BUS4950_Midterm Study Guide
AccuroDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. TD Storage Inc. is a competitor of AccuroDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?
AccuroDisk creates a greater economic value than TD Storage.
Home Value Inc., Max Cart Inc., and Nice Necessities Inc. are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true?
Any advantage that one firm has will be short-lived.
Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE)?
Any of the five forces on its own, if sufficiently strong, can extract industry profitability.
Avalanche operates as a strategic business unit (SBU) under Snowfall Inc., a home-furnishings manufacturer. From this information, it may be reasonable to infer that
Avalanche is led by its own CEO (or equivalent general manager).
Several senior managers recently left Bass Automobile Inc. and went to work at Unicorn Autos Inc., a rival company. What does this imply?
Bass Automobiles Inc. faced resource leakage.
Bellhaven Inc. has a board of directors that consists of seven members. Which of the following is most likely an accurate statement about Bellhaven's board of directors?
Bellhaven's board of directors has a minority number of inside directors and it evaluates the firm's strategic initiatives.
Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?
Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
Which of the following provides an example of a firm in a red ocean?
Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive.
You are the CEO of a home appliance manufacturing company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed?
Compare the current valuations with past valuations to determine a trend. When assessing and evaluating competitive advantage, a comparison of rival firms' share price development or market capitalization provides a helpful yardstick when used over the long term. In order for this comparison of market capitalization to yield useful information, you must consider how it has changed over time. If your competitor has seen significant growth in market cap over the preceding year while your firm has seen its valuation decline slightly, for example, you would have evidence that your firm has begun to lose its competitive advantage.
How does availability of complements act as a value driver?
Complements add value to a product when they are consumed in tandem with it.
Why is it better for firms to keep their vision statements customer-oriented rather than product-oriented?
Customer-oriented visions tend to be more flexible when adapting to changing environments.
Why does Michael Porter recommend expanding the customer base of an organization in terms of the shared value creation framework?
Doing so could yield significant business opportunities that could improve the standard of living of the poor.
_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.
Economic value created
Future Clothes Inc., a publicly traded company, designs and manufactures wearable technology. What approach should Future Clothes take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.
Focus on research and development as a form of non-price competition. Horizontal integration changes the underlying industry structure in favor of the surviving firms. Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants. As a whole, the industry structure becomes more consolidated and potentially more profitable. If the surviving firms find themselves in an oligopolistic industry structure and maintain a focus on non-price competition (i.e., focus on R&D spending, customer service, or advertising), the industry can indeed be quite profitable, and rivalry would likely decrease among existing firms.
Pioneer Pharma Inc. and GH Medicines Corp. are two competing firms in the pharmaceutical industry. While Pioneer Pharma Inc.'s vision is "to be a preeminent drug manufacturer in the industry," GH Medicines Corp.'s vision is "to make good health a reality for everyone around the world." Which of the following is an implication of these different visions?
GH Medicines will be more flexible than Pioneer Pharma when adapting to changing environments.
Galaxy Toys Inc., a toy manufacturing company, encourages its employees to enjoy their work by taking on additional responsibilities or switching jobs with each other. It allows its employees immense flexibility in charting their own career path within the organization. Chris has worked at Galaxy Toys for eight years, but has never had a boss or supervised an employee. Which of the following is most likely true in this scenario?
Galaxy Toys Inc. has a flat organizational structure. The statement that is most likely true in this scenario is that Galaxy Toys Inc. has a flat organizational structure. Hierarchy determines the formal, position-based reporting lines and thus stipulates who reports to whom. If many levels of hierarchy exist between the front-line employee and the CEO in a firm, it has a tall structure. In contrast, if there are few levels of hierarchy in a firm, it has a flat structure.
Gino is the CEO of a financial services firm. What action should Gino take to be sure the firm avoids moral hazards?
Gino should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.
Euan manages product design and development at a toy company. The junior managers who report to him tell him that new complementors for the firm's products are available. What should Euan's reaction be?
He needs to find out if his company as well as other companies can provide the complements. Complements increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm. Firms may choose to provide the complements themselves or work with another company to accomplish this.
Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly?
In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.
Which of the following statements is true of the balanced-scorecard?
It attempts to provide a holistic perspective on firm performance.
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
It enabled HP to compete head on with Cisco's videoconferencing solution.
Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?
It failed to refine its strategic position over time. Strategic positions are not fixed, but can—and need to—change as the environment changes. Although JetBlue was able to create an initial competitive advantage, it was unable to refine its strategic position over time.
Cobalt Sodas has seen its market share erode in recent years, as consumers increasingly turn toward healthier beverage choices such as unsweetened sparkling water. Hoping to rekindle interest in sugary sodas, Cobalt decides to produce a limited run of "throwback" cans using labeling first introduced in the 1980s. What is wrong with this strategy?
It fails to face the competitive challenge.
How does a sustainable strategy typically help a firm?
It helps the firm achieve positive results along the social and ecological dimensions.
Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?
It is building new core competencies to protect and extend its current market position.
How is a cost-leader protected from threats from powerful suppliers?
It is more able to absorb price increases through accepting lower profit margins.
What most likely happens when a firm optimizes its organizational structure to its current situation?
It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur.
Which of the following is an implication of high employee turnover in a company?
It results in a reduction in the company's intangible-resource stocks. An implication of high turnover in a company is that it results in a reduction in the company's intangible-resource stocks. The outflows of resources represent a reduction in a firm's intangible-resource stocks. Significant resource leakage can erode a firm's competitive advantage.
Which of the following is a primary feature of the five forces model?
It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.
Which of the following best exemplifies social complexity as an isolating mechanism?
Kristin's Cosmetics attempted to imitate how Monica's Makeup combined its management and product development systems with little success. Social complexity describes situations in which different social and business systems interact with one another. Copying the emerging complex social systems is difficult for competitors because neither direct imitation nor substitution is a valid approach. Therefore, Kristin's Cosmetics attempt to imitate how Monica's Makeup combined its management and product development systems with little success is an example of social complexity as an isolating mechanism.
Toy sales have declined by 10 percent each year, forcing many retailers to exit the industry. To eliminate its remaining competition, Bleaker Toys sells all of its product at a loss and relies on its significant cash holdings to cover costs until its competition is forced to exit the industry. Is this an example of a successful strategy? Why or why not?
No. Bleaker's strategy and competitive advantage are unsustainable.
_____ are best described as the value of the best forgone alternative use of the resources employed.
Opportunity costs
Which of the following statements is true of strategy in an organization?
Organizational structure must follow strategy in order for firms to achieve superior performance.
Which of the following statements is true about strategic groups?
Profitability varies between different strategic groups.
Addams Coaches Inc. is a bus line with service to several major cities. It has several competitors that each offer service to one or two cities, and based on its current outlays, it cannot match or beat those competitors on price. Because of long-term contracts and an increase in the cost of gasoline, it is not possible to reduce expenditures at this time. Which of these strategies should Addams pursue instead?
Pursue a differentiated strategy.
Phoenix Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?
Pursue taper integration.
Zoom Zoom Car Rental follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor?
Reliable Rental Cars, which follows a low-cost strategy
Zoom Zoom Car Rental follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor?
Reliable Rental Cars, which follows a low-cost strategy Reliable Rental Cars, which follows a low-cost strategy, will be Zoom Zoom's direct competitor. Companies in the same strategic group are direct competitors.
Which of the following statements accurately describes a firm's resource stock?
Resource stocks are a firm's current level of intangible resources.
Both Saturn Technologies and Granite Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Saturn Technologies charges a higher price than Granite Inc. does, but it still sells a higher number of phones. What does this imply?
Saturn Technologies creates more economic value than Granite Inc. does. Economic value created is the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it. Since the cost of production is same for both the companies, the difference in economic value can only be possible when one company has been able to create a more valuable product for which buyers are willing to pay a higher price.
is best described as a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
Strategy
Keeping in mind the five forces in the airline industry, which of the following best explains the difficulty airlines have in generating a profit?
Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry.
Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?
The Ecomagination strategy allows GE to produce "green" products while increasing revenue and competitive advantage.
Which of the following is an advantage of a triple-bottom-line approach?
The approach takes an integrative and holistic view in assessing a company's performance.
What is most likely to happen if a firm relies too long on a competency without honing, refining, and upgrading as the firm and the environment change?
The firm's culture can turn from a core competency into a core rigidity. An organization's culture can be one of its strongest assets, but also its greatest liability. An organization's culture can turn from a core competency into a core rigidity if a firm relies too long on the competency without honing, refining, and upgrading as the firm and the environment change.
Which of the following is an implication of all firms in an industry pursuing a low-cost position through application of competitive benchmarking?
The firms would eventually have no resources to invest in product and process improvements. If all firms in the same industry pursued a low-cost position through application of competitive benchmarking, all firms would have identical cost structures. None could gain a competitive advantage. There would be little if any value creation for customers because companies would have no resources to invest in product and process improvements.
What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are universal norms. The principles, norms, and standards of business practice differ to some degree in different cultures around the globe. But a large number of research studies have found that some notions—such as fairness, honesty, and reciprocity—are universal norms.
Which of the following is a result of horizontal integration in terms of Porter's five forces model?
There is a reduction of excess capacity in the market.
Which of the following is true of acquisitions?
They can be friendly or hostile.
Three months ago, Darren became a board member at Runswell, a publicly traded company. Two weeks ago, the board members discovered that Runswell's CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Darren and the other board members hold the CEO?
They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.
How do strong ethical values benefit a firm?
They serve as the guardrails put in place to keep the company on track when pursuing its mission.
Garrett is an executive vice president at Samm Hardware. He researches a proposal by a larger company, Maximum Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Maximum employees, Garrett concludes that Maximum has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Garrett and Samm Hardware take?
Turn down the acquisition offer and prepare to resist a hostile takeover.
Which of the following provides an example of what AFI strategy framework is used for?
Using AFI, the Gasquet Motor Company was able to implement a strategy that produced high-quality cars more efficiently and thereby reduced costs.
Ben is a manager at Unique Accessories Inc. and is friends with the company's CEO. This privilege gives Ben the information that Unique Accessories is in the midst of talks to take over a leading rival. Ben buys stocks of Unique Accessories with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Unique Accessories depreciate in the following months. Are Ben's actions unethical? Why or why not?
Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.
Solaris Autos Inc., a large automobile company, made an initial small investment in a start-up company that was developing a solar-powered car. This gave Solaris Autos controlling interests in the start-up company. However, Solaris Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Solaris Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as
a real-options perspective.
Braintree Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Braintree and the software company best referred to as in this scenario?
a strategic alliance
A primary advantage of organizing economic activity within firms is the
ability to coordinate highly complex tasks to allow for specialized division of labor.
Luz manages a chain of bars and restaurants in a tri-county area that has recently experienced an economic boom because of fracking and high oil prices. What is most likely to happen when there is too much money in the tri-county economy?
an increase in prices
To be effective, firms need to
back up their visions with strategic commitments that are costly and difficult to reverse.
Radial Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Radial should pursue
backward integration. Backward integration is moving ownership of activities upstream to the originating inputs of the value chain. By pursuing backward integration, Radial would produce all necessary components for its automobiles in-house, reducing the costs and potential for interruptions associated with sourcing components from external suppliers.
ValueHealth is a successful drug manufacturer. Because the pharmaceutical industry features a high rate of change and the threat of disruption is high, ValueHealth should
be prepared to restructure as the landscape changes. Organizational inertia refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure. To avoid inertia and possible organizational failure, the firm needs a flexible and adaptive structure to effectively translate the formulated strategy into action. Ideally the firm would maintain a virtuous cycle of reconsidering organization, particularly in industries where the rate of change is high and potential disruption frequent.
Which of the following describes a situation in which firms acquire resources at a low cost, laying the foundation for a competitive advantage later?
better expectations of future resource value
Organizational values help individuals make choices that are
both ethical and effective in advancing a company's goals.
In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of
building new core competencies to create and compete in markets of the future. Hamel and Prahalad call the combination of new core competencies with new market opportunities as "mega opportunities"—those that hold significant future-growth opportunities. For example, Salesforce.com is a company that employs this diversification strategy well.
The name for an agreed-upon code of conduct in business, based on societal norms, is
business ethics.
Sunset Foods relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can Sunset improve its ability to collaborate without sacrificing the benefits of its current structure?
by establishing cross-functional teams
The managers at Camphor Plastics decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector?
by having higher performance in another sector
Assume a firm's resources and capabilities are costly to imitate. This is because rival companies do not clearly understand the relationship between the resources and capabilities controlled by the firm. In this case, the firm's competitive advantage is protected against imitation by
causal ambiguity.
Competitors have found it extremely difficult to imitate Gene Electronics Inc.'s valuable resources, capabilities, or competencies. This is primarily because the source for the company's success has been unclear. The competitors are uncertain if Gene Electronics Inc.'s success is due to its strong leadership, the skills of its research and development team, or the timing of the company' s product introductions. Gene Electronics Inc. has been protected from losing its competitive advantage as a result of
causal ambiguity. Gene Electronics Inc. has been protected from losing its competitive advantage as a result of causal ambiguity. Causal ambiguity describes a situation in which the cause and effect of a phenomenon are not readily apparent.
RHC Pharmaceuticals Inc., Lawrence Pharma Inc., and Quincy Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?
co-opetition
In the five forces model developed by Michael Porter, _____ is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes.
competition
Economic value creation is best expressed as
consumer surplus plus firm profit.
GM's insistence on sticking to a bureaucratic culture combined with its M-form structure and its subsequent failure to adapt to changing customer preferences for more fuel-efficient cars, produce higher quality, and create innovative designs best exemplifies
core rigidity.
Merton's Toothpaste has been the leader of dental care products for about 40 years. However, this company relied too long on its competency of reducing cavities without refining or upgrading other aspects of its product. As a result, other personal hygiene companies that began to offer toothpastes with natural whitening agents gained a competitive advantage over Merton's. This case is an example of
core rigidity.
Strategic commitments are actions that are
costly, long-term oriented, and difficult to reverse.
Threadless allows customers to submit their own designs and to vote on which designs they would like to see printed on a T-shirt. This business uses a _____ technique.
crowdsourcing
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
customer experience
Demand for traditional fast-food providers such as McDonald's, Burger King, and Wendy's has been on a decline in recent years. Consumers have become more health conscious and demand has shifted to alternative restaurants like Subway, Chick-fil-A, and Chipotle. Attempts by McDonald's and Wendy's to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of
cutthroat competition.
The first step to gain and sustain a competitive advantage is to
define a firm's vision, mission, and values.
Backyard BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?
eliminating brick-and-mortar locations and offering delivery from a central kitchen
As manager of a relatively new company, you are tasked with analyzing company resources to identify core competencies capable of supporting a competitive advantage. Which of the following resources is most likely to generate a competitive advantage?
enthusiastic company culture
Managers use the AFI strategy framework to
explain and predict differences in firm performance. Managers use the AFI strategy framework to do two things: (1) to explain and predict differences in firm performance, and (2) to help managers formulate and implement a strategy that results in superior performance.
O'Ryan Plastics maintains a manufacturing plant overseas. The local government has just been overthrown by a military group that opposes foreign influence in the country. According to the SWOT analysis, the political situation in this location is considered to be an
external threat. An external threat is a danger in a firm's general environment.
Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to
fill gaps in its competency lineup.
Which of the following is an ineffective practice in alliance management?
focusing on developing an alliance-management capability in isolation
Which of the following is an ineffective practice in alliance management?
focusing on developing an alliance-management capability in isolation Corporate-level managers should not only coordinate the firm's portfolio of alliances, but also leverage their relationships to successfully engage in mergers and acquisitions. That is, rather than focusing on developing an alliance-management capability in isolation, firms should develop a relational capability that allows for the successful management of both strategic alliances and mergers and acquisitions.
Incline Electronics relied on a large chain of consumer electronics stores to sell its tablet computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Incline products. In response, Incline Electronics decided to set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate?
forward vertical integration This scenario best illustrates forward vertical integration. Forward vertical integration involves moving ownership of activities closer to the end customer.
Turquoise Games relies on its employees to provide innovative ideas for new educational products. To foster intrinsic motivation in its workforce, Turquoise should
give employees a "free day" every two weeks to pursue ideas for new educational toys.
According to the perspective of shareholder capitalism, shareholders in public stock companies
have the most legitimate claim on profits.
The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
high price, high comfort, high customer service, high concessions variety, low hours of operation The value curve is the basic component of the strategy canvas. It graphically depicts a company's relative performance across its industry's factors of competition. When pursuing a generic differentiation strategy, all these scores along the different competitive elements in an industry go along with a relative higher cost structure. A theater pursuing differentiation, then, would have higher prices to go along with higher levels of comfort, service, and concessions variety, but may score lower in hours of operation to reflect its position as a more exclusive destination for moviegoers.
Facing stiff competition in the e-reader market, Sumac Industries wants to protect its competitive advantage by increasing the perceived value of its reader. Sumac's best strategy to accomplish this would be to
highlight the number of celebrities who use Sumac e-readers.
In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?
if the industry has recently become deregulated A company will most likely face the highest threat of entry if the telecommunications industry has recently become deregulated.
In the context of the SWOT matrix, which of the following best exemplifies a firm's internal strength?
increase in a firm's customer loyalty The increase in a firm's customer loyalty best exemplifies a firm's internal strength. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.
With the emergence of smartphones, users no longer have to carry a separate music player, a video game, a laptop, or a magazine to keep themselves entertained when traveling. A smartphone is loaded with a variety of applications to satisfy all the customer needs that different industries or products individually satisfied earlier. As a result, the smartphone industry has been posing a threat to a lot of other unrelated industries. What is this phenomenon best known as?
industry convergence This phenomenon is best known as industry convergence. Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.
Nina is in an interview for a sales job that requires no experience. She is trying to portray herself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Nina should be hired as a salesperson in the company. However, in her resume, Nina had not mentioned her previous work experience as she was fired from that job because of her frequent absenteeism. Which of the following does this scenario best illustrate?
information asymmetry
Adverse selection in a public stock company occurs when
information asymmetry increases the likelihood of selecting inferior alternatives. In general, adverse selection occurs when information asymmetry increases the likelihood of selecting inferior alternatives. In principal-agent relationships, for example, adverse selection describes a situation in which an agent misrepresents his or her ability to do the job.
Marika received a tip from a close friend who is an executive manager of a publicly traded company called MicroGreen Inc. The manager received some inside information about how to trade MicroGreen stock to get a huge profit. He shared this information with Marika. This scenario is an example of
information asymmetry.
Which of the following drivers simultaneously increases value while lowering cost?
innovation
What do we call the board members who are part of a company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance?
inside directors Inside directors are generally part of the company's senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO). They are appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.
Economies of scale are cost advantages that accrue for firms with
larger output.
Strategic commitments are actions that are
long-term oriented.
To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on
lowering cost and increasing perceived customer benefits.
The ratio of SG&A/Revenue is an indicator of a firm's focus on
marketing and sales to promote its products and services. SG&A/Revenue is an indicator of the firm's focus on marketing and sales to promote its products and services.
An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a _____ structure.
matrix
Curry Rush is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Vietnamese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Curry Rush is most likely operating in a(n)
monopolistically competitive industry. In this scenario, Curry Rush is most likely operating in a monopolistically competitive industry. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.
Harvey's, a large and successful retail chain on the West Coast, decides to expand its operations across the U.S. Which of the following organizational structures should Harvey's use?
multidivisional
Ethics is
not synonymous with law.
Organizational culture can help a firm gain and sustain competitive advantage only if the culture makes a positive contribution to the firm's economic value creation and
obeys the VRIO principles.
Organizational culture can help a firm gain and sustain competitive advantage only if the culture makes a positive contribution to the firm's economic value creation and
obeys the VRIO principles. Organizational culture can help a firm gain and sustain competitive advantage if the culture makes a positive contribution to the firm's economic value creation and obeys the VRIO principles. Organizational culture is an especially effective lever for new ventures due to its malleability.
Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?
observable product features
The primary goal of a firm pursuing a blue ocean strategy should be to
offer a differentiated product or service at a low cost. Being successful at a blue ocean strategy doesn't imply that the firm must be the highest value creator and the lowest-cost producer in its respective industry. The goal of an integration strategy is therefore to offer a differentiated product or service at a low cost.
When SW International declared a dividend of $20,000,000, its market value increased from $8 billion to $8.5 billion. However, it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million. Thus, this $200 million is referred to as SW International's
opportunity cost.
During an AFI planning session, the managers of the Fukuhara Motorcycle Corporation decided to place various stages of production in different countries in order to implement the strategy of cutting overhead costs. By doing this, what issue did the firm address?
organizational design
Bulldog Holdings is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate?
parent-subsidiary relationship The parent-subsidiary relationship describes the most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control.
Iceberg Storage, a leading hard drive manufacturer, recently filed for bankruptcy. While most of Iceberg's competitors were shifting away from physical data storage devices toward online cloud storage services, Iceberg invested most of its retained earnings in the effort to improve its hard drives. Once the hard-drive market drastically declined, Iceberg Storage was unable to capitalize on the new technology. Which of the following does this scenario best illustrate?
path dependence
True Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, True Tomato worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate?
physical-asset specificity
The managers at Speed Automobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Speed Automobile is most likely a result of
principal-agent problems. In this scenario, this acquisition by Speed Automobile is most likely a result of principal-agent problems. Managers, as agents, are supposed to act in the best interest of the principals, the shareholders. However, managers may have incentives to grow their firms through acquisitions—not for anticipated shareholder value appreciation, but to build a larger empire, which is positively correlated with prestige, power, and pay.
TimeEnough Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady, but might be growing. According to the BCG growth matrix, TimeEnough is a
question mark.
The core competency of GoGo Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, GoGo Motors is
redeploying and recombining existing core competencies to compete in future markets.
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using
related-constrained diversification. When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using related-constrained diversification. The choices of alternative business activities are limited—constrained—by the fact that they need to be related through common resources, capabilities, and competencies.
Although True Ion Inc. and One Electro Inc. operate in the same consumer electronic industry, True Ion Inc. has better sales and brand equity. This is attributed to True Ion Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which One Electro Inc. lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated?
resource heterogeneity
Hammer and Nails, Local Motion, DIY Palace, and Handy Paradise are all hardware stores that compete 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 these stores form a
strategic group. Together the four stores form a strategic group. A strategic group is a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage. Companies in the same strategic group are direct competitors.
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 lower than its competitors because of minimal investments in operation and administration. In this scenario, FindFor Inc. has most likely been able to provide superior value and cost control through
strategic positioning.
Through _____, a firm puts its guiding policy into practice by employing a set of coherent actions.
strategy implementation
A high percentage of R&D/Revenue ratio indicates a(n)
strong focus on innovation to improve current products and services.
When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as
stuck in the middle. If a blue ocean strategy has gone bad, the firm ends up being stuck in the middle, meaning the firm has neither a clear differentiation nor a clear cost-leadership profile. Being stuck in the middle leads to inferior performance and a resulting competitive disadvantage.
Amazon.com's network of distribution centers allow it to drastically reduce its delivery times compared to other online retailers. These distribution centers are examples of Amazon's
tangible resources.
Which of the following external forces is a part of a firm's task environment?
the composition of the strategic group to which the firm belongs
Which of the following is an example of an internal transaction cost?
the cost of maintaining a production unit
In a non-equity alliance, which of the following types of information would firms most likely share?
the documented information about the material composition of a product
Value drivers contribute to a firm's competitive advantage only if
the increase in value creation exceeds the increase in costs.
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?
the punch presses that produce parts The company's plant and machinery will be included in the assessment of the value of all the tangible resources the company owns. Tangible resources have physical attributes and are visible. Examples of tangible resources are labor, capital, land, buildings, plant, equipment, and supplies.
After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?
the value (V) the consumer attaches to the dress The amount, $100, is referred to as the value (V) the consumer attaches to the dress. Value denotes the dollar amount (V) a consumer would attach to a good or service. Value captures a consumer's willingness to pay and is determined by the perceived benefits a good or service provides to the buyer.
A company that is using extrinsic motivation as an output control mechanism will most likely
threaten to lay off employees if they do not achieve targets. A company that is using extrinsic motivation as an output control mechanism will most likely threaten to lay off employees if they do not achieve targets. Extrinsic motivation is driven by external factors such as awards and higher compensation, or punishments like demotions and layoffs (the carrot-and-stick approach).
Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?
to make small-scale investments in ventures poised to disrupt existing market economics In dynamic markets, strategic alliances allow firms to limit their exposure to uncertainty in the market. For instance, in the wake of the biotechnology revolution, incumbent pharmaceutical firms such as Pfizer, Novartis, and Roche entered into hundreds of strategic alliances with biotech start-ups. These alliances allowed the big pharma firms to make small-scale investments in many of the new biotechnology ventures that were poised to disrupt existing market economics.
During strategy implementation, managers primarily focus on deciding the
type of corporate governance that is most effective and ways in which it can put the formulated strategy into practice. During strategy implementation, managers focus on the following questions: How should the firm organize to put the formulated strategy into practice? What type of corporate governance is most effective? How does the firm anchor strategic decisions in business ethics?
The cost of capital to create a product is a fixed cost because it is
unaffected by consumer demand.
The cost of capital to create a product is a fixed cost because it is
unaffected by consumer demand. Fixed costs are independent of consumer demand—for example, the cost of capital to build computer manufacturing plants or an online retail presence to take direct orders.
Cartech Inc. is a manufacturer of automobile parts, which it sells to retail auto supply stores. Its core competencies include superior design and engineering capabilities, as well as a highly integrated and efficient supply chain. To sustain its competitive advantage, Cartech should first
upgrade its engineering department and improve its supply chain.
A defining characteristic of the subscription-based business model is that the
user pays for access to a product or service whether he or she uses it during the payment term or not. In the subscription-based model, users pay for access to a product or service whether they use the product or service during the payment term or not.
The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called
value innovation.
Red Sapphire is a wristwatch company known for its luxury watches and that follows a differentiation strategy. In this scenario, Red Sapphire should ideally compare its strategic position with a
watch maker that sells high-end, premium watches. Red Sapphire should ideally compare its strategic position with a watch company that sells high-end, premium watches. A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels. The idea is to compare Red Sapphire's strategic position with the next-best differentiator. In this case, it will be a watch maker that sells high-end luxury watches.
A value curve indicates a lack of effectiveness in a firm's strategic profile when it
zigzags.