Exam 1 - Strategic Management
Competitive advantage can be defined as:
A firm's potential to earn a rate of profit that is persistently higher than its rivals
Competitive advantage can be defined as:
A firm's potential to earn a rate of profit that is persistently higher than its rivals.
Which of the following does not contribute to buyers' bargaining power
A high level of differentiation among the products that buyers purchase
For most organizations, geographical location should be regarded as:
A key resource whose characteristics need to be given careful attention when formulating strategy
In most large companies strategic planning is:
A process that combines top-down initiatives and directives and bottom-up proposals
The difference between a resource and a capability is:
A resource is a productive asset; a capability refers to what the firm can do
Benchmarking" is:
A way to compare a firm's resources and capabilities against those of competitors
The main strategic lesson to be drawn from the Biblical story of David and Goliath is:
Adapt strategy to your relative strengths
Advertising costs as a percentage of sales revenue for soft drink brands with large market shares (such as Coca-Cola and Pepsi-Cola) are lower than for brands with small market shares (Dr. Pepper, Schweppes, Fresca). This is because:
Advertising campaigns are subject to a large minimum budgets ("indivisibilities")
Advertising costs as a percentage of sales revenue of soft drink brands with large market shares (such as Coca-Cola and Pepsi-Cola) are lower than for brands with small market shares (Dr. Pepper, Schweppes, Fresca). This is because:
Advertising campaigns are subject to a large minimum budgets ("indivisibilities")
For most business enterprises a market is:
An abstract concept from the point of view of competition it is a continuum from a firm's closest competitor towards more distant competitors b. A sociological concept that is defined mainly by convention and institutions c. Geographical concept defined by the location of customers and competitors
Firm's with outstanding capabilities are typically those which:
Are able to integrate their resources most effectively
Isolating mechanisms are:
Barriers to the erosion of interfirm profit differentials
One implication of the resource-based perspective is that:
By aligning their strategies to their resources and capabilities, firms empathize their differences rather than their similarities
Which of the following product categories offers the greatest potential for differentiation?
Clothes and restaurants
The producer of a complementary product can maximize its relative bargaining power by means of:
Commoditizing the market for the complementary good
Which of the following is not an isolating mechanism?
Competitive advantage based upon exploiting pricing anomalies
Which of the following is not an isolating mechanism?
Competitive advantage based upon exploiting pricing anomalies.
A key limitation of Porter's five forces model of competition is that:
Competitor's strategies may shape industry structure, rather than structure shaping competition
The firm's ability to appropriate the rents generated by its organizational capabilities:
Depends upon the extent to those capabilities are embedded in team-based process that are heavily dependent upon corporate systems
What is the difference between differentiation and segmentation?
Differentiation deals with the "how" a firm chooses to compete, while segmentation describes "where" in the entire market a firm chooses to compete
According to Porter, cost leadership and differentiation are:
Distinct generic strategies
The pioneers of the multidivisional structure were:
DuPont and General Motors
As markets become more turbulent and unpredictable, quick-response capability depends primarily upon:
Early identification of emerging changes together with speed in responding to them
To exploit its tangible assets more effectively requires that a firm:
Economizes on underutilized assets and redeploys assets into more profitable uses
Airlines' frequent flyer programs and retailer loyalty schemes are both examples of efforts to:
Establish product differentiation by measures that reward customer loyalty
Large corporations with matrix structures where control is shared among different organizational dimensions have experienced:
Excessive headquarters cost and complexity
A firm's competitive advantage is not necessarily revealed in higher profitability; it may be reflected in:
Expanding market share and/or increasing employee bonuses
Organic organizational forms are preferable to mechanistic organizational forms:
For firms in dynamic, uncertain environments
Compared with simple products like flour or toilet paper, complex products such as cars or hotels:
Greater potential for differentiation
"Experience goods" are those which:
Have performance attributes that are difficult to ascertain at the moment of purchase
Experience goods" are those which:
Have performance attributes that are difficult to ascertain at the moment of purchase
Industries where a decline in demand is most likely to cause industry-wide losses tend to have the following characteristics:
High exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs
The Tate Group, the Virgin Group, and Alphabet Inc. are examples of:
Holding companies
The examples of Ikea and Southwest Airlines demonstrate:
How a cost-leadership strategy can be combined with distinctive product differentiation
The creation of business enterprises where a head office managed geographically-separate operational units was facilitated by:
Improvements in transportation and communication - especially the railroad and telegraph
A firm can pre-empt competitors from invading its market space by:
Introducing new products to fill each niche, investing in capacity ahead of market growth and filing many patents
The internal environment:
Is how a firm's resources and capabilities are deployed to deliver its business strategy
Enterprise Resource Planning software (such as that supplied by SAP) is unlikely, on its own, to be source of competitive advantage because:
It is unavailable to any firm that wishes to purchase it; hence, it is not scarce
A well-established brand can be a source of sustainable competitive advantage because:
It tends to be durable, loses value when transferred between firms, and is costly to replicate
If an industry earns a return on capital in excess of its cost of capital:
It will attract the attention of potential entrants and, unless protected by high barriers to entry, the return on capital will fall
The core of a firm's business environment is comprised by:
Its relationships with customers, competitors and suppliers
In practice, drawing the boundaries of industries and markets is:
Largely a matter of judgment and experience contingent on the purpose of the analysis
Firms pursuing differentiation advantages will implement their strategies differently from those pursuing cost advantages. The implementation of differentiation strategy is likely to feature:
Low levels of job specialization
In retailing, the cost advantage of large retail chains (such as Wal-Mart in the US, Tesco in Britain, Metro in Germany, and Carrefour in France) is primarily the result of:
Lower costs of bought-in products as a result of superior bargaining power
In retailing, the cost advantages of large retail chains (such as Wal-Mart in the US, Tesco in Britain, Metro in Germany, and Carrefour in France) is primarily the result of:
Lower costs of bought-in products as a result of superior bargaining power
There are two primary sources of profit (or "economic rent"):
Market power and superior resources
Resources lack transferability between firms when:
Market transactions are impeded by imperfect information
Roles and directives, mutual adjustment, and routines are:
Mechanisms for achieving coordination among organizational members
Initiatives to improve an industry's profitability through changing its structure are:
More difficult in fragmented industries than in concentrated industries
Hierarchy is a feature of:
Most complex systems
In doubles tennis, the main mechanism through which the players coordinate their actions is:
Mutual adjustment
Economies of scale are a barrier to entry because:
New entrants face high unit costs either because they enter at sub-optimal scale, or they make a large-scale entry that initially operates with substantial excess capacity
An industry's current profitability:
On its own trends to be a poor predictor of future profitability
The primary mechanisms through which companies translate strategic plans into action are:
Operating plans and capital expenditure budgets
When a company has weaknesses relative to competitors among strategically important resources and capabilities, the appropriate strategic response is to:
Outsource those activities where third parties can offer superior capabilities while positioning the business to reduce vulnerable to remaining weaknesses
"Strategic innovation" involves:
Pioneering in at least one of the three dimensions: new industry, new customer segment, or new source of competitive advantage
Legal requirements that banks, providers of wireless telecommunication services, and taxis must obtain a government issued license before going into business impact the profitability of their respective industries:
Positively because they restrict entry to the industry
In supplying "lifestyle" products which are designed to meet consumers' social and psychological needs, the key to differentiation advantage is:
Product integrity
The resource-based view of the firm implies that:
Resources and capabilities are the principal basis for firm strategy and the primary source of profitability
an organization possesses strengths in a resource or capability that bears little relationship to the industry's key success factors it should:
Seek an innovative approach to making that resource or capability strategically relevant
Organizational culture comprises:
Shared beliefs, values, assumptions, meanings, myths, rituals, and symbols
For hierarchical organizations to be adaptable requires:
Some degree of decomposability
The tendency for societies to revert to subsistence economies when the fabric of civilization breaks down is because:
Specialization and the division of labor require an exchange economy which depends upon mutual trust and the rule of law
The epithet "Great strategy, lousy implementation" is typically wrong because:
Strategies whose formulation does not take account of their potential for implementation are not great strategies
In 1990, C.K. Prahalad and Gary Hamel introduced the concept of "core competence." Their argument was that:
Strategy should be focused on both exploiting and developing firm's core competencies
A market's boundaries are defined by:
Substitutability on both the demand side and the supply side
The difference between substitute and complementary products may be summarized as follows:
Substitutes reduce the value of a product, whereas complements increase value
An important role of shared values within an organization is to:
Support cooperation and goal alignment among organizational members
The difference between a "generic" and a "contextual" management practices is:
THe performance impact of a generic practice is independent of the firm's other practices; the impact of a contextual practice depends upon the firm's other practices
Parallel pricing - the tendency for companies in an industry to move prices more or less simultaneously - is typically an indicator of:
The desire of oligopolists to avoid price competition
The difficulties faced by Eastman Kodak, Smith Corona, and Olivetti in adapting to radical technological change within their markets point to:
The difficulties established firms experience in building the new capabilities
A fundamental task of organization is to manage:
The division of labor into separate tasks and their subsequent integration
Strategy needs to take account of both the requirements of the firm's external environment and the firm's own resources and capabilities. Resources and capabilities rather than requirements of the external environment offer a stronger basis for strategy formulation when:
The external environment is in a state of flux
The suppliers of agricultural products tend to lack bargaining power relative to buyer's because:
The farming industry tends to be fragmented and supply commodity products
The basic premise of industry analysis is that:
The level of profitability within an industry is determined by the systematics influence of the industry structure which determines the intensity of competition in the industry
During the 19th century the principle source of ideas about how to organize large business enterprises derived from:
The military
The "agency problem" refers to:
The misalignment of goals between a principal and his/her agent
Jay Galbraith and Ed Lawler's comment that: "Ultimately, there may be no long-term sustainable advantage that the ability to organize and manage" may be justified by:
The need for firms to continually develop and renew their organizational capabilities
The difference between a "generic" and a "contextual" management practices is:
The performance impact of a generic practice is independent of the firm's other practices; the impact of a contextual practice depends upon the firm's other practices.
The major determinant of the organizational culture of most companies is:
The personality and beliefs of the founder
bank is establishing a fixed income trading department. It is considering whether to hire a team of star traders or to invest a similar sum of money in developing a proprietary, automated trading system. The most valid reason for investing in the automated trading system in preference of hiring star traders is:
The proprietary trading system is likely to generate better returns since star traders are in a powerful position to negotiate pay packages which appropriate the major part of the profit they create
Firms organized around functional structures tend to experience management problems when:
The range of products expands
Bargaining power rests, ultimately, on:
The relative costs that each party would incur from walking away from the deal
The success of the multidivisional structure as an organizational form was because:
The separation of strategic from operational decision allowed corporate management to exercise more effective strategic and financial control
Key success factors are:
The sources of competitive advantage within an industry
A major reason why many companies have the high valuation ratios (ratio of stock market value to balance sheet net asset value) is:
The undervaluation of intangible resources on companies' balance sheets
The profit earned by firms in an industry, are determined by:
The value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers
According to Henry Mintzberg, organizational structure can be defined as:
The ways in which labor is divided into district tasks, and coordination is achieved among these tasks
Intangible resources tend to be more valuable than tangible resources because:
They are more likely to provide sustainable competitive advantage
Banks spend more money on their head office buildings than most other large corporations because:
They offer "experience goods", hence they need to signal wealth and stability
The distinguishing attributes of core competencies in that:
They provide a basis for entering new markets and make a disproportionate contribution to the customer value
Firms supplying niche markets are often highly profitable because:
They tend to be sufficiently small that a single firm can often establish a dominant position
As the competitors in an industry become more diverse in terms of their goals, cost structures, and strategies, it is likely that:
They will compete more fiercely on price
When an industry is subject to externally generated changes, the firms which are most likely to establish a competitive advantage are:
Those that respond most quickly to the change and have the resources and capabilities that are most closely aligned to the emerging success factors
When an industry is subject to externally generated changes, the firms which are most likely to establish a competitive advantage are:
Those that that respond most quickly to the change and have the resources and capabilities that are most closely aligned to the emerging success factors.
The central task of a differentiation strategy is:
To ask how all your customers' interactions with your product could be enhanced even more
The main reason that most entrepreneurial start-up companies adopt a formalized process of strategic planning processes at some stage of their development is:
To facilitate coordination and control as a company grows in size and complexity
To identify a firm's resources and capabilities, it is useful:
To first identify the key success factors within the firm's industry then identify the resources and capabilities needed to satisfy these success factors b. Identify the firm's value chain, then identify the main resources and capabilities at each stage of the value chain
The most useful approach to forecasting industry profitability in the future is:
To understand how the industry's structure has determined competitive intensity and profitability in the past, then to use information on an industry's changing structure to predict how profitability is likely to change in the future
It is important for incoming CEO to intimately familiar with the culture of the organization he/she is joining because:
Top management initiatives that conflict with the culture of the organization are likely to fail
In most large companies the strategic planning cycle begins with:
Top management setting strategic priorities
Causal ambiguity allows a firm's competitive advantage to be sustained because potential rivals are:
Unable to identify the sources of the advantaged firm's superior performance
Identifying key success factors within an industry requires answers to the following questions:
What do customers want and what should the firm do to survive competition?
"Strategic innovation" means introducing
a. New products b. New markets c. New technology d. Introducing new ways of doing business
Being 'stuck in the middle' gives low profits because:
a. The firm loses those customers who want the lowest prices b. The firm loses those customers who want the best product on the market c. Employees become confused about what the firm's goals and strategy really are
Porter says that firms get stuck in the middle because:
a. The mindsets of cost-minimization and differentiation are culturally opposed, and firms cannot optimize the investments needed for both at once b. Along with the above choice, firms need very different organizational processes to achieve the lowest costs or effective differentiation in the industry
