Strategic Management Quizzes 1-8

largest economic value created.

Competitive advantage goes to the firm that achieves the:

economic value created is greater than that of its competitors.

A company that uses a differentiation strategy can achieve a competitive advantage as long as its:

diseconomies of scale.

A firm experiences _____ when there are increases in cost per unit as output increases.

$3 billion, that is, 30 million shares x $100

A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2000 annually. In this case, the market capitalization is _____.

economic value created (not: consumer surplus, total return to shareholders, nor customer lifetime value)

A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the _____.

valuable and costly to imitate.

A firm's resource is most likely to be an internal strength and a core competency when the resource is:

Disruptive innovation

A(n) _____ leverages new technologies to attack existing markets.

the intent of an integration strategy is not to be the absolute lowest-cost provider because an integrator must also increase perceived value.

An integration strategy differs from a low-cost strategy in that:

Resource immobility (not: resource homogeneity, resource perishability, nor resource equality)

As a result of _____, a critical assumption in the resource-based model of a firm, the resource differences that exist between firms are difficult to replicate.

Economies of scope (not: mass customization, learning-curve effect, or network effect)

BodyBlush Inc. is a brand reputed for its wide variants of body wash that introduced its range of shampoos and skin moisturizers a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is BodyBlush applying?

low-cost input factors. (not economies of scale, superior customer service, or availability of complements)

Both BioThink Inc. and GD Pharma Inc. have discovered similar vaccines to prevent cancer. While GD Pharma's vaccine sells at $100 per unit, BioThink sells its vaccine at $90 per unit. This price differentiation has mainly been attributed to the companies' capital decisions. While BioThink used its retained earnings to develop the vaccine, GD Pharma borrowed funds from banks to develop the vaccine. Thus, GD Pharma pays a higher interest on its capital, which makes it necessary to price its vaccine higher. Thus, the key driver for BioThink's competitive advantage is:

price-cutting (not: new product releases, promotional campaigns, nor product differentiation)

Competitive rivalry based solely on _____ is destructive to firms as it transfers most of the value created in the industry to the customers.

Superior customer service. (not low cost of input factors, availability of complements, or economies of scale)

Coral Orchids is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver?

quality (not: network effect, availability of complements, or diseconomies of scale)

DFS Electronics Inc. ensures that all its products are highly durable and reliable by using techniques like zero-defect and lean manufacturing systems. These efforts not only add to the products' differential appeal, but also help the company save costs during production and avoid expenses due to after-sales services. Thus, the common value and cost driver responsible for DFS Electronics' strategic position as an integrator is the _____.

consumer surplus plus firm profit.

Economic value creation is best expressed as _____.

spread their variable costs over a larger output. (what they do do: spread their fixed costs over a larger output, employ specialized systems and equipment, and take advantage of certain physical properties)

Economies of scale do not allow firms to:

Archer Cycles has created a greater economic value than Evia Cycles.

Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price customers are willing to pay is $550 per unit. Archer Cycles Inc., its competitor, incurs $450 to manufacture a similar bicycle, and customers are willing to pay a maximum price of $620 for it. What does this indicate?

network effects (not economies of scope, economies of scale, nor learning curve effects)

FindFriend is an instant messaging application for smartphones. New smartphone users find it easier to connect with friends and relatives through this mobile app when compared to other similar instant messaging applications. Hence, it has the largest user base in the industry. Thus, FindFriend app's value has increased primarily due to its _____.

create higher customer perceived value than the value that competitors create.

Firms pursuing a differentiation strategy primarily seek to:

Social entrepreneur (not: headhunter, category captain, or trade creditor)

Georgia Ray is the founder of the departmental stores chain, Ether Inc. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and manufactured from recycled material. Also, her company purchases handicrafts from non-profit organizations supporting the aged. Georgia's belief is that her company should be able to support the community at large. Which of the following terms best describes Georgia Ray?

It appeals to the price-conscious buyers.

GlamorRace is a cosmetic brand that pursues a cost-leader strategy. Which of the following statements is true of the cosmetic brand?

Differentiation

Home Smart Inc. is a chain of supermarkets that sells its products 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 Home Smart adopted in this scenario?

delivers low-cost products and services to a specific, narrow part of the market.

In a focused cost-leadership strategy, a firm:

NEW markets by using NEW technologies Definition: A radical or disruptive innovation is one that has a significant impact on a market and on the economic activity of firms in that market.

In a radical innovation, a firm targets:

integration strategy (not: focused differentiation strategy, liquidation strategy, divestment strategy)

In a successful _____, the trade-offs between differentiation and low cost are reconciled.

capturing the economic value created as much as possible.

In an economic context, strategy for producers is primarily about:

focus its research and development on process technologies to improve efficiency. (not: avoid an organizational structure that relies on strict budget controls)

In contrast to a differentiator, a cost leader will:

20 years

In the U.S., the time period for the right to exclude others from the use of a patented technology is _____ from the filing date of a patent application.

Razor-razor-blade (not pay-as-you-go, freemium, subscription based, nor direct sales)

In the _____ business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods.

driving down its costs.

In the fiscal year 2012, BlackBerry's Cost of goods sold (COGS)/Revenue ratio was higher than that of its competitor, Apple. This implies that BlackBerry needs to work toward:

If the industry has recently become deregulated.

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?

Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry.

Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry?

Pay-as-you-go

Maverick Communications Inc. is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer's talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this best illustrate?

Architectural innovation

ModelLife Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?

Production systems that reduce costs by 30 percent below the current industry standards.

Otion Inc. is a relatively new firm in the consumer electronics industry. The company's primary objective is to become the market leader in less than 5 years, for which it has to gain and sustain a competitive advantage. In the context of the VRIO framework, which of the following resources should Otion Inc. primarily focus on to achieve its objective?

gains market share from other firms.

When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it:

Product features. (not premium prices, low-cost input factors, or economies of scale)

Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver?

backward integration (not: forward integration, product differentiation, nor crowdsourcing)

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 _____.

Incremental innovation (not: radical innovation, architectural innovation, nor disruptive innovation) Definition: concerns an existing product, service, process, organization or method whose performance has been significantly enhanced or upgraded.

SyncTouch Inc. is a manufacturer of cell phones. It has released an improved version of its smartphone in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?

Long tail

The _____ business model is best described as one in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices.

producer surplus (not: consumer surplus, break-even price, nor reservation price)

The difference between the price charged for a product and the cost to manufacture it is referred to as the _____.

Legal factors (not: ecological factors, sociocultural factors, nor technological factors)

The government of Filvia has 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?

The company's machinery (not: the company's copyrights, the company's brand equity, nor the company's patents)

The management of a company is assessing the value of all the tangible resources the company owns. Which of the following will be included in this assessment?

There are only a few competitors in the 3D television market. (not: the number of buyers in the market is high, the prices of 3D televisions will be lowest during this stage, nor the barriers to entry are low in the industry)

The market for 3D televisions is in the introduction stage of the industry life cycle. What does this imply?

achieve a larger economic value created than that of rivals in the industry. (not: create the highest perceived value in its respective industry)

The primary goal of a firm pursuing an integration strategy should be to:

understand the profit potential of different industries.

The primary objective of Porter's five forces model is to:

1. inception: the presentation of an idea as findings derived from basic research. 2. prioritization: process of settling ideas in accordance to their importance for a selection team. After gathering potential ideas, the next step is to screen them and select the most suitable ones for further development or implementation. 3. Implementation: creating the necessary conditions to favor research and technical development activities, to compose teams, to search for financing for the implementation or to schedule manufacturing. 4. Follow-up: to evaluate the effectiveness of the innovative project that has been previously implemented. In that way, different approaches will be followed depending on the type of innovation project that has been conducted...to measure the effectiveness of an innovative process it will be necessary to gather specific indicators from the process and assess them against predefined thresholds...to measure the effectiveness of a new commercial product it will be necessary to perform specific market studies and evaluate the results against the expectations of the company.

The typical four-step innovation process begins with:

maximum amount consumers are willing to pay for it.

The value a consumer attaches to a product or service is captured in the:

Crowdsourcing (not: offshoring, product diversification, horizontal integration)

Threadless is a community-centered online apparel store that leverages user-generated content. The idea is to turn consumers into prosumers, a hybrid between producers and consumers. Members of the Threadless community do most of the work, which they consider fun: They submit T-shirt designs online, and community members vote on which designs they like best. The designs receiving the most votes are put in production, printed, and sold online. It can be said that Threadless uses the _____ technique.

automobile company that sells high-end, premium cars.

True Empire Autos Inc. is an automobile company known for its luxury cars and follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n) _____.

The expertise acquired by the employees in the company. (not: the headquarters owned by the company, the capital raised by the company from its shareholders, nor the resources of the company that are mobile)

True Sync Inc. is a software company, which has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of True Sync Inc. will best enable it to gain and sustain a competitive advantage?

an apparel company popular among price-conscious customers.

Wear Crush Inc. is an apparel company known for its affordable clothes that follows a cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic position with:

availability of complements. (not economies of scale, learning-curve effects, or experience-curve effects)

When Internet service providers offer free routers for subscriptions to their wireless Internet packs, the perceived value of the service offering increases. In this case, the value driver would be:

Disruptive innovation

When Japanese carmakers attacked the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in _____.

exploitation (not: exploration, pattern recognition, or lateral thinking)

When a firm applies its current knowledge to enhance its performance in the short term, it is referred to as _____.

Strategic trade-offs

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in what?

3,000-4,000 units.

When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale?

Perfect competition (not: monopoly, oligopoly, nor monopolistic competition)

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate?

Architectural innovations

When firms innovate by leveraging existing technologies into new markets, they are said to be involved in _____.

Consolidation strategy (not: harvest strategy, maintain strategy, nor differentiation strategy) Definition: refers to the mergers and acquisitions of many smaller companies into much larger ones for economic benefit.

When the market for photo film negatives declined with the arrival of digital cameras, Momento Films Inc., a manufacturer of film negatives, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Momento Films adopted in this scenario?

An automobile company using computer-aided design in its production.

Which of the following best illustrates a process innovation as opposed to product innovation?

Innovation (not: availability of complements, superior customer service, or economies of scale)

Which of the following drivers simultaneously increases value while lowering cost?

Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.

Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?

High entry barriers.

Which of the following is a feature of an oligopolistic industry structure?

The market reaches its maximum size.

Which of the following is a feature of the maturity stage of the industry life cycle?

Competitive intensity within the industry increases. 5 Phases: i. Early Stages Phase - alternative product design and positioning, establishing the range and boundaries of the industry itself. ii. Innovation Phase - Product innovation declines, process innovation begins and a "dominant design" will arrive. iii. Cost or Shakeout Phase - Companies settle on the "dominant design"; economies of scale are achieved, forcing smaller players to be acquired or exit altogether. Barriers to entry become very high, as large-scale consolidation occurs. iv. Maturity - Growth is no longer the main focus, market share and cash flow become the primary goals of the companies left in the space. v. Decline - Revenues declining; the industry as a whole may be supplanted by a new one

Which of the following is a feature of the shakeout phase of the industry life cycle?

It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes, and threat of new entrants.

Which of the following is a primary feature of the five forces model?

The firm's organizational culture (not: the firm's land and building, the firm's finished goods inventory, nor the firm's cash at bank)

Which of the following is an example of a firm's intangible resources?

The stage of the business cycle that the country is in (not: the government regulations and laws in the country in which the firm exists, the values and norms prevalent in the society in which the firm operates, nor the bargaining power of the firm's suppliers and buyers)

Which of the following represents an economic factor in a firm's external general environment?

While there are no diseconomies of scale to learning, there are diseconomies to scale.

Which of the following statements accurately brings out the difference between economies of scale and learning effects?

Tangible assets can be bought on the open market, whereas intangible assets cannot be easily purchased.

Which of the following statements accurately brings out the difference between tangible and intangible resources?

Accounting data are historical data and thus backward-looking.

Which of the following statements is true of accounting data?

Shoes Cult has a competitive advantage over Aros. What's true: Aros has created a greater economic value than Shoes Cult, Aros is a cost leader when compared to Shoes Cult, Both Aros and Shoes Cult have achieved differentiation parody.

While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is NOT true in this scenario?

They can be used by any organization independent of industry context.

Why are differentiation and cost-leadership strategies referred to as generic business strategies?

easy to imitate. (not: invaluable and common, extremely expensive, nor non-substitable)

With regard to the VRIO framework, Crocs Shoes was unable to sustain its competitive advantage primarily because its products were:

Core competencies (Not: resource leverages, capital gains, nor equity reserves)

_____ are best described as unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.

Path dependence (not: social complexity, cannibalization, nor causal ambiguity)

_____ describes a process in which the options one faces in a current situation are limited by decisions made in the past.

Innovation (not: direct imitation, mass customization, or headhunting)

_____ is best described as the commercialization of any new product, process, or the modification and recombination of existing ones.

Mass customization (not: just-in-time manufacturing, unit-cost production, product diversification)

_____ is best described as the process of manufacturing a large variety of tailor-made products or services at a relatively low unit cost. Definition: a marketing and manufacturing technique that combines the flexibility and personalization of "custom-made" with the low unit costs associated with mass production.

Exploration (not: exploitation, pattern recognition, or reverse mentoring)

_____ is when a firm is searching for new knowledge that could enhance its future performance.