Chapter 7
Which of the following businesses is most likely to disrupt an existing industry?
Closer Connex developed an earphone that receives emails and text messages and converts them to voice messages. The first models had poor reception, but they rapidly improved over time.
Which of the following is a feature of the shakeout phase of the industry life cycle?
Competitive intensity within the industry increases.
When the market for standalone Global Positioning System (GPS) devices declined with the arrival of GPS-enabled mobile phones, Magnet Inc., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Magnet adopted in this scenario?
Consolidation strategy
When a firm pursues a maintain strategy, it
Continues to support marketing efforts even if the demand for the product is declining.
When Japanese carmakers entered the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in
Disruptive innovation.
Social entrepreneurs forego the pursuit of profits to achieve social and environmental goals.
False
In the United States, the time period for the right to exclude others from the use of a patented technology is ________ from the filing date of a patent application.
20 Years
Assume that the market for print book publishing has entered the maturity stage. Which of the following would most likely exist during this stage?
A few large publishers
A(n) ________ leverages new technologies to attack existing markets.
Disruptive innovation
Streaming video services replacing brick-and-mortar video rental stores would be an example of a(n)
Disruptive innovation.
To be successful and to survive the shakeout stage of the industry life cycle, a firm should
Gain economies of scale
In which of the following stages of the industry life cycle is a standard first established?
Growth stage
Intel's Celeron chip and Atom chip are initiatives to
Guard the company against disruptive innovation by protecting the low end of the market.
The four-step innovation process ends with
Imitation
A factor favoring the success of disruptive innovation is that
Incumbent firms are slow to change.
In a radical innovation, a firm targets
New markets by using new technologies.
The strategic objective of a first mover during the introduction stage of the industry life cycle is to
Pursue a harvest strategy
Which of the following scenarios would be characteristic of an entrepreneur?
Rachel implemented a new and more efficient way to produce pottery.
Incumbent firms favor incremental innovation over radical innovation because
Radical innovation will disturb the existing power distribution within the firms.
Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?
The framework does not explain everything about changes in industries.
Which of the conditions prevail when an industry is at the end of its life cycle?
The level of process innovation reaches its maximum as firms attempt to lower cost.
What is an invention?
The transformation of an idea into a new product or process
Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?
The weaker firms are forced out of the industry in this stage
While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?
While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.
A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n)
Intrapreneur
Which of the following statements is true of the early majority section of consumers?
They weigh the benefits and costs carefully when adopting a new product.
Innovation that targets new markets with existing technologies is known as disruptive innovation.
False
The best way for a firm to keep its proprietary technologies, recipes, or formulas secret is to obtain a patent.
False
The key objective for firms during the growth phase is to
stake out a strong strategic position not easily imitated by rivals.
Which of the following business models in the landscaping industry is likely to scale most efficiently?
A company that allows users of its website to schedule appointments with landscapers who specialize in the exact service required
It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they
Enter into the market in large numbers, creating a herding effect.
Which of the following scenarios best exemplifies a platform business?
Myra operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy.
Which of the following accurately describes how Netflix used innovation to gain a competitive advantage?
Netflix applied big data analytics to its user preferences to provide highly personalized viewing recommendations
Which of the following businesses is most susceptible to negative network effects?
Pics Match is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.
CordKing Electronics has entered a stage in which the demand for their innovative fax machines has declined. Now most customers are buying replacement parts or buying their second fax machine from the firm. What stage in the industry life cycle does this scenario describe?
Shakeout stage
When does a firm fall into the large competitive chasm between early adopters and early majority?
When it fails to successfully launch a mass-market version of its product
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.
GoodGear is a mobile platform that matches independent fashion designers with consumers who want a personalized wardrobe. Which of the following initiatives would best allow GoodGear to fine-tune its offerings to better meet the needs of its consumers?
Allowing users to provide feedback to producers on the style and fit of clothing
DigitalHealth Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?
Architectural innovation
Canon was able to redesign the copying machine so that it didn't need professional service—reliability was built directly into the machine, and the user could replace parts, such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user-friendly. This example describes
Architectural innovation.
When firms innovate by leveraging existing technologies into new markets, they are said to be involved in
Architectural innovations.
In the context of industrial growth, which of the following statements is true of standards?
As the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices.
How has Apple been able to sustain its competitive advantage in the smartphone industry?
By regularly introducing incremental improvements in its product
Which of the following is an example of social entrepreneurship? The committee approved the new formula for an all-purpose cleaner because it
Cleaned as well as others cleaners and used organic ingredients
The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?
Decline stage
As a start-up company, DigiWrist entered the low end of the highly competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
Disruptive innovation
Sunshine Technologies introduced a tablet that could run completely on solar energy and was less expensive than competitors'; tablets. On the downside, it required more frequent charging than the competition' tablets. However, the technology of the Sunshine tablet improved rapidly, thereby improving its recharge frequency. This example describes
Disruptive innovation.
On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?
Each stage of the industry life cycle is dominated by a different customer group.
The customers entering the market in the growth stage are primarily
Early adopters.
At the time when Ellen decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Ellen best represent?
Early majority
Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Marble emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage?
Ease of use
As a research scholar, Denise had built a helicam as part of her project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, she started a new venture where she could customize these helicams to fit the specific needs of the buyers and sell them. Denise can be best described as a(n)
Entrepreneur
Innovation and strategic entrepreneurship can only occur within new businesses.
False
Network effects always lead to a virtuous cycle in which an increasing number of customers improves the quality of a product or service, thereby attracting more customers and continuing the cycle.
False
Pipeline businesses are typically better than platform businesses at incorporating user feedback and taking advantage of network effects.
False
The pace of innovation has slowed in the 21st century
False DUH
As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP's patents, regular users did not want to switch because they were concerned about possible side effects. Which of the following benefits does this scenario best illustrate?
First-mower advantages
The leading producer of cell phone backup batteries, Jumpstart, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Jumpstart has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the
Growth stage
Although Mountaintop Electronics still sells its DVD players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Mountaintop Electronics adopted in this scenario?
Harvest strategy
In the decline stage, which of the following strategies involves a reduction of investments in
Harvest strategy
Ira can be categorized under the late majority customer segment. Which of the following behaviors is the most likely to exhibit?
He will prefer to buy from well-established brands rather than unknown new ventures.
Potomac Industries is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion, and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Potomac a competitive advantage?
Implement process innovations that lower per-unit costs.
Lillypad Toys is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should Lillypad's managers prepare for next?
Increased competition from imitators
Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
Incremental innovation
Which of the following most accurately describes a difference between incremental innovation and radical innovation?
Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base.
General Electric (GE) disrupted itself in the healthcare industry by
Introducing inexpensive and smaller diagnostic devices in developing countries.
Which of the following lists the stages of the industry life cycle in the correct order?
Introduction, growth, stakeout, maturity, and decline
While the personal computer industry is flooded and growing with laptops and tablets, Malik recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Ivan best represent?
Laggards
A new product often has a high price when it is launched because of a
Large investments in designing a product while producing small quantities.
A firm's resistance to changes in the status quo is referred to as
Organizational inertia.
When ReGen Pharmaceuticals released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of ReGen Pharmaceuticals intellectual property rights. Thus, the drug is protected by a
Patent
Dominic is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Dominic credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Dominic do to exemplify the social entrepreneurship model?
Provide free weekly catered meals for the homeless.
Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Edna's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Edna Gomez?
Social entrepreneur
Which of the following is a feature of the growth stage of the industry life cycle?
The consumer demand increases
Which of the following customer segments as described in the chasm framework make up the mass market?
The early and late majority together
Which of the following is a competitive benefit experienced by the first mover firm in an industry?
The first mover will be able to reduce costs through economies of scale
In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?
The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
Which of the following is a feature of the maturity stage of the industry life cycle?
The market reaches its maximum size
The typical four-step innovation process begins with
The presentation of an idea as findings derived from basic research
Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
There is more strategic variety in the growth stage when compared to the introduction stage.
According to the crossing-the-chasm framework, the biggest chasm between customer segments is between early adopters and the mass market made up of the early majority and the late majority.
True
For ideas and inventions to be innovative, they must first be commercialized.
True
Process innovation typically overtakes product innovation in importance during the shakeout stage of the industry life cycle.
True
Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms?
Unlike incumbent firms, new entrants do not have formal organizational structures and processes.
Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?
Unlike technology enthusiasts, early adopters'; demand is fueled more by intuition and vision rather than technology concerns.