Test 2

Which of the following statements is NOT true of competitive advantage?

Competitive advantage is an absolute measure.

_____ are best described as the value of the best forgone alternative use of the resources employed.

Opportunity costs

Return on risk capital primarily includes:

stock price appreciation plus dividends received over a specific period.

Andrew invested $200,000 in the shares of a company. At the end of a year, he had earned $7,000 as dividends on his shares along with a $1,000 appreciation in the overall value of his shares. However, if Andrew had invested the same amount on an asset, like gold, the appreciation in its value would have earned him $10,000 at the end of the year. In this scenario, which of the following is Andrew's opportunity cost?

$10,000

A watch-making company has priced one of its wrist watches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wrist watch?

$170

A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?

$180

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

Competitive intensity within the industry increases.

Gina paid $900 for a camera that she thought was worth $1100 for all the features included in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. What is the consumer surplus in this scenario?

$200

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

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

At a certain output level, the per-unit cost incurred by a firm to manufacture a product is $5. Other factors remaining constant, what will be the new per-unit cost if the cumulative output is doubled, and the firm is able to achieve an 80 percent learning curve?

$4

Osion Electronics Inc. incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?

$450

When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

11,000 units

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

20 years

The working capital of a small home-based business is $200,000. The revenues generated account to $600,000, and the profits incurred are $300,000. What would be the company's working capital turnover?

3, that is, $600,000/$200,000

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

3,000-4,000 units

At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $60. Once the cumulative output doubled, the cost per unit reduced to $54. All other factors remaining constant, the firm has been able to achieve a(n):

90 percent learning curve.

Blue Horizon Inc. is an Internet service provider. It provides a router free of charge when users sign up for a two-year wireless service plan. In this plan, users pay in advance irrespective of whether they use the Internet package during the two-year period or not. Which of the following business models does this scenario best illustrate?

A combination of the razor-razor-blade model and the subscription-based business model

Which of the following scenarios best illustrates crowdsourcing?

A company encourages the general community to post new product ideas on its official website.

Which of the following firms is most prone to experiencing a diversification discount?

A company that pursues unrelated diversification

Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?

A conglomerate

White Leo Motors (WLM) Inc. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes WLM?

A dominant-business firm

Which of the following firms is least integrated?

A firm that buys all the required raw materials from multiple external vendors

Which of the following best illustrates forward vertical integration?

A firm that manufactured and sold car engines to major automobile companies launches its own line of cars.

Divina Pharma Inc. and MF Electronics Inc. have together invested and created a new organization, FirstHealth Inc., to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Divina Pharma and MF Electronics. Which of the following alternatives to integration does this scenario best illustrate?

A joint venture

Which of the following best illustrates physical-asset specificity?

A machine solely designed to give a candy its trademarked shape

Which of the following businesses is required by law to make its data available to the public?

A software company with over 300 shareholders

Which of the following statements is true of accounting data?

Accounting data are historical data and thus backward-looking.

Which of the following is stated by the long tail phenomenon?

Almost 80 percent of sales in a given product category come from only 20 percent of the offerings in that category.

How is the early majority section of consumers different from the late majority section?

Although the early majority is confident in their ability to master a new technology, the late majority is not.

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

An automobile company using computer-aided design in its production

The payable turnover for Apple and BlackBerry (as of fiscal year 2012) was 7.4 and 24.8 respectively. From this data we can conclude that:

Apple has been more efficient than Blackberry in paying creditors and generating interest-free loans from suppliers.

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

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

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

Architectural innovation

How does a firm capture its producer surplus for a good or service?

As profit per unit sold

In the context of industrial growth, which of the following statements is true of standards?

As the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices.

At present, _____ make up the oldest cohort of the workforce.

Baby Boomers

Neon Electronics Inc. sourced touchscreens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touchscreens. What does this scenario best illustrate?

Backward vertical integration

How was Wikipedia able to outperform both Encyclopedia Britannica and Microsoft Encarta?

By allowing any person, expert or novice, to generate and edit content

How has Apple been able to sustain its competitive advantage in the smartphone industry?

By regularly introducing incremental improvements in its products

How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies?

By using internal capital markets as a source of value creation

Which of the following statements about competitive advantage is true?

Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.

_____ are strategic business units that compete in a low-growth market but hold considerable market share.

Cash cows

Which of the following statements is true of a strategic position?

Choosing a strategic position requires making important trade-offs between value and cost positions.

Which of the following key assumptions are innovations like Procter & Gamble's "Connect + Develop" based on?

Combining the best of internal and external R&D will more likely lead to a competitive advantage.

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

Consolidated strategy

_____, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.

Coordination costs

Which of the following ratios best expresses inventory turnover?

Cost of goods sold/Inventory

Free Color Inc. is an apparel company that caters to the highly price-conscious customers. Through its simple apparel designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is Free Color applying?

Cost-leadership

Red Ink Electronics Inc. faced a serious technical problem when developing a microprocessor for a high-tech medical device. The employees of the company including those in the research and development department were unable to solve the issue. Thus, an open call was made to the general public, mainly technicians and product engineers, on the company's website to volunteer to solve the technical problem the company faced. Which of the following does the scenario best illustrate?

Crowdsourcing

_____ is best described as a process in which a group of people voluntarily performs tasks that were traditionally completed by a firm's employees.

Crowdsourcing

Which of the following competitively important assets is typically excluded from a firm's balance sheet?

Customer experience

_____ 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

DS & Co. is following a related-linked diversification strategy, and GreenWing Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?

DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc.

The demand for video recorders has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of video recorders are mainly categorized under laggards. Which of the following stages of the industry life cycle is the video recorder industry in currently?

Decline stage

Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario?

Differentiation

When Jean Cult Inc. was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $20. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $22. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?

Diseconomies of scale

As a start-up company, Virtue Mobiles Inc. entered the low end of the highly competitive cell phone industry with its low-cost smartphones. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartphones in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?

Disruptive innovation

_____ is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

Diversification

Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?

Diversification discount

GFR Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has GFR Group created?

Diversification premium

On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?

Each stage of the industry life cycle is dominated by a different customer group.

At the time when Kevin decided to purchase a tablet computer, the product had just become accessible to the mass market. He purchased the tablet only after he was completely convinced that the benefits it would offer him would far exceed its price. Also, he waited for his friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Kevin best represent?

Early majority

_____ is best described as decreases in cost per unit as output increases.

Economies of scale

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

Economies of scope

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

Economies of scope are the savings that come from producing two or more outputs from the same resources, whereas economies of scale are decreases in per-unit cost with increases in output.

Which of the following best illustrates site specificity?

Equipment necessary for mining bauxite and aluminum smelting

The fixed asset turnover of a company is 8.3. What do you infer from this?

Every dollar spent on the company's fixed assets generates $8.30 of revenue.

What does it mean for a firm to have an 80 percent learning curve?

Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

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

Exploration

Which of the following statements is true of firms pursuing a closed innovation?

Firms in the closed innovation model are extremely protective of their intellectual property.

As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP's patents, regular users did not want to switch because they were concerned about possible side-effects. Which of the following benefits does this scenario best illustrate?

First-mover advantages

_____ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

Fixed asset turnover

Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations. Which of the following types of diversification strategies is the firm pursuing?

Geographic diversification strategy

The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest?

For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

_____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

Forward vertical integration

Silver Weave Inc., an apparel company, operates through a business model in which individuals can buy the rights to set up Silver Weave stores and sell the company's merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to stock the collection approved from the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?

Franchising

Photohome is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does this best illustrate?

Freemium

Pilot Games Inc. allows users to play the trial versions of its games without any charge. However, users have to purchase the games to access the upgraded version of the games with advanced features. Which of the following business models is Pilot Games using in this scenario?

Freemium

The receivables turnover of GD Products Inc. is 13.6 and that of its competitor, AP Goods Inc., is 6.0. What does this financial data primarily imply?

GD Products collects accounts receivables faster than what AP Goods does.

In which of the following stages of the industry life cycle is a standard first established?

Growth stage

Though Wave Electronics Inc. still sells its VCR players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Wave Electronics adopted in this scenario?

Harvest strategy

When using the balanced scorecard approach to assess a firm's performance, which of the following is NOT a key question that managers need to answer?

How do we reduce the economic value created?

Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?

In economic value perspective, analysts not only consider historical costs, but also opportunity costs.

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

Incremental innovation

_____ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.

Influence costs

Bill is in an interview for a sales job that requires no experience. He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate?

Information asymmetry

In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?

Information asymmetry

When approaching a bank for a loan, the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting. What is this situation referred to as?

Information asymmetry

_____ is best described as a situation in which one party is more informed than another, because of the possession of private information.

Information asymmetry

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

Innovation

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

Innovation

Which of the following statements is NOT true about innovation?

Innovation has to be high-tech in order to be a potent competitive weapon.

According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?

Innovation that allows competitors to emerge with more economical replacements

In the multiplex industry, Vibrant Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Global Cine Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is True Movies Inc., which offers a customer experience comparable to that of Vibrant Movies at a price almost as low as that of Global Cine. What strategy is True Movies pursuing in this scenario?

Integration strategy

Which of the following statements is true of internal transaction costs?

Internal transaction costs tend to increase with organizational size and complexity.

Which of the following is an advantage of the balanced scorecard?

It allows managers to translate a firm's vision into measureable operational goals.

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

It appeals to the price-conscious buyers.

Which of the following statements is true of the balanced scorecard?

It attempts to provide a holistic perspective on firm performance.

Which of the following statements is true of taper integration?

It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.

How has the long tail business model affected eBay as an online retailer?

It has helped overcome the problem of thin markets, at no cost to the buyer.

How does a sustainable strategy typically help a firm?

It helps the firm achieve positive results along the social and ecological dimensions.

Which of the following statements is true of a disruptive innovation?

It invades the market from the bottom up, by first capturing the low end.

Which of the following is NOT an advantage of the balanced scorecard approach to assess firm performance?

It is a tool which can be effectively used by managers for both strategic implementation and strategic formulation.

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.

Which of the following expressions accurately describes market cap?

It is the product of the number of outstanding shares and the share price.

When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. What did Toyota do to instill this trust?

It made a credible commitment by taking an equity stake in Orocobre.

In the context of the long tail phenomenon, what does the short head represent?

It represents products that appeal to the largest segment of the market with homogenous tastes.

Which of the following is true of a disruptive innovation?

It targets existing markets.

Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture an LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate?

JL Electronics can charge a premium price on its televisions.

While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?

KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.

While the personal computer industry is flooded and growing with laptops and tablets, John recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does John best represent?

Laggards

Which of the following statements is true of learning curves?

Learning curves can be observed in manufacturing processes and professional services.

As the cumulative output in a firm increases, managers learn how to optimize the production process and improve workers' performance through repetition. This drives down the per-unit cost. Which of the following phenomena is best described here?

Learning effects

Bass Watches Inc. initially spent eight man-hours to assemble a wrist watch. But as the production doubled, the number of hours spent on assembling a watch reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as?

Learning-curve effect

Hitoro Inc. developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

Licensing

_____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

Licensing

Rosa Apparels Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the apparel brand become a price leader in the industry. Which of the following is the key driver behind Rosa Apparel's strategic position?

Low-cost input factors

Which of the following will hamper a differentiator's ability to achieve a competitive advantage?

Lower value gap

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

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

Innovate Electronics Inc. allows its customers to personalize their refrigerators in terms of the dimensions, the panels inside, and the color and design of the outer body. Also, customers can include additional features like in-built radios, extra lights, and cold water dispensers based on their individual requirements. The company successfully manufactures these tailor-made goods at a relatively low unit cost and provides it to the customers at a price almost equal to that of the standard refrigerators sold by other companies. What does this scenario best illustrate?

Mass customization

_____ is best described as the process of manufacturing a large variety of tailor-made products or services at a relatively low unit cost.

Mass customization

A few efficient and strong firms in the laptop industry have remained and emerged successful from the shakeout stage. Which of the following stages of the industry life cycle will they move to next?

Maturity stage

_____ is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.

Minimum efficient scale

Which of the following equations best expresses return on revenue?

Net profits/Revenue

Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?

Observable product features

Galaxi Products Inc. 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

Which of the following alternatives on the make-or-buy continuum allows for most integration?

Parent-subsidiary relationship

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

Pay-as-you-go

_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.

Payables turnover

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self interests. What does this best illustrate?

Principal-agent problem

HK Goods Inc. is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?

Product diversification

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

Product features

Marva Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Marva Industries pursuing?

Product-market diversification strategy

Manufacturers of electric fragrance diffusers sell the electric outer device at an extremely low price, sometimes even at a loss. However, they make their money on the product by charging a premium on the perfume refills that have to be replaced regularly. Which of the following business models does this best illustrate?

Razor-razor-blade

True Vibgyor Inc. sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is True Vibgyor implementing?

Razor-razor-blade

_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.

Receivables turnover

Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company?

Related diversification strategy

Evara Inc. started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few, if not all, of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Evara pursuing in this scenario?

Related-linked strategy

_____ is best described as the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.

Restructuring

_____ precisely indicates how much of a firm's sales is converted into profits.

Return on revenue

Which of the following best expresses fixed asset turnover?

Revenue/Fixed assets

Which of the following is NOT true of risk capital?

Risk capital invested in a firm can be legally recovered if the firm goes bankrupt.

In emerging economies, the LCD television industry is in that phase of the industry life cycle in which the previously increasing market demand becomes limited. The competitive intensity within the industry is high, and inefficient firms have begun to exit the industry. This has allowed only a few major companies to come out as cost leaders and hold the shrinking market. Which of the following stages of the industry life cycle is the LCD television industry currently in?

Shakeout stage

_____ are the legal owners of public companies.

Shareholders

Sara can be categorized under the late majority customer segment. Which of the following behaviors is she most likely to exhibit?

She will prefer to buy from well-established brands rather than unknown new ventures.

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

Shoes Cult has a competitive advantage over Aros.

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

Social entrepreneur

Which of the following statements accurately describes social entrepreneurs?

Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm's performance.

_____ are best described as unique assets with high opportunity costs that have significantly more value in their intended use than in their next-best use.

Specialized assets

_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

Strategic alliances

_____ is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

Strategic outsourcing

The productivity frontier provides a theoretical reflection of the possible best practices at any given time. Why is this an important tool for managers?

Strategic positions are not fixed, and firms have to refine their positions over time.

Master's Health Club, a chain of gyms and spas, requires its customers to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?

Subscription-based

Which of the following business models has been traditionally used by the magazine and newspaper industry?

Subscription-based

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

Superior customer service

Which of the following is more of a value driver than a cost driver?

Superior customer service

Virtue Products Inc., a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. This apart, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Virtue Products applying?

Taper integration

The 3D television division of a large consumer electronics company has been recognized as a question mark. The company's LCD television division has been categorized under dogs. Which of the following statements will hold well in this scenario?

The 3D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market.

Which of the following companies will be considered as a conglomerate?

The Tata Group, active in industries such as tea, steel, IT, power, and automobiles

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.

Which of the following has been a primary reason for increases in the Apple iPhone's installed base?

The availability of apps that led to network effects

Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?

The balanced scorecard model

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

The chief executive officer

Which of the following reasons led to the launch of Procter & Gamble's "Connect + Develop," a web-based interface that connects the company's internal-innovation capability with the distributed knowledge in the global community?

The company was no longer able to generate adequate growth through closed innovation.

How does a conglomerate benefit from following an unrelated diversification strategy?

The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

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

The consumer demand increases.

Which of the following is an example of an internal transaction cost?

The cost of maintaining a production unit

Which of the following is an example of an external transaction cost?

The cost of searching for a contract manufacturer

Which of the following is NOT an accurate expression of the economic value created per unit of a product sold?

The difference between the price charged and the firm's cost

Which of the following customer segments as described in the chasm framework make up the mass market?

The early and late majority together

A firm's learning curve is steeper than that of its competitor. What does this imply?

The firm is at an advantage when compared to its competitor.

Globe Source Inc. is a consumer electronics company that follows an open innovation model. Which of the following can be concluded about this firm?

The firm will buy others' intellectual property whenever it advances its own business model.

Grace Apparel Inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?

The firm will have more flexibility in purchasing and comparing prices of goods and services.

The market capitalization of a public company is $5 billion. Each share of the company is traded at $200. What do you infer from this financial data?

The firm's number of outstanding shares is 25 million.

Which of the following is a competitive benefit experienced by the first mover firm in an industry?

The first mover will be able to reduce costs through economies of scale.

Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?

The framework does not explain everything about changes in industries.

Which of the following is NOT a limitation of the economic value creation framework?

The framework fails to provide the foundation that will help firms decide between cost-leadership or differentiation strategies.

In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?

The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.

The compact disk (CD) industry is in the maturity phase of its industry life cycle. What conditions prevail for an industry in this stage?

The industry structure is an oligopoly with only a few large firms.

Which of the conditions prevail when an industry is at the end of its life cycle?

The level of process innovation reaches its maximum as firms attempt to lower cost.

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

The market reaches its maximum size.

While the industry for e-book readers is in its growth stage, the industry for landline telephones is in the decline stage of the industry life cycle. Which of the following can be inferred from this?

The number of competitors in the e-book reader industry will be larger when compared to the landline telephone industry.

TrueAutos Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?

The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

Which of the following factors contributes to the success of the cost-leadership strategy of Ryanair airlines?

The rock-bottom air fares

Which of the following is one of the reasons that led to CNN, an innovator, losing its leadership position in the 24-hour cable news industry?

The second movers imitated CNN's incremental innovation to continuously improve their offering.

Parent-subsidiary relationship

The transaction costs that arise are frequently due to transfer prices.

Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?

The triple-bottom-line approach

Which of the following is a drawback of Wikipedia's business model?

The user-generated content may be unreliable and unauthoritative.

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

Which of the following is a firm effect that has an impact on the competitive advantage of a firm?

The value and the cost position of the firm relative to its competitors

Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?

The weaker firms are forced out of the industry in this stage.

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

There are only a few competitors in the 3D television market.

Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?

There is more strategic variety in the growth stage when compared to the introduction stage.

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

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

Which of the following statements is true of technology enthusiasts?

They enjoy using beta versions of products and providing feedback to companies.

Which of the following statements is true of laggards?

They tend to enter the market frequently during the decline stage.

Which of the following statements is true of the early majority section of consumers?

They weigh the benefits and costs carefully when adopting a new product.

_____ is a situation in which transactions are likely not to take place because there are only a few buyers and sellers who have difficulty finding each other.

Thin markets

Which of the following statements is true of the triple bottom line?

Three dimensions, economic, social, and ecological, make up the triple bottom line.

Which of the following is an external performance metric?

Total return to shareholders

_____, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.

Total return to shareholders

Which of the following statements is true of transaction costs?

Transaction costs are necessary to explain and predict the boundaries of a firm.

True Machine Inc. and One Electrona Inc. are two competing consumer electronics companies. While True Machine's COGS/Revenue is 66%, One Electrona's is 74%. What do you infer from this financial data?

True Machine's profit margin is higher than that of One Electrona.

_____ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

TrueDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. SW Storage Inc. is a competitor of TrueDisk 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?

TrueDisk creates a greater economic value than SW Storage.

Why is it easier for new entrants to involve in radical innovations when compared to incumbent firms?

Unlike incumbent firms, new entrants do not have formal organizational structures and processes.

Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?

Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision rather than technology concerns.

_____ denotes the dollar amount a consumer would attach to a good or service.

Value

How do firms benefit from vertical integration?

Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

Both Vibrant Phones Inc. and Oryxo Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Vibrant Phones creates more economic value than what Oryxo does. What does this imply?

Vibrant Phones sells its products at a better price than Oryxo.

When does a firm fall into the large competitive chasm between early adopters and early majority?

When it fails to successfully launch a mass-market version of its product

Which of the following situations will have greater effects from economies of scale than from learning effects?

When mass manufacturing pens

Which of the following statements accurately brings out the difference between closed innovation and open innovation?

While open innovation focuses on building an effective business model to commercialize R&D, closed innovation focuses on being first to market.

While the industry for 3D televisions is in the introduction stage of the industry life cycle, the CRT (Cathode ray tube) television industry is in its decline stage. Which of the following statements will be true in this scenario?

While product innovation will be at its maximum for the 3D television industry, process innovation will be more crucial for the CRT television industry.

While the domestic airline industry is in the maturity stage of the industry life cycle, the pet clothing industry is in its growth stage. Which of the following can be inferred from the given data?

While the domestic airline industry is free from excess capacity, the pet clothing industry will have new entrants.

While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?

While the industry for cell phones with holographic keyboards will focus on product innovation, the tablet industry will focus on process innovation.

Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario?

While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.

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

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

_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.

Working capital turnover

The tenet behind the triple bottom line is that:

a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

Process innovation is more important than product innovation during the growth stage because:

a standard, in terms of engineering features and design choices, has been set across the industry.

A primary advantage of organizing economic activity within firms is the:

ability to coordinate highly complex tasks to allow for specialized division of labor.

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

achieve a larger economic value created than that of rivals in the industry.

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

an apparel company popular among price-conscious customers.

Unlike the financial ratios based on accounting data, total return to shareholders is:

an external performance metric.

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

architectural innovations

Companies that pursue related diversification are able to create a diversification premium because they:

are able to increase value due to economies of scope.

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

automobile company that sells high-end, premium cars

Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health check-ups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is:

availability of complements.

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

availability of complements.

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 softwares. This is an example of:

building new core competencies to create and compete in markets of the future.

MotorCult Inc. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car. In this scenario, MotorCult is primarily:

building new core competencies to protect and extend current market position.

The translation of strategy into action primarily takes place in a firm's _____.

business model

A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

business-level strategy

In a focused cost-leadership strategy, a firm:

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

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

capturing the economic value created as much as possible.

DiskOne Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, DiskOne has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth-share matrix, DiskOne will be categorized under:

cash cows.

A successfully implemented integration strategy allows a firm to:

charge a higher price than the cost leader in the industry.

General Electric's CEO, Jeffrey Immelt, decided to refocus GE's portfolio of businesses and leverage the firm's core competency in industrial engineering while pursuing future-growth industries. The two industries that CEO Immelt had identified as major future-growth industries were the:

clean-technology sector and health care sector.

A _____ is best defined as a company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy.

conglomerate

Economic value creation is best expressed as _____.

consumer surplus plus firm profit

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

consumer's maximum willingness to pay for it.

When a firm pursues a maintain strategy, it:

continues to support marketing efforts even if the demand for the product is declining.

Both Myoco Electronics Inc. and Electra Series Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against Electra Series, Myoco Electronics should:

create greater perceived economic value than Electra Series.

Firms pursuing a differentiation strategy primarily seek to:

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

BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.

credible commitment

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

crowdsourcing

Blue Ego Inc. is a market leader in the cell phone industry. To gain competitive advantage, the company has a post on its official site requesting its suppliers and customers to contribute ideas about the kinds of features and technology they think should be included in the next smartphone. This has helped the company reduce the burden of innovation on its employees, effectively meet customers' needs, and also include the larger community in product development. This process best exemplifies:

crowdsourcing.

A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the:

differentiator is able to create a significant difference between perceived value and current market prices.

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

diseconomies of scale

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

disruptive innovation

Digital photography replacing film photography would be an example of a(n) _____.

disruptive innovation

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

disruptive innovation

In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should:

divest the strategic business unit.

ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low-growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under:

dogs.

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

driving down its costs.

The customers entering the market in the growth stage are primarily _____.

early adopters

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

economic value created

By selling a laptop at $1000 for which consumers are willing to pay up to $1200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the _____.

economic value created

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

economic value created is greater than that of its competitors.

Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its:

economic value creation exceeds that of its competitors.

Intel's Celeron chip and Atom chip are initiatives to:

guard the company against disruptive innovation by protecting the low end of the market.

KitchenThings Inc. is a company that manufactures plastic kitchenware. It operates at an output level that allows it to keep its unit cost per output to the lowest in the industry. This in turn allows KitchenThings to be the price leader. Other competing companies cannot operate at the same level due to a lack of consumer demand for their products. This puts them at a competitive disadvantage. In this scenario, the cost driver behind KitchenThings's strategic position is _____.

economies of scale

A cost-leader is protected from the threat of new entrants primarily due to its:

economies of scale.

BuyMart Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against BuyMart's low prices. Thus, BuyMart has a competitive advantage due to its:

economies of scale.

Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are:

engaging in strategic outsourcing.

It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they:

enter into the market in large numbers, creating a herding effect.

As a research scholar, Richard had built a helicam as part of his project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, he started a new venture where he could customize these helicams to fit the specific needs of the buyers and sell them. Richard can be best described as a(n) _____.

entrepreneur

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 founded Amazon, which is now the world's largest online retailer. This is clearly an example of a(n):

entrepreneur who commercialized invention into an innovation.

Janet is a 23-year-old employee at DR Products Inc. As a millennial, she will tend to:

expect her company to be socially responsible.

The concept of a(n) _____ attempts to capture both learning effects and process

experience curve

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

exploitation

A differentiation strategy works best when a:

firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.

In contrast to a differentiator, a cost leader will:

focus its research and development on process technologies to improve efficiency.

A firm pursuing a differentiation strategy as opposed to a low-cost strategy will:

focus its research and development on product technologies to add uniqueness.

Green Curry is a restaurant that caters to the needs of a small percentage of highly health-conscious consumers. It has an all-organic, vegan menu. Since there are very few restaurants that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Green Curry is following a _____.

focused differentiation strategy

To be successful and to survive the shakeout stage of the industry life cycle, a firm should:

gain economies of scale.

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

gains market share from other firms.

A corporation's star SBUs will:

hold a high market share in a fast-growing market.

In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs:

hold a small market share in a low-growth market.

The four-step innovation process ends with:

imitation.

In order to achieve a competitive advantage, a firm should be able to:

increase the difference between the value created and the cost to produce it.

Diseconomies of scale refer to:

increases in cost as output increases.

Large companies, such as AT&T, IBM, and GE, have been shifting their knowledge landscape from closed innovation to open innovation because of the:

increasing supply and mobility of skilled workers.

Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on:

increasing the perceived value created for customers, which allows it to charge a premium price.

A factor favoring the success of disruptive innovation is that:

incumbent firms are slow to change.

Each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing.

industry

A(n) _____ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages.

industry value chain

An intrapreneur is described as a person who:

innovates within existing companies.

With reference to the Strategy Highlight 8.2, the Tata Group's corporate strategy is attempting to:

integrate different strategic positions, pursued by different strategic business units.

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

integration strategy

A. G. Lafley at Procter & Gamble (P&G), had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n):

intrapreneur.

General Electric (GE) disrupted itself in the healthcare industry by:

introducing inexpensive and smaller diagnostic devices in developing countries.

By introducing Vscan, a small, wireless ultrasound device, GE Healthcare (General Electric) was primarily trying to:

invade the healthcare market from the bottom up.

If a strategic business unit is recognized as a cash cow, it is advisable to:

invest into the business to hold its current position.

When a firm is successful at pursuing an integration strategy, _____.

investments in differentiation are complements

A firm achieves differentiation parity ideally when:

it creates the same customer value as its competitors.

When a firm combines experience based learning and process innovation, the firm:

jumps to a steeper learning curve.

Competitive advantage goes to the firm that achieves the:

largest economic value created.

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

long tail

To be cost-competitive, a firm should:

operate at the minimum efficient scale.

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

low-cost input factors.

Combining economies of learning with the existing production technology allows a firm to:

move down a given learning curve.

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

network effects

In a radical innovation, a firm targets:

new markets by using new technologies.

Norce Autos Inc. allows its customers, suppliers, researchers, and the community in general to contribute their ideas toward new product developments. Customers and other interested stakeholders can let the company know what new features they want to see in their next car. If the company faces any technical complexities that its internal R&D team cannot solve, it posts the problem on its website and allows people from the external community to provide solutions. In this scenario, Norce Autos Inc. is primarily leveraging its:

open innovation model.

Samantha is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Samantha's _____.

opportunity cost

When GD Inc. 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 GD Inc.'s _____.

opportunity cost

A firm's resistance to changes in the status quo is referred to as _____.

organizational inertia

A _____ is best described as a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.

patent

When TrueHeal Pharma Inc. released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of TrueHeal Pharma's intellectual property rights. Thus, the drug is protected by a _____.

patent

PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in _____.

product-market diversification

A firm's business strategy will lead to a competitive advantage if it allows the firm to:

perform different activities than its rivals.

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

producer surplus

A firm experiences diseconomies of scale when it:

produces at an output level beyond the minimum efficient scale.

The most efficient way to overcome the principal-agent problem in a firm is to:

provide stock options to managers.

The strategic objective of a first mover during the introduction stage of the industry life cycle is to:

pursue a harvest strategy.

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

quality

Strategic business units that have a relatively low market share but have the potential to grow are best categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.

question marks

The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under:

question marks.

Incumbent firms favor incremental innovation over radical innovation because:

radical innovation will disturb the existing power distribution within the firms.

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

razor-razor-blade

A firm is said to have a competitive advantage over its rivals when it:

reaches the productivity frontier.

The core competency of MotorCraft Inc. is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that there is a new market opportunity to diversify. Thus, it produces the car engines on a large scale and sells them to other automobile companies. In this scenario, MotorCraft is:

redeploying and recombining existing core competencies to compete in future markets.

When a firm pursues a harvest strategy, it:

reduces investments in product support.

A firm that engages in strategic outsourcing typically:

reduces its level of vertical integration.

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

A strategy of _____ will be most beneficial for a firm to enhance its overall corporate performance.

related-linked diversification

The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in two dimensions:

relative market share and speed of market growth.

WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in:

restructuring.

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____.

return on risk capital

When a firm operates at the minimum efficient scale, the:

returns to scale are constant.

When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will:

sell its products in several different regional, national, and international markets.

The productivity frontier represents a(n):

set of best-in-class strategic positions the firm can take relating to value creation and low cost at a given point in time.

Economies of scale do NOT allow firms to:

spread their variable costs over a larger output.

The key objective for firms during the growth phase is to:

stake out a strong strategic position not easily imitated by rivals.

The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under:

stars.

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

strategic trade-offs

A high percentage of R&D/Revenue ratio indicates a(n):

strong focus on innovation to improve current products and services.

Mia has purchased an Internet package for three months, in which she can use 30 mbps Internet speed. However, for the service, she needs to pay a fee of $50 in advance irrespective of whether she uses the Internet during the service period or not. This arrangement best illustrates the _____ strategy.

subscription-based

The strategic objective of businesses during the shakeout phase of the industry life cycle will primarily be to:

survive by drawing on "deep pockets."

Apple and Nike have their own retail outlets and also use other independent retailers, both the brick-and-mortar type and online, to sell their products. This is an example of _____.

taper integration

Value drivers contribute to a firm's competitive advantage only if:

the increase in value creation exceeds the increase in costs.

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

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

The typical four-step innovation process begins with:

the presentation of an idea as findings derived from basic research.

Diversification premium is a situation in which:

the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

A drawback of short-term contracting as an alternative to making a component in-house is that:

the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Investments in specialized assets tend to incur high opportunity costs because the:

threat of one of the partners pursuing his or her self-interest is high.

The productivity frontier function is concave, and it captures the:

trade-off between value creation and production cost.

During the process of formulating an effective business model, a firm's managers should first:

transform their strategy of how to compete into a blueprint of actions and initiatives.

The top management at BioTrue Pharma Inc. through rigorous testing ensures that the company develops and sells drugs that are free of harmful side-effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Bio True Pharma are applying the _____ approach to measure firm performance.

triple bottom line

Using the _____ approach, managers audit their company's fulfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers, and communities as conscientiously as they track its financial performance.

triple-bottom-line

The cost of capital to create a product is a fixed cost because it is:

unaffected by consumer demand.

A firm follows a(n) _____ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.

unrelated diversification strategy

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 freemium business model, the:

users are not charged for the basic features of a product or service, but the user must pay for premium advanced features or add-ons.

A defining characteristic of the pay-as-you-go business model is that the:

users pay for only the services they consume.

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's:

vertical integration.