Chapter 1 - 3 Quiz Bank Questions

1 A diagnosis of the competitive challenge, an element of a good strategy, is primarily accomplished through strategy: A) Formulation B) Control C) Analysis D) Implementation

C) Analysis

1 Revved Rider Inc., a motorcycle company, is the market leader due to its superior engine technology and service orientation. These unique qualities have helped the company generate revenues that are consistently higher than other firms in the same industry. Which of the following can be concluded about Revved Rider Inc. from this scenario? A) It has a direct investment in the other firms B) It has a competitive advantage over the other firms C) It has competitive parity with the other firms D) It has an exchange relationship with the other firms

B) It has a competitive advantage over the other firms

1 Widgets Inc. is a vendor who supplies machine parts to an appliance manufacturing company. In return, Widgets Inc. relies on the company for its revenue and is affected by any decisions taken by the company. In this scenario, Widgets Inc. is a(n) _____ for the appliance manufacturing company. A) Internal stakeholder B) External stakeholder C) Representative sample D) Focus group

B) External stakeholder

1 Which of the following is a stakeholder attribute that managers should consider at every step in a stakeholder impact analysis? A) Literacy B) Legitimacy C) Solvency D) Supremacy

B) Legitimacy

2 Which of the following is an assumption that top-down strategic planning rests on? A) Time cannot be compressed at will. B) Change is constant. C) Decisions made in the past do not affect our future. D) We can predict the future from the past.

D) We can predict the future from the past. Top-down strategic planning rests on the assumption that the future can be predicted from the past. The approach works reasonably well when the environment does not change much.

2 The annual net profit after taxes for RSL Corp., a multinational conglomerate, is $5.5 billion. As legal owners, which of the following stakeholder groups has the most legitimate claim on this profit? A) Shareholders B) Local communities C) Government D) Managers

A) Shareholders As the legal owners, shareholders have the most legitimate claim on the company's profits. A firm has to ensure that its primary stakeholders—the firm's shareholders and other investors—achieve their objectives.

1 Which of the following statements is true of strategy? A) Actions that allow a firm to address a competitive challenge are strategy B) Statements of desire, on their own, are strategy C) Operational effectiveness and competitive benchmarking are strategy D) Tactical tools that are a part of a firm's functional and global initiatives are strategy

A) Actions that allow a firm to address a competitive challenge are strategy

2 The board of directors of Best Digital Inc., a company that has a large product mix, has decided to get actively involved in research and development for the next three financial years. Budget for each business unit under the company will be allocated from the headquarters in proportion to its previous performance. The board has also decided to liquidate those units that have failed to perform so far. Which of the following strategies does this scenario best illustrate? A) Corporate strategy B) Functional strategy C) Business strategy D) Divisional strategy

A) Corporate strategy This scenario best illustrates a corporate strategy. Corporate executives at headquarters formulate corporate strategy. They need to formulate a strategy that can create synergies across business units that may be quite different, and determine the boundaries of the firm by deciding whether to enter certain industries and markets and whether to sell certain divisions.

2 Which of the following statements is true of the Level-5 leadership pyramid? A) Each level of leadership builds upon the previous one in the pyramid. B) Successful companies are led by Level-1 executives. C) At Level 3, managers are capable of devising a vision and mission to guide the firm toward superior performance. D) Once a manager moves to higher levels, he or she loses the qualities acquired in the previous levels to gain new ones.

A) Each level of leadership builds upon the previous one in the pyramid. According to the Level-5 leadership pyramid, effective strategic leaders go through a natural progression of five different levels. Each level builds upon the previous one; the manager can move on to the next level of leadership only when the current level has been mastered.

3 According to the video, which of the following is an example of a buyer who will be able to successfully negotiate for lower prices?

Large corporate customers with extensive service requirements. Buyer power considers the ability of the buyers of the industry's products to successfully negotiate lower prices, reducing industry profitability. In the air travel industry, large corporate customers with extensive business travel earn a good position to negotiate flight discounts from airlines wanting to serve all the firms' flight needs. In the soft drink industry, individual consumers buy in such small quantities that they are not able to negotiate price discounts.

2 Which of the following statements does the upper-echelons theory support? A) Executives interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. B) Strong leadership is solely the result of innate abilities and not learning. C) The leadership actions of executives are independent of their characteristics like age, education, and career experiences. D) Organizational outcomes including strategic choices and performance levels reflect the values of external stakeholders.

A) Executives interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. The upper-echelons theory states that executives interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. Their leadership actions reflect characteristics of age, education, and career experiences, filtered through personal interpretations of the situations they face.

1 The greater the difference between value creation and cost, the: A) Greater a firm's economic contribution B) Less likely a firm will gain competitive advantage C) Less likely that a firm's strategic position will be competitive D) Greater a firm's competitive parity

A) Greater a firm's economic contribution The greater the difference between value creation and cost, the greater the firm's economic contribution and the more likely it will gain competitive advantage.

1 Which of the following statements will effectively guide a strategist? A) The principles of strategic management can be applied universally to all organizations. B) It is necessary to isolate the key stakeholders and their needs when formulating a strategy. C) Strategy is all about competitive benchmarking and operational effectiveness. D) Industry and firm effects that determine firm performance are independent of each other.

A) The principles of strategic management can be applied universally to all organizations

1 A firm is likely to have a competitive advantage when it: A) Minimizes the difference between value creating and the costs involved B) Provides services that consumers will value more than those of its rivals C) Performs at a level similar to the other firms in the industry D) Provides gods similar to those of its competitors, but at a higher price

B) Provides services that consumers will value more than those of its rivals

1 Quick Eats is a fast-food restaurant that has recently entered the hospitality industry. Since most of its competitors are pursuing a low-cost position and doing well, Quick Eats also wants to adopt the same strategy. Which of the following will be a likely implication of this decision? A) Quick Eats will be able to create higher value for its customers. B) Quick Eats will face low profit potential. C) Quick Eats will not face any direct competition in the industry. D) Quick Eats will be better placed to gain a competitive advantage in the industry.

B) Quick Eats will face low profit potential. Quick Eats will face low profit potential. The key to successful strategy is to combine a set of activities to stake out a unique position within an industry. Competing to be similar but just a bit better than a competitor is likely to be a recipe for cutthroat competition and low profit potential.

1 Why are black swan events often bad for business? A) They contribute to competitive parity, which hinders economic growth B) They erode the implicit trust between the corporate world and society C) They foster a false sense of prosperity, which results in economic depression D) They allow companies to gain a competitive advantage unfairly

B) They erode the implicit trust between the corporate world and society

3 Which of the following is a feature of a fragmented industry? A) it tends to generate high profitability B) it consists of many small firms C) it allows firms to set prices D) one large firm dominates the industry

B.) it consists of many small firms

3 Which of the following statements about the five forces in the U.S. airline industry is true? A) substitutes are not readily available since customers cannot use other means of transport B) the competitive forces taken together are quite unfavorable for generating a profit potential in the airline industry C) the combination of the competitive forces leads to collusion among existing airlines D) entry barriers in the airline industry are relatively high because of the high costs involved

B.) the competitive forces taken together are quite unfavorable for generating a profit potential in the airline industry As discussed in Strategy Highlight 3.2, taken together, the competitive forces are quite unfavorable for generating a profit potential in the airline industry: low entry barriers, high supplier power, high buyer power combined with low customer switching costs, and the availability of low-cost substitutes. This type of hostile environment leads to intense rivalry among existing airlines and low overall industry profit potential.

1 The black swan events in the past have demonstrated that: A) Globalization has reduced the need for standardized corporate ethics B) Companies can successfully integrate cost-leadership and differentiation strategies C) Capitalism as an economic system is highly reliable D) Stakeholders can affect or be affected by a firm's actions

D) Stakeholders can affect or be affected by a firm's actions

2 The metaphor of a black swan best applies to: A) highly profitable business units in low growth markets that are to be sustained solely for revenue generation. B) small businesses that become successful enough to raise capital through initial public offering. C) low profitable strategic business units within a large enterprise that are best divested or liquidated. D) events that are considered highly unexpected and highly impactful when they do occur.

D) events that are considered highly unexpected and highly impactful when they do occur. Today, the metaphor of a black swan describes the high impact of a highly improbable event. Black swan events are considered to be highly improbable and thus unexpected, but when they do occur, each has a very profound impact.

1 Which of the following statements about competitive advantage is NOT true? A) A firm can gain a competitive advantage by providing goods similar to its competitors' goods at a lower price. B) A firm's competitive advantage is always absolute, not relative. C) A firm will have a sustainable competitive advantage when it outperforms its competitors over a prolonged period of time. D) A firm's past performance does not guarantee its future performance.

B) A firm's competitive advantage is always absolute, not relative Competitive advantage is always relative, not absolute. To assess competitive advantage, compare firm performance to a benchmark—that is, either the performance of other firms in the same industry or an industry average.

1 Which of the following statements with regard to determining firm performance is true? A) Industry effects attribute firm performance to the actions managers take within a chosen industry B) External analysis will help understand the industry effects that determine a firm's performance C) Firm and industry effects are independent of each other D) Industry effects are more important that firm effects in determining a firm's performance

B) External analysis will help understand the industry effects that determine a firm's performance

1 Which of the following groups is most likely to be considered a firm's internal stakeholder? A) Alliance partners B) Customers C) Creditors D) Board members

D) Board members

1 How was Treadless staked out a unique strategic position? A) By providing higher quality T-shirts than other companies B) By providing more discounts than other T-shir companies C) By providing faster service than other T-shirt companies D) By providing customers a voice in product design

D) By providing customers a voice in product design

1 Which of the following is a philanthropic responsibility of a firm? A) Strategic positioning B) Competitive parity C) Corporate citizenship D) Competitive disadvantage

C) Corporate citizenship

1 Which of the following forces are most closely related to firm effects within a pharmaceutical industry? A) The strategic actions taken by managers of a firm in the industry B) The number and the size of the firms in the industry C) The types of productions and the services offered within the industry D) The entry and exit barriers existing within the industry

A) The strategic actions taken by managers of a firm in the industry

1 Which of the following does a firm possess when it can outperform other firms in the same industry or the industry average over a prolonged period of time? A) Consistent power position B) Long-term capital gain C) Sustainable competitive advantage D) Strategic positioning

C) Sustainable competitive advantage

2 Ivan is the founder of a firm producing self-driving vehicles. Because the industry is so new and chaotic, Ivan favors a top-down strategic planning approach in which he exerts strong control over all aspects of the business, from product development and design to manufacturing and marketing. What is wrong with this scenario? A) The self-driving vehicle industry is changing too much for the top-down approach to be effective. B) The top-down approach is expensive to maintain, leaving the company at a competitive disadvantage. C) The top-down approach can only be applied to specific business functions. D) The top-down approach leaves other employees uncertain about their roles in the company.

A) The self-driving vehicle industry is changing too much for the top-down approach to be effective. Top-down strategic planning rests on the assumption that we can predict the future from the past. The approach works reasonably well when the environment does not change much. Because the self-driving vehicle industry is new and constantly changing, the top-down approach might leave the company unable to quickly and effectively respond to new developments and challenges.

1 When a firm integrates the competitive strategies of cost-leadership and differentiation, it will most likely result in: A) Trade-offs that work against each other B) Competitive parity with firms that have adopted either of the strategies C) A competitive advantage through superior performance D) An increase in the firm's economic contribution

A) Trade-offs that work against each other. Although the idea of combining different business strategies seems appealing, it is actually quite difficult to execute an integrated cost-leadership and differentiation position. Cost-leadership and differentiation are distinct strategic positions. Pursuing them at the same time results in trade-offs that work against each other.

1 Organizational core values are the answer to which of the following questions? A) What commitments do we make to act both legally and ethically? B) Which of the value chain activities are primary? C) What is the value added to a good or service at each step in the production? D) What is the company's customer lifetime value?

A) What commitments do we make to act both legally and ethically? The values espoused by a company provide the answer to the question, What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission? They help individuals make choices that are both ethical and effective in advancing the company's goals.

1 Which of the following statements related to a firm's stakeholders is NOT true? A) While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits. B) A firm's stakeholders include organizations and groups along with individuals who can affect or be affected by the firm's actions. C) If internal or external stakeholders withheld participation in the firm's exchange relationships, it can have severe negative performance implications. D) Efective stakeholder management is an example of the actions managers can take in order to enhance a firm's competitive advantage.

A) While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits.

3 Which of the following real-world examples best supports the statement that strategic commitments to a specific industry may be the result of political rather than economic considerations? A) a number of European countries created Airbus through direct subsidies to provide a countervailing power to Boeing B) Airbus and Boeing are likely to exit the aircraft manufacturing industry when industry profit potential fails to zero C) the traditional U.S. airlines Delta, United and American Airlines have large fixed costs to maintain their network of routes that affords global coverage, frequently in conjunction wit foreign partner airlines D) given the strategic commitments, neither Delta nor United is likely to merge with other airlines

A) a number of European countries created Airbus through direct subsidies to provide a countervailing power to Boeing. In some cases, strategic commitments to a specific industry may be the result of more political than economic considerations. For example, a number of European governments created Airbus through direct subsidies in order to provide a countervailing power to Boeing. Given these political considerations and large-scale strategic commitments, neither Airbus nor Boeing is likely to exist in the aircraft manufacturing industry even if industry profit potential falls to zero.

1 Which of the following would be most likely to directly put an organization like BP at a major competitive disadvantage? A) the Environmental Protection Agency (EPA) banning BP from any new contracts with the U.S. government B) the claims it faces by many small business owners in the tourism and seafood industries C) the fact that BP caused an environmental disaster despite being recognized as having high business integrity D) the fact that the small business owners along the Gulf coast have become powerful BP stakeholders

A) the Environmental Protection Agency (EPA) banning BP from any new contracts with the U.S. government

2 In the 1980s, Japanese competitors brought better-quality chips to the market at lower cost, threatening Intel Corporation's position and strategic plan regarding the production of DRAM (dynamic random-access memory) chips. When the functional managers at Intel came up with the simple rule of producing whichever product delivered the higher margin, the front-line managers shifted Intel's production capacity away from the lower-margin DRAM business to the higher-margin semiconductor business. This ___________ emerged as a consequence of the firm's resource allocation process. A) Strategic alliance B) Intended strategy C) Bottom-up strategy D) Unrealized strategy

C) Bottom-up strategy Intel's focus on semiconductors emerged from the bottom up, based on resource allocation. A bottom-up emergent strategy describes any unplanned strategic initiative undertaken by mid-level employees of their own volition. If successful, emergent strategies have the potential to influence and shape a firm's strategy. In a sense, Intel was using functional-level managers to drive business and corporate strategies in a bottom-up fashion.

2 If a company chooses to keep its vision customer-oriented rather than product-oriented, what will be the implication of that decision? A) The company will clearly define how it means to satisfy a customer need. B) The company will fail to establish a positive relationship between its vision statement and performance. C) The company will tend to be more flexible when adapting to changing environments. D) The company will have a short-term, unidirectional focus.

C) The company will tend to be more flexible when adapting to changing environments. Companies that have customer-oriented visions tend to be more flexible when adapting to changing environments. In contrast, companies that define themselves based on product-oriented statements tend to be less flexible and thus more likely to fail.

2 Evaluating the data collected from environmental analysis, the corporate executives of F&S Pharma Inc. realized that it was the right time to expand the business. The company's vision was accordingly adjusted from "To Be the Best in the Pharmaceutical Industry" to "To Make Good Health Accessible to Everyone around the Globe." To support the new vision, the executives decided that the company would first enter the Asian market where its growth potential would be huge. To further support these decisions, the general managers of different SBUs and the functional managers formulated their own strategies. Which of the following approaches to the development of strategy does this best illustrate? A) Reverse mentoring B) Scenario planning C) Top-down strategic planning D) Bottom-up strategic planning

C) Top-down strategic planning This best illustrates a top-down strategic planning. Top-down strategic planning is a rational, top-down process through which executives attempt to program future success. In this approach, all strategic intelligence and decision-making responsibilities are concentrated in the office of the CEO. The CEO, much like a military general, leads the company strategically through competitive battles.

1 Which of the following has contributed to Twitter's loss of a competitive advantage? A) Individuals pay nothing to use Twitter, which gives Twitter free user-generated content. B) Core users of Twitter are unable to stay connected permanently C) Twitter does not allow advertisers to target their online ads precisely enough D) Twitter delivers ads in real time, as opposed to competitors such as Facebook.

C) Twitter does not allow advertisers to target their online ads precisely enough

2 According to the upper-echelons theory: A) Strategic commitments made by upper-level managers are inexpensive and short-term B) top managers of a company should isolate themselves from the organizational values. C) organizational outcomes reflect the values of the top management team. D) strong strategic leadership is solely the result of learning.

C) organizational outcomes reflect the values of the top management team. According to the upper-echelons theory, organizational outcomes including strategic choices and performance levels reflect the values of the top management team (the individuals at the upper echelons, or levels, of an organization).

2 Which of the following groups will not be considered a company's internal stakeholder? A) managers B) board members C) suppliers D) shareholders

C) suppliers A firm's external stakeholders include customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels. Its internal stakeholders are stockholders, employees (including executives, managers, and workers), and board members.