MGT 3830 test one
The total of all the differences between the price each customer actually pays and the maximum price they would have been willing to pay, all other things being equal
"consumer surplus"
In regard to strategy making, most firms are likely to exhibit:
-A combination of design and emergence -A process labeled as "planned emergence" -An interaction between strategic design, through formal top-level processes, and strategic enactment through decisions made by all management levels of the organization
In practice, strategy making is:
A combination of centrally-driven rational design and decentralized adaptation
In fast changing environments:
A firm may define itself by its resources and capabilities
3M is:
A group of businesses with a core capability to develop and launch new products using adhesives, coatings, and other technologies
A process is:
A sequence of coordinated actions that performs a task
If a firm has no formal, intended strategy:
A strategy of sorts will exist; an emergent strategy
A capability that is "needed to play" is:
A threshold competence
Spending money raising market perceptions of Hyundai's brand was:
A worthwhile investment in intangible resources
Some firms introduce products into specific countries in a sequence:
All of the above
Acquiring a firm with similar products but sales in new markets is one of the easier ways to:
Answers b and c
Core rigidities can:
Answers b and c
Internal appraisal of a company's capabilities against the best competitors:
Answers b and c
Organizational culture is:
Answers b and c
Superior capabilities are often traced to staff skills and efforts
Answers b and c
consists of Being very realistic yet creative about what can be achieved with what you've got
Appraising a firm's resources
Unsuccessful firms:
Are arrogant about current capabilities, relying on past glories
Tight complex organizational routines:
Are complex capabilities that are hard for rivals to replicate
Truly successful firms:
Are honest enough to recognize their own true strengths and weaknesses themselves
The analytical tools described in the text:
Are simply that; just tools. Their value depends on the skill with which they are deployed
Dynamic capabilities:
Are the capacity to learn new capabilities
Firms in any industry can be said to operate in two major markets:
As a buyer in the supplier market, and as a seller in the customer market
Strategy remains just as vital a tool to navigate the firm through "stormy seas"
As the environment becomes more turbulent, or unpredictable
In the automobile industry resources such as brand strength:
Cannot be easily acquired
Threshold capabilities enable a firm to do what every firm in its industry must do. Distinctive or core competences:
Enable it to earn higher profits or greater market share than its competitors in the same industry
To stop rivals acquiring a core resource or capability:
Firms need to make that resource or capability immobile
The value to managers of understanding key success factors is:
Generally accepted by the corporate, consulting and academic worlds, but as with most business concepts and models, there are always some detractors
The hierarchy of capabilities refers to:
How capabilities to do market research time-effectively and buy advertising cost-effectively, belong under marketing capabilities
Resources and capabilities can generate higher profits
If the competitive advantage they generate is sustained for some years
Human Resource capabilities:
Include the skills to train and develop people
A capability requires:
Individuals to coordinate with each other, and some capital or technology, to achieve a valuable transformation to goods or services
A strategy can be described as:
Intended, emergent, or realized
The internal environment:
Is how a firm's resources and capabilities are deployed to deliver its business strategy
If an industry earns a return on capital in excess of its cost of capital:
It is likely to attract the attention of firms looking to enter the industry, which may eventually lead to the return on capital falling
A 6th force - Complements - should arguably be added to Porter's 5 Forces Model because:
It's clear that since Porter devised his model, Complementers have evidently become more important
The core of a firm's business environment is determined by:
Its relationships with customers, competitors, and suppliers
Prahalad and Hamel's 1990 paper:
Kick-started the modern resource-based view of the firm
In practice, drawing the boundaries of industries and markets is:
Largely a matter of judgment and experience contingent on the purpose of the analysis
When firms develop organizational routines they are:
Learning by doing
The point of 'resource leveraging' is to:
Limit the range of new capabilities a firm is trying to develop at one time
Porter's firm value chain can be used to:
Map out a firm's main activities into threshold and distinctive capabilities
Somewhat flexible in scope depending on what aspect of business you are considering
Market and industry
-Is the primary legal obligation only in the English-speaking countries -Is not the only legal obligation in central & southern Europe, and in Asia. Firms here are legally obliged to take account of a broad range of stakeholder interests
Maximising shareholder value
Early experiences for some major oil companies:
Mean some of their modern core competences show path dependency
A contemporary phenomenon is known as "winner-take-all markets". This concept is exemplified by:
Microsoft (PC software) and Intel (PC core processors)
The question "What do customers want?":
Must be asked by managers, and an accurate answer obtained and understood, since it's the driving force behind generating profit
Outsourcing to specialists can help a firm:
Reduce a relative weakness in its capabilities
"The market" and "the industry" are:
Related but not the same thing
The question "What does a firm need to survive competition?":
Requires an understanding of the current and future basis of competition specific to the industry
The final appraisal of the strengths and weaknesses of a firm's resources & capabilities:
Requires insight and understanding of a firm's industry, and its position within the industry
By the 1980s, thinking on strategy had shifted to:
Research on the resource and capability approach
An industry "direct modelling of profitability" is defined in the text as:
Setting up a model of industry profitability from the interaction of the Five Forces
The difference between intended and realised strategy is:
So great that arguably only 30% of intended strategy becomes realized
If a firm's strategy ensures it is consistent with both its internal and external environment, it achieves:
Strategic fit
Industries such as pharmaceuticals earn very high returns on investment. Such industries:
Tend to have high entry barriers and differentiated products
-When the suppliers' industry is concentrated -When suppliers are supplying differentiated products -When "our" (the customer's) industry is relatively fragmented
The bargaining power of suppliers is likely to be high
The level of profitability within an industry is largely determined by the industry structure is
The basic premise of industry analysis
-To better understand the issues facing top managers -To work out how to best create value in the future
The underlying purpose of studying strategy
In an industry, the profits earned by firms are determined by:
The value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers
Suppose that an industry's profitability is zero or negative overall:
Then even so it's entirely possible that some firms are making very good profits
Because marketing is a threshold capability for Hyundai:
To counter their earlier poor image they have had to catch up their rivals' capabilities
One useful way to analyse the drivers of a firm's relative profitability is:
To disaggregate return on capital employed into component ratios that point to the main underlying drivers of profitability
The value to managers of understanding key success factors is:
To help maintain a strategic perspective of what needs to be done to survive, and help them avoid degenerating into a fire fighting approach
To understand the environment, the starting point of the analysis is
To identify the industry you are in; your customers, suppliers and competitors
A good starting-point to identify a large firm's strategy is:
To read the annual corporate report
Brand values are a:
Type of intangible resource
Given the plethora of external influences, understanding the external environment requires managers to:
Use a framework or a system that allows them to organize information and rank factors
Porter's 5 Forces model is intended to be:
Used in conjunction with PEST and other models
To value a firm's tangible resources:
We need to know how they could be used optimally
Hyundai overcame the most difficult competitive advantages held by the incumbent automakers by:
a. Recruiting experts from other auto companies b. Benchmarking the key capabilities needed to succeed, then making clear commitments to achieve them c. Making long term financial and business commitments to the auto industry
The means by which organisations achieve their long-term objectives
business strategy
"Consumer surplus" is the extra product consumers get through special offers and bulk discounts, when suppliers make surplus product to generate extra sales.
false
A football's position on a soccer field is path-dependent.
false
A sound strategy relies on four factors: simple and consistent goals; sound understanding of the competitive environment; objective appraisal of resources; and effective implementation of strategic decisions.
false
Assembling a great set of resources is the key to getting good results.
false
Business strategy has largely evolved from the theories put forward by academics.
false
Company law throughout the developed, industrialised world obliges firms to primarily focus on profit for shareholders.
false
Core rigidities provide the spine that helps firms learn new skills faster.
false
Corporate strategy is also called business strategy, or competitive strategy.
false
Formally scanning and analysing the external environment continuously is the best approach.
false
Having high fixed costs makes it hard to make a profit in a recession, so is indicative of poor cost-control.
false
Honda defines itself as a motorbike and automobile company.
false
Human resources are always listed on a firm's balance sheet.
false
Industry attractiveness is now more important in explaining firms' profitability than competitive advantage
false
So resources are ultimately more important than capabilities.
false
Strategy today is essentially a detailed plan which every member of the organization must follow to ensure success.
false
Superior capabilities can be acquired and owned by astute firms.
false
The bargaining power of one player in the industry relative to another player rests, ultimately, on a credible threat to refuse to deal with the other player.
false
The safest way to value a firm's productive assets for strategic purposes is to use the historic cost book value of its assets.
false
To determine a large firm's strategy, it's sufficient to read the annual corporate report.
false
Usually, business success has been proved to rely in the end on superior resources.
false
We analyse industry structure because this is the primary factor in determining profitability.
false
We need to honestly appraise our resources and capabilities in order to maximize our appeal to customers.
false
the environment that matters to the extent that it affects the industry environment
general environment
the environment that includes customers, competitors and suppliers
industry environment
-Business school academics developing new theories, which are taught to new graduates -Can be seen as what top managers do and what lower level employees do, respectively
reasons Modern business strategy has evolved across time
Strategic goals should be:
simple, consistent, long term
relates to top level plan
strategy
Relate to achievement of overall long-term objectives, and multiple short-term objectives, respectively
strategy and tactics
is fundamentally linked to a soundly formulated and effectively implemented strategy
success
Strategy is fundamentally about:
success in achieving long term goals
a scheme of specific everyday actions, practices and techniques
tactics
-A unifying role underpinning all consequent decisions -A means by which top management can communicate and gain commitment to a sense of direction -A means by which top management can inspire and motivate the workforce
the role of strategy today
. Competitive advantage is generally the amount by which one firm's profitability exceeds another's in the same industry.
true
A capability that is needed to win versus competitors is a core competence.
true
A high Concentration Ratio is typical of Oligopolistic industries, dominated by a few large players.
true
An experienced football coach's knowledge is path-dependent.
true
Because good companies know their own relative strengths and weaknesses they focus efforts on strengthening the right resources and capabilities.
true
Combining several resources may create capabilities that deliver superior profitability
true
Dynamic capabilities are useful in fast changing environments.
true
Economies of scale, absolute cost advantages, high capital start-up costs, and access to channels of distribution are all examples of "barriers to entry".
true
Even pure monopolies have substitutes.
true
Resources are a firm's productive assets; capabilities are what a firm can do.
true
Retaliation against a new entrant may take the form of aggressive price-cutting, increased advertising, sales promotion, or vexatious litigation.
true
Some observers have noticed that there's only a weak link between a firm's intended or stated strategy, and its actual or realised strategy.
true
Sound strategy and implementation largely determine the probability and extent of the success of a firm.
true
Strategic decisions are likely to significantly affect the organisation as a whole and involve major resource commitment.
true
Strategy is in essence a long-term plan for an organisation to achieve its long-term objectives.
true
The shift from Corporate Planning to Strategy-Making implies:
-From the sources of profit outside the firm to the sources of profit within the firm -To the Resource-based view of the firm
The shift in strategy from a plan to a direction leads to
An overt reliance on flexibility and responsiveness
Alliances are a way to develop new capabilities that:
Answers a and b
The non-recoverable costs of quitting or scaling down capacity in an industry are
Barriers to exit
From the three stories describing key attributes of strategy at the beginning of the chapter, four factors stand out:
Consistent goals, understanding the environment, objective appraisal of resources, and effective implementation
-They must create value for several stakeholder groups if this is to result in sustainable long-term profit generation -Value to some stakeholders eg customers, may be difficult to quantify in money terms
Profit-making firms are about creating value
Determine how the firm will deploy its resources to satisfy its long-term goals, given the conditions in the competitive environment
The fundamental role of strategy
Analysing key success factors leads one to ask the following two questions:
What do customers want which we could supply profitably and what should the firm do to survive competition?
Two basic questions concern corporate and business strategy
Where and how to compete?
Path dependence is:
Where you are today, with all your knowledge, being a result of how you got here
BMW's core competence is its ability to integrate:
World-class engineering, design excellence and effective marketing
Barriers to entry are effective:
Yes, because long-term empirical evidence shows that industries with high barriers to entry exhibit higher returns on investment on average
Anything that makes entry into an industry as a new competitor more difficult, more costly, slower or even impossible is
a barrier to entry
-The way a firm competes in a particular industry or market] -How a firm gains a competitive advantage over its rivals within a specific industry or market
Business strategy
Bargaining power rests, ultimately, on:
The perceived or real threat for one party to refuse to deal with the other party
Firms try to develop resources and capabilities to:
Create sustainable competitive advantage
Once value is created, it is, in general:
Not equally shared between customers and producers
Apple and 3M's ability to develop genuinely new products are:
One of their core operational capabilities
The textbook limits attention to:
Profit-making companies in market economies
Identify which forces are relatively more powerful, and to assess their impact on competition and industry profitability
The idea with Porter's 5 Forces
In the 1970's and 1980's, strategy evolved to be viewed more in terms of competition, competitive advantage, market share and profit.
true
-Fits more readily with the central/southern Europe and Asian legal framework of broader stakeholder obligations -Is not seen as an imperative requirement by all influential thinkers -Is becoming more important for all firms to take account of due to the threat of adverse publicity
Corporate Social Responsibility
For a manufacturer access to distribution is a barrier to entry because:
New entrants face a disadvantage from retailers who are reluctant to carry their new products
Economies of scale are a barrier to entry because:
New entrants face the cost and risk of creating large scale capacity to start with or a severe cost disadvantage if they enter on a smaller scale
The difference between a capability and a competence is:
No difference in this textbook where they are taken as interchangeable
A good dealership network is a key capability for an automaker
No: dealerships can be independent, or bought and sold, so they are a network of resources in which Hyundai has invested heavily
A market's boundaries are defined by:
Substitutability on both the demand side and the supply side, combined with an element of judgment depending on context and purpose
Strategy today has been forced to evolve to cope with an increasingly fast-paced and volatile environment, making inflexible long-term plans redundant.
true
The success of an organization in general, depends on the following:
-Being consistently focused on an achievable goal -Having a strong and in-depth knowledge of the competitive environment -Realistic appraisal of its own strengths and weaknesses -the ability to implement strategy with commitment, consistency and determination
An industry's current profitability:
On its own tends to be a poor predictor of future profitability
From the military arena, tactics are about actions and techniques for winning battles, whereas strategy is about winning the war.
true
Remedying strategic weaknesses in capabilities is likely to take several years.
true
Understanding the structure of the industry helps managers to work out how to make a profit in future and to possibly identify ways to change the industry structure to their advantage.
true
The 1950's/60's style of Corporate Planning assumed that:
-There would be almost no difference between the intended strategy and the realised strategy -The business world is essentially a predictable environment -There was unlikely to be anything unexpected to occur of sufficient importance to disrupt the strategic plan
has a broader scope, including decisions about which industries to operate in
Corporate strategy
We can define the following general resources for a firm:
Human, Intangible and Tangible
We need to appraise our resources and capabilities against:
Our competitors' resources and capabilities
The approach taken in the textbook primarily assumes that:
Profit making firms are seeking to maximise profits for the owners over the long term
The balance between designed strategy and emergent strategy depends mostly on:
The stability and predictability of a firm's environment
In most small firms a process which is not usually routinized is:
The staff disciplinary proceedings process
If top management understands the customers, suppliers, competitors and the general environment then:
This is a good basis for assessing the industry, but has little bearing on predicting the success of an individual company
Excess capacity often leads firms to cut prices to hold on to existing business for fear that competitors will do the same first, leaving them with a lower market share, and adverse average costs.
true
To understand the effect of the external environment, one must be able to rank the factors in order of importance.
true
Value is defined as the difference between the cost of supplying a product or service and the actual price paid by the customer for it, although not all value translates into profit.
true
When a firm dominates a specific segment in an industry, it is well-placed to earn a higher level of profit than the average.
true
The price that the customer is willing to pay for a product exceeds the firm's cost is when:
value is created
The relative bargaining power of buyers depends on:
-The size and concentration of buyers relative to suppliers -A buyer's access to information about products and costs -The ability or threat to integrate vertically
In addition to just reading published information, to identify a firm's strategy you could
-Identify where the company is making most of its investments -Identify where the company is doing most of its business -Find out what new products and services the company is putting most effort into
Companies' "book values" are generally much less than their stock market valuations because:
Accountants are generally required by accounting standards to ignore the value of brands and all other reputational assets
is subordinate to corporate strategy
Business Strategy
Sometimes possible even by small firms, if the mix of drivers for change and existing structure make it susceptible to change is
Changing the industry structure
Modern strategy applied to the business world shares with military strategy:
Decisions of significance to overall success, and major resource commitment
To forecast industry profitability consistently accurately, professional analysts have to:
Develop a deep understanding of how the industry creates value now and in the future, whether they use the tools described in the chapter or not
The overall bargaining power of buyers depends on:
The buyer's price sensitivity and the relative bargaining power between the seller and the buyer
-Implies coherence between resources, capabilities, structure and systems -Expresses how well a firm's strategy fits its internal and external environment
The notion of "strategic fit":
Understanding the external environment of a firm requires one ultimately to identify:
The opportunities to make profit in the industry
Porter's 5 Forces model was based on a static, stable view of industry which ignores dynamic forces:
Which can easily be dealt with by taking a dynamic perspective of the forces e.g. Innovation is a consequence of Rivalry
For a specific product or service, the existence of close substitutes means that customers could switch to these substitutes if prices, service levels or other factors make it in their interests to do so.
true
For most firms, although good luck may play a part, success is more likely to be a result of a soundly grounded and well executed strategy.
true
In a contestable market there does not always need to be actual competition to keep prices relatively low - just the threat of competitors entering the market.
true
In summary, strategy has evolved from "strategy as a detailed plan" to become "strategy as direction" in the early 21st century.
true
It is vital for a business strategist to distinguish between a firm's resources and its capabilities
true
Michael Porter's five sources model helps you identify and understand industry structure.
true
Much can be learned about a firm's actual strategy by looking at where it invests most money, and what products, services and technologies it is working on.
true
Paradoxically, the most consistently profitable companies are those whose primary goals are not stated in terms of profits.
true
Porter's 5 Forces model arguably has some deficiencies and does not answer all possible questions. But this is true of all models.
true
Strategy in the 1950's and 1960's was dominated by top-down corporate planning and so-called scientific management.
true
The essential purpose of a commercial firm can be seen as creating value for customers - and then to appropriate a portion of this value for the firm.
true
The level of profit in an industry is determined by three factors: the value of products to customers, the intensity of competition, and the relative bargaining power of producers and suppliers.
true
The value of a brand is the confidence it instils in customers regarding the expected benefits associated with that brand.
true
There is no single absolute definition of what an "Industry" is.
true
A way to enable managers to position the firm where its particular capabilities can be deployed to best advantage is
understanding the competitive forces in an industry
