Chapter 5: Competitive Advantage, Firm Performance, and Business Models

the Luminarium Corporation has a market capitalization of $100,000,000 and each share is worth $100. How many outstanding shares of Luminarium Corporation are there?

1,000,000

The difference between the cost of producing a product and the price consumers are willing to pay for that product is known as

economic value created

When a company operates on a freemium model, premium services cost money but basic services are

free

The acronym SG&A stands for sales, general, and ___________ expenses.

administrative

The consumer is willing to pay for a product is equivalent to the product's

total perceived consumer benefits

The most a consumer is willing to pay for a product is equivalent to the product's

total perceived consumer benefits

Opportunity costs refer to the value of what could have been gained had a person pursued

an alternative use of their resources

When a person decides to quit their job and start a company, the salary they give up at their former job can be considered

an opportunity cost

In order to ensure that a firm is implementing the triple-bottom-line approach successfully, managers must

audit the company's results in fulfilling its social and ecological obligations

Which of the following frameworks provide a relatively holistic perspective on firm performance?

balanced scorecard and triple bottom line

With a(n) __________ firms describe how they turn stratgey into action.

business model

Amazon disrupted the traditional wholesale model for book publishers how?

by selling e-books for its e-reader at a loss to promote sales of the e-reader.

Benchmarks are useful in determining a firm's

competitive advantage

Answering the Balanced Scorecard question of "how we create value?" challenges managers to develop strategic objectives that ensure future

competitiveness, innovation and organizational learning

When implementing the razor-razorblade strategy, copmanies make their profit from

complementary goods

A firm's actual __________ of assets minus depreciation is called the book value

costs

Not everything that can be counted counts. Not everything that __________ can be ___________.

counts, counted

What would be labeled variable costs by a computer manufacturer?

display screens, microprocessors, hard drives, and keyboards.

The acronym BHAG stands for

Big hairy audacious goal

To determine how efficiently a company can produce a good, managers look to the

COGS/Revenue ratio

When a user values two products equally, they are negatively correlated.

False

At 3M one strategic objective that has been implemented is that 30% of revenues must be obtained from new product innovations. This is an objective that would rise as an answer to which of the following balanced score questions.

How do we create value

When a firm tries to meet the prices of its competitors, it typically sacrifices?

Profitability per unit.

When one wants to further explore the difference in return on revenue (ROR) for two competitors, one can look at which of the following ratios?

SG&A, COGS/revenue and R&D expense/revenue

When a trade occurs, the consumer and producer both capture?

Some of the economic value

which of the Market index would provide the best benchmark of a computer firm's performance relative to other high-tech firms?

The NASDAQ computer index

What correctly describes the information used for comparing the performance of public companies based on accounting profitability?

The information is filed in a 10-K report, the relative performance is evaluated using standardized financial reports, and the information is derived from such data as income statements and balance sheets

What is best illustrated by the decade-long business rivalry between technology giants Apple and Microsoft?

a firm's competitive advantage is transitory

What elements of the social dimension are of the triple bottom line?

human sustainability and achieving work/life balance

A balanced scorecard is a tool for strategy

implementation

Fixed costs are __________ consumer demand

independent of

What is true about a sustainable strategy for a business?

it is a strategy that can be pursued over time without harmful effects on people or the environment.

What industries use subscription services?

magazines, cellphone and internet providers

For a balanced scorecard to be effective, managers must

manage objectives according to the balanced-scorecard approach, formulate an effective strategy for achieving and competitive advantage and translate their strategy into measurable objectives.

Since about the year 2000, assets not captured in firms' accounting data have become ___________ to a firm's competitive advantage.

much more important

A balanced scorecard offers both common financial metrics and a variety of __________ on customer satisfaction, internal processes, and the company's innovation and improvement activities.

operational measures

When a firm does favorably, compared to similar firms, it is said to

outperform

In order to be considered a legal owner of a public company, a person or organization must

own at least one share of the company's stock

Because external factors create volatility in stock prices, a better measure of a firm's performance over the long term is the

total return to shareholders

Wholesaling is considered a ___________ model for retail.

traditional

The freemium business model can be considered an evolutionary variation on the razor-razor-blade model.

true

Another name for producer surplus is ___________

profit

To determine a product's producer surplus, what two things must be compared?

1. Cost of Production 2. Price charged

What are among the standard dimensions for measuring competitive advantage?

economic value, shareholder value, and accounting profitability

According to the efficient market hypothesis, information about what 3 things is embedded in a stock price?

firm's past, current state, and expected future performance

A company's stock price increases if the company

grows faster than expected

What are the standard performance dimensions for a company?

how much economic value a firm generates, how much shareholder value a firm creates and the firm's accounting profitability

Which of the following performance dimensions matter in judging the effectiveness of a firm's strategy?

quantitative and qualitative

The subjectively determined maximum amount a customer would pay for a product is its ___________ price.

reservation

Which of the following are among the most commonly used metric for comparing the performance of different companies?

return on equity, assets and revenue

The money a shareholder spends for inequity share in a company is known as __________ capital

risk

From the view of a shareholder, the measure of competitive advantage that matters most is return on

risk capital

A company's total return to shareholders consists of which of the following?

stock price appreciation, and dividends

Economic value creation is calculated as

the sum of consumer and producer surplus

When managers analyze a wide variety of international and external performance metrics in order to balance financial and strategic goals, they often turn to a framework known as

the balanced scorecard

Achieving competitive advantage means maximizing the difference between

the consumers' willingness to pay and the cost to produce the good or service

What statement about the disadvantages of the value creation perspective is not correct?

the meaning of value creation differs between services and products

Economic value created is the ___________ the cost to produce a product/service and the amount the buy is willing to pay for it.

difference between

A firm pursuing a successful __________ strategy will have a competitive advantage over a competitor that creates a product at an equal cost but with a lower reservation price.

differentiation