BUSINESS POLICY AND STRATEGY MIDTERM EXAM
Question 1: In the __________ stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high.
Introduction
Growth
Maturity
Decline
Question 2: One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by:
Hiring more experienced personnel
Repeating a process until a task becomes easier
Spreading out a given expense or investment over a greater volume
Competing in an industry a long time
Question 3: In the __________ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low.
Introduction
Growth
Maturity
Decline
Question 4: One of the reasons the Internet is eroding sustainable competitive advantages is:
Incumbent firms are entering market segments that they previously considered to be too small
Nearly all competitors will have greater access to tools for managing costs making it hard for any one to achieve an advantage
Differentiators have been able to preserve the unique advantages that have always been the hallmark of their success
Firms are ignoring opportunities to offer high-end services in niche markets
Question 5: The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages. These are the following except:
Automated and flexible manufacturing systems
Exploiting the profit pool concept for competitive advantage
Coordinating the "extended" value chain by way of information technology
Deriving benefits from highly focused and high technology markets
Question 6: A differentiation strategy enables a business to address the five competitive forces by:
Lessening competitive rivalry by distinguishing itself
Having brand-loyal customers become more sensitive to prices
Increasing economies of scale
Serving a broader market segment
Question 7: During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a product going without significantly reducing marketing support, technological development or other investments, while hoping that competitors will exit the market.
True
False
Question 8: Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform:
At about the same level as firms that achieve either cost or differentiation advantages
About the same as firms that are "stuck-in-the-middle."
Lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages
Higher than firms that achieve either a cost or a differentiation advantage
Question 9: One potential pitfall of a differentiation strategy is that a brand's identification in the marketplace may become diluted through excessive product line extensions.
True
False
Question 10: The primary aim of strategic management at the business level is:
Maximizing risk-return tradeoffs through diversification
Achieving a low cost position
Maximizing differentiation of products and/or services
Achieving competitive advantage(s)
Question 11: An important advantage of first movers or "pioneers" in a market is that they may establish brand recognition that may later serve as an important switching cost.
True
False
Question 12: A firm following a focus strategy:
Must focus on governmental regulations
Must focus on a market segment or group of segments
Must focus on the rising cost of inputs
Must avoid entering international markets
Question 13: Piecemeal productivity improvements during a turnaround typically does not involve:
Business process reengineering
Increased capacity utilization
Benchmarking
Expansion of a firm's product market scope
Question 14: During the growth stage of the market life cycle, customers are very likely to establish brand loyalty.
True
False
Question 15: One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization.
True
False
Question 16: Research shows that the following are all strategies used by firms engaged in successful turnarounds except:
Asset and cost surgery
Selective product and market pruning
Global expansion
Piecemeal productivity improvements
Question 17: To generate above average returns, a firm following an overall cost leadership position should not be concerned with attaining parity or proximity on the basis of differentiation relative to its peers.
True
False
Question 18: According to the text, intellectual capital is the difference between the market value and the book value of a firm. Intellectual capital can be increased by:
Increasing retention of below average workers
Attracting and retaining knowledgeable workers
Decreasing labor costs
Increasing the turnover of employees
Question 19: In most effective evaluation and reward systems employees only receive evaluation and feedback from their immediate supervisor.
True
False
Question 20: Attracting and retaining human capital is a challenge for many firms today. Firms experiencing high turnover should:
Focus on increased recruiting
Decrease money spent on human capital
Make their work environment less stimulating
Adopt effective retention strategies
Question 21: Technical skills are a necessary and sufficient condition for hiring an employee.
True
False
Question 22: Human capital and social capital are vital for superior firm performance. If a firm has strong human capital, the firm may exploit this by building social capital. This can be accomplished through:
Requiring workers to work independently of each other
Decreasing the interaction of departments within the firm
Encouraging the sharing of ideas between employees in the firm
Structuring the firm with rigid departmental and employee divisions
Question 23: The makeup of goods and services in the Gross Domestic Products of developed countries has changed over the last decade. More than 50% of the value of GDP of developed countries is based on:
Clothing and apparel
Capital accumulation
Financial management
Knowledge
Question 24: Among the downsides of social capital is/are:
High social capital may breed "groupthink," i.e., a tendency not to question shared beliefs
Socialization processes whereby individuals are socialized into the norms and values of the organization may become expensive
Individuals may become less willing to collaborate on joint projects
A and B
Question 25: Maintaining a competitive workforce is very challenging in today's economy. The role of evaluating human capital, in recent years, has:
Increased
Decreased
Become less important
Remained the same
Question 26: Generally, employees are most likely to stay with an organization if:
The employer provides high salaries to technology professionals
The organization's mission and values align with the employee's mission and values
The firm is in a high tech industry
The mission and values of the organization change often
Question 27: 360-degree evaluation systems are not useful due to the need to integrate large amounts of feedback.
True
False
Question 28: In an effort to capture key employees from competitors, firms may attract the symbolic leader of a group within a competing firm and hope others will follow. This has been termed:
The "Columbus effect."
The "Pied Piper effect."
Strategically competitive hiring
Knowledge integration
Question 29: As the competitive environment changes, strategic management must focus on different aspects of the organization. Recently, strategic management has moved from focusing on:
Intangible resources to tangible resources
Tangible resources to intangible resources
Working capital to fixed capital
Fixed capital to working capital
Question 30: The management of intellectual property involves all of the following except:
Patents
Contracts with confidentiality and noncompete clauses
Converting explicit knowledge to tacit knowledge
Copyrights and trademarks
Question 31: Explicit knowledge is generally known to everyone in the firm and is not a critical concern of management.
True
False
Question 32: In the knowledge economy, if a large portion of a firm's value is in intellectual and human assets, the difference between the company's market value and book value should ___________ a company with mostly physical and financial assets.
Be equal to
Be smaller than
Be larger than
Not be correlated with
Question 33: Companies have found that referrals from their own employees are generally an ineffective approach to recruiting top talent.
True
False
Question 34: In today's economy, reliance on the three traditional financial statements: income statement, balance sheet, and statement of cash flow, has increased.
True
False
Question 35: There is generally a weak relationship between equity markets (e.g., New York Stock Exchange) and economic indicators.
True
False
Question 36: Environmental forecasting involves developing plausible projections about the ________ of environmental change.
Direction
Scope
Speed
All of the above
Question 37: Competitor Intelligence gathering is no different than spying.
True
False
Question 38: The most intense rivalry results from:
Numerous equally balanced competitors, slow industry growth, high fixed or storage costs
Few competitors, slow industry growth, lack of differentiation, high fixed or storage costs
Numerous equally balanced competitors, manufacturing capacity increases only in large increments, low exit barriers
A high level of differentiation
Question 39: The threat of new entrants is high when there are:
Low economies of scale
High capital requirements
High switching costs
High differentiation among competitors' products and services
Question 40: Strategic groups consist of:
A group of top executives who make strategies for a company
A group of firms within an industry that follow similar strategies
A group of executives drawn from different companies within an industry that makes decisions on industry standards
A group of firms within an industry that decide to collude rather than compete with each other so that they can increase their profits
Question 41: The strategic groups in the world-wide automobile industry have been very stable and unchanging in recent years.
True
False
Question 42: The aging of the population, changes in ethnic composition, and effects of the baby boom are:
Macroeconomic changes
Demographic changes
Global changes
Sociocultural changes
Question 43: Interest rate increases have a __________ impact on the residential home construction industry and a __________ effect on industries that produce consumer necessities such as prescription drugs or basic grocery items.
Positive; negligible
Negative; negligible
Negative; positive
Positive; negative
Question 44: Firms would be most likely to face intense rivalry with competitors when they:
Are in a high growth industry with low fixed costs
Are in a protected market
Have high fixed costs, in a slow growth industry with high exit barriers
Have low exit barriers for easy transition to another industry
Question 45: An end user's switching costs are potentially much higher because of the Internet.
True
False
Question 46: Increasingly larger numbers of women entering the work force since the early 1970s is an example of:
Demographic changes
Political and legal environmental changes
Sociocultural changes
Technological developments
Question 47: Porter's Five Forces model helps to determine both the nature of competition in an industry and the industry's profit potential.
True
False
Question 48: Threat of substitute products comes from:
Other companies in the same industry
Foreign companies which can use cheap labor in their countries
Firms in other industries that produce products or services that satisfy the same customer need
All of the above
Question 49: The Internet and digital technologies suppress the bargaining power of buyers by providing them with more information to make buying decisions.
True
False
Question 50: The more attractive the price/performance ratio of substitute products, the more tightly it constrains an industry's ability to charge high prices.
True
False
Question 51: Fortune Brands states they will "cut corporate costs by $30 million a year." This is an example of a:
Nonfinancial strategic objective
Financial strategic objective
Vision statement
Mission statement
Question 52: Decisions by Boards of Directors are always consistent with shareholder interests.
True
False
Question 53: The three primary participants in corporate governance are: (1) the shareholders; (2) management (led by the chief executive officer); and, (3) employees.
True
False
Question 54: According to the text, a mission statement is an overarching statement that is massively inspiring, long-term, and only discusses the purpose of the company.
True
False
Question 55: Strategy formulation and implementation is a challenging on-going process. To be effective, it should involve:
The CEO and the board of directors
The board of directors, CEO, and CFO
Line and staff managers
All of the above
Question 56: The four key attributes of strategic management include the idea that:
Strategy must be directed toward overall organizational goals and objectives
Strategy must be focused on long-term objectives
Strategy must be focused on one specific area of an organization
Strategy must focus on competitor strengths
Question 57: "We want to be the top-ranked supplier by our customers." (PPG) This is an example of a:
Nonfinancial strategic objective
Financial strategic objective
Vision statement
Mission statement
Question 58: Organizational goals and objectives should be vague in order to allow for changes in strategy.
True
False
Question 59: Strategic objectives are more specific than vision statements.
True
False
Question 60: Members of Boards of Directors are:
Appointed by the Securities and Exchange Commission
Elected by the shareholders as their representatives
Elected by the public
Only allowed to serve one term of four years
Question 61: According to Michael Porter, management innovations such as total quality, benchmarking, and business process reengineering cannot lead to sustainable competitive advantage because:
Companies that have implemented these techniques have lost money
There is no proof that these techniques work
They cost too much money and effort to implement
Every company is trying to implement them and hence it does not make a company different from others
Question 62: Peter Senge, of M.I.T., recognized three types of leaders. __________ are individuals that, although having little positional power and formal authority, generate their power through the conviction and clarity of their ideas.
Local line leaders
Executive leaders
Internal networkers
Shop floor leaders
Question 63: In large organizations, conflicts can arise between functional areas. In order to resolve these conflicts, strategic objectives:
Put financial objectives above human considerations
Align departments toward departmental goals
Help resolve conflicts through their common purpose
Cause debate and increase conflict
Question 64: According to the text, formulating strategy includes taking into consideration strategy at the business, international, and corporate levels. In addition managers must formulate effective entrepreneurial initiatives.
True
False
Question 65: A mission statement encompasses both the purpose of the company as well as the basis of competition and competitive advantage.
True
False
Question 66: Social responsibility is the idea that organizations are not only accountable to stockholders but also to the community-at-large.
True
False
Question 67: The two principal means by which firms achieve synergy through market power are: pooled negotiating power and corporate parenting.
True
False
Question 68: Whenever an organization diversifies, it represents investing a stockholder's funds in a way in which the individual investor is unable.
True
False
Question 69: Antitakeover tactics include all of the following except:
Greenmail
Golden parachutes
Golden handcuffs
Poison pills
Question 70: One of the risks of vertical integration is that there may be problems associated with unbalanced capacities or unfilled demands along a firm's value chain.
True
False
Question 71: An antitakeover tactic called (a) __________ is when a firm offers to buy shares of their stock from a company (or individual) planning to acquire their firm at a higher price than the unfriendly company paid for it.
Golden parachute
Greenmail
Poison pill
Scorched earth
Question 72: When management uses common production facilities or purchasing procedures to distribute different but related products, they are:
Building on core competencies
Sharing activities
Achieving process gains
Using portfolio analysis
Question 73: Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that:
The similarity required for sharing core competencies must be in the value chain, not in the product
The products use similar distribution channels
The target market is the same, even if the products are very different
The methods of production are the same
Question 74: Among the disadvantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.
True
False
Question 75: The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.
True
False
Question 76: Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.
True
False
Question 77: A publishing company that purchases a chain of bookstores to sell its books is an example of unrelated diversification.
True
False
Question 78: Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.
True
False
Question 79: __________ is when a firm's corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures.
Parenting
Restructuring
Leveraging core competencies
Increasing market power
Question 80: Market power refers to cost savings from leveraging core competencies or sharing activities among the businesses in a corporation.
True
False
Question 81: It may be advantageous to vertically integrate when:
Lower transaction costs and improved coordination are vital and achievable through vertical integration
The minimum efficient scales of two corporations are different
Flexibility is reduced, providing a more stationary position in the competitive environment
Various segregated specializations will be combined
Question 82: Vertical integration is attractive when market transaction costs are higher than internal administrative costs.
True
False
Question 83: A company offering local telecommunications service combines resources with an international company that manufactures digital switching equipment to research a new type of telecommunications technology. This is an example of:
Joint diversification
Strategic alliance
Divestment
Global integration
Question 84: Value chain analysis can only be applied to manufacturing operations.
True
False
Question 85: Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It:
Supports only individual primary activities
Supports only individual support activities
Supports both individual primary and support activities and the entire value chain
Supports mostly support activities but does have some impact on primary activities
Question 86: Products and services that are difficult to imitate help firms sustain their profitability.
True
False
Question 87: A variety of firm resources include interpersonal relations among managers in the firm, its culture, and its reputation with its suppliers and customers. Such competitive advantages are based upon:
Social complexity
Path dependency
Physical uniqueness
Tangible resources
Question 88: An important implication of the "balanced scorecard" approach is that:
Managers need to recognize tradeoffs in stakeholder demands and realize that such demands represent a "zero-sum" game in which one stakeholder will gain only at another's loss
The key emphasis on customer satisfaction and financial goals are only a means to that end
Managers should not look at their job as primarily balancing stakeholder demands; increasing satisfaction among multiple stakeholders can be achieved simultaneously
Gains in financial performance and customer satisfaction must often come at a cost of employee satisfaction
Question 89: Information systems can create advantages that deter entry by competitors into an industry.
True
False
Question 90: Business models can be defined as methods companies use to create value and earn profits in a competitive environment.
True
False
Question 91: Inbound logistics include:
Machining and packaging
Warehousing and inventory control
Repair and parts supply
Promotion and packaging
Question 92: Value chain analysis assumes that a firm's basic economic purpose is to create value and it is a useful framework for analyzing a firm's strengths and weaknesses.
True
False
Question 93: Four Internet-based activities that are enhancing firms' capabilities to use the Internet to add value include:
Outsourcing, problem-solving, bill-paying, and delivery
Evaluating, bill-paying, customizing, and returning
Search, rescue, repair, return
Search, evaluation, problem-solving, and transaction
Question 94: Which of the following is a support activity?
Inbound logistics
Operations
Technology development
Customer service
Question 95: A commission-based business model, when applied to the Internet, is similar to the broadcast television model in which viewers watch shows produced with revenues from commission fees.
True
False
Question 96: Which of the following lists consists of support activities?
Human resource management, technology development, customer service, and procurement
Human resource management, customer service, marketing and sales, and operations
Human resource management, information systems, procurement, and firm infrastructure
Customer service, information systems, technology development, and procurement
Question 97: How should managers assess changes in their firm's competitive position in their industries during a period of unusual economic growth?
Compare the firm's financial ratios with ratios of firms in other strategic groups in the industry
Compare the firm's financial ratios over the most recent one-year period
Compare the financial ratios of all firms in the country's industry-some of whom serve very diverse market segments and have specialized accordingly
Compare the financial ratios of firms in the company's strategic group
Question 98: Performing a value chain analysis provides a complete assessment of the firm's strengths and weaknesses.
True
False
Question 99: Customer service would include:
Product promotion
Product distribution
Parts supply
Procurement of critical supplies
Question 100: The three key types of resources that are central to the resource-based view of the firm are:
Tangible resources, intangible resources, and organizational structure
Culture, tangible resources, intangible resources
Tangible resources, intangible resources, and organizational capabilities
Tangible resources, intangible resources, and top management