Strategic Management Chapter 1
Temporary
A competitive advantage that lasts a very short period of time is known as a _____ competitive advantage
Above normal economic performance
A firm that is able to attract additional capital because debt holders and equity holders will scramble to make additional funds available for it is likely earning
Accounting performance
A firms _______ is a measure of it competitive advantage calculated using information from a firms published profit and loss and balance sheet statements
The mission statements of visionary firms A. Suggest that profit maximizing, while an important corporate objective, is not their primary reason for existence B. Suggest that profit maximizing is neither an important corporate objective nor their primary reason for existence C. Suggest that profit maximizing is their primary reason for existence D. Suggest that value maximizing is their primary reason of existence
A. Suggest that profit maximizing, while an important corporate objective, is not their primary reason for existence
Which of the following statements regarding firm mission is accurate? A. While some firms have used thier missions to develop strategies that create significant competitive advantages, firm missions can hurt a firms performance as well B. Virtually all firms have used missions to develop strategies that create significant competitive advantages, while very few firms have used missions that can hurt their performance C. it is very rare for firms to be able to use their missions to develop strategies that create significant competitive advantages, and most firm missions actually hurt their performance D. Missions tent to have very little impact on a firms ability to create significant competitive advantages
A. While some firms have used their missions to develop strategies that create significant competitive advantages, firm missions can hurt a firms performance as well
A firms _______ is its long-term purpose that defines both what it aspires to be in the long run and what it wants to avoid in the meantime A. Mission B. Strategy C. objective D. Goal
A. mission
High quality objectives are those that are A. tightly connected to elements of a firms mission and are relative easy to measure and track over time B. Difficult to measure and track over time C. Non-existent D. Not quantitative
A. tightly connected to elements of a firms mission and are relative easy to measure and track over time
Activity
Accounts receivable turnover is an example of which type of ratio
Corporate level strategies
Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as
Business Level Strategies
Actions firms take to gain competitive advantages in a single market or industry are known as
Privately held
An important limitation of comparing a firms performance to its cost of capital occurs when a firm is
The strategic management process begins when a firm A. Determines its objectives B. Defines its mission C. Makes a strategic choice D. Implements its strategy
B. Defines its mission
A sequential set of analyses and choices that can increase the likelihood that a firm will choose a strategy that generates competitive advantages is the A. Organizational change process B. Strategic management process C. Mission statement process D. Goal setting process
B. Strategic management process
From 1926 to 1995, visionary firms earned _____ returns compared to firms that were not visionary firms A. Substantially lower B. Substantially higher C. Marginally lower D. Equivalent
B. Substantially higher
Difference between business level and corporate level strategies
Business level strategies are actions firms take to gain competitive advantages in a single market or industry. Corporate level strategies are actions firms take to gain competitive advantages in multiple markets or industries at the same time
_____ are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission A. Strategies B. Missions C. Competitive advantages D. Objectives
D. Objectives
A firms ______ is defined as its theory about how to gain competitive advantages. A. Objective B. Mission C. Vision D. Strategy
D. Strategy
Firms whose mission is central to all they do are known as ______ firms A. Missionary B. Emergent C. Parity D. Visionary
D. Visionary
By conducting an ________, a firm identifies the critical threats and opportunities in its competitive environment
External Analysis
A "good strategy" does not necessarily have to create a competitive advantage.
False
A sustained competitive advantage is virtually permanent
False
Activity rations are ratios with some measure of profit in the numerator and some measure of firm size or assets in the denominator
False
All firms have almost entirely emergent strategies
False
Applying accounting measures of competitive advantage for firms that are headquartered in different has become less challenging today with the globalization of business
False
Business level strategies are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously
False
Corporate level strategies are actions firms take to gain competitive advantages in a single market or industry
False
Emergent strategies are only important when a firm fails to implement the strategic management process effectively
False
Firms whose mission statement is central to all they do are known as missionary firms
False
High quality objectives are tightly connected to the elements of a firms mission but tend to be relatively difficult to measure and track over time
False
It is usually possible to know for sure that a firm is choosing the right strategy
False
Johnson & Johnson's introduction of "Johnson's Toilet and Baby Powder" as a result of customers asking to purchase the talcum power is an example of a planned strategy
False
Mission statements often contain so many common elements that even if a firms mission statement does not influence behavior throughout an organization, it is likely to have a significant impact on a firms actions
False
The correlation between economic and accounting measures of competitive advantage is generally low
False
The cost of equity is equal to the interest a firm must pay its debt holders to induce those debt holders to lend money to the firm
False
The greatest disadvantage of accounting measures of competitive performance is that they are relatively difficult to compute
False
The residual claimants view of equity holders argues that the interests of equity holders come before all other stakeholders of the firm in receiving payment
False
The second step in the strategic management process is the definition of a firms mission
False
The size of a firms competitive advantage is the sum of the economic value a firm is able to create and the economic value rivals are able to create
False
There is complete consensus among strategic managers and academic researchers about what a "strategy" is.
False
Visionary firms earn substantially higher returns that average firms because they acknowledge that profit maximizing is their primary reason for existence
False
When a firm earns above average accounting performance, it is said to enjoy competitive parity
False
Intended
Fed Ex entered their market with a well-defined mission and objectives, making strategic choices and implementing those strategies. This is an example of which type of strategy
Disadvantage
Firms that generate less economic value that their rivals experience a competitive
Defining its mission
Green Frog is a environmentally friendly firm in the cosmetics industry that has decided to undertake a strategic planning project. It wants to ensure that it performs the process correctly and so intends to start the process with the first step of the strategic planning process, which is
Growth in earnings per share averaging 15% or better annually for the next five years
Green Frog is a environmentally friendly firm in the cosmetics industry. Even though Green Frog is environmentally friendly, the strategic planning team had decided that financial performances is one of the companies top priorities. Which of the following is the best example of an objective the company might use to help it achieve its gal of superior financial performance
Corporate level strategy
Green Frog is an environmentally friendly firm in the cosmetics industry. if green frog were considering expanding beyond the cosmetics industry into pharmaceuticals in order to gain competitive advantages by operating in multiple markets and industries, this would be an example of which type of strategy?
Internal Analysis
Green frog is a environmentally friendly firm in the cosmetics industry. if green frog undertook an analysis to help understand which of its resources and capabilities are likely to be sources of competitive advantage and which are less likely to sources of such advantages it would be performing
External analysis
Green frog is an environmentally friendly firm in the cosmetics industry. if during the strategic planning process green frog tried to determine the critical threats and opportunities in its competitive environment, it would be performing an
Competitive Advantage
If TechnoGeek and VarsityBlue compete in the same market for the same customer and TechnoGeek generates $900 of economic value each time it sells a product or service while Varsity Blue generates $400 of economic value each time it sells a product or service, TechnoGeek has an ______ of $500
Above average accounting performance
If the average ROE in the heating and cooling industry is 10.1% and Thermacorp's ROE is 17.3%. Thermacorp is said to have
Competitive advantages should not persist; when they can
In many ways, the difference between traditional economics research and strategic management research is that the former attempts to explain why _______, while the latter attempts explain __________.
Difference between emergent and intended strategies
Intended strategies can best be described as a firms theories of how to gain a competitive advantage that are developed as a result of the strategic management process. intended strategies are developed when firms choose and implement their strategies exactly as described by the strategic management process.
_____ helps a firm understand which of its resources and capabilities are likely to be sources of competitive advantage
Internal Analysis
Strategy Implementation
Occurs when a firm adopts organizational policies and practices that are consistent with its strategy. Three specific organizational polices and practices are particularly important in implementing a strategy: a firms formal organizational structure, its formal and informal management control systems, and employee compensation policies
Dennis Mueller
One of the first scholars to examine the longevity of competitive advantage was
Leverage ratios
Ratios that focus on the level of a firms financial flexibility, including its ability to obtain more debt, are know as
What is the residual claimants view of equity holders?
Residual claimants view is that equity holders only receive payment on their investment in a firm after all legitimate claims by a firms other stakeholders are satisfied. This view posits that by maximizing returns to its equity holders, a firm is ensuring that its other stakeholders are fully compensated for investing in a firm
_______ occurs when a firm adopts organizational policies and practices that are consistent with its strategy
Strategy Implementation
Cost of Capital
The _________ is the rate of return that a firm promises to pay its suppliers of capital to induce them to invest in the firm
Value Proposition
The center of Osterwalder and Pigneur's business model canvas is the
Economic Value
The difference between the perceived benefits gained by a customer who purchases a firms products or services and the full economic cost of these products or services is the
Weighted average cost of capital
The percentage of a firms total capital that is debt times the cost of debt plus the percentage of a firms total capital; or equity times the cost of equity is the
A combination of both intended and emergent strategies
The realized strategy of most firms tends to be
Accounting measures and economic measures
The two types of measures of competitive advantage include
Residual claimants
The view that equity holders only receive payment on their investments in a firm after all legitimate claims by a firms other stakeholders are satisfied is known as the _____ view of equity holders
Mission statements that are very inwardly focused and are defined only with reference to the personal values and priorities of its founders are top managers can hurt a firms performance
True
Profitability
Thermacorp's 17.0% ROE is an example of an ______
Below normal economic performance
Thermacorp's weighted average cost of capital is 13.5. If the average WACC in the heating and cooling industry is 19, Thermacorp can be said to be earning
A firm that earns below average accounting performance generally experiences a competitive disadvantage
True
A firms accounting performances is a measure of its competitive advantage calculated using information from a firms published profit and loss and balance sheet statements
True
A firms mission defines both what it wants to be in the long run and what it wants to avoid in the meantime
True
By conducting an external analysis, a firm identifies the critical threats and opportunities in the industry's competitive environment
True
Economic measures of competitive advantage compare a firms level of return to its cost of capital instead of to the average level of return to the industry
True
Emergent strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented
True
Firms with strategies that are unlikely to be a source of competitive advantage will rarely provide the same career opportunities as firms with strategies that do generate such advantages
True
For the purposes of this book, a firms strategy is defined as its theory about how to gain competitive advantages
True
Liquidity ratios are ratios that focus on the firms ability to meet its short-term financial obligations
True
Objectives are the specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission
True
One of the central questions that all strategic managers must address, regardless of the industry they work in is, "How is the industry likely to evolve?"
True
Strategic choices are generally limited to very experienced senior managers in large corporations; in smaller and entrepreneurial firms, many employees end up being involved in the strategic management process
True
Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy
True
The greater the extent to which a firms assumptions and hypotheses accurately describe how the competition in the industry is likely to evolve, and how that evolution can be exploited to earn a profit, the more likely it is that a firm will gain a competitive advantage from implementing its strategies
True
The strategic management process is a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy that generates competitive advantages
True
The ultimate objective of the strategic management process is to enable a firm to choose and implement a strategy that leads to a competitive advantage
True
Waring found that firms that operate in industries that are informationally complex, require customers to know a great deal in order to use the industry's products, require a great deal of R & D, and have significant economies of scale are more likely to have sustained competitive advantage than those firms in industries without those characteristics
True
Above average accounting performance
Using ratio analysis, a firm earns _______ when its performance is greater that the industry average.
Competitive Advantage
When a firm is able to create more economic value that rival firms is said to have an
All of the Above
Which of the following is a reason why it is important for students to study strategy and the strategic management process?
Liquidity ratios
Which type of ratios focus on the ability of a firm to meet its short-term financial obligations
Profitability ratios
_______ are ratios with some measure of profit in the numerator and some measure of firms size or assets in the denominator
Economic
_________ measures of competitive advantage compare a firms level of return to its cost of capital instead of to the average level of return in the industry
Competitive Advantage
a firm has competitive advantage when it is ale to generate more economic value than rival firms. A temporary competitive advantage is competitive advantage that lasts a short period of time while a sustained competitive advantage lasts much longer
Normal economic performance
a firm that earns its cost of capital is said to be earning
mission
a firms mission is its long-term purpose and it defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime
Strategy
a firms strategy is defined as its theory about how to gain competitive advantages. this theory is based on a set of assumptions and hypotheses about how competition in this industry is likely to evolve an dhow that evolution can be exploited to earn a profit. to that extent these assumptions and hypotheses accurately describe how competition in this industry actually evolves, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. Thus, a good strategy that actually generates such advantages
Objectives
specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission
why is it important to understand a firms strategy, even if you are not a senior manager in a firm?
studying strategy and the strategic management process can give individuals the tools they need to evaluate the strategies of the firms that may hire them. once a individual is working for a firm, understanding that firms strategy and their place in it can be very important to their personal success since the expectations of how they perform their function will be impacted by the firms strategy. finally while strategic choices are generally limited to very experienced managers in large organizations in smaller and entrepreneurial firms many employees end up being involved in the strategic management process
two approaches to estimating a firms competitive advantage
the two general approaches to estimating a firms competitive advantage are measuring accounting performance and measuring economic performance.
Emergent strategies
theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented are know as
Debt to assets
which ratio signals a greater risk of bankruptcy as it increases?
