Strategic Management Exam 2

Rivalry among competing forms

Which is considered a force in the "Five-Forces" model? Recent technological innovation Increased deregulation Rivalry among competing forms The threat of government intervention

False

Organizational goals and objectives should be vague in order to allow changes in strategy. False True

False

Portfolio management should be considered as the primary basis for formulating corporate-level strategies. True False

Stakeholder Surplus Model

Defines beneficiary group and maximizes wealth for total group

The cost of the marble will be expensive because of the bargaining power of the supplier.

A certain marble quarry provides a unique type of marble that is richly colored and strikingly veined. It has been used for churches and public buildings throughout the world. The architect of a new headquarters for a prestigious Fortune 500 firms has specified the use of this marble, and this marble only, for this project. which of the following statements is most likely to be true? The cost of the marble will be moderate because of the bargaining power of the buyer. The cost of the marble will be expensive because of the high strategic stakes involved. The cost of the marble will be moderate because of economies of scale. The cost of the marble will be expensive because of the bargaining power of the supplier.

path dependency

A crash R&D program by one firm cannot replicate a successful technology developed by another firm when research findings cumulate. This is an example of social complexity casual ambiguity path dependency physical uniqueness

consider implementing a low risk/low control strategy such as exporting.

A domestic corporation considering expanding into international markets for the first time will typically consider implementing a low risk/low control strategy such as exporting. form a joint venture with a reputable foreign producer. start off by implementing a wholly owned foreign subsidiary so it can maintain standards identical to those at home. consider licensing or franchising its operations.

offering lower prices to frequent customers

A firm can achieve differentiation through all the following means except better customer service improving brand image offering lower prices to frequent customers adding additional product features

rely on experience effects to raise efficiency.

A manufacturing business pursuing cost leadership will likely put heavy emphasis on product engineering focus on a narrow market segment. use advertising to build brand image. rely on experience effects to raise efficiency.

False

A multi domestic strategy is the most appropriate strategy for international operations because it drives economies of scale as far as possible and provides a middle of the road product appealing to the largest number of consumers in every market. True False

broadly-defined target market is to a cost leadership strategy

A narrow market focus is to a differentiation-based strategy as a growth market is to a cost-based strategy broadly-defined target market is to a cost leadership strategy growth market is to a differentiation-based strategy technologically innovation is to a cost-based strategy

False

A newly acquired business must always have products that are similar to the existing businesses' products to benefit from the corporation's core competence. True False

a temporary competitive advantage.

A resource is valuable and rare but neither difficult to imitate nor without substitutes. This should enable the firm to attain a sustainable competitive advantage. no competitive advantage. a temporary competitive advantage. competitive parity.

Marketing expertise increasing a firm's revenues and enabling it to enter new markets.

Although firm infrastructure is often viewed only as​ an overhead expense, it can become a source of competitive advantage. Examples include all of the following except: Negotiating and maintaining ongoing relations and regulatory bodies. Top management providing a key role in collaborating with important customers. Marketing expertise increasing a firm's revenues and enabling it to enter new markets. Effective information systems contributing significantly to a firm's overall cost leadership strategy.

a group of firms producing products that are close substitutes

An industry is defined as: a group of firms producing the same items firms that have the same seven digit standards industrial code firms producing items that sell through the same distribution channels a group of firms producing products that are close substitutes

False

As a rule, shareholders prefer more diversification than do managers. True False

Increases the threat of new entrants

Because the Internet lowers barriers to entry in most industries, it... Increases the threat of new entrants Increases supplier power Makes it easier to build customer loyalty Decreases the threat of new entrants

Strategic Mgmt Process

Commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above-average returns

C

Competitiveness is usually enhanced by good implementation of diversification based on all of the following reasons except: A. Potential to share the inventory delivery system between the old and the new business B. Potential to reduce the cost of manufacturing in the new business more than other potential acquirers C. Potential to overcome uncertainties in the future cash flows of a mature product line with cash flows from a new product to protect value for shareholders D. Potential to share managerial competences in the implementation of a particular technological development across otherwise different businesses E. None of the other options in this set of answers

Overall cost leadership

Convincing rivals not to enter a price war, protection from customer pressure to lower prices, and the ability to better withstand cost increases from suppliers characterize which type of competitive strategy? Differentiation focus Cost leadership focus Differentiation Overall cost leadership

True

Corporate governance involves oversight in areas where owners, managers, and members of boards of directors may have conflicts of interest. False True

True

Corporations with multiple foreign operations that act very independently of one another are following a multi domestic strategy. True False

Vision statement

Crystallization of what leaders want firm to be Guides development of strategy and organization Describes an inspiring new reality Is achievable within a specific time period Primarily useful internally

Product Market Stakeholders

Customers, suppliers, host communities, unions

Intangible resources

Difficult for competitors and firms to account for or imitate, typically embedded in unique routines and practices that have evolved over time

Financial economies (unrelated diversification)

Efficient internal capital allocation business restructuring

True

Establishing a customer service hotline to handle customer complaints would be considered a primary activity in value chain analysis. False True

penalties for inadequate firm performance.

Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT: salary. penalties for inadequate firm performance. long-term incentives such as stock options. bonuses.

False

Executive compensation, ownership concentration, and the matrix organizational structure are all examples of governance mechanisms. True False

positively related.

Firm size and executive compensation are: not related to each other. positively related. not issues that affect the implementation of a firm's strategy. negatively related.

standardized; few

Firms following a global strategy strive to offer ______________ products and services as well as locate manufacturing, R&D, and marketing activities in _____________ locations. a wide variety of; few standardized; several a wide variety of; several standardized; few

have high fixed costs, in a slow growth industry with high exit barriers.

Firms would be most likely to face intense rivalry with competitors when they are in a high growth industry with low fixed costs. are in a protected market. have high fixed costs, in a slow growth industry with high exit barriers. have low exit barriers for easy transition to another industry.

Value Chain: Support Activities

HR mgmt, Technology, Procurement

D

High pressure for local adaptation combined with high pressure for lower costs would suggest what type of international strategy? A. international. B. global. C. multi-domestic. D. transnational

decreased emphasis on competition based on price

High product differentiation is generally accompanied by high-profit margins and lower costs decreased emphasis on competition based on price significant economies of scale higher market share

Strategy

How to beat present and potential competitors Lists set of actions to provide products or services that create more value than their cost Describes the "value proposition" chosen by the company Constantly changes in response to analysis, trial and error For internal use

analysis of resources, capabilities, and core competencies

If you believed in a pure five forces model of above-average returns, which of the following things is LEAST important? analysis of general environment analysis of resources, capabilities, and core competencies competitor analysis industry analysis all are equally important

Maturity

In a given market, key technology no longer has patent protection, the experience is not an advantage, and there is a growing need to compete on price. What stage of its life cycle is the market in? Decline Introduction Growth Maturity

returned to them as dividends.

In contrast to managers, shareholders may prefer that free cash flows be: used to reduce corporate debt. invested in tax free municipal bonds. re-invested in additional corporate assets. returned to them as dividends.

sociocultural changes

Increasingly larger numbers of women are entering the workforce since the early 1970s is an example of... demographic changes technological developments political and legal environmental changes sociocultural changes

True

Industries characterized by high economies of scale typically attract fewer new entrants. True False

Industry B; Industry B

Industry A is characterized by high advertising and R&D expenses (as a proportion of revenues) or, said differently, high differentiation. Industry B has a low advertising and R&D expenses. Which industry would tend to have a higher threat of new entrants? ​Higher degree of rivalry? Industry A; Industry B Industry A: Industry A Industry B; Industry B Advertising and R&D expenses provide no information regarding of new entrants or rivalry. Industry B; Industry A

True

Internal competition for corporate resources is effective for companies with an unrelated diversification strategy, but dysfunctional for companies with a related strategy. False True

dominance by a few suppliers.

The bargaining power of suppliers is enhanced under the following market condition low differentiation of the supplier's products. no threat of forward integration. dominance by a few suppliers. greater availability of substitute products.

lower transaction costs and improved coordination are vital and achievable through vertical integration.

It may be advantageous to vertically integrate when the minimum efficient scales of two corporations are different. lower transaction costs and improved coordination are vital and achievable through vertical integration. flexibility is reduced, providing a more stationary position in the competitive environment. various segregated specializations will be combined.

C

Recent trends that might lead managers of multinational corporations (MNCs) not to adopt a multi-domestic strategy for their operations would include all of the following except A. international customers' needs, interests, and tastes are becoming increasingly homogenized or similar. B. consumers around the world are increasingly willing to trade off idiosyncratic preferences in product features for lower prices. C. flexible manufacturing trends have allowed a decline in the minimum volume required to reach acceptable levels of production efficiency. D. cultural globalization and technological standards diffusion across countries are resulting in increased similarities in lifestyles and preferences in an increasing number of countries around the world

Evaluating Firm Financial Performance

Replace assets: return on capital > cost of capital Survive acquisition: stock market value > break-up value

False

Research has consistently shown that there is one best way to structure all organizations, regardless of competitive strategy. False True

Capital Market Stakeholders

Shareholders, banks

False

Some excellent examples of mission statements are: "To be the happiest place on Earth" (Disney), and "restoring patients to full life" (Medtronic). True False

Mission Statement

Statement explaining why a company exists Provides context for all decisions within the organization Describes and enduring reality Is capable of infinite fulfillment (no time frame) Useful for both internal and external audiences

True

Stock options attempt to align managers' and owners' interests by tying managerial pay and firm performance together. True False

Corporate level strategy's value

The degree to which the businesses in the portfolio are worth more under the management of the firm than they would be under other ownership.

False

Supplier power tends to be highest in industries where products are vital to buyers, where switching from one supplier to another is very costly, and where there are many suppliers. True False

it is a slow means to enter new markets and acquire skills and competences.

The downsides or limitations of mergers and acquisitions include all of the following except: difficulties in integrating the activities and resources of the acquired firm into a corporation's on-going operations. it is a slow means to enter new markets and acquire skills and competences. expensive premiums that are frequently paid to acquire a business. there can be many cultural issues that can doom an otherwise promising acquisition.

False

The finance and R&D functions are emphasized in the differentiation strategy's functional structure. False True

False

The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is a firm-level analytical model which explains difference in performance between the firms that compete in one industry. True False

Mission statements, vision statements, strategic objectives

The hierarchy of organizational goals is in this order (least specific to most specific): Vision statements, strategic objectives Mission statements, vision statements, strategic objectives Vision statements, mission statements, strategic objectives Mission statement, strategic objectives, vision statements

Numerous equally balance competitors, slow industry growth, high fixed or storage costs.

The most intense rivalry results from A high level of differentiation. Numerous equally balanced competitors, manufacturing capacity increases only in large increments, low exit barriers. Numerous equally balance competitors, slow industry growth, high fixed or storage costs. Few competitors, slow industry growth, lack of differentiation, high fixed storage costs.

decline in the market life cycle.

The most likely time to pursue a harvest strategy is in a situation of high growth. mergers and acquisitions. decline in the market life cycle. strong competitive advantage.

True

The primary role of the board of directors is to monitor and control top-level executives to protect owners' interests. False True

agency

The separation between a firm's owners and managers creates a(n) _____ relationship. dominant governance agency control

True

The separation between owners and managers creates the potential for owners and managers to have conflicting interests. True False

False

To generate above-average returns, a firm following an overall cost leadership position should not be concerned with attaining parity or proximity on the basis of differentiation relative to its peers. False True

True

To properly execute strategic controls in firms using related diversification, the executives must have a deep understanding of each unit's business-level strategy. False True

the cost of substitute products.

Upper limits on the prices a firm can charge are impacted by: customers' high switching costs. the cost of substitute products. variable costs of production. expected retaliation from competitors.

Strategic Competitiveness

When a firm successfully formulates and implements a value-creating strategy

Sustainable Competitive Advantage

When competitors are unable to duplicate a company's value-creating strategy

C

When thinking about organizing, it would make sense for a focus cost leadership company like South West Air to be organized as a: A. Matrix organizational structure B. Divisional organizational structure C. Functional organizational structure D. Global organizational structure E. Network organizational structure

Exporting, licensing, franchising, joint venture, and wholly owned subsidiary.

Which of the following describes the most typical order of entry into foreign markets? Licensing, exporting, franchising, joint venture, and wholly owned subsidiary. Exporting, licensing, franchising, joint venture, and wholly owned subsidiary. Exporting, franchising, licensing, joint venture, and wholly owned subsidiary. Franchising, licensing, exporting

A competitor to your product where a high switching cost exists

Which of the following firms would likely pose the least competitive threat? A firm in the same industry and the same strategic group A firm that produces substitute goods to your product line A competitor to your product where a high switching cost exists A form in the same industry and in the nearest strategic group looking to join your group

The high costs of establishing manufacturing facilities.

Which of the following is NOT a disadvantage of licensing? Decreased potential returns. Little control over the marketing of the products. The high costs of establishing manufacturing facilities. Licensees may develop a competitive product after the license expires.

Bargaining power of suppliers

Which of the following is NOT an entry barrier to an industry? Bargaining power of suppliers Economies of scale Customer product loyalty Expected competitor retailiation

Supplier power is increased because suppliers will be able to charge higher prices for their inputs.

Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position vis-à-vis Porter's five forces? Firms will enjoy high customer loyalty, thus experiencing less threat form substitutes than its competitors. It helps a firm to deal with supplier power reduces buyer power since buyers lack comparable alternatives. By increasing a firm's margins, it avoids the need for a low-cost position. Supplier power is increased because suppliers will be able to charge higher prices for their inputs.

The internet has made it more difficult to imitate the product quality advantages achieved by competitors.

Which of the following is not one of the reasons the internet increases the intensity of competitive rivalry? The internet has commoditized products that previously were regarded as rare of unique. The internet makes it more difficult for firms to differentiate themselves. The internet has eliminated the importance of location by making geographically distant products available online. The internet has made it more difficult to imitate the product quality advantages achieved by competitors.

Firms in industries that have much value added in research and design or manufacturing.

Which of the following types of international firms are most likely to benefit from a global strategy as opposed to a multidomestic strategy? Firms that compete in industries in which consumer preferences vary substantially in each country. Firms in industries that have value added by sales and marketing departments. Firms in industries that are expanding very rapidly. Firms in industries that have much value added in research and design or manufacturing.

The legitimacy and reputation of a firm.

Which of the following would be the most difficult to assess? The deficiency with which a firm utilizes its assets. The legitimacy and reputation of a firm. Market share growth. The liquidity position of a firm.

It points out the need to maintain a differentiation advantage and low-cost advantage simultaneously.

Which of these statements regarding the market life cycle is correct? Part of the power of the market life cycle is its ability to serve as a short-run forecasting device. It points out the need to maintain a differentiation advantage and low-cost advantage simultaneously. Trend suggested by the market life cycle model are generally not reversible or repeatable. It has important implications for a firm's generic strategies, functional areas, value-creating activities, and overall objectives.

If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer.

Which statement regarding competitive advantages is true? With an overall cost leadership strategy, firms need not be concerned with parity on differentiation. Attaining multiple types of competitive advantage is a recipe for failure. In the long run, a business with one or more competitive advantages is probably destined to earn profits. If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer.

If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumers.

Which statement regarding competitive advantages is true? Attaining multiple types of competitive advantage is a recipe for failure. With an overall cost leadership strategy, firms need not be concerned with parity on differentiation. In the long run, a business with one or more competitive advantage is probably destined to earn normal profits. If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumers.

Market power (related diversification)

blocking competitors through multi-point competition, vertical integration

economies of scope (related diversification)

cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses

Operational relatedness

created by sharing either a primary activity such as inventory delivery systems, or a support activity such as purchasing

Business level strategy (competitive)

each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets

Organizational stakeholders

employees, managers, nonmanagers

Related diversification

firm creates value by building upon or extending its: resources, capabilities, core competencies

Internal environment

firms determine what they can do examine unique resources, capabilities, and competencies (sustainable competitive advantage)

External environment

firms identify what they might choose to do examine forces that affect the industry

Barriers to Entry

high barriers of entry in an industry reduces thereat of new entrants

Strategic rationales for outsourcing

improve business focus provide access to world-class capabilities accelerate business reengineering benefits sharing risk free resources for other purposes

Value chain: Primary Activities

inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, Service

Stakeholders

individuals and groups who can affect, and are affected by the strategic outcomes achieved and who have enforceable claims on a firm's performance

Economies of scale

marginal improvements in efficiency that a firm experiences as it incrementally increases its size

Tangible Resources

relatively easy to identify, and include physical and financial assets used to create value for customers

Value chain

shows how a product moves from raw-material stage to the final customer

Corporate level strategy (companywide)

specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product managers

Strategic mgmt

study of why some firms outperform others

Outsourcing

the purchase of value creating activity from an external supplier

Corporate governance

the relationship among various participants determining the direction and performance of corporations (shareholders, mgmt, board)

Corporate relatedness

using complex sets of resources and capabilities to link different businesses through managerial technological knowledge, experience and expertise