups? A. It is not possible to have two different strategic groups within the same industry. B. Rivalry within the same strategic group tends to be lower than rivalry between different strategic groups. C. Profitability varies between different strategic groups. D. Companies within the same strategic group are complementors to each other.
C
Why is it better for firms to keep their vision statements customer-oriented rather than product-oriented? A. Customer-oriented visions tend to have a more short-range view of changing environments. B. Customer-oriented visions tend to have a more myopic view of changing environments. C. Customer-oriented visions tend to be more flexible when adapting to changing environments. D. Customer-oriented visions tend to be more stable when dealing with changing environments.
C
Corporate executives at LikeReal, Inc. decide to compete in the remote model airplane industry by making the largest model planes available. By doing this, they completed part of their: A. implementation strategy. B. corporate strategy. C. functional strategy. D. business strategy.
D
Dandelions Max is a consumer electronics company. It has acquired an edge over its competitors through its ability to provide breakthrough technology at the lowest price in the market. This advantage of Dandelions Max best exemplifies a: A. markup. B. resource flow. C. capital gain. D. core competency.
D
FindFor Inc. is an e-commerce retail firm that sells a variety of merchandise online. Through services like cash on delivery, easy return, and online tracking, the company has created more customer value than its competitors (brick-and-mortar businesses) at the same price. Also, the company's costs are substantially low due to minimal investment in operation and administration. In this scenario, FindFor Inc. has most likely been able to provide superior value and cost control through: A. strategic parity. B. strategic profiling. C. strategic liquidation. D. strategic positioning.
D
In which of the following situations is the power of suppliers high in an industry? A. Suppliers offer products that are undifferentiated. B. Suppliers can credibly threaten to backward integrate into the industry. C. Suppliers depend heavily on the industry for their revenues. D. Suppliers' industry is more concentrated than the industry it sells to.
D
Javier, a retired CEO, invests capital in a start-up company that creates budgeting software. He mentors the entrepreneur and the employees of the company because he wants the company to perform well and survive in the market. Thus, Javier is the start-up company's: A. headhunter. B. category captain. C. employee. D. stakeholder.
D
Organic Food Inc., a multinational company, relies on its media partner Radio Plus to regularly advertise its offers, sales, and new products. Radio Plus is invested in this relationship because it generates most of its revenue from advertising Organic Food's products. In this scenario, Radio Plus is Organic Food Inc.'s: A. stockholder. B. workforce. C. internal stakeholder. D. external stakeholder.
D
Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through: A. forward integration. B. product differentiation. C. crowdsourcing. D. backward integration.
D
Strategies developed at the departmental level, such as the accounting, human resources, production, and marketing departments, within a strategic business unit are referredto as _____ strategies. A. grand B. corporate C. business D. functional
D
The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment. A. VRIO framework B. SWOT analysis C. BCG matrix D. PESTEL framework
D
The government of Filviahas mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate? A. ecological factors B. sociocultural factors C. technological factors D. legal factors
D
To implement specific business strategies, general managers of strategic business units rely on: A. external stakeholders. B. corporate executives. C. strategic leaders. D. functional managers.
D
What is most likely to happen when there is too much money in an economy? A. There are too many goods and services. B. There is a drop in interest rates. C. There is high economic growth. D. There is an increase in prices.
D
When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger? A. the emergence of entry barriers B. the bargaining power of suppliers C. the availability of complements D. the threat of substitutes
D
Which of the following features about a buyer indicates that the buyer has high bargaining power? A. when the buyer cannot credibly threaten to backwardly integrate into the industry B. when the buyer cannot purchase specific products from other sellers C. when the buyer faces high switching costs D. when the buyer operates in an industry where products are undifferentiated
D
Which of the following features about a buyer indicates that the buyer has high bargaining power? A. when the buyer cannot credibly threaten to backwardly integrate into the industry B. when the buyer cannot purchase specific products from other sellers C. when the buyer faces high switching costs D. when the buyer operates in an industry where products are undifferentiated
D
Which of the following is a primary feature of the five forces model? A. It is concerned exclusively about the intensity of rivalry among direct competitors. B. It takes into account a firm's internal resources, capabilities, and core competencies. C. It helps managers determine the changing speed of an industry or the rate of innovation. D. It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.
D
Which of the following is an example of a product-oriented vision statement? A. Andrea, Ltd. wants to adapt their picture frames to the changing demands of consumers. B. Andrea, Ltd. wants to always satisfy the consumers who purchase picture frames. C. Andrea, Ltd. wants to provide the best benefits for employees in the picture-frame industry. D. Andrea, Ltd. wants to be the best manufacturer of picture frames in the industry.
D
Which of the following statements accurately describes social entrepreneurs? A. Social entrepreneurs are individuals who invest in start-up businesses in order to earn huge returns. B. Social entrepreneurs are individuals who rely primarily on social networking sites to generate revenues. C. Social entrepreneurs are employees within organizations who are responsible for carrying out lean production. D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm's performance.
D
Who among the following is responsible for making business strategies in a large conglomerate? A. the board of directors at the headquarters B. the shareholder of the company C. the lower-level employees in the company D. the general managers of individual business units
D
_____ are best described as the ethical standards and normsthat govern the behavior of individuals within a firm. A. Job descriptions B. Customs duties C. Corrective controls D. Organizational values
D