MGT491 Exam 2
Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, the restaurant has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Beach Grub adopted in this scenario?
differentiation
A value curve indicates a lack of effectiveness in a firm's strategic profile when it
zigzags
Serena paid $900 for a camera that she thought was worth $1100 for all the features included in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. What is the consumer surplus in this scenario?
(V-P) = $200
A watchmaking company has priced one of its wristwatches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch?
$170
Four strategic options for firms during the decline stage of the industry life cycle
1. holding out longer than the competitiors 2. reudicng costs and finding another use in the market for the product 3. harvesting the product 4. discontinuing
Which of the following statements is true of accounting data?
Accounting data re historical data and thus backward-looking
Blue Ocean Strategy
Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.
The three financial ratios that constitute return on revenue are
COGS/Revenue, Research and development/Revenue & Selling, general and administrative expense/Revenue
What are the two different generic business strategies available to firms?
Cost leadership which is the firm setting out to be the lowest cost product on the market, or differentiation, which is a firm trying to establish themselves as unique in one dimension or another.
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
Customer experience
It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell Mark?
EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value
By selling a laptop at $1,000 for which consumers are willing to pay up to $1,200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the
Economic Value Created
List how economies of scale contribute to a firm.
Economies of scale helps a firm save money because they are producing two different products at a substantially lower rate than if they were to produce them individually
What does it mean for a firm to have an 80% learning curve?
Every time the cumulative output is doubled, the cost per unit will decline by 20%
A firm will always see its stock price appreciate when it demonstrates measurable growth
False
A manager's only responsibility is to monitor and assess the performance of his or her firm.
False
Differentiation and cost leadership strategies are only effective in manufacturing industries
False
Managers have exactly two choices when determining the boundaries of the firm: produce goods and services in-house ("make") or purchase them externally ("buy").
False (hybrids)
describe the four key questions managers need to answer when using the balanced scorecard to develop strategic objectives
How do we look to shareholders? What must we excel at? Can we continue to improve and create value? How do customers see us?
How does the triple-bottom line approach help managers? Explain with the help of an example.
It helps managers because it makes them think outside of the box (noneconomic factors) and how they impact the firm's financial performance. This would be like giving back in a philanthropic way. A company can pair with Make-A-Wish or Boys and Girls Club of America and create some sort of partnership with them and help those non-profits out.
Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
Market volatility makes it difficult to assess firm performance through these measures, particularly in the short-term.
Precisely indicates how much of a firm's sales is converted into profits
ROR Return on Revenue
Starfish Sodas has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine Starfish's position?
Starfish's customers start to consider soda a commodity
Not all firms are motivated by a need to grow.
TRUE
Managers must first develop a strategy that is likely to produce a competitive advantage before implementing a balanced scorecard approach
TRUE; it's a tool for strategy implementation, NOT formulation
The market capitalization of a public company is $5 billion. Each share of the company is traded at $200. What do you infer from this financial data?
The firm's number of outstanding shares is 25 million
How do experience-curve and learning-curve effects help a business gain competitive advantage?
The more experienced a firm is in producing a product, the lower it costs to produce. The learning curve describes how quickly it takes a business to acquire a new skill or knowledge. They work hand and hand because the more downward slope they both have, the lest costly their production will be.
TL & Co. is following a related-linked diversification strategy, and Soar Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?
Tl&Co will share fewer common competencies and resources between its various businesses when comapred to Soar Inc
An external performance metric
Total Return to shareholders
A conglomerate receives less than 70 percent of its revenues from any single business and features a number of strategic business units that have little to no relationship with each other.
True
In the why, what, who, and how of business models framework, the why dimension asks "why does the business model create value?"
True
Rock Bottom Tiles has developed a new customer-oriented business model. Rather than maintain a network of showrooms across the country, the business will now let customers choose several styles that interest them from an online site, and will ship samples of each of the styles to the customer to test in their home free of charge. Once they have settled on a tile choice, Rock Bottom will send a representative to their home to schedule installation. The company has determined that busy middle-class customers will value the convenience of the new model, which allow them to upgrade the look of their homes without spending time browsing showrooms. The new model will be created by selling the old showrooms and shifting resources to the new online site and regional offices for sales personnel. What question remains for Rock Bottom to ask in order to put its strategy into action?
What activities need to be performed to create and deliver the offerings to consumers?
What is the relationship between producer surplus and consumer surplus?
When price and quantity are at equilibrium, consumer surplus and producer surplus are equal. As price goes down, consumer surplus goes down and producer surplus goes up. As price goes up, consumer surplus goes up and producer surplus goes down.
A business model in which the manufacturer sets a fixed price on a product, but the retailer is free to set it's own price
Wholesale
related constrained diversification strategy
a kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business
related linked diversification strategy
a kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages
Which of the following best illustrates physical-asset specificity?
a machine solely designed to give a candy its trademarked shape
Due to its large sales volume and low cost structure, Quick Serve Mini-Marts enjoys a cost leadership position. Which of the following scenarios might threaten Quick Serve's competitive advantage?
a new competitor is perceived to provide similar value, but in addition offers innovative self-checkout
advantage of the balanced-scorecard
allows managers to translate a firm's vision into measurable operational goals
Radial Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Radial should pursue
backward integration - moving ownership of activities upstream
The balanced-scorecard can accommodate
both short and long term performance metrics
The difference between the price charged for a product and the cost to manufacture it is referred to as the
break-even price
Ancho Corp. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity. In this scenario, Ancho is primarily
building new core competencies to protect and extend current market position
The translation of strategy into action primarily takes place in a firm's
business model
The managers at Camphor Plastics decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector?
by having higher performance in another sector
the balanced-scorecard model
competitive advantage relies on both an internal and external view of a firm
What is risk capital?
consists of investment funds allocated to speculative activity. it refers to funds used for high-risk, high-reward investments
Economic value creation is best expressed as
consumer surplus + firm profit
When a firm pursues a maintain strategy, it
continues to support marketing efforts even if the demand is declining
________, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.
coordination costs
Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using?
cost-leadership
In a focused cost-leadership strategy, a firm
delivers low-cost products and services to a specific, narrow part of the market.
Streaming video services replacing brick-and-mortar video rental stores would be an example of
disruptive innovation - leverage new technologies to attack existing markets. It invades an existing market from the bottom up. iPhone.
To be successful and to survive the shakeout stage of the industry life cycle, a firm should
economies of scale - be able to drive costs down
Heirloom Furniture is a brand reputed for its wide variants of sofas that introduced a new range of mattresses and bed frames a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is Heirloom applying?
economies of scope - the savings that come from producing two or more outputs at less cost than producing each output individually, even though using the same resources and technology
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 - made something new to introduce change into the competitive system
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 - squarely builds on an established knowledge base and steadily improves an existing product or service offering
________ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.
influence costs
The ratio Cost of goods sold/Revenue indicates how efficiently a company can
produce a good
WellMade Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?
product diversification - active in serveral different product markets
How is process innovation different from product innovation?
product is customer based, process is more producer focused
TimeEnough Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady, but might be growing. According to the BCG growth matrix, TimeEnough is a
question mark
Nocturnal Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Nocturnal pursuing in this scenario?
related-linked strategy ; considering new business activities that share only a limited number of linkages
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the
return on risk capital
The top management at Sunshine Vitamins, through rigorous testing, ensures that the company develops and sells vitamins that are free of harmful side effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Sunshine Vitamins are applying the ________ approach to measure firm performance.
triple-bottom-line
The management team for Volcanic Batteries came up with the following vision statement: "Volcanic Batteries will conscientiously track its financial performance to ensure profits for its investors, enhance its community through employment and supporting charities, and dispose of waste in a manner that will not harm the environment." This vision statement is most likely based on the
triple-bottom-line approach
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
Firms that pursue extremely high or extremely low levels of diversification perform better than those that pursue moderate levels of diversification.
false
A new product often has a high price when it is launched because of a
large investment in designing a product while producing small quantities
the triple-bottom-line approach
noneconomic factors can have a significant impact on a firm's financial performance
The key objective for firms during the growth phase is to
stake out a strong strategic position not easily imitated by rivals
A cost leader is the firm most likely to survive a price war.
true
The major value drivers that managers have at their disposal include product features, customer service, and complements.
true
The most challenging diversification strategy is likely to be one that combines new core competencies with new and emerging markets.
true
a cost leader is the firm most likely to survive a price war
true
What is a value gap?
the difference between the actual market value of a company and the value that the owner expects to sell it for to achieve their needs
A sustainable strategy is one that produces a competitive advantage that can be maintained over time.
False - a sustainable strategy is a strategy along the social, economic, and ecological dimensions that can be pursued over time without detrimental effects on people or the planet.
Pipeline businesses are typically better than platform businesses at incorporating user feedback and taking advantage of network effects.
False - platform businesses help facilitate conversations between consumers and producers
Innovation that targets new markets with existing technologies is known as disruptive innovation.
False - this is architectural innovation
Unicorn Toys faces stiff competition from Playtime Inc., a rival firm with which Unicorn Toys has achieved differentiation parity. Both firms have invested in state-of-the art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Unicorn Toys achieve a competitive advantage as a cost leader?
Have a cumulative output that is great than playtime Inc's.
________ is best described as a situation in which one party is more informed than another, because of the possession of private information.
information asymmetry
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 - innovating within existing firms
Why is following an unrelated diversification strategy especially advantageous in an emerging economy?
it allows the conglomerate to overcome institutional weakness in emerging economies
Which of the following best explains why a blue ocean strategy is difficult to implement?
it requires the reconciliation of fundamentally different strategic positions - differentiation and low cost
When a firm combines experience based learning and process innovation, the firm
jumps to a steeper learning curve
Heartbeat Industries has recently introduced a new production method that will make the production of their medical devices more cost-effective. Which of the following will most likely be the result of this innovation?
jumps to a steeper learning curve - new learning curve!!
While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?
kfc has more financial resources than chick-fil-a since it is a publicly traded stock
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 - customers who adopt a new product only if it is absolutely necessary
To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on
lowering cost and increasing perceived customer benefits.
There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?
lowering costs - leads to driving down average costs
How did Marriott use economies of scope to achieve greater economic value than its competitors?
marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal
Which of the following motivations for business growth involves principal-agent problems?
motivating managers
Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?
observable product features
Skylark Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Skylark is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Skylark pursue?
redeploy and recombine existing core competencies to compete in markets of the future
Beagle Autos is known for its affordable and reliable brand of consumer vehicles. Because its shareholders expect to see an improved rate of growth in the coming years, Beagle's executives have decided to diversify the company's range of products so that at least 40 percent of the firm's revenue is generated by new business units. However, the company's resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Beagle pursue?
related constraints - less than 70%
A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance.
related-linked diversification - the potential benefits of economies of scope and scale
Banana Computers has decided to procure processing chips required for its laptops from external suppliers instead of manufacturing them in their own facilities. How will this decision affect the firm?
the firm will have more flexibility in purchasing and comparing prices of goods and services
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
Value drivers contribute to a firm's competitive advantage only if
the increase in value creation exceeds the increase in costs
Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?
In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
Which of the following statements is true of the balanced-scorecard?
It attempts to provide a holistic perspective on firm performance
Which of the following scenarios best exemplifies a platform business?
Myra operates industrial test kitchen - value creating interactions
When Simple Semiconductors was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $45. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?
diseconomies of scale
When a firm operates at the minimum efficient scale, there is still opportunity for it to further reduce its cost per unit through economies of scale.
false
The goal of the differentiator is to have a smaller value gap than competitors.
false - a higher value gap enables a differentiator to achieve a competitive advantage, which allows it to charge premium price, reflecting its higher creation. Low value gap hampers ability to achieve competitive advantage
A company's total asset base consists of its current assets plus plant, property, and equipment (PPE).
false - current assets, PPE, AND intangible assets such as intellectual property, goodwill, and brand value. Intangible assets that are not captured in accounting data have become much more important in firms' stock market valuations over the last few decades.
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 strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
high price, high comfort, high customer service, high concessions variety, low hours of operation
Quick Clean Chemicals outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Quick Clean's strategic position?
low-cost input factors
PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in
product-market diversification
Beagle Autos is known for its affordable and reliable brand of consumer vehicles. Because its shareholders expect to see an improved rate of growth in the coming years, Beagle's executives have decided to diversify the company's range of products so that at least 40 percent of the firm's revenue is generated by new business units. However, the company's resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Beagle pursue?
related contrained - less than 70% of its revenue froma single business
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using
related-constrained diversification - can leverage their existing competencies and resources
The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions?
relative market share and speed of market growth
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in
restructuring
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
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 entreprenuer
Return on risk capital primarily includes
stock price appreciation plus dividends received over specific period
A high percentage of R&D/Revenue ratio indicates a(n)
strong focus on innovation to improve current products and services
When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as
stuck in the middle
Shark Fin Gold Club requires its member to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?
subscription based
After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to ay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?
the value (V) the consumer attaches to the dress
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
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
________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.
vertical integration
Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Gold Leaf should
vertically integrate - within the business
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
Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario?
while the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.