Business Capstone Exam 1

Which one of the following is not among the chief duties or responsibilities of a company's board of directors insofar as the strategy-making, strategy-executing process is concerned? a. Hire and fire senior-level executives and work with the company's chief strategic planning officer to improve the company's performance. b. Inquire about and exercise strong oversight over the company's direction, strategy, and business approaches. c. Evaluate the caliber of senior executives' strategy-making, strategy-executing skills. d. Institute a compensation plan for top executives that rewards them for actions and results that serve stakeholders' interests and most especially those of shareholders. e. Oversee the company's financial accounting and financial reporting practices.

a. Hire and fire senior-level executives and work with the company's chief strategic planning officer to improve the company's performance. Explanation Hiring and firing senior level executives and working with the chief strategic planning officer is not among the primary duties of a company's board of directors. Those primary duties do include: (1) monitoring the company's performance, including financial and accounting reporting practices, (2) guiding and judging the CEO and other top executives, (3) curbing management actions it believes are inappropriate or unduly risky, (4) certifying to shareholders that the CEO is doing what the board expects, (5) providing insight and advice to management, and (6) remaining intensely involved in debating the pros and cons of key decisions and actions.

Which of the following is generally not considered as a barrier to entry? a. Rapid market growth b. Sizable capital requirements and an array of regulatory requirements c. Strong buyer loyalty to existing brands d. Sizable economies of scale in production e. Difficulties in gaining access to distribution and securing adequate space of retailers' shelves

a. Rapid market growth Explanation See Figure 3.6. All of the answer choices, except rapid market growth, deter new entrants; rapid market growth tends to attract new entrants.

Which of the following is not one of the five typical sources of competitive pressures? a. The power and influence of industry-driving forces b. The bargaining power of suppliers and seller-supplier collaboration c. The threat of new entrants into the market d. The attempts of companies in other industries to win customers over to their own substitute products e. The market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry

a. The power and influence of industry-driving forces Explanation See Figure 3.2. Industry-driving forces are not among the five forces exerting competitive pressure on an industry.

Which one of the following is not a reason industry members are often motivated to enter into collaborative partnerships with key suppliers? a. To reduce the costs of switching suppliers b. To speed the availability of next-generation components c. To enhance the quality of parts and components being supplied and reduce defect rates d. To squeeze out important cost savings for both themselves and their suppliers e. To reduce inventory and logistics costs

a. To reduce the costs of switching suppliers Explanation See Figure 3.5. Suppliers with strong bargaining power can erode industry profitability by charging industry members higher prices, passing costs on to them, and limiting their opportunities to find better deals via switching. That said, as a rule, suppliers have less bargaining leverage when their sales to a strategic partner constitute a big percentage of their total sales. In such cases, the well-being of suppliers is closely tied to the well-being of that major customer/partner.

Which of the following factors is usually not a consideration involved in determining whether an industry presents a company with sufficiently attractive opportunities for growth and profitability? a. Using value chain analysis to determine the relative cost positions of rival firms and the industry's lowest-cost producer b. Evaluating the company's competitive position in the industry with regard to its rivals c. Determining how industry profitability will be affected by the prevailing driving forces d. Determining the overall strength of the five competitive forces to analyze if they are squeezing industry profitability to subpar levels e. Determining how competently the company performs industry key success factors

a. Using value chain analysis to determine the relative cost positions of rival firms and the industry's lowest-cost producer Explanation The final step in evaluating the industry and competitive environment is to determine whether an industry presents a company with strong prospects for competitive success and attractive profits. The following are the important factors on which to base a conclusion: The industry's growth potential Whether strong competitive forces are squeezing industry profitability to subpar levels Whether competition appears destined to grow stronger or weaker Whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces The company's competitive position in the industry vis-à-vis rivals How competently the company performs industry key success factors

Which of the following questions is not pertinent to company managers in thinking strategically about what directional path should be taken by the company and about developing a strategic vision? a. What business approaches and operating practices should we consider in trying to implement and execute our business model? b. Is the outlook for the company promising if it continues with its present product offerings? c. What strategic course offers attractive opportunity for growth and profitability? d. What, if any, new customer groups and/or geographic markets should the company get in position to serve? e. Are changing market and competitive conditions acting to enhance or weaken the company's prospects?

a. What business approaches and operating practices should we consider in trying to implement and execute our business model? Explanation The real purpose of a vision statement is to serve as a management tool for giving the organization a sense of direction. A strategic vision delineates management's aspirations for the business, providing a panoramic view of "where we are going" and a convincing rationale for why this makes good business sense for the company. A strategic vision thus points an organization in a particular direction, charts a strategic path for it to follow, builds commitment to the future course of action, and molds organizational identity. A clearly articulated strategic vision communicates management's aspirations to stakeholders (customers, employees, stockholders, suppliers, etc.) and helps steer the energies of company personnel in a common direction.

Which of the following conditions acts to weaken buyers' bargaining power? a. When buyers are unlikely to integrate backward into the business of sellers b. When buyers are well informed about sellers' products, prices, and costs c. When the costs incurred by buyers in switching to competing brands or to substitute products are relatively low d. When buyers have the ability to postpone purchases if they do not like the prices offered by sellers e. When buyers are few in number and/or often purchase in large quantities

a. When buyers are unlikely to integrate backward into the business of sellers Explanation See Figure 3.3. The lower likelihood that buyers would integrate backward into the business of sellers tends to weaken the bargaining power of buyers; all of the other responses tend to increase buyers' bargaining power.

Crafting strategy requires a. a collaborative effort that includes managers in various position at various organizational levels. b. executive management involvement only. c. participation by all employees. d. a collaborative effort between the CEO and board members only. e. All of these choices are correct.

a. a collaborative effort that includes managers in various position at various organizational levels. Explanation Crafting a strategy is a collaborative team effort that includes managers in various positions and at various organizational levels. Crafting a strategy is rarely something only high-level executives perform.

A company's strategic vision concerns a. a company's directional path and future product-customer-market-technology focus. b. why the company does certain things in trying to please its customers. c. management's story line of how it intends to make a profit with the chosen strategy. d. "who we are and what we do." e. what future actions the enterprise will likely undertake to outmaneuver rivals and achieve a sustainable competitive advantage.

a. a company's directional path and future product-customer-market-technology focus. Explanation Top management's views about the company's direction and future product-customer-market-technology focus constitute a strategic vision for the company. A clearly articulated strategic vision communicates management's aspirations to stakeholders about "where we are going" and helps steer the energies of company personnel in a common direction.

Changing circumstances and ongoing managerial efforts to improve the strategy a. account for why a company's strategy evolves over time. b. explain why a company's strategic vision undergoes almost constant change. c. make it very difficult for a company to have concrete strategic objectives. d. make it very hard to know what a company's strategy really is. e. are only necessary when rivals are gaining market share.

a. account for why a company's strategy evolves over time. Explanation A company's strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company's strategy.

The most important aspect(s) of a company's business strategy a. are the actions and moves in the marketplace that managers take to gain a sustainable competitive advantage. b. is figuring out how to maximize profits and shareholder value. c. concerns how to improve the efficiency of its business model. d. deals with how management plans to maximize profits while, at the same time, operating in a socially responsible manner. e. is figuring out how to become the industry's low-cost provider.

a. are the actions and moves in the marketplace that managers take to gain a sustainable competitive advantage. Explanation A sustainable competitive advantage allows a company to attract sufficiently large numbers of buyers who have a lasting preference for its products or services over those offered by rivals, despite the efforts of competitors to offset that appeal and overcome the company's advantage.

The key success factors in an industry a. are the strategy elements, intangible assets, and competitive capabilities that most affect industry members' abilities to prosper in the marketplace. b. are determined by the industry's driving forces. c. hinge on how many different strategic groups the industry has. d. depend on how many rivals are trying to move from one strategic group to another. e. are a function of such considerations as how many firms are in the industry, how many have market shares above five percent, and whether the business models being used are similar or diverse.

a. are the strategy elements, intangible assets, and competitive capabilities that most affect industry members' abilities to prosper in the marketplace. Explanation Key success factors are the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace.

Crafting a strategy involves a. blending deliberate, planned initiatives with emergent, unplanned reactive responses to changing circumstances, while abandoning planned strategy elements that have failed in the marketplace. b. developing a five-year strategic plan and then fine-tuning it during the remainder of the plan period. c. trying to imitate as much of the market leader's strategy as possible so as not to end up at a competitive disadvantage. d. doing everything possible (in the way of price, quality, service, warranties, advertising, and so on) to make sure the company's product and/or service is very clearly differentiated from the product and or service offerings of its rivals. e. All of these accurately characterize the managerial process of crafting a company's strategy.

a. blending deliberate, planned initiatives with emergent, unplanned reactive responses to changing circumstances, while abandoning planned strategy elements that have failed in the marketplace. Explanation A company's realized strategy is a combination of both deliberate planned elements and unplanned emergent elements. Some components of a company's deliberate strategy will fail in the marketplace and become abandoned strategy elements.

The competitive pressures from substitute products tend to be stronger when a. buyers are relatively comfortable with the quality and performance of substitutes, and the costs to buyers of switching over to the substitutes are low. b. there are more than 10 sellers of substitute products. c. substitutes exhibit the latest in technological innovation. d. buyers have high psychic costs in severing existing brand relationships and establishing new ones. e. demand for the industry's product is not very price sensitive.

a. buyers are relatively comfortable with the quality and performance of substitutes, and the costs to buyers of switching over to the substitutes are low. Explanation See Figure 3.4. Generally speaking, when end users are comfortable with purchasing substitutes, when the quality and performance of substitutes is comparable, and when user's switching costs are low, the more intense are the competitive pressures posed by substitute products.

Management's strategic vision for an organization a. charts a strategic course for the organization ("where we are going") and outlines the company's future product-customer-market-technology focus. b. describes in fairly specific terms the organization's business model, strategic objectives, and strategy. c. spells out how the company will become a big moneymaker and boost shareholder value. d. addresses the critical issue of "why our business model needs to change and how we plan to change it." spells out the organization's strategic moves that will be undertaken to achieve competitive advantage.

a. charts a strategic course for the organization ("where we are going") and outlines the company's future product-customer-market-technology focus. Explanation Top management's views about the company's direction and future product-customer-market-technology focus constitute a strategic vision for the company. A clearly articulated strategic vision communicates management's aspirations to stakeholders about "where we are going" and helps steer the energies of company personnel in a common direction.

Rivalry among competing firms tends to be more intense when a. demand for the product is growing slowly, one or maybe several industry members become dissatisfied with their market position, buyers have low switching costs, and strong companies outside the industry acquire weak firms in the industry and launch aggressive moves to build market share. b. the products/services of rival sellers are strongly differentiated and buyer demand is strong. c. rivals are relatively content with their market position. d. there are so many industry rivals that the impact of any one company's actions is spread thinly across all industry members. e. there are fewer firms in the industry that have unequal market shares.

a. demand for the product is growing slowly, one or maybe several industry members become dissatisfied with their market position, buyers have low switching costs, and strong companies outside the industry acquire weak firms in the industry and launch aggressive moves to build market share. Explanation See Figure 3.7. Rivalry is stronger in industries where there is slow growth in demand, one or more rivals is dissatisfied with its market position, buyers have low switching costs, and the number of players is diminishing due to acquisition by firms outside the industry.

The essence of strategy is a. developing lasting success that can support growth and secure the company's future over the long term. b. recreating a business model with regularity. c. matching rival businesses' products and quality dimensions in the marketplace. d. building profits for short-term success. e. realigning the market to provoke change in rival companies.

a. developing lasting success that can support growth and secure the company's future over the long term. Explanation Strategy at its essence is about setting a company apart from its rivals and staking out a market position that is not crowded with strong competitors. A company aims at doing what rivals cannot or do not do.

The task of stitching together a strategy a. entails addressing a series of "hows": how to grow the business, how to please customers, how to outcompete rivals, how to respond to changing market conditions, and how to achieve strategic and financial objectives. b. is primarily an exercise in deciding which of several freshly emerging market opportunities to pursue. c. should be dictated by what is comfortable to management from a risk perspective and what is acceptable in terms of capital requirements. d. requires trying to copy the strategies of industry leaders as closely as possible. e. is mainly an exercise in good planning.

a. entails addressing a series of "hows": how to grow the business, how to please customers, how to outcompete rivals, how to respond to changing market conditions, and how to achieve strategic and financial objectives. Explanation As stated in the text, the task of stitching a strategy together entails addressing a series of "hows": how to attract and please customers, how to compete against rivals, how to position the company in the marketplace and capitalize on attractive opportunities to grow the business, how best to respond to changing economic and market conditions, how to manage each functional piece of the business, and how to achieve the company's performance targets.

A balanced scorecard that includes both strategic and financial performance targets is a conceptually strong approach for judging a company's overall performance because a. financial performance measures are lagging indicators that reflect the results of past decisions and organizational activities, whereas strategic performance measures are leading indicators of a company's future financial performance. b. it entails putting equal emphasis on good strategy execution and good business model execution. c. a balanced scorecard approach pushes managers to avoid setting objectives that reflect the results of past decisions and organizational activities, and, instead, to set objectives that will serve as leading indicators of a company's future financial performance. d. it assists managers in putting roughly equal emphasis on short-term and long-term performance targets. e. it more or less forces managers to put equal emphasis on financial and strategic objectives.

a. financial performance measures are lagging indicators that reflect the results of past decisions and organizational activities, whereas strategic performance measures are leading indicators of a company's future financial performance. Explanation In contrast to strategic objectives, which are leading indicators of a company's market standing and competitive vitality, a company's financial objectives are really lagging indicators that reflect the results of past decisions and organizational activities.

The competitive threat that outsiders will enter a market is weaker when a. financially strong industry members send strong signals that they will launch strategic initiatives to combat the entry of newcomers. b. the pool of entry candidates is large, and some have resources that would make them formidable market contenders. c. the industry's market growth is rapid. d. newcomers can be expected to earn attractive profits. e. buyers have little loyalty to the brands and product offerings of existing industry members.

a. financially strong industry members send strong signals that they will launch strategic initiatives to combat the entry of newcomers. Explanation See Figure 3.6. All of the answer choices indicate an attractive industry to enter except the signaling by financially strong incumbents that they will try to deter new entrants.

A company needs performance targets or objectives a. for its operations as a whole and for each of its separate businesses, product lines, functional departments, and individual work units. b. because they provide parameters for the company's strategy map. c. to unify the company's strategic vision and business model. d. to help guide managers in deciding what strategic path to take in the event that a strategic inflection point is encountered. e. to prevent lower-level organizational units from establishing their own objectives.

a. for its operations as a whole and for each of its separate businesses, product lines, functional departments, and individual work units. Explanation Objective setting does not stop with the establishment of companywide performance targets but needs to be broken into performance targets for each of the organization's separate businesses, product lines, functional departments, and individual work units. This is necessary to guide employees within various functional areas and operating levels via narrow objectives relating directly to their departmental activities, rather than broad organizational-level goals.

Driving forces analysis a. involves identifying the driving forces, assessing whether their impact will make the industry more or less attractive, and determining what strategy changes a company may need to make to prepare for the impact of the driving forces. b. identifies which strategic group is the most powerful. c. helps managers identify which industry member is likely to become (or remain) the industry leader and why. d. helps managers identify which key success factors are most likely to help their company gain a competitive advantage. e. helps managers identify which of the five competitive forces will be the strongest driver of industry change.

a. involves identifying the driving forces, assessing whether their impact will make the industry more or less attractive, and determining what strategy changes a company may need to make to prepare for the impact of the driving forces. Explanation Driving forces analysis consists of three steps: (1) identifying what the driving forces are; (2) assessing whether the drivers of change are, individually or collectively, acting to make the industry more or less attractive; and (3) determining what strategy changes are needed to prepare for the impact of the driving forces.

Managers of every company should be willing and ready to modify their strategy because a. market conditions and circumstances are changing over time or the current strategy is clearly failing. b. the task of crafting strategy is a one-time event. c. the strategic vision necessitates periodic updating. d. frequent changes in strategy make it very more difficult for rivals to imitate. e. all strategies are reactive.

a. market conditions and circumstances are changing over time or the current strategy is clearly failing. Explanation A company's strategy evolves incrementally as management fine-tunes various pieces of the strategy and adjusts the strategy in response to unfolding events. Inevitably there will be occasions when changing market and competitive conditions call for some kind of strategic reaction or abandonment of a current strategy, but a company's strategy also consists of deliberate and proactive (or planned) elements.

Effectively communicating the strategic vision down the line to lower-level managers and employees has the value of a. not only explaining "where we are going and why" but, more importantly, also inspiring and energizing company personnel to unite to get the company moving in the intended direction. b. helping company personnel understand why making a profit is so important. c. making it easier for top executives to set strategic objectives. d. helping lower-level managers and employees better understand the company's business model. e. All of these choices are correct.

a. not only explaining "where we are going and why" but, more importantly, also inspiring and energizing company personnel to unite to get the company moving in the intended direction. Explanation The defining characteristic of a well-conceived strategic vision is what it says about the company's future strategic course—"where we are headed and what our future product-customer-market-technology focus will be." Vision statements galvanize action among company personnel. Alternatively, mission statements of most companies say much more about the enterprise's present business scope and purpose—"why we exist."

The competitive moves and business approaches a company's management is using to grow the business, compete successfully, attract and please customers, conduct operations, respond to changing economic and market conditions, and achieve organizational objectives is referred to as its a. strategy. b. moves to imitate key rivals. c. strategic mission. d. business model. e. strategic vision.

a. strategy. Explanation A strategy is predicated on actions, business approaches, and competitive moves aimed at appealing to buyers in ways that set a company apart from rivals. Simply trying to mimic the strategies of the industry's successful companies never works.

Business strategy concerns a. strengthening the company's market position and building competitive advantage. b. ensuring consistency in strategic approach among the businesses of a diversified company. c. selecting a business model to use in pursuing business objectives. d. selecting a set of financial and strategic objectives for a particular line of business. e. choosing appropriate internal business processes for a specific line of business.

a. strengthening the company's market position and building competitive advantage. Business strategy is primarily concerned with building competitive advantage in a single business unit of a diversified company or strengthening the market position of a nondiversified single-business company.

Which of the following factors represents the strategically relevant political factors in the macroenvironment that will influence the performance of all firms across the board? a. the strength of the federal banking system b. the exogenous forces related to the general environmental demand c. social factors that could fuel a political agenda and create greater transparency d. bailouts and energy policies that are industry-specific e. tax policy, fiscal policy, and tariffs providing impetus for antitrust matters

a. the strength of the federal banking system Explanation Political factors include political policies, including the extent to which a government intervenes in the economy. They include such matters as tax policy, fiscal policy, tariffs, the political climate, and the strength of institutions such as the federal banking system. Some political policies affect certain types of industries more than others. An example is energy policy, which affects energy producers and heavy users of energy more than other types of businesses.

To which of the following firms is the term "repeatedly evolving strategy" most applicable? a. A government agency that makes plans for a set period of time and implements them phase-by-phase during their tenure b. A mobile company, established in a saturated market, that aims at a quarterly release of new products c. A new cosmetics manufacturer in a market that replicates the products of a competitor at a moderate quality and lower price d. A nationalized bank that lends at a lower interest rate but with a zero processing fee in a market crowded with privatized banks running at high cost e. A firearms regulatory agency, set up by the government, that publishes industry standards for safety, reliability, and quality of arms and ammunition

b. A mobile company, established in a saturated market, that aims at a quarterly release of new products Explanation Industry environments characterized by high-velocity change require companies to repeatedly adapt their strategies. The companies in industries with rapid-fire advances in technology like electronics find it essential to adjust key elements of their strategies several times a year, especially in a saturated market with ample competitors.

Consider the following three companies and their strategies: Company A is an established database management company that acquires a well-reputed but small publishing house to enter the booming publishing industry. Company B, a sports management house, declared bankruptcy during a recent recession but now has created a television network that airs regional sports events. Company C, a package delivery business, is a startup based on delivery efficiency models created by a few students and delivers almost all kinds of packages. Which of the following describes the use of strategies by these companies accurately? a. Company B employs an emergent strategy, whereas companies A and C employ deliberate strategies. b. All three companies employ deliberate strategies. c. All three companies employ emergent strategies. d. Company C employs a deliberate strategy, whereas companies A and B employ emergent strategy. e. Companies A and C employ emergent strategies, whereas Company B employs a deliberate strategy.

b. All three companies employ deliberate strategies. Explanation All three companies do not have reactive strategy elements that emerge as changing conditions warrant. They employ proactive strategies to explore new markets.

In which of the following instances are industry members not subject to stronger competitive pressures from substitute products? a. The costs to buyers of switching over to the substitutes are low. b. Buyers are dubious about using substitutes. c. The quality and performance of the substitutes is well matched to what buyers need to meet their requirements. d. Buyer brand loyalty is weak. e. Substitutes are readily available at competitive prices.

b. Buyers are dubious about using substitutes. Explanation See Figure 3.4. As a rule, the lower the desirability of substitutes or the lower their quality and performance, the higher the user's switching costs. These factors tend to decrease the competitive pressures posed by substitute products.

Which one of the following is not one of the five stages of an ongoing, continuous strategic management process? a. Developing a strategic vision of what the company's future direction and focus needs to be b. Developing a sustainable business model c. Crafting a strategy to advance the company along the path that management has charted and achieve its performance objectives d. Setting objectives to measure progress toward achieving the strategic vision e. Executing the chosen strategy efficiently and effectively

b. Developing a sustainable business model Explanation As shown in Figure 2.1, the process of crafting and executing a company's strategy is an ongoing, continuous process consisting of five interrelated stages: (1) developing a strategic vision that charts the company's long-term direction; (2) setting objectives for measuring the company's performance and tracking its progress in moving in the intended long-term direction; (3) crafting a strategy for advancing the company along the path management has charted and achieving its performance objectives; (4) executing the chosen strategy efficiently and effectively; and (5) monitoring developments, evaluating performance, and initiating corrective adjustments in the company's vision and mission statement, objectives, strategy, or approach to strategy execution in light of actual experience, changing conditions, new ideas, and new opportunities.

Which of the following is not a common shortcoming of company vision statements? a. Vague or incomplete—short on specifics b. Focused and narrow—exclusive to a specific direction c. Bland or uninspiring d. Not distinctive—could apply to almost any company (or at least several others in the same industry) e. Too reliant on superlatives (best, most successful, recognized leader, global or worldwide leader, first choice of customers)

b. Focused and narrow—exclusive to a specific direction Explanation From Table 2.3, it is evident that an ineffectively worded vision statement is not forward-looking, too broad, bland or uninspiring, not distinctive, and overly reliant on superlatives.

Why should long-run objectives take precedence over short-run objectives? a. The focus is placed on improving performance in the near term. b. Long-run objectives are necessary for achieving long-term performance and stand as a barrier to undue focus on short-term results. c. Long-run objectives will satisfy shareholder expectations for progress. d. Long-run objectives will force the company to deliver performance improvement in the current period. e. None of these are correct.

b. Long-run objectives are necessary for achieving long-term performance and stand as a barrier to undue focus on short-term results. Explanation Long-term objectives serve as a barrier to an undue focus on short-term results by nearsighted management. When trade-offs have to be made between achieving long- and short-run objectives, long-run objectives should take precedence (unless the achievement of one or more short-run performance targets has unique importance).

Which of the following is not something a company's strategy is concerned with? a. Management's choices about how to attract and please customers b. Management's choices about how quickly and closely to copy the strategies being used by successful rival companies c. Management's choices about how to grow the business d. Management's choices about how to outcompete rivals e. Management's action plan for conducting operations and improving the company's strategic and financial performance

b. Management's choices about how quickly and closely to copy the strategies being used by successful rival companies Explanation Simply trying to mimic the strategies of the industry's successful companies never works. Rather, every company's strategy needs to have some distinctive element that draws in customers and produces a competitive edge.

Which of the following is an integral part of the managerial process of crafting and executing strategy? a. Developing a proven business model b. Setting objectives and using them as yardsticks for measuring the company's performance and progress c. Deciding how much of the company's resources to employ in the pursuit of sustainable competitive advantage d. Communicating the company's mission and purpose to all employees e. Deciding on the composition of the company's board of directors

b. Setting objectives and using them as yardsticks for measuring the company's performance and progress Explanation Figure 2.1 displays the five-stage process: (1) developing a strategic vision, (2) setting objectives, (3) crafting strategy, (4) implementing and executing the chosen strategy, and (5) evaluating and analyzing the external environment and the company's internal situation and performance.

Which of the following is not a factor that causes buyers' bargaining power to be stronger? a. Some buyers are a threat to integrating backward into the business of sellers. b. The industry is composed of a few large sellers, and the customer group consists of numerous buyers that purchase in fairly small quantities. c. Buyers have considerable discretion over whether and when they purchase the product. d. Buyers are well informed about sellers' products, prices, and costs. e. The costs incurred by buyers in switching to competing brands or to substitute products are relatively low.

b. The industry is composed of a few large sellers, and the customer group consists of numerous buyers that purchase in fairly small quantities. Explanation See Figure 3.3. A limited number of large sellers tends to weaken the bargaining power of buyers; all of the other responses tend to increase buyers' bargaining power.

A company achieves sustainable competitive advantage when a. it has a profitable business model. b. a sufficiently large number of buyers have a lasting preference for its products or services as compared to the offerings of competitors. c. it is able to maximize shareholder wealth. d. it is consistently able to achieve both its strategic and financial objectives. e. its strategy and its business model are well matched and in sync.

b. a sufficiently large number of buyers have a lasting preference for its products or services as compared to the offerings of competitors. Explanation A company achieves sustainable competitive advantage when an attractively large number of buyers develop a durable preference for its products or services over the offerings of competitors, despite the efforts of competitors to overcome or erode its advantage.

A company's strategic plan consists of a. its balanced scorecard and its business model. b. a vision of where it is headed, a set of performance targets, and a strategy to achieve them. c. its strategy and management's specific, detailed plans for implementing it. d. a company's plans for improving value-creating internal processes. e. a strategic vision, a strategy, and a business model.

b. a vision of where it is headed, a set of performance targets, and a strategy to achieve them. Explanation The first three stages of the strategic management process—developing a strategic vision, setting objectives, and crafting strategy—comprise a strategic plan. A strategic plan maps out where a company is headed, establishes strategic and financial targets, and outlines the competitive moves and approaches to be used in achieving the desired business results.

Increasing globalization can be a driving force in an industry because a. market growth rates go up, product innovation speeds up, and new firms are likely to enter the industry. b. companies need to spread their operating reach into more and more country markets to meet consumer demand and take advantage of available operating activities. c. foreign producers typically have lower costs, greater technological expertise, and more product innovation capabilities than domestic firms. d. the products and services of foreign competitors are nearly always cheaper or of better quality than those of domestic companies. e. it results in companies having fewer competitors and a strategic group map with fewer circles.

b. companies need to spread their operating reach into more and more country markets to meet consumer demand and take advantage of available operating activities. Explanation Globalization can be precipitated by such factors as the blossoming of consumer demand in developing countries, the availability of lower-cost foreign inputs, and the reduction of trade barriers, as has occurred recently in many parts of Latin America and Asia. The forces of globalization are sometimes such a strong driver that companies find it highly advantageous, if not necessary, to spread their operating reach into more and more country markets.

Functional strategies a. specify what actions a company should take to resolve specific strategic issues and problems. b. concern the actions, approaches, and practices related to particular functions or processes within a business. c. are concerned with how to unify the firm's several different operating strategies into a cohesive whole. d. are normally crafted by the company's CEO and other senior executives. e. are normally crafted by operating-level managers.

b. concern the actions, approaches, and practices related to particular functions or processes within a business. Explanation Functional area strategies (as shown in Figure 2.2, A Company Strategy-Making Hierarchy) concern the detailed actions and game plan(s) related to particular functions or processes within a business.

In identifying an industry's key success factors, strategists should a. try to single out all factors that play a major role in shaping whether buyer demand grows rapidly or slowly. b. consider on what basis customers choose between competing brands, what resources and competitive capabilities firms need to be competitively successful, and what shortcomings are almost certain to put a company at a significant competitive disadvantage. c. consider whether the number of strategic groups is increasing or decreasing and whether the five competitive forces are powerful or relatively weak. d. consider what it will take to overtake the company with the industry's overall best strategy. e. focus their attention on what it will take to capitalize on impacts of the industry's driving forces.

b. consider on what basis customers choose between competing brands, what resources and competitive capabilities firms need to be competitively successful, and what shortcomings are almost certain to put a company at a significant competitive disadvantage. Explanation Key success factors are the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace. In addition, the answers to the following three questions help identify an industry's key success factors: (1) On what basis do buyers of the industry's product choose between the competing brands of sellers? That is, what product attributes are crucial? (2) Given the nature of the competitive forces prevailing in the marketplace, what resources and competitive capabilities does a company need to have to be competitively successful? (3) What shortcomings are almost certain to put a company at a significant competitive disadvantage?

Top management's views about where the company is headed and what its future product-customer-market-technology will be a. indicates what kind of business model the company is going to have in the future. b. constitutes the strategic vision for the company. c. signals what the firm's strategy will be. d. serves to define the company's mission. e. indicates what the company's long-term strategic plan is.

b. constitutes the strategic vision for the company. Explanation Top management's views about the company's direction and future product-customer-market-technology focus constitute a strategic vision for the company. A clearly articulated strategic vision communicates management's aspirations to stakeholders about "where we are going" and helps steer the energies of company personnel in a common direction.

A creative, distinctive strategy that sets a company apart from its rivals and that gives it a sustainable competitive advantage a. is a reliable indicator that the company has a profitable business model. b. is a company's most reliable ticket to above-average profitability. c. signals that the company has a bold, ambitious strategic intent that places the achievement of strategic objectives ahead of the achievement of financial objectives. d. is the best indicator that the company's strategy and business model are well matched and properly synchronized. e. allows a company's managers to ignore competitors' responses to any moves that the company might make.

b. is a company's most reliable ticket to above-average profitability. Explanation A creative, distinctive strategy that sets a company apart from its rivals and that gives it a sustainable competitive advantage is a company's most reliable ticket for earning above-average profits.

Just how strong the competitive pressures are from substitute products depends on a. whether the available substitutes are strongly or weakly differentiated and whether buyers make purchases frequently or infrequently. b. whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes. c. whether the available substitutes are products or services. d. whether the producers of substitutes have ample budgets for new product R&D. e. the speed with which buyer needs and expectations are changing.

b. whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes. Explanation See Figure 3.4. As a rule, the desirability of substitutes, their relative quality and performance, and the end user's switching costs tend to impact the competitive pressures posed by substitute products.

Which of the following is not a good example of a substitute product that triggers stronger competitive pressures? a. Lyft or Uber as a substitute for rental cars b. Airbnb as a substitute for hotels and motels c. Dasani water as a substitute for Aquafina water d. Smartphones as substitutes for film cameras e. Netflix and Amazon streaming video on demand as a substitute for DVD players

c. Dasani water as a substitute for Aquafina water Explanation See Figure 3.4. Both Dasani and Aquafina are rivals in the same industry and cannot be considered substitutes for one another. All of the remaining choices represent substitutes from different industries.

Which of the following do not qualify as potential driving forces capable of inducing fundamental changes in industry and competitive conditions? a. Changes in who buys the product and how they use it, changes in the long-term industry growth rate, and changes in cost and efficiency b. Entry or exit of major firms, product innovation, and marketing innovation c. Increases in the economic power and bargaining leverage of customers and suppliers, growing supplier-seller collaboration, and growing buyer-seller collaboration d. Diffusion of technical know-how and changing societal concerns, attitudes, and lifestyles e. Changes in manufacturing processes brought on by technological change, increasing globalization of the industry, and new Internet capabilities

c. Increases in the economic power and bargaining leverage of customers and suppliers, growing supplier-seller collaboration, and growing buyer-seller collaboration Explanation Most drivers of industry and competitive change fall into one of the above categories (see Table 3.2) but not bargaining leverage or collaborative alliances.

A pharmaceutical giant acquires a manufacturer of rare specialty drugs to improve its falling share prices and invests all its wealth into the deal. Due to a deficit, it agrees to do a joint venture for the acquisition and involves a major automobile giant to fund the deal. After a rocky start, the companies now have a strong market position and generate good profits. Which of the following regarding the company's strategy is true? a. It fails the performance test. b. It fails the competitive advantage and the fit tests. c. It is a winning strategy. d. It fails in all three tests. e. It fails the fit test, but passes the competitive advantage and performance tests.

c. It is a winning strategy. Explanation The pharmaceutical giant assessed the market, identified a suitable solution to accentuate its market position, gained a competitive edge by adding a specialty drug to its product line, and realized financial profits and a strong market position. The strategy is a winner as it clears all three tests.

Each of the following exemplifies the impact of the macroenvironment on a company's strategic opportunities except a. United States' sales of Stolichnaya Vodka dwindle on account of a boycott of Russian products. b. consumer confidence in Volkswagen drops precipitously because of falsified emissions data. c. Netflix squares off with Amazon Prime as its most potent rival in the streaming television and film industry. d. traffic increases at the outlets of Whole Foods following its introduction of new store formats that are solely for the sale of private label generic products. e. sales of FitBit surge on account of new features that monitor the users' blood pressure and sleep habits.

c. Netflix squares off with Amazon Prime as its most potent rival in the streaming television and film industry. Explanation The six principal components of the macroenvironment are political, economic, sociocultural, technological, environmental (concerning the natural environment), and legal/regulatory. Rival firms are part of the immediate industry and competitive environment.

Which of the following is not a frequently used strategic approach to setting a company apart from rivals and achieving a sustainable competitive advantage? a. Aiming for a cost-based competitive advantage b. Outcompeting rivals on the basis of such differentiating features as higher quality, wider product selection, added performance, better service, or more attractive styling c. Simply trying to mimic the successful strategies of rivals d. Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of satisfying the needs and tastes of buyers comprising the niche e. Developing expertise and resources that give the company competitive capabilities that rivals cannot easily imitate or trump with capabilities of their own

c. Simply trying to mimic the successful strategies of rivals Explanation Simply trying to mimic the strategies of the industry's successful companies never works. Rather, every company's strategy needs to have some distinctive element that draws in customers and produces a competitive edge.

Which of the following is not among the principal managerial tasks associated with managing the strategy execution process? a. Ensuring that policies and procedures facilitate rather than impede effective execution b. Creating a company culture and work climate conducive to successful strategy implementation and execution c. Surveying employees on how employee job satisfaction can be improved d. Exerting the internal leadership needed to drive implementation forward e. Tying rewards and incentives directly to the achievement of performance objectives

c. Surveying employees on how employee job satisfaction can be improved

Which of the following is not one of the basic reasons that a company's strategy evolves over time? a. An ongoing need to abandon those strategy features that are no longer working well b. The proactive efforts of company managers to improve the company's financial performance and secure a competitive advantage c. The need on the part of company managers to make no adjustments to the company's business model d. The need to respond to the actions and competitive moves of rival firms e. The need to keep strategy in step with changing industry and competitive conditions

c. The need on the part of company managers to make no adjustments to the company's business model Explanation Regardless of whether a company's strategy changes gradually or swiftly, the important point is that the task of crafting strategy is not a one-time event but is always a work in progress.

Which of the following is not an appropriate guideline for developing a strategic group map for a given industry? a. Variables chosen as axes for the map should indicate big differences in how rivals have positioned themselves to compete in the marketplace. b. Variables chosen as axes for the map can be quantitative, qualitative, or discrete and defined in terms of distinct classes and combinations. c. Variables selected as axes for the map should be highly correlated. d. Several maps should be drawn if more than one pair of variables can help illuminate differences in the competitive positioning of industry members. e. Sizes of the circles on the map should be drawn proportional to the combined sales of the firms in each strategic group.

c. Variables selected as axes for the map should be highly correlated. Explanation Observing the guidelines for creating a strategic group map, the two variables selected as axes for the map should not be highly correlated; if they are, the circles on the map will fall along a diagonal, and strategy makers will learn nothing more about the relative positions of competitors than they would by considering just one of the variables.

Managers in all types of businesses must develop a clear answer for which of the following questions? a. Where are we now? b. Where do we want to go from here? c. What is the set of actions that we need to take to outperform the company's competitors and achieve superior profitability? d. When will we know we are there? e. What moves and approaches do we need to gain an advantage in the marketplace?

c. What is the set of actions that we need to take to outperform the company's competitors and achieve superior profitability? Explanation A company's strategy is the set of actions that its managers need to take to outperform the company's competitors and achieve superior profitability.

Which one of the following is not a factor that affects the strength of suppliers' bargaining power? a. Whether needed inputs are in short or ample supply b. Whether industry members are a strong threat to integrate backward into the business of suppliers c. Whether industry members are struggling to make good profits because of slow-growing market demand d. Whether the costs of industry members to switch their purchases to alternative suppliers or substitutes are high or low e. Whether the item being supplied is a commodity that is readily available from many suppliers

c. Whether industry members are struggling to make good profits because of slow-growing market demand Explanation See Figure 3.5. All of the responses, except incumbents' struggles to make good profits in a slow-growth demand market, tend to impact the bargaining leverage of suppliers.

The strategic management process is shaped by a. management's strategic vision, strategic and financial objectives, and strategy. b. the decisions made by the compensation and audit committees of the board of directors. c. external factors such as the industry's economic and competitive conditions and internal factors such as the company's collection of resources and capabilities. d. a company's customer value proposition and profit formula. e. actions to strengthen competitive capabilities and correct weaknesses, actions to strengthen market standing and competitiveness by acquiring or merging with other companies, and actions to enter new geographic or product markets.

c. external factors such as the industry's economic and competitive conditions and internal factors such as the company's collection of resources and capabilities. Explanation Management's decisions that are made in the strategic management process are shaped by the prevailing economic conditions and competitive environment and the company's own internal resources and competitive capabilities as shown in Figure 2.1, The Strategy and Formulation, Strategy Execution Process, and described in detail in Table 2.1, Factors Shaping Decisions in the Strategy Formulation, Strategy Execution Process.

A company's values relate to such things as a. how it will balance its pursuit of financial objectives against the pursuit of its strategic objectives. b. how it will balance the pursuit of its business purpose/mission against the pursuit of its strategic vision. c. fair treatment, integrity, ethical behavior, innovativeness, teamwork, top-notch quality, superior customer service, social responsibility, and community citizenship. d. whether it will emphasize stock price appreciation or higher dividend payments to shareholders, and whether it will put more emphasis on the achievement of short-term performance targets or long-range performance targets. e. All of these choices are correct.

c. fair treatment, integrity, ethical behavior, innovativeness, teamwork, top-notch quality, superior customer service, social responsibility, and community citizenship. Explanation Many companies have developed a statement of values (sometimes called core values) to guide the actions and behavior of company personnel in conducting the company's business and pursuing its strategic vision and mission. These values are the designated beliefs and desired ways of doing things at the company, and frequently relate to such things as fair treatment, honor and integrity, ethical behavior, innovativeness, teamwork, a passion for excellence, social responsibility, and community citizenship.

A strategic group a. consists of those industry members that are growing at about the same rate and have similar product line breadth. b. includes all rival firms having comparable profitability. c. is a cluster of industry rivals that have similar competitive approaches and market positions. d. consists of those firms whose market shares are about the same size. e. is made up of those firms having comparable profit margins.

c. is a cluster of industry rivals that have similar competitive approaches and market positions. Explanation A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions.

The primary roles/obligations of a company's board of directors in the strategy-making, strategy-executing process include a. playing the lead role in forming the company's strategy and then directly supervising the efforts and actions of senior executives in implementing and executing the strategy. b. providing guidance and counsel to the CEO in carrying out his or her duties as chief strategist and chief strategy implementer. c. overseeing the company's financial accounting and reporting practices, evaluating the caliber of senior executives' strategy-making and strategy-executing skills, and instituting a compensation plan that rewards top executives for results that serve shareholder interests. d. working closely with the CEO, senior executives, and the strategic planning staff to develop a strategic plan for the company. e. reviewing and approving the company's business model, and reviewing and approving the proposals and recommendations of the CEO as to how to execute the business model.

c. overseeing the company's financial accounting and reporting practices, evaluating the caliber of senior executives' strategy-making and strategy-executing skills, and instituting a compensation plan that rewards top executives for results that serve shareholder interests. Explanation The role of the board involves: (1) oversight over the company's financial accounting and financial reporting practices; (2) oversight over and critique of the company's direction, strategy, and business approaches; (3) evaluation of the caliber of senior executives' strategy formulation and strategy execution skills; and (4) instituting a compensation plan for top executives that rewards them for actions and results that serve shareholder interests.

In evaluating proposed or existing strategies, managers should a. evaluate the firm's business model at least every three years. b. align existing strategies with new strategies to emphasize incremental gains. c. scrutinize the company's existing strategies on a regular basis to ensure they offer a good strategic fit, create a competitive advantage, and contribute to an above-average performance. d. plan and implement new initiatives regardless of whether or not these match the company's internal and external situation. e. ensure core capabilities are incorporated for establishing a competitive advantage.

c. scrutinize the company's existing strategies on a regular basis to ensure they offer a good strategic fit, create a competitive advantage, and contribute to an above-average performance. Explanation New initiatives that do not seem to match the company's internal and external situation should be scrapped before they come to fruition, while existing strategies must be scrutinized on a regular basis to ensure they offer a good strategic fit with the company's internal and external situation, create a competitive advantage, and contribute to above-average performance or performance improvements.

Different companies across different industries adopt any one of the five generic strategies to gain competitive advantage. Which of the following businesses is most likely to use a low-cost provider strategy? a. A fashion clothing line uses sought-after designers and natural fabrics b. A mortgage company specializes in lending money for second homes c. An online retailer delivers organic groceries overnight d. A baby products retailer sells unassembled baby furniture produced in China e. A dairy products manufacturer uses exotic substitutes to produce lactose-free dairy products

d. A baby products retailer sells unassembled baby furniture produced in China Explanation The baby products retailer selling unassembled parts made in China is most likely to have the lowest costs and to pursue a low-cost provider strategy. The other companies are more likely to pursue focused differentiation or best-cost strategies.

Which of the following statements about a company's realized strategy is true? a. A company's realized strategy is mostly hidden to outside view and is deliberately kept under wraps by top-level managers. b. A company's realized strategy is typically planned well in advance and usually deviates little from the planned set of actions. c. A company's realized strategy generally changes very little over time unless a newly appointed CEO decides to take the company in a new direction with a new strategy. d. A company's realized strategy is typically a blend of deliberate and/or planned initiatives and emergent and/or unplanned reactive strategy elements. e. A company's realized strategy is developed mostly on the fly because of the constant efforts of managers to keep rival companies at a disadvantage.

d. A company's realized strategy is typically a blend of deliberate and/or planned initiatives and emergent and/or unplanned reactive strategy elements. Explanation As shown in Figure 1.1, a company's realized strategy tends to be a combination of both deliberate planned elements and unplanned, emergent elements.

Rainbow Resorts Inc. has multiple tropical resorts in various locations. In a crowded market that caters to all kinds of consumers, this resort caters mainly to LGBTQ customers with a guaranteed hassle-free holiday experience at a premium price. What strategy is Rainbow using to gain competitive advantage? a. A low-cost provider strategy b. A broad differentiation strategy c. A focused low-cost strategy d. A focused differentiation strategy e. A best-cost provider strategy

d. A focused differentiation strategy Explanation Rainbow Resorts caters to LGBTQ customers, focusing on a narrow customer base and providing a unique holidaying experience. It has adopted a focused differentiation strategy concentrating on a narrow customer segment and outcompeting rivals by offering customers attributes that meet their specialized needs and tastes better than rivals' offerings.

Allset Motors, a manufacturer of self-driving delivery trucks, is working on developing its next-generation vehicles. It has decided on a strategy of focusing on a narrow buyer segment and outcompeting its rivals by offering buyers customized vehicles at a lower cost than its rivals. What basic strategic approach has Allset Motors decided upon? a. True-cost b. Low-cost c. Focused low-cost d. Best-cost e. Broad differentiation

d. Best-cost Explanation A best-cost provider strategy like Allset Motors' involves concentrating on a narrow buyer segment and outcompeting rivals by offering buyers more value for their money and by providing customized attributes that meet their specialized needs and tastes better than its rivals' products but at a lower cost.

Which one of the following is not a characteristic of an effectively worded strategic vision statement? a. Directional (is forward-looking, describes the strategic course that management has charted and the kinds of product-market-customer-technology changes that will help the company prepare for the future) b. Easy to communicate (is explainable in 10 to 15 minutes, can be reduced to a memorable slogan) c. Graphic (paints a picture of the kind of company management is trying to create and the market position or positions the company is striving to stake out) d. Consensus-driven (commits the company to a "mainstream" directional path that most stakeholders will enthusiastically support) e. Focused (is specific enough to provide guidance to managers in making decisions and allocating resources)

d. Consensus-driven (commits the company to a "mainstream" directional path that most stakeholders will enthusiastically support) Explanation From Table 2.2, it is evident that an effectively worded vision statement is graphic, directional, focused, flexible, feasible, desirable, and easy to communicate. While consensus among stakeholders is helpful to adopting a vision statement, crafting that statement is within the purview of top managers.

Which of the following questions ought to be used to distinguish a winning strategy from a so-so or flawed strategy? a. Does the strategy contain a sufficient number of emergent and/or reactive elements? b. Is the company putting too little emphasis on growth and profitability and too much emphasis on behaving in an ethical and socially responsible manner? c. Is the strategy built on a company's weakness, or does it require resources that are deficient in the company? d. Is the strategy well matched to the company's situation, helping the company achieve a sustainable competitive advantage and resulting in better company performance? e. Does the strategy strike a good balance between maximizing shareholder wealth and maximizing customer satisfaction?

d. Is the strategy well matched to the company's situation, helping the company achieve a sustainable competitive advantage and resulting in better company performance? Explanation It is unwise to build a strategy upon the company's weaknesses or pursue a strategic approach that requires resources that are deficient in the company. Unless a strategy exhibits a tight fit with both the external and internal aspects of a company's overall situation, it is unlikely to produce respectable first-rate business results.

Which one of the following does not cause the rivalry among competing sellers to be weak? a. High buyer switching costs b. Rapid growth in buyer demand c. Industry members are not aggressive in drawing sales and market share away from rivals d. One or more competitors become dissatisfied with their market position e. Strongly differentiated products among rival sellers

d. One or more competitors become dissatisfied with their market position Explanation See Figure 3.7. All of the responses characterize weak rivalry except when one or more incumbents are dissatisfied with their position.

It is normal for a company's strategy to end up being a. left unchanged from management's original planned set of actions and business approaches since making on-the-spot changes is too risky. b. a combination of defensive moves to protect the company's market share and offensive initiatives to set the company's product offering apart from its rivals. c. like the strategies of other industry members since all companies are confronting much the same market conditions and competitive pressures. d. a blend of deliberate planned actions to improve the company's competitiveness and financial performance and as-needed unplanned reactions to unanticipated developments and fresh market conditions. e. a mirror image of its business model, so as to avoid impairing company profitability.

d. a blend of deliberate planned actions to improve the company's competitiveness and financial performance and as-needed unplanned reactions to unanticipated developments and fresh market conditions. Explanation The biggest portion of a company's current strategy flows from ongoing actions that have proven themselves in the marketplace and newly launched initiatives aimed at building a larger lead over rivals and further boosting financial performance. This part of management's action plan for running the company is its proactive, deliberate strategy.

A company's realized business strategy is made up of a deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance. b. emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. c. tactical plans to imitate the key elements of the strategies employed by rivals. d. both deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance and emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. e. choices among low-cost provider and differentiation strategies.

d. both deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance and emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. Explanation A company's realized strategy is a combination of both deliberate planned elements and unplanned emergent elements. Some components of a company's deliberate strategy will fail in the marketplace and become abandoned strategy elements.

A company's strategy consists of a. actions to develop a more appealing business model than rivals. b. plans involving alignment of organizational activities and strategic objectives. c. offensive and defensive moves to generate revenues and increase profit margins. d. competitive moves and approaches that managers have developed to grow the business, attract and please customers, conduct operations, and achieve targeted objectives. e. its strategic vision, its strategic objectives, and its strategic intent.

d. competitive moves and approaches that managers have developed to grow the business, attract and please customers, conduct operations, and achieve targeted objectives. Explanation A strategy stands a chance of succeeding only when it is predicated on actions, business approaches, and competitive moves aimed at appealing to buyers in ways that set a company apart from rivals.

Functional area strategies a. are concerned with how to unify the firm's several different operating strategies into a cohesive whole. b. specify how to build and strengthen the skills, expertise, and competencies needed to execute operating-level strategies successfully. c. support and add power to the corporate-level strategy. d. concern the actions, approaches, and practices to be employed in managing particular functions within a business. e. are normally crafted by operating-level managers.

d. concern the actions, approaches, and practices to be employed in managing particular functions within a business. Explanation Functional-area strategies (as shown in Figure 2.2, A Company Strategy-Making Hierarchy) concern the detailed actions and game plan(s) related to particular functions or processes within a business. Particular functions or processes within a business may include research and development (R&D), production, procurement of inputs, sales and marketing, distribution, customer service, and finance.

A strategic group consists of those firms in an industry that a. are subject to the same driving forces. b. place about the same emphasis on each distribution channel. c. use the same key success factors to differentiate their products. d. employ similar competitive approaches and occupy similar positions in the market. e. have similar size market shares.

d. employ similar competitive approaches and occupy similar positions in the market. Explanation A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions.

A competitive environment in which there is weak to moderate rivalry among sellers, high entry barriers, weak competition from substitute products, and little bargaining leverage on the part of both suppliers and customers a. lacks powerful driving forces. b. gives each industry competitor the best potential for building sustainable competitive advantage. c. makes it hard for industry members to pursue a differentiation strategy. d. is conducive to industry members earning attractive profits. e. requires that industry members have low costs.

d. is conducive to industry members earning attractive profits. Explanation As a rule, a weak collective impact of the five competitive forces makes an industry more attractive and tends to raise the combined profitability of industry participants.

The obligations of an investor-owned company's board of directors in the strategy-making, strategy-executing process include a. debating the merits of other compelling strategy proposals as opposed to those put forward by top management. b. taking the lead in formulating the company's strategic plan but then delegating the task of implementing and executing the strategic plan to the company's CEO and other senior executives. c. taking the lead in developing the company's business model and strategic vision. d. overseeing the company's financial accounting and financial reporting practices and evaluating the caliber of senior executives' strategy-making, strategy-executing skills. e. approving the company's operating strategies, functional-area strategies, business strategy, and overall corporate strategy.

d. overseeing the company's financial accounting and financial reporting practices and evaluating the caliber of senior executives' strategy-making, strategy-executing skills. Explanation It is the duty of the board of directors to exercise strong oversight and see that the five tasks of strategic management are done in a manner that benefits shareholders with respect to the following: (1) monitoring the company's performance, including financial and accounting reporting practices, (2) guiding and judging the CEO and other top executives, (3) curbing management actions it believes are inappropriate or unduly risky, (4) certifying to shareholders that the CEO is doing what the board expects, (5) providing insight and advice to management, and (6) remaining intensely involved in debating the pros and cons of key decisions and actions.

Strategic objectives a. are more essential in achieving a company's strategic vision than are financial objectives. b. are generally less important than financial objectives. c. are more difficult to achieve and harder to measure than financial objectives. d. relate to strengthening a company's overall market standing and competitive vitality. e. help managers track an organization's true progress better than do financial objectives.

d. relate to strengthening a company's overall market standing and competitive vitality. Explanation Without adequate profitability and financial strength, a company's long-term health and ultimate survival is jeopardized. Furthermore, subpar earnings and a weak balance sheet alarm shareholders and creditors and put the jobs of senior executives at risk.

A company's values concern a. whether and to what extent it intends to operate in an ethical and socially responsible manner. b. how aggressively it will seek to maximize profits and enforce high ethical standards. c. the beliefs and operating principles built into the company's "balanced scorecard" for measuring performance. d. the beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic vision and mission. e. the beliefs, principles, and ethical standards that are incorporated into the company's strategic intent and business model.

d. the beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic vision and mission.

Whether supplier-seller relationships in an industry represent a strong or weak source of competitive pressure is a function of a. whether the profits of suppliers are relatively high or low. b. the number of suppliers that each seller/industry member purchases from on average. c. how aggressively rival industry members are trying to differentiate their products. d. the extent to which suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favor and the extent of seller-supplier collaboration in the industry. e. whether the prices of the items being furnished by the suppliers are rising or falling.

d. the extent to which suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favor and the extent of seller-supplier collaboration in the industry. Explanation See Figure 3.5. When suppliers have stronger bargaining power, they can charge industry members higher prices (passing costs on to them) and limit opportunities to find better deals via switching.

Which of the following firms uses an emergent strategy? a. A local hardware store offers a ten-percent discount for seniors on the first Wednesday of every month. b. An online book reseller diversifies into custom book publishing. c. An oil-change franchisor continues geographical expansion despite a recession. d. A health food manufacturer integrates forward into drive-through health food restaurants. e. A microbrewer invests in building community water wells during a drought.

e. A microbrewer invests in building community water wells during a drought. Explanation The microbrewer deliberately diversifies its offerings to gain more profits and strengthen its market position—it is not a result of changing internal and external environmental factors, whereas the other examples are a result of changes to the market, changes in customer preferences, or changes in the economic climate.

Which of the following is an issue not likely to be addressed by a company's business strategy? a. Actions to respond to changing economic and market conditions b. Actions to supplement the company's resources and capabilities through alliances and joint ventures c. Reactions to offensive moves by rival sellers d. Actions and approaches used in managing the functional areas of the business e. Actions and approaches to mimic rivals' moves in the marketplace

e. Actions and approaches to mimic rivals' moves in the marketplace Explanation The evolving nature of a company's strategy means the typical company strategy is a blend of (1) proactive moves to improve the company's financial performance and secure a competitive edge, and (2) adaptive reactions to unanticipated developments and fresh market conditions.

Which of the following is not an element of a company's business strategy? a. Actions to respond to changing market conditions or other external factors b. Actions to strengthen competitiveness via strategic alliances and collaborative partnerships c. Actions to strengthen internal capabilities and competitively valuable resources d. Actions to manage the functional areas of the business e. Actions to revise the company's financial and strategic performance targets

e. Actions to revise the company's financial and strategic performance targets Explanation A company's strategy focuses on how to achieve (not raise) the company's performance targets.

Which of the following is not included in proven approaches to winning a sustainable competitive advantage? a. Developing a low-cost-based advantage b. Creating a broad differentiation-based advantage c. Focusing on a narrow market niche within an industry d. Developing a best-cost provider strategy e. Crafting a broad-cost provider strategy

e. Crafting a broad-cost provider strategy Explanation All of the above except for "broad-cost provider" constitute four out of the five of the most frequently used and dependable strategic approaches for setting a company apart from its rivals and winning a sustainable competitive advantage.

Which of the following are integral parts of the managerial process of crafting and executing strategy? a. Deciding on the company's strategic intent, setting financial objectives, crafting a strategy, and choosing what business approaches and operating practices to employ b. Developing a proven business model, deciding on the company's strategic intent, and crafting a strategy c. Setting objectives, crafting a strategy, implementing and executing the chosen strategy, and deciding how much of the company's resources to employ in the pursuit of a sustainable competitive advantage d. Coming up with a statement of the company's mission and purpose, setting objectives, choosing what business approaches to employ, selecting a business model, and monitoring developments e. Developing a strategic vision, setting objectives, crafting a strategy, and initiating corrective adjustments

e. Developing a strategic vision, setting objectives, crafting a strategy, and initiating corrective adjustments Explanation The process of crafting and executing a company's strategy, as depicted in Figure 2.1, is an ongoing, continuous process consisting of five interrelated stages: (1) developing a strategic vision that charts the company's long-term direction; (2) setting objectives for measuring the company's performance and tracking its progress in moving in the intended long-term direction; (3) crafting a strategy for advancing the company along the path management has charted and achieving its performance objectives; (4) executing the chosen strategy efficiently and effectively; and (5) monitoring developments, evaluating performance, and initiating corrective adjustments in the company's vision and mission statement, objectives, strategy, or approach to strategy execution in light of actual experience, changing conditions, new ideas, and new opportunities.

Which of the following is not one of the principal components of strategic significance in the PESTEL analysis? a. Technological factors that include the pace of change and technical developments possessing the potential to impact society b. Changes in laws and regulations that give rise to the birth of new industries, new knowledge, and disruptive technologies c. Economic conditions that include the general economic climate and specific factors such as interest rates, inflation rate, and unemployment rate, as well as conditions in the stock and bond markets that can affect consumer confidence d. Sociocultural forces including societal values, attitudes, cultural factors, and lifestyles that impact business e. Environmental forces that include the competitive structure, the degree of industry fragmentation, and the mobility barriers that inhibit business

e. Environmental forces that include the competitive structure, the degree of industry fragmentation, and the mobility barriers that inhibit business Explanation PESTEL analysis is an acronym that serves as a reminder of the six principal components of the macroenvironment: (1) political; (2) economic; (3) sociocultural; (4) technological; (5) environmental (concerning the natural environment, not the business environment); and (6) legal/regulatory. The correct answer refers to actions in a company's industry and competitive environment, whereas all of the other responses refer to characteristics of a company's economic environment, as shown in Figure 3.1. The factors and forces in a company's external environment that have the biggest strategy-shaping impact typically pertain to the company's immediate inner ring industry and competitive environment—competitive pressures, the actions of rival firms, buyer behavior, supplier-related considerations, and so on.

Which one of the following increases the competitive pressures associated with the threat of entry? a. Incumbent firms are likely to launch competitive initiatives to strongly contest the entry of newcomers. b. Buyers have a high degree of loyalty to the brands and product offerings of existing industry members. c. Buyer demand for the product is growing fairly slowly. d. Few outsiders have the expertise and resources to hurdle past whatever entry barriers exist. e. Newcomers can expect to earn attractive profits.

e. Newcomers can expect to earn attractive profits. Explanation See Figure 3.6. All of the answer choices indicate an attractive industry to enter except the expectation of earning attractive profits by newer entrants.

__________ is the most powerful and widely known tool used to assess the state of competition in an industry. a. PESTEL analysis b. SWOT analysis c. Financial ratio analysis d. Strategic group mapping e. Porter's five-force model

e. Porter's five-force model Explanation See Figure 3.2, The Five-Forces Model of Competition. The character and strength of the competitive forces operating in an industry are never the same from one industry to another. The most powerful and widely used conceptual tool for diagnosing the principal competitive pressures in a market is the five-forces framework.

Evaluating whether an industry presents a sufficiently attractive business opportunity usually does not involve a consideration of which of the following factors? a. The industry's growth potential b. Whether competitive pressures will likely grow stronger or weaker c. Whether the industry's future profitability will be favorably or unfavorably affected by the prevailing driving forces d. The company's competitive position in the industry and its ability to perform industry key success factors e. Whether the industry's product is strongly or weakly differentiated

e. Whether the industry's product is strongly or weakly differentiated Explanation The final step in evaluating the industry and competitive environment is for company managers to determine if the industry offers a company strong prospects for attractive profits based on the following factors: industry growth potential, the power of competitive forces to squeeze industry profitability, the degree to which prevailing driving forces will impact profitability favorably or unfavorably, how the company performs the industry key success factors, and the company's competitive position in relation to its rivals.

Angela and Jeff are co-owners of five specialty cupcake and dessert bakeries in their region. Which of the following questions would not help them to predict the next strategic moves and countermoves of their rivals? a. How frequently does their rival fulfill special orders for custom cupcakes and how large are those special orders? b. How does the rival manage door-to-door deliveries at no extra cost? c. What percentage of customers frequent the rival's store? d. Why are the rival's cupcakes so popular among customers? e. Which mode of transport does the rival's supplier use?

e. Which mode of transport does the rival's supplier use? Explanation Michael Porter's framework for competitor analysis points to four indicators of a rival's likely strategic moves and countermoves. These include a rival's current strategy, objectives, resources and capabilities, and assumptions about itself and the industry. A strategic profile of a rival that provides good clues to its behavioral proclivities can be constructed by characterizing the rival along these four dimensions.

Well-conceived visions are a. vague and indefinite, to allow room for a company to change its direction. b. generic to many organizations. c. primarily consists of feel-good statements about the company's past history. d. innocuous one-sentence statements. e. a reference point for managers in making strategic decisions.

e. a reference point for managers in making strategic decisions. Explanation As shown in Table 2.2, for a strategic vision to function as a valuable managerial tool, it must provide understanding of what management wants its business to look like and provide managers with a reference point in making strategic decisions. It must say something definitive and specific about how the company's leaders intend to position the company beyond where it is today.

A company's direction, objectives, and strategy a. never have to be revisited, even if time pressures or internal conditions warrant. b. are set in stone as the end of the planning process. c. are primarily a now-and-then task. d. are insulated from disruptive changes that a company might experience in its external environment. e. are never final, as managing strategy is an on-going, dynamic process.

e. are never final, as managing strategy is an on-going, dynamic process. Explanation A company's direction, objectives, and strategy have to be revisited any time external or internal conditions warrant. A company's vision, objectives, strategy, and approach to strategy execution are never final; managing strategy is an ongoing process, not an every-now-and-then task.

The primary managerial purpose of setting objectives is to a. ensure that deliberately vague language such as "reducing costs" and "becoming more efficient" is used to provide managers with more latitude in setting stretch objectives for the company. b. designate strategic outcomes as lagging indicators. c. balance the scorecard of financial and strategic objectives. d. designate financial outcomes as leading indicators. e. convert the strategic vision into specific performance targets.

e. convert the strategic vision into specific performance targets. Explanation The managerial purpose for setting financial and strategic objectives such as those listed in Table 2.4 is to convert the strategic vision into specific performance targets. Well-stated objectives are quantifiable, or measurable, and contain a deadline for achievement.

A well-conceived strategy builds a company's a. profitability and financial strength. b. competitive strength and market standing. c. distinctive competencies and sustainability. d. competitive edge. e. ethical worthiness and corporate social responsibility.

e. ethical worthiness and corporate social responsibility. Explanation The mark of a winning strategy is strong company performance. Two kinds of performance improvements tell the most about the caliber of a company's strategy: (1) gains in profitability and financial strength, and (2) advances in the company's competitive strength and market standing.

Ideally, a company's mission statement should be sufficiently descriptive and a. provide scant indication of a company's services and products that give the company its own identity. b. identify the pressing agenda items for members of its board of directors. c. specify the allocation of resources that underlie the basis of its competitive advantage. d. relate to the future state of the organization that managers seek to attain. e. identify the specific customer or market that the company intends to serve.

e. identify the specific customer or market that the company intends to serve. Explanation Mission statements of most companies say much more about the enterprise's present business scope and purpose—"why we exist." A well-conceived mission statement should employ language specific enough to give the company its own identity. A mission statement that provides scant indication of "who we are and what we do" has no apparent value.

A company achieves a sustainable competitive advantage when a. its distinctive product offering is trumped by rivals' products. b. it pursues a best-cost provider strategy. c. competitors erode or imitate its efforts to attain a competitive advantage. d. an attractively large number of buyers develop a durable preference for its rivals' offerings of products or services. e. it develops capabilities proven difficult for competitors to imitate or best.

e. it develops capabilities proven difficult for competitors to imitate or best. Explanation Competitively valuable company resources and capabilities that are difficult for competitors to imitate or best are said to allow a company to build and sustain a competitive advantage.

A company's core values typically do not include such things as a. entrepreneurial spirit, excellent customer service, and building shareholder value. b. giving back to the community, doing the right thing, and entrepreneurial spirit. c. fair treatment, integrity, ethical behavior, innovativeness, and teamwork. d. top-notch quality, superior customer service, social responsibility, and community citizenship. e. minimizing innovation, rewarding individuality, and setting financial performance targets.

e. minimizing innovation, rewarding individuality, and setting financial performance targets. Explanation Many companies (i.e., Home Depot, Patagonia, and Samsung which are cited in the chapter) have developed a statement of values (sometimes called core values) to guide the actions and behavior of company personnel in conducting the company's business and pursuing its strategic vision and mission. These values are the designated beliefs and desired ways of doing things at the company, and frequently relate to such things as fair treatment, entrepreneurial spirit, top-notch quality, honor and integrity, ethical behavior, innovativeness, teamwork, a passion for excellence, social responsibility, and community citizenship.

A company's business model consists of its a. mission statement and its SWOT analysis. b. customer value proposition and its vision statement. c. operating and financial plans. d. profit formula and strategic vision. e. profit formula and customer value proposition.

e. profit formula and customer value proposition. Explanation A company's business model sets forth how its strategy and operating approaches will create value for customers, while at the same time generating ample revenues to cover costs and realizing a profit. The two elements of a company's business model are its (1) customer value proposition and (2) profit formula.

A benefit of a vivid, engaging, and convincing strategic vision is a. avoiding the need for consensus in support of top management's own view about the company's long-term direction. b. increasing risk of rudderless decision making by managers at all levels of the organization. c. creating debate among company personnel behind managerial efforts to get the company moving in the intended direction. d. helping an organization prepare for to make short-term moves in the marketplace. e. providing a beacon for lower-level managers in forming departmental missions.

e. providing a beacon for lower-level managers in forming departmental missions. Explanation A well-thought-out, forcefully communicated strategic vision pays off in several respects: (1) It crystallizes senior executives' own views about the firm's long-term direction; (2) It reduces the risk of rudderless decision-making by management at all levels; (3) It is a tool for winning the support of employees to help make the vision a reality; (4) It provides a beacon for lower-level managers in forming departmental missions; and (5) It helps an organization prepare for the future.

The corporate governance failure at Volkswagen in 2015 included all of the following except a. a strong independent board of directors that was responsible for making independent judgments about the validity and wisdom of management's proposed strategic actions. b. inadequate monitoring of the CEO and other senior executives. c. fraudulent defeat devices that enabled diesel vehicles to pass stringent emissions tests. d. ineffective oversight of the accounting principles employed to accurately determine earnings. e. the company policy that precluded former executives from serving on its board.

e. the company policy that precluded former executives from serving on its board. Explanation According to the illustration capsule in Concepts & Connections 2.4, Volkswagen did not have a strong independent board of directors that (1) was willing to accept responsibility (2) even questioned whether or not it was the appropriate role of the board to be aware of such problems, and (3) included as chairman Ferdinand Piech, a former chief executive and a member of the Porsche family that had a 50 percent interest in the company.

The nature and strength of the competitive forces that prevail in an industry is generally a joint product of all of the following except a. pressures associated with rivalry among sellers to attract buyer patronage. b. threats that firms outside the industry will decide to enter the market. c. attempts of companies in other industries to win buyers over to their own substitute products. d. pressures stemming from the bargaining power of both suppliers and buyers. e. those associated with environmental forces such as climate change or water shortages.

e. those associated with environmental forces such as climate change or water shortages. Explanation See Figure 3.2. Industry driving forces include all of those listed above except for forces in the natural environment that may impact or be impacted by climate change or water shortages.

Whether buyers' bargaining power poses a strong or weak source of competitive pressure on industry members depends in part on a. whether most buyers possess roughly equal or varying degrees of bargaining power. b. how many buyers are engaged in collaborative partnerships with sellers. c. whether entry barriers are high or low. d. whether the overall quality of the items being furnished by industry members is rising or falling. e. whether buyer demand is strong or declining.

e. whether buyer demand is strong or declining. Explanation See Figure 3-3. Rapid growth in buyer demand tends to weaken the bargaining power of buyers, and slower growth in buyer demand tends to strengthen the bargaining power of buyers. All of the other responses have no direct impact on buyers' bargaining power.