MGMT 481 Test 2
Reverse innovation occurs when a rival reengineers one of the firm's product offerings.
False
When it is cheaper for a firm to produce two or more outputs or services together rather than separately through using the same resources and technology, then _________ occur.
A. Economies of scope
A tool that helps managers evaluate how the firm's core competencies can support certain diversification strategies is the:
A. Core competence-market matrix.
Digital photography replacing film photography is an example of which type of innovation?
A. Disruptive
The ZIP drive for data storage is an example of a(n) ___________ innovation that began as a low-cost solution to an existing problem.
A. Disruptive.
The type of customers vital to a firm introducing a new innovation are the _________, who are willing to pay higher prices and like to tinker with new products.
B. Early adopters
Which of the following strategies do firms typically employ as competitive intensity increases and the market matures?
B. Employing manufacturing and process engineering capabilities to drive costs down.
___________ makes the process of "creative destruction" happen by replacing existing goods, services, and processes with newly created ones.
B. Entrepreneurship
When engaging in strategic entrepreneurship an existing firm is often able to:
B. Exploit new or existing opportunities through innovation.
If a firm wants to have more ownership of activities closer to the end product or customer, it should:
B. Forward vertically integrate.
If a firm wishes to bridge the gap between being fully integrated ("make") and transacting in the marketplace ("buy"), it can enter into a(n) _________ agreement which grants the right to an individual or group to use the firm's trademark and business processes to sell goods and services that carry the firm's brand name.
B. Franchising
As evidenced by the European Union determining that GSM should be the industry standard for cell phones, dominant designs can be driven by top-down decisions made by:
B. Government bodies.
When a firm steadily improves its offerings by building on its knowledge base, it is engaging in:
B. Incremental innovation.
The Wright Brothers creating the airplane is a(n) ______________; Boeing commercializing the airplane is a(n) _____________.
B. Invention; innovation
The likelihood of a discontinuity occurring in an industry:
B. Is very strong if the existing technology is close to its physical limit.
The disruptive force of the Internet provides opportunities due to the ____________ phenomenon, which allows for customer and product niches to come together online.
B. Long tail
When new technologies emerge, old ones:
B. May improve due to the competitive pressure.
After the Internet was introduced, its value increased exponentially as the number of users increased. This is the positive effect of a(n):
B. Network effect.
Six Sigma, lean manufacturing, and genetic engineering are examples of ___________ that deliver new ways to produce or deliver existing products or services.
B. Process innovations
Which of the following is an example of a discontinuity that has happened in the past?
B. Propeller airplanes being replaced by supersonic jets
The commercialization of new ideas and inventions often does all of the following EXCEPT:
B. Protects older industries.
After long periods of competition and innovation, a(n) ____________ is required to "restart" an industry.
B. Radical innovation
Economies of scope often occur when a firm is using the ______________ diversification strategy because the firm is able to pool resources and leverage competencies.
B. Related.
A core competency which is capital-intensive but critical for a firm creating and launching a new innovation is:
B. Research and Development (R&D).
A(n) ________ occurs during the time when existing technologies reach their limitations and several new technologies enter the fray.
B. Swarm of technology
The two alternatives to vertical integration that provide similar benefits while reducing the risks to the firm are _________ and ____________.
B. Taper integration; strategic outsourcing
Each of the following are important reasons to understand the strategic implications of an industry life cycle EXCEPT:
B. The firm should copy the industry leader in each distinct stage.
A disruptive innovator attacks from the "bottom up" because of all of the following EXCEPT:
B. The industry is generally in the maturity stage by the time a disruptive innovation is introduced.
Advantages to organizing economic activity within the firm ("make") include all of the following
B. The principal-agent problem.
Corporate strategy is concerned with determining the boundaries of the firm among geographic, vertical, and product/service dimensions. This is referred to as:
B. The scope of the firm.
The costs associated with the "make or buy" question when determining the scope of the firm are:
B. Transaction costs.
GE disrupted itself by:
B. Using the needs of developing countries to replace older and more expensive products with newer and more adaptive ones.
Industry value chains consist of all of the processes that transform raw materials into finished goods and services. These value chains are also called:
B. Vertical value chains.
Absorptive capacity is important for a firm to have because:
B. Without new knowledge the firm could face a "technological lock-out."
Which of the following is most successfully innovating to overcome the problem of "thin markets"?
B. eBay
General Electric is an example of a firm that is following the dominant business diversification strategy.
False
In general, product innovation is more strategically important than process innovation while a firm is in the growth stage of the industry life cycle.
False
In order for a firm to perform well in each stage of an industry life cycle, it should consistently use the same competencies.
False
Inventing is the same thing as innovating.
False
Investment in specialized assets is a huge risk of vertical integration.
False
It is impossible to predict when a new innovation will actually lead to updated technological standards.
False
It is strategically wise for an established firm to solicit feedback only from existing customers since they are loyal to the firm.
False
Entrepreneurs do all of the following EXCEPT:
C. Decrease value for society.
If a firm wants to have more ownership of the activities closer to product inputs or design, then it should:
A. Backward vertically integrate.
Which of the following is NOT a strategic advantage of backward integration?
A. Better access to end users
During the growth phase of an industry life cycle, demand is strong and:
A. Both inefficient and efficient firms thrive.
Entrepreneurial opportunities exist because of all of the following EXCEPT:
C. The firm does not believe in risk-taking.
When the Japanese company Canon was able to redesign the copier and take market share away from Xerox, it was using which type of innovation?
A. Architectural
Each stage of the vertical value chain typically represents:
A. A distinct industry.
When a firm is fully vertically integrated:
A. All activities are conducted within the boundaries of the firm.
If a firm wishes to expand beyond a single market and grow through being active in several different countries, it is pursuing the _______________ diversification strategy.
A. Geographic
IBM still offers typewriters even though it does not invest much in future innovations of its typewriter line. Instead, it has chosen a _________ strategy to maximize cash flow from the remaining demand for typewriters.
A. Harvest
According to Michael Porter, firms face hypercompetition because they rely too much on _______________, which leads to a failure of distinct strategic positioning for the individual firm.
A. Imitating one another.
Strategic initiatives that a firm can use to counter disruptive innovations in the industry include all of the following EXCEPT:
A. Improve the product or service value perception by increasing prices.
The vast majority of innovations in an industry are ____________ because they build on a firm's existing knowledge base and reinforce the existing organizational structure and network relationships.
A. Incremental.
When management modifies strategic objectives based on which stage an industry is in they are responding to a(n):
A. Industry life cycle.
During the later part of the growth stage, many firms turn to ____________ to bring more customers into the market.
A. Lower prices.
When a firm successfully commercializes a new product or service, it is able to extract temporary ______________ but must continue to innovate to sustain competitive advantage(s).
A. Monopoly profits
Discontinuities generally favor ___________ because they don't have entrenched processes and technologies.
A. New entrants
Generally, as the level of _________ innovation declines, the level of _________ innovation increases.
A. Product; process
Entrepreneurs generally produce which type of innovation?
A. Radical
The X-ray is an example of a(n) ___________ innovation.
A. Radical.
When a firm uses many links (common resources and competencies) among its businesses, it is engaging in a(n) _________ diversification strategy.
A. Related-constrained.
According to Strategy Highlight 7.4, GE's success with portable ultrasound devices is attributed to which type of innovation?
A. Reverse
A disadvantage to a firm when transacting in the market rather than owning its own production and distribution activities involves the costs associated with searching for and selecting suppliers. These types of costs are referred to as:
A. Search costs.
If a firm wishes to bridge the gap between being fully integrated ("make") and transacting in the marketplace ("buy"), it can enter into a(n) ______________, which is a contractual arrangement to obtain inputs for a time period of generally a year or less.
A. Short-term contract
When an existing firm uses the tools and concepts learned from strategic management in order to pursue innovation, it is said to be engaging in:
A. Strategic entrepreneurship.
A positive implication of the disruptive force of the Internet for a firm is:
A. That there is almost a limitless low-cost shelf-life for product offerings.
Although there are "first-mover advantages" when it comes to bringing a new innovation to the market, there are also disadvantages. Which of the following is NOT one of these disadvantages?
A. The firm builds a reputation as an innovator.
Today, many companies use PeopleSoft and EDS to manage their human resources. By doing this, these firms:
Are engaging in strategic outsourcing, Are reducing their level of vertical integration, and Are leveraging their competencies.
Due to hypercompetition, a firm must engage in incremental innovation to remain competitive and gain advantage(s). However, the duration of these advantages:
Are shorter in duration and magnitude with each subsequent innovation, Will eventually leave a firm vulnerable to radical innovations, and Depend on when discontinuities occur in the industry.
When the stock price of highly diversified firms is valued less than the sum of its individual business units, a(n) _________ occurs.
B. Diversification discount
According to the text, which event played a role in the innovator CNN losing its leadership position in the 24-hour cable news industry?
B. "Second movers" using incremental innovation to continuously improve their offering.
A company is considered to be a single-business firm when at least _________ percent of revenues are generated by the dominant business.
B. 95
Which of the following is NOT a strategic advantage of forward integration?
B. Ability to secure critical supplies
After Jeff Bezos read about how the Internet was growing by 2,000 percent a month, he set out to use the Internet as a new distribution channel and created Amazon, which is now the world's largest online retailer. This is clearly an example of:
B. An entrepreneur who transformed invention into an innovation.
Which of the following is NOT an example of a firm benefiting from economies of scope?
B. Anheuser-Busch spreading its fixed costs over millions of gallons of beer produced each year
The process of __________ turns an invention into an innovation.
B. Commercialization
When a new product, process, or idea is introduced into the market, it has been:
B. Commercialized.
Executives determine the scope of the firm in order to enhance the firm's ability to gain and sustain competitive advantage. In that attempt, they formulate and execute corporate-level strategy by using all of the following dimensions EXCEPT:
B. Cultural integration.
Management of a firm must decide what range of products and services the firm should offer. This determines the firm's horizontal integration, or:
B. Diversification
Under the "long tail" phenomenon, the short head represents:
D. The largest segment of the market.
After an innovator launches a radical innovation, it must follow-up with ___________ innovations in order to protect its original advantage(s) and pre-empt potential rivals.
C. 95.
Firms use related diversification strategies in order to:
C. Benefit from economies of scale and scope.
Under the Transaction Cost Economics framework, when it would cost the firm more to pursue an activity in-house than obtaining that activity in the external market, the firm should:
C. Consider options such as short-term contracts or strategic alliances.
_____________ are additional costs that are attached to the related-diversification strategy because of managing the number, size, and types of businesses that are linked to one another.
C. Coordination costs.
In order for a diversification strategy to enhance firm performance, it must do any of the following
C. Create diversification discounts.
When a firm that follows the unrelated diversification strategy allocates capital from internal sources, it can create value by doing all of the following EXCEPT:
C. Disregarding its debt rating and investing large amounts of capital in projected growth areas.
The group of customers referred to as the ___________ lead the wave of increased demand as the industry moves from the introduction stage to the growth stage.
C. Early majority.
The agents who create change in an industry by introducing new ideas and products are:
C. Entrepreneurs.
As noted in Strategy Highlight 8.3, in 2008 ExxonMobil reported the highest profits ever recorded by any company. Exxon receives the majority of its profits from petroleum-based products. Due to the political and regulatory climate and the global movement toward cleaner energy sources, Exxon purchased the natural gas company XTO Energy in 2009 as a low-carbon alternative to petroleum. Exxon then became the world's largest producer of natural gas. All of the following are true about Exxon's strategic move EXCEPT:
C. Exxon is pursuing an unrelated diversification strategy
Which of the following is NOT true about the decline stage of an industry life cycle?
C. Firms that consolidate and buy their rivals are typically at a disadvantage.
After an industry has established a dominant design and the industry is in the growth stage, the basis of competition turns to:
C. How to better produce a product or deliver a service.
Continuous innovation, rapid technological changes, and intense competition create:
C. Hypercompetition.
Discontinuities are periods of time when all of the following occur EXCEPT:
C. Incumbent firms are protected.
A(n) _____________ is where the transformation of raw materials into finished goods and services occurs along distinct vertical stages.
C. Industry value chain
Disruptive innovations such as the $200 netbook computer do all of the following EXCEPT:
C. Introduce a radical idea and create a new industry.
Dow Corning is owned jointly by Dow Chemical and Corning. Dow and Corning have entered into a __________, which is a special form of strategic alliance where by two or more partners create and jointly own a new organization.
C. Joint venture
Intel and Apple are innovators who entered the market during the introduction stage of an industry life cycle. All of the following are characteristics of this stage EXCEPT:
C. Keeping costs low is the main objective.
During the _______ stage of an industry life cycle, market demand is at a minimum and competitive intensity increases.
C. Maturity
Under the core competence-market matrix, the most difficult diversification strategy is combining __________ with ________, because core competencies must be built. However, this creates the potential for "mega opportunities" and significant future growth opportunities for a firm that achieves this.
C. New core competencies; new markets.
A disruptive innovation leverages _______ technologies, while architectural innovations are based on _______ technologies.
C. New; existing.
Which of the following is NOT a risk of vertical integration ("make")?
C. Organizational planning often improves when a firm integrates.
The ________________ relationship is the closest to a firm being fully integrated. In this relationship, transaction costs typically arise from political turf battles between the corporate office and the standalone business.
C. Parent-subsidiary
Wikipedia's "open source" approach to competitive advantage will be sustainable as long as:
C. People are willing to volunteer to contribute content.
The four best strategic choices available to management during the decline stage of an industry include all of the following EXCEPT:
C. Persist by increasing investments in the product.
Each of the following are a distinct phase in an industry life cycle EXCEPT:
C. Plateau
PepsiCo sells a wide variety of beverages and food products in 190 countries. It is clearly engaging in ______________ to achieve continuous growth.
C. Product-market diversification.
The use of new materials with a new knowledge base to target new markets is a:
C. Radical innovation.
Generally, a firm that ___________ is able to achieve competitive advantages for the longest time period because this type of innovation is novel and not easily duplicated at first.
C. Radically innovates
Research indicates that when it comes to the diversification-performance relationship:
C. Related-constrained and related-linked strategies are associated with higher firm performance.
Which of the following corporate diversification strategies most closely describes Disney?
C. Related-linked.
All of the following are features of hypercompetition EXCEPT:
C. Revenue making potential has increased.
When a firm vertically integrates along the industry supply chain and invests in specific assets in order to support its activities, it has invested in:
C. Specialized assets.
Managers wishing to diversify the firm must remember that:
C. Successful diversification must be aligned with and strengthen a firm's business strategy.
Vertical integration involves all of the following EXCEPT:
C. The expansion by the firm into different product lines and markets.
As noted in Strategy Highlight 7.1, _______________ has created part of the growth of the Apple iPhone due to the apps that are available to users. These apps increase the value of the iPhone and thus more people want to own an iPhone with apps.
C. The leveraging of network effects
The more "constrained" the relatedness of diversification:
C. The more links there are among the businesses owned by the organization.
The word processor brought more perceived value to the market and replaced the typewriter as the industry standard. Later, the word processor industry was undone by the computer industry which created even more value. This is an example of:
C. The positive and negative aspects of creative destruction.
__________ occur when transactions are not likely to take place because it is difficult to bring niche buyers and niche sellers together.
C. Thin markets
The disruptive innovation of the Internet and the "long tail" phenomenon in the retail industry would be in which category for a SWOT matrix for Barnes & Noble?
C. Threats
The main intention of a firm engaging in architectural innovation is to:
C. Utilize existing technology to reconfigure products and create new markets.
When it would cost the firm less to pursue an activity in-house than obtaining that activity from a supplier in the external market, then the firm should:
C. Vertically integrate.
Silicon chip technology will eventually reach its physical limit and will not be able to be improved upon. As that day grows closer:
Companies like Intel increase investments in R&D, Companies like Intel place "strategic bets" on emerging technologies, and No new technology emerges as the best replacement until a paradigm shift occurs.
Applying the ______________ framework helps managers make economic decisions namely; what activities to pursue within the firm and which to obtain from the external market.
D. Transaction cost economics
Which of the following is NOT an example of an industry standard or dominant design?
D. The Dvorak (DSK) keyboard.
The ability of an existing firm to understand, evaluate, and integrate external technological developments is dependent on its:
D. Absorptive capacity.
Understanding how the "80-20" rule can be applied to the disruptive force of the Internet allows a firm to do all of the following EXCEPT:
D. Charge 20 percent more for online purchases
Innovation used as a sustained competitive weapon must be:
D. Continuous and commercialized.
Gillette introducing updated versions of its razor is an example of which type of innovation?
D. Incremental
Which of the following is most notably benefitting from the "long tail"?
D. Netflix
During the time of a(n) ____________, an existing industry is transformed due to revolutionary technology, becoming the new standard.
D. Paradigm shift
When a firm is active in several different product markets, it is pursuing a(n) ____________ diversification strategy.
D. Product
All of the following are forms of strategic alliances EXCEPT:
D. Short-term outsourcing
A(n) ____________ is the dominant design established during the growth stage of an industry life cycle once the market comes to agreement about the prevailing set of engineering features and design choices.
D. Standard
Which of the following is NOT an important aspect of innovation?
D. Tangible
Both Apple and Nike produce their products and own retail outlets. They also rely on independent distributors to sell their offerings. Apple and Nike are utilizing ______ to partially rely on outside-market firms while supporting their forward vertical integration strategy.
D. Taper integration
Equity alliances are forms of strategic alliances that do all of the following EXCEPT:
D. Temporarily allow one partner to use the other's trademark and business processes.
Companies that pursue related diversification often receive a diversification premium, leading to a stock price valuation that is higher than the sum of their individual business units. This premium indicates that investors:
D. Understand that firms with related diversification strategies are more likely to improve their performance than other diversified firms.
When a firm like GE has few if any linkages among its businesses, it is pursuing a(n) ________ diversification strategy.
D. Unrelated
All of the following are decisions that managers must make when formulating corporate strategy EXCEPT:
D. Whether the company should compete through differentiation or cost leadership
Research indicates that low levels of diversification are generally associated with higher overall firm performance.
False
The vast majority of innovations come from radical breakthroughs.
False
Human-asset specificity is the form of an asset that a firm invests in to create the human capital with knowledge about the specific routines and procedures needed to support a firm's vertical integration strategy. These routines and procedures bring competitive value to the firm because:
They organize the firm's work processes, They are not transferable to a different employer, and They are not easily imitated.
A firm can protect itself from hypercompetition by NOT imitating its rivals.
True
A firm's overall corporate strategy is most concerned with determining levels of vertical integration as well as levels of diversification.
True
A key component to formulating corporate-level strategy is the "make" or "buy" decisions.
True
As a general rule, only 20 percent of product offerings in a given product category make up 80 percent of total sales
True
As noted in Chapter Case 7, Microsoft destroyed about half the value created by Encyclopedia Britannica by introducing the Encarta CD in 1993. In turn, the online Wikipedia destroyed Encarta's business, which was shut down in 2009. This is an example of how discontinuities can impact the sustainability of a firm.
True
Corporate diversification strategy leads to superior performance only if the individual businesses are worth more under the company's management than if managed individually.
True
Corporate-level strategy involves the decisions made and actions taken while deciding which industries and markets to pursue simultaneously.
True
Hypercompetition has made it more difficult for a firm to sustain a competitive advantage.
True
Industry value chains are also called vertical value chains.
True
Paradigm shifts lead to new technological industry standards.
True
Radical innovation can occur when an existing firm recombines its existing knowledge base with a new stream of knowledge for new markets.
True
The Indian Tata Group and the Asian software company TCS are firms that make less than 70 percent of revenues from a single business unit and have few, if any, linkages among their businesses. These firms are clearly following an unrelated diversification strategy.
True
The most challenging diversification strategy is one in which the firm must create new core competencies while pursuing new market opportunities.
True
When Procter & Gamble releases a new type of detergent, an innovation has occurred
True
When a disruptive innovation is first introduced to the market, it is generally inferior in performance relative to what currently exists.
True