2) There is complete consensus among strategic managers and academic researchers about what a 2) "strategy" is.

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1 Test Bank for Strategic Management and Competitive Advantage 3rd Edition by Barney and Hesterly Link full download: TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) One of the central questions that all strategic managers must address, regardless of the industry 1) they work in, is "What is our competition going to do next?" 2) There is complete consensus among strategic managers and academic researchers about what a 2) "strategy" is. 3) For the purposes of this book, a firm's strategy is defined as its theory about how to gain 3) competitive advantages. 4) A "good strategy" does not necessarily have to create a competitive advantage. 4) 5) The greater the extent to which a firm's assumptions and hypotheses accurately describe how the 5) competition in the industry is likely to evolve, and how that evolution can be exploited to earn a profit, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. 6) It is usually possible to know for sure that a firm is choosing the right strategy. 6) 7) The strategic management process is a sequential set of analyses and choices that can increase 7) the likelihood that a firm will choose a good strategy that generates competitive advantages. 8) The second step in the strategic management process is the definition of a firm's mission. 8) 9) A firm's mission defines both what it wants to be in the long run and what it wants to avoid in 9) the meantime. 10) Mission statements often contain so many common elements that even if a firm's mission 10) statement does not influence behavior throughout an organization, it is likely to have a significant impact on a firm's actions. 11) Firms whose mission statement is central to all they do are known as missionary firms. 11) 12) Visionary firms earn substantially higher returns than average firms because they acknowledge 12) that profit maximizing is their primary reason for existence. 13) Mission statements that are very inwardly focused and are defined only with reference to the 13) personal values and priorities of its founders and top managers can hurt a firm's performance. 14) Objectives are the specific measurable targets a firm can use to evaluate the extent to which it is 14) realizing its mission. 15) High quality objectives are tightly connected to the elements of a firm's mission but tend to be 15) relatively difficulty to measure and track over time.

2 16) Business level strategies are actions firms take to gain competitive advantages by operating in 18) multiple markets or industries simultaneously. 19) Strategy implementation occurs when a firm adopts organizational policies and practices that 19) are consistent with its strategy. 20) In general, a firm has a competitive advantage when it is able to create more economic value 20) than rival firms. 21) The size of a firm's competitive advantage is the sum of the economic value a firm is able to 21) create and the economic value rivals are able to create. 22) A sustained competitive advantage is virtually permanent. 22) 23) Firms that create the same economic value as their rivals experience competitive parity. 23) 24) A firm's accounting performance is a measure of its competitive advantage calculated using 24) information from a firm's published profit and loss and balance sheet statements. 25) Applying accounting measures of competitive advantage for firms that are headquartered in 25) different countries is not complicated by issues such as differences in accounting practices and exchange rates. 26) Activity ratios are ratios with some measure of profit in the numerator and some measure of 26) firm size or assets in the denominator. 27) Liquidity ratios are ratios that focus on the firm's ability to meet its short-term financial 27) obligations. 28) When a firm earns above average accounting performance, it is said to enjoy competitive parity. 28) 29) A firm that earns below average accounting performance, performance that is less than the 29) industry average, generally experiences a competitive disadvantage. 30) The greatest disadvantage of accounting measures of competitive performance is that they are 30) relatively difficult to compute. 31) Economic measures of competitive advantage compare a firm's level of return to its costs of 31) capital instead of to the average level of return to the industry. 32) The cost of equity is equal to the interest a firm must pay its debt holders in order to induce 32) those debt holders to lend money to the firm. 33) The residual claimants' view of equity holders argues that the interests of equity holders and a 33) firm's other stakeholders often collide. 34) The correlation between economic and accounting measures of competitive advantage is 34) generally low. 35) Emergent strategies are theories of how to gain competitive advantage in an industry that 35) emerge over time or that have been radically reshaped once they are initially implemented.

3 36) Johnson & Johnson's introduction of "Johnson's Toilet and Baby Powder" as a result of 36) customers' asking to purchase the talcum powder is an example of a planned strategy. 37) Emergent strategies are only important when a firm fails to implement the strategic management 37) process effectively. 38) Firms with strategies that are unlikely to be a source of competitive advantage will rarely 38) provide the same career opportunities as firms with strategies that do generate such advantages. 39) Strategic choices are generally limited to very experienced senior managers in large 39) corporations; in smaller and entrepreneurial firms, many employees end up being involved in the strategic management process. 40) All firms have almost entirely emergent strategies. 40) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 41) A firm's is defined as its theory about how to gain competitive advantages. 41) A) mission B) strategy C) 22objectives D) vision 42) The sequential set of analyses and choices that can increase the likelihood that a firm will choose 42) a strategy that generates competitive advantages is the A) strategic management process. B) organizational change process. C) mission statement process. D) goal setting process. 43) A firm's is its long-term purpose that defines both what a firm aspires to be in the long 43) run and what it wants to avoid in the meantime. A) goal B) mission C) objective D) vision 44) Missions are often written down in the form of 44) A) corporate objectives. B) mission statements. C) organizational goals. D) vision statements. 45) Firms whose mission is central to all they do are known as firms. 45) A) parity B) visionary C) legendary D) missionary 46) From 1926 to 1995, visionary firms earned returns compared to firms that were not 46) visionary firms. A) marginally lower B) substantially equivalent C) substantially lower D) substantially higher 47) The mission statements of visionary firms 47) A) suggest that profit maximizing is an important corporate objective and is their primary reason of existence. B) suggest that profit maximizing is their primary reason for existence. C) suggest that profit maximizing, while an important corporate objective, is not their primary reason for existence. D) suggest that profit maximizing is neither an important corporate objective nor their primary reason for existence. 48) Which of the following statements regarding firm mission is accurate? 48) A) While some firms have used their missions to develop strategies that create significant competitive advantages, firm missions can hurt a firm's performance as well.

4 B) It is very rare for firms to be able to use their missions to develop strategies that create significant competitive advantages, and most firm missions actually hurt their performance. C) Virtually all firms have used missions to develop strategies that create significant competitive advantages, while very few firms have used missions that can hurt their performance. D) Missions tend to have very little impact on a firm's ability to create significant competitive advantages. 49) are specific measurable targets a firm can use to evaluate the extent to which it is 49) realizing its mission. A) Objectives B) Visions C) Competitive Advantages D) Missions 50) High quality objectives are those that are 50) A) difficult to track over time. B) tightly connected to elements of a firm's mission. C) not quantitative. D) difficult to measure. 51) By conducting a(n), a firm identifies the critical threats and opportunities in its 51) competitive environment. A) competitive analysis B) economic analysis C) external analysis D) internal analysis 52) helps a firm understand which of its resources and capabilities are likely to be sources 52) of competitive advantage. A) Competitive analysis B) Internal analysis C) External analysis D) Comparative analysis 53) Actions firms take to gain competitive advantages in a single market or industry are known as 53) A) corporate level strategies. B) sustainable strategies. C) business level strategies. D) functional level strategies. 54) Actions firms take to gain competitive advantages by operating in multiple markets or industries 54) simultaneously are known as A) corporate level strategies. B) macro level strategies. C) business level strategies. D) functional strategies. 55) occurs when a firm adopts organizational policies and practices that are consistent 55) with its strategy. A) Strategy formulation B) Strategic control C) Strategy implementation D) Organizational change 56) When a firm is able to create more economic value than rival firms it is said to have a(n) 56) A) strategic choice. B) comparative advantage. C) competitive advantage. D) economic advantage. 57) The difference between the perceived benefits gained by a customer that purchases a firm's 57) products or services and the full economic costs of these products or services is known as A) comparative value. B) accounting value. C) economic value. D) sustainable value.

5 58) If TechnoGeek and VarsityBlue compete in the same market for the same customer and 58) TechnoGeek generates $900 of economic value each time it sells a product or service while VarsityBlue generates $400 of economic value each time it sells a product or service, TechnoGeek has a competitive advantage of A) $360,000. B) $3,600. C) $500. D) $1, ) A competitive advantage that lasts a very short period of time is known as a 59) competitive advantage. A) transient B) sustained C) temporary D) perpetual 60) Firms that create the same economic value as their rivals experience competitive 60) A) superiority. B) parity. C) advantage. D) disadvantage. 61) Firms that generate less economic value than their rivals experience a competitive 61) A) disadvantage. B) advantage. C) parity. D) preference. 62) In many ways, the difference between traditional economics research and strategic management 62) research is that the former attempts to explain why, while the latter attempts to explain A) competitive parity should not persist; why they should. B) competitive advantages should persist; when they can. C) competitive advantages should persist; why they should not. D) competitive advantages should not persist; when they can. 63) The two types of measures of competitive advantage include 63) A) accounting measures and strategic measures. B) qualitative measures and quantitative measures. C) accounting measures and economic measures. D) strategic measures and economic measures. 64) A firm's is a measure of its competitive advantage calculated using information from a 64) firm's published profit and loss and balance sheet statements. A) sustainable performance B) strategic performance C) accounting performance D) economic performance 65) are ratios with some measure of profit in the numerator and some measure of firms' 65) size or assets in the denominator. A) Profitability ratios B) Liquidity ratios C) Activity ratios D) Leverage ratios 66) Ratios that focus on the level of a firm's financial flexibility, including its ability to obtain more 66) debt, are known as A) activity ratios. B) leverage ratios. C) liquidity ratios. D) profitability ratios. 67) Using ratio analysis, a firm earns when its performance is greater than the industry 67) average. A) above average accounting performance B) below average economic performance C) above average economic performance D) below average accounting performance 68) The is the rate of return that a firm promises to pay its suppliers of capital to induce the m to

6 invest in the firm. A) cost of debt B) cost of parity C) cost of capital D) cost of advantage 69) measures of competitive advantage compare a firm's level of return to its cost of capital 69) instead of to the average level of return in the industry. A) Sustainable B) Strategic C) Accounting D) Economic 70) The percentage of a firm's total capital that is debt times the cost of debt plus the percentage of a 70) firm's total capital that is equity times the cost of equity is the A) weighted average cost of capital. B) unweighted average cost of capital. C) weighted cost of capital. D) average cost of capital. 71) If the risk free rate of return is 4%, the market rate of return is 9%, and a firm's beta is 2.0, what is 71) the firm's cost of equity? A) 6 B) 14 C) 18 D) 30 72) If a firm has total assets of $10 million, stockholder's equity of $6 million, a cost of equity of 10, 72) and an after tax cost of debt of 5%, what is the firm's Weighted Average Cost of Capital? A) 7 B) 8 C) 1 D) 18 73) A firm that earns its cost of capital is said to be earning 73) A) above normal economic performance. B) normal accounting performance. C) below normal economic performance. D) normal economic performance. 74) The view that equity holders only receive payment on their investment in a firm after all 74) legitimate claims by a firm's other stakeholders are satisfied is known as the view of equity holders. A) legitimate claimants B) residual claimants C) extraordinary claims D) stakeholder 75) Theories of how to gain competitive advantage in an industry that emerge over time or that have 75) been radically reshaped once they are initially implemented are known as A) ad hoc strategies. B) objective strategies. C) emergent strategies. D) planned strategies. 76) The realized strategy of most firms tends to be 76) A) a combination of both intended and emergent strategies. B) almost exclusively a reflection of their emergent strategy. C) almost exclusively a reflection of their intended strategy. D) reflective of neither the firms intended nor emergent strategy. 77) Which of the following is a reason why it is important for students to study strategy and the strategic management process? A) While strategic choices are generally limited to very experienced senior managers in large organizations, in smaller and entrepreneurial firms many employees end up being involved in the strategic management process. B) It can be very important to a new hire's career success to understand the strategies of the firm that hired them and their place in implementing these strategies. C) Studying strategy and the strategic management process can give students tools to evaluate the strategies of firms that may employ them. 77)

7 D) All of the above. 78) strategies are theories of how to gain competitive advantage in an industry that emerge 78) over time or that have been radically reshaped once they are initially implemented. A) Intended B) Realized C) Visionary. D) Emergent. 79) Which type of ratios focus on the ability of a firm to meet its short-term financial obligations? 79) A) leverage ratios B) activity ratios C) profitability ratios D) liquidity ratios 80) One of the first scholars to examine the longevity of competitive advantage was 80) A) Peter Roberts. B) Rich Houston. C) Geoffrey Waring. D) Dennis Mueller. 81) Thermacorp is in the heating and cooling industry and has total assets of $20 million, with 81) stockholders' equity of $15 million, an ROE of 17.3%, and a firm Beta of 1.6. If the risk free rate of return is 4 and the market rate of return is 10, what is the cost of equity? A) 19.6 B) C) 13.6 D) ) Thermacorp's cost of equity is If the after tax cost of debt is 4.6, what is the weighted 82) average cost of capital? A) B) C) 11.2 D) ) Thermacorp's weighted average cost of capital is If the average WACC in the heating and 83) cooling industry is 19, Thermacorp can be said to be earning A) below normal economic performance. B) below normal accounting performance. C) above normal accounting performance. D) above normal economic performance. 84) Thermacorp's 17.3% ROE is an example of a(n) ratio. 84) A) profitability B) liquidity C) leverage D) activity 85) If the average ROE in the heating and cooling industry is 10.1%, and Thermacorp's ROE is 17.3%, 85) Thermacorp is said to have A) below average economic performance. B) above average economic performance. C) below average accounting performance. D) above average accounting performance. 86) Green Frog is an environmentally friendly firm in the cosmetics industry that has decided to 86) undertake a strategic planning project. They want to ensure that they perform the process correctly and so intend to start the process with the first step of the strategic planning process which is A) measuring performance. B) setting objectives. C) defining their business level strategy. D) crafting a mission statement. 87) Green Frog is an environmentally friendly firm in the cosmetics industry. Even though Green 87) Frog is environmentally friendly, the strategic planning team had decided that financial performance is one of the company's top priorities. Which of the following is the best example of an objective the company might use to help them achieve their goal of superior financial performance? A) Increasing profitability. B) Growth in earnings per share averaging 15% or better annually for the next five years. C) Improving product quality every quarter. D) Growing market share annually.

8 88) Green Frog is an environmentally friendly firm in the cosmetics industry. If during the strategic 88) planning process Green Frog tried to determine the critical threats and opportunities in its competitive environment, it would be performing a(n) A) internal analysis. B) external analysis. C) economic analysis. D) WACC analysis. 89) Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog 89) undertook an analysis to help it understand which of its resources and capabilities are likely to be sources of competitive advantage and which are less likely to sources of such advantages they would be performing a(n) A) economic analysis. B) internal analysis. C) WACC analysis. D) external analysis. 90) Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog were 90) considering expanding beyond the cosmetics industry into pharmaceuticals in order to gain competitive advantages by operating in multiple markets and industries, this would be an example of which type of strategy? A) Business level strategy B) Functional level strategy C) Corporate level strategy D) Marketing strategy ESSAY. Write your answer in the space provided or on a separate sheet of paper. 91) Define the term "strategy," discuss the set of assumptions and hypotheses that a strategy is based on and discuss what makes a good strategy. 92) Define the term "mission" and discuss how a firm's mission can both positively and negatively impact a firm's performance. 93) What are objectives, what role do they play in the strategic management process and what differentiates high quality objectives from low quality objectives. 94) Differentiate between business level and corporate level strategies and give examples of each. 95) Define strategy implementation and discuss three specific organizational policies and practices that are particularly important in implementing a strategy. 96) Discuss the nature of a sustainable competitive advantage. In your answer, identify when a firm has a competitive advantage, define the term "economic value" and distinguish between a temporary competitive advantage and a sustainable competitive advantage. 97) Identify two approaches to estimating a firm's competitive advantages and discuss the strengths and weaknesses of each. 98) Describe the difference between emergent and intended strategies. Why might firms employ an emergent strategy? 99) Why is it important to understand a firm's strategy, even if you are not a senior manager in a firm? 100) What is the residual claimants view of equity holders?

9 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 102) In general, technological change creates opportunities, but not threats. 102) 103) The aging of the "baby boomer" generation in American society is an example of a demographic 103) trend. 104) Culture is the values, beliefs and norms that guide a behavior in a society, and culture is largely 104) the same across the world. 105) A severe recession that lasts for several years is known as a depression. 105) 106) In the structure-conduct-performance model, the term structure refers to industry structure, 106) measured by such factors as the number of competitors in an industry. 107) In the structure-conduct-performance model, the term performance refers solely to the 107) performance of individual firms. 108) In a perfectly competitive industry, there are large numbers of firms operating in the industry 108) whose products and services are similar to each other, and it is not very costly for firms to enter into or exit these markets. 109) The S-C-P model assumes that any competitive advantages a firm has in an industry must 109) benefit society. 110) According to the S-C-P model, attributes of the industry structure within which a firm operates 110) define the range of options and constraints facing a firm. 111) The five forces framework is based on the S-C-P model and identifies the five most common 111) threats facing firms from their local competitive environment and the conditions under which these threats are more or less likely to be present. 112) Within the five forces framework, when all five threats are very high competition in the industry 112) begins to approach a monopoly. 113) Monopolistically competitive industries consist of only a single firm. 113) 114) To a firm seeking competitive advantage, an environmental threat is any individual, group, or 114) organization outside a firm that seeks to reduce the level of that firm's performance. 115) The threat of entry in an industry depends on the cost of entry, and the cost of entry, in turn, 115) depends upon the existence and "height" of barriers to entry. 116) Diseconomies of scale exist in an industry when a firm's costs fall as a function of that firm's 116) volume of production.

10 117) Brand identification and customer loyalty serve as entry barriers because new entrants not only 117) have to absorb the standard costs associated with starting production in a new industry, but also have to absorb the costs associated with overcoming incumbent firm's differentiation advantages. 118) Proprietary technology is more important as a barrier to entry than is managerial know how. 118) 119) Learning-curve cost advantages are present when the cost of production falls with the 119) cumulative volume of production. 120) The threat of rivalry tends to be high in an industry when firms are able to meaningfully 120) differentiate their products. 121) In an industry, the products or services provided by a firm's rivals meet approximately the same 121) customer needs in the same way as the products or services provided by the firm itself, but substitutes meet approximately the same customer needs but do so in different ways. 122) A firm's suppliers pose a greater threat if the supplier's industry has a large number of firms, 122) none of which dominate the supplying industry, than if the supplier's industry is dominated by a small number of firms. 123) Suppliers are a greater threat to firms in an industry when suppliers are threatened by 123) substitutes. 124) The threat of buyers is greater if the products or services that are being sold to buyers are 124) standard and not differentiated than if the products sold to buyers are highly differentiated. 125) If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage 125) firm were to open its own diamond brokerage firm, this would be an example of forward vertical integration. 126) In general, it is rarely the case that all five forces in the five forces framework will be equally 126) threatening at the same time. 127) Sophisticated software can enhance the value that customers receive from a personal computer. 127) Therefore, software can be said to be a complementor of a personal computer. 128) According to Bradenburger and Nalebluff, a firm's competitors help increase the size of a firm's 128) markets while complementors divide this market among a set of firms. 129) It is possible for a single firm to be a complementor of one firm and a competitor of another. 129) 130) An emerging industry is an industry in which a large number of small or medium-sized firms 130) operate and no small set of firms has a dominant market share or creates dominant technologies. 131) The major opportunity facing firms in fragmented industries is the implementation of strategies 131) that begin to consolidate the industry into a smaller number of firms. 132) First movers that invest only in technology usually obtain sustained competitive advantages, 132) even if they do not tie up strategically valuable resources in an industry before their full value is widely-understood.

11 133) If you were to purchase a new Apple ipod, and were unable to use your previously downloaded 133) library of digital music with your new ipod, this would be an example of a customer-switching cost you would incur to use Apple's product. 134) Mature industries are characterized by elements such as slowing growth in total industry 134) demand, a slowdown in increases in product capacity, and an overall increase in the profitability of firms in the industry. 135) Product innovation is an effort to refine and improve a firm's current processes. 135) 136) A fragmented industry is an industry that has experienced an absolute decline in unit sales over 136) a sustained period of time.. 137) A firm following a niche strategy in a declining industry reduces its scope of operations and 137) focuses on narrow segments of the declining industry. 138) Firms pursuing a harvest strategy in a declining industry do not expect to remain in the industry 138) over the long term. 139) The objective of divestment is to extract a firm from a declining industry.. 139) 140) All divestments are caused by industry decline. 140) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 141) The consists of broad trends in the context in which a firm operates that can have an 141) impact on a firm's strategic choices. A) task environment B) micro-environment C) general environment D) internal environment 142) All of the following are elements of the general environment except 142) A) technological trends. B) industrial trends. C) demographic trends. D) cultural trends. 143) is/are the distribution of individuals in a society in terms of age, sex, marital status, 143) income, ethnicity, and other personal attributes that may determine buying patterns. A) Technological trends B) Demographics C) Culture D) Economics 144) The values, beliefs and norms that guide behavior in society are known as 144) A) culture. B) economics. C) climate. D) demographics. 145) When activity in an economy is relatively low for a short period of time, the economy is said to 145) be in a A) depression. B) boom. C) prosperous cycle. D) recession. 146) Civil wars, political coups, terrorism, wars between countries, famines, and country or regional 146) economic recessions are all examples of which element of the general environment? A) Culture B) Specific international events C) Economics D) Demographics 147) In the S-C-P model, refers to the strategies that firms in an industry implement. 147)

12 A) performance B) structure C) conduct D) strategy 148) In a perfectly competitive industry 148) A) there are relatively few firms operating in the industry. B) the products and services sold by firms in the industry are very different from each other. C) it is not very costly for firms to exit the industry. D) it is very costly for firms to enter the industry. 149) Within the five forces framework, the five most common threats facing firms from their 149) competitive environment include each of the following except A) substitutes. B) buyers. C) complementors. D) suppliers. 150) Firms in industries characterized by can expect to earn only competitive parity. 150) A) monopoly B) monopolistic competition C) oligopoly D) perfect competition 151) Which type of competition is characterized by a large number of firms, heterogeneous products 151) and low cost of entry and exit? A) Oligopoly B) Monopoly C) Perfect competition D) Monopolistic competition 152) Which type of competition is characterized by a small number of firms, homogeneous products 152) and costly entry and exit? A) Monopoly B) Oligopoly C) Monopolistic competition D) Perfect competition 153) A(n) is any individual, group, or organization outside a firm that seeks to reduce the 153) level of that firm's performance. A) competitive advantage B) environmental opportunity C) environmental equalizer D) environmental threat 154) Firms that have either recently begun operations in an industry or that threaten to being 154) operations in an industry soon are considered to be in the five forces framework. A) barriers to entry B) buyers C) new entrants D) suppliers 155) exist when a firm's cost rise as a function of that firm's volume of production. 155) A) Diseconomies of scale B) Learning cure effects C) Economies of scale D) Economies of scope 156) All other things being equal, under which of the following would lead to lower barriers to entry 156) in an industry? A) Products are highly differentiated in the industry. B) The existence of economies of scale in the industry. C) Raw materials are widely and readily available at a competitive price. D) Industry incumbents have learning-curve cost advantages. 157) Frequent price cutting by firms in an industry, frequent introduction of new products by firms in 157) an industry and intense advertising campaigns are indications of A) high threat of entry. B) high power of buyers. C) high threat of substitutes. D) high levels of rivalry.

13 158) Rivalry tends to be high when 158) A) when production capacity can be added in small increments. B) there are few firms in an industry and these firms tend to be unequal in size. C) firms are unable to differentiate their products. D) the industry growth rate is higher. 159) The products or services provided by a firm's rivals meet customer needs in 159) ways as the product provided by the firm itself. A) approximately the same; different B) approximately the same; the same C) different; different D) different; the same 160) The products or services provided by a firm's substitutes meet customer needs in 160) ways as the product provided by the firm itself. A) different; different B) different; the same C) approximately the same; the same D) approximately the same; different 161) Which of the following statements regarding substitutes is accurate? 161) A) In the extreme, substitutes can ultimately replace an industry's products or services. B) The importance of substitutes in reducing the profit potential in a wide variety of industries is decreasing. C) Substitutes place a floor on the prices firms in an industry can charge and on the profits firms in an industry can earn. D) Substitutes rarely impact the profitability that firm firms in an industry can earn. 162) make a wide variety of raw materials, labor and other critical assets available to firms. 162) A) Rivals B) Suppliers C) Buyers D) Substitutes 163) Which if the following attributes makes suppliers a stronger threat? 163) A) The supplier's industry is dominated by a small number of firms. B) When supplies are not able to enter into and begin competing in a firm's industry. C) When suppliers are threatened by substitutes. D) When the product or service provided by suppliers is not highly differentiated. 164) Which of the following is the best example of forward vertical integration? 164) A) A car company opening its own chain of video rental stores. B) A car company opening its own dealerships to sell its products directly to customers. C) A car company opening a plant to product motorcycles. D) A car dealership opening up its own automobile manufacturing plant. 165) Buyers tend to have less power when 165) A) the products or services being sold to buyers are standard and not differentiated. B) a firm has only one buyer, or a small number of buyers. C) they are not earning significant economic profits. D) the supplies they purchase are an insignificant portion of the costs of their final products. 166) Overall, the average level of performance in an industry is likely to be highest when 166) A) the threat level of rivalry, substitutes and new entrants is high, but the threat level of buyers and supplies is low. B) the threat level of all five forces is low. C) the threat level of all five forces is high. D) the threat level of rivalry, and substitutes is low, but the threat level of suppliers, buyers

14 and new entrants is high. 167) If your customers value your products more when they have your product and another firm's 167) product rather than when they have your product alone, the other firm is considered to be a A) rival. B) substitute. C) competitor. D) complementor. 168) An industry in which a large number of small or medium-sized firms operate and no small set of 168) firms has dominant market share or creates dominant technologies is known as a(n) industry. A) fragmented B) mature C) consolidated D) emerging 169) The major opportunity facing firms in fragmented industries is 169) A) refining their current products and emphasizing an increase in service quality. B) the implementation of strategies that began to consolidate the industry into a smaller number of firms. C) developing new products and technologies. D) creating a first mover advantage through technological leadership. 170) industries are newly created, or newly recreated industries formed by technological 170) innovations, changes in demand, or the emergence of new customer needs. A) Mature B) Fragmented C) Declining D) Emerging 171) The advantages that come to firms that make important strategic and technological decisions 171) early in the development of an industry are known as advantages. A) first-comer B) early-entrant C) first-mover D) competitive 172) In general, first-mover advantages can arise from any of these sources except 172) A) preemption of strategically valuable assets. B) technological leadership. C) using an imitative strategy to introduce improved versions of competitors new products. D) the creation of customer switching costs. 173) Mature industries are characterized by 173) A) a decrease in the amount of international competition. B) an increase in total industry demand. C) a slowdown in the introduction of new products or services. D) faster increases in production capacity. 174) The most promising opportunity for a firm in a declining industry is to 174) A) establish itself as a first mover in the post-shakeout industry. B) become a fast follower in the pre-shakeout industry. C) merge with another firm. D) become a market leader in the pre-shakeout industry. 175) Firms that engage in a long, systematic phased withdrawal from an industry, extracting as much 175) value as possible during the withdrawal period are following a(n) strategy. A) niche B) expansion C) harvest D) divestment 176) Industries in which a large number of small or medium-sized firms operate and no small set of 176) firms has dominant market share or creates dominant technologies are called industries. A) declining B) emerging C) fragmented D) mature

15 177) are advantages that come to firms that make important strategic and technological 177) decisions early in the development of an industry. A) First-mover advantages B) Visionary advantages C) Comparative advantages D) Missionary advantages 178) Consolidation strategy is a good option in what type of industry?. 178) A) Emerging B) Mature C) Declining D) Fragmented 179) valuable assets are resources required to successfully compete in an industry.. 179) A) Strategically B) Domestically C) Pedestrian D) Globally 180) costs exist when customers make investments in order to use a firm's particular 180) products or services. A) Competitive-switching B) Strategic-switching C) Customer-switching D) Resource-switching Hickory Divine is one of the leading manufacturers in the hardwood furniture industry. Hickory Divine has many small competitors, none of which controls a significant portion of the industry. Hickory, like most of the furniture manufacturers, sells its products to a broad variety of small furniture stores throughout the country, none of which represents a large percentage of Hickory's sales. When purchasing the products it uses for manufacturing its furniture, Hickory is able to choose from many suppliers since the wood it uses is an undifferentiated commodity, and Hickory is able to easily switch to any supplier that has the best price and delivery times. While growth in the hardwood furniture industry has historically been in the double digits, the industry growth rate has slowed considerably into the single digits, to approximately 5% in recent years; consumers have been purchasing less expensive furniture made of composite wood that is considerably less expensive than hardwood furniture, but that looks and functions very similarly once it is painted. 181) Based on the above description, the hardwood furniture industry can best be described as a(n) 181) industry. A) consolidated B) declining C) fragmented D) emerging 182) The threat of rivalry in the hardwood furniture industry can best be described as 182) A) low because of the slowing growth rate and the competition from composite wood furniture. B) high because of the numerous firms in the industry and the slowing growth rate C) moderate because the slowing growth rate offsets the numerous firms in the industry. D) low because of the numerous firms in the industry and the slowing growth rate. 183) The threat of suppliers in the hardwood furniture can best be described as 183) A) low because there are a large number of suppliers selling an undifferentiated product. B) moderate because of the slowing growth rate in the industry and the commodity nature of the products produced by suppliers. C) moderate because the large number of suppliers is offset by the undifferentiated products they are selling. D) high because there are a large number of suppliers selling an undifferentiated product. 184) If Hickory Divine were to open its own chain of furniture stores, this would be an example of 184) A) consolidation. B) complementors. C) backward vertical integration. D) forward vertical integration. 185) In this example, composite wood furniture would be an example of 185) A) substitutes. B) new entrants. C) rivals. D) complementors.

16 186) The threat of buyers in this industry is best described as 186) A) high because there are many suppliers, none of which represents a significant portion of the hardwood furniture industry's sales. B) low because there are many suppliers, none of which represents a significant portion of the hardwood furniture industry's sales. C) high because of the slow industry growth and the commodity nature of the suppliers. D) low because of the slow industry growth and the commodity nature of the suppliers. BidBuy is the world's leading online auction company. When BidBuy was founded ten years ago it was the first online auction company and it has been the leader since it was founded. Although there are other firms in the industry, BidBuy controls over 75% of the market in the United States, and three additional firms control another 20% of the U.S. market. One of the aspects of BidBuy that keeps users from changing to other online auction companies is the large user base BidBuy has built and a feedback rating system that allows buyers and sellers to rate their satisfaction with each other following each transaction. This allows users to build a reputation for honesty and trustworthiness. Sellers with a high feedback rating tend to receive more bids on their auctions and a higher price for their goods. To help facilitate payment transfers between buyers and sellers following successful online auctions, companies such as DollarDog have been founded and these companies have facilitated growth for BidBuy. Having attained a 75% market share in the U.S., BidBuy has begun expanding internationally opening its own sites in some countries and purchasing incumbents in others. In its international expansion BidBuy has allowed its individual companies to customize their offerings according to the needs and desires of the countries in which they operate and when these companies are successful, BidBuy works to transfer these successful capabilities throughout the firm. 187) Which of the following best describes the competition in the U.S. online auction industry? 187) A) Monopolistic competition B) Perfect competition C) Monopoly D) Oligopoly 188) For BidBuy, services such as those offered by DollarDog that make BidBuy's services more 188) valuable for customers who use the services of both companies are best described as A) complementors. B) suppliers. C) rivals. D) substitutes. 189) Factors such as BidBuy's feedback rating that are valuable to the company's customers but which 189) are not useful on other online auction sites are examples of A) customer-switching costs. B) complementors. C) substitutes. D) first mover advantages. 190) BidBuy has a advantage. 190) A) comparative B) visionary C) first-mover D) global ESSAY. Write your answer in the space provided or on a separate sheet of paper. 191) Identify the six inter-related elements that comprise a firm's general environment. 192) Identify and define the three elements of the S-C-P model. 193) Identify the five most common threats facing firms from their local competitive environment that are represented in the five forces framework, and discuss under what conditions firms in a specific industry are most likely to earn an above average profit and when they are to likely to earn a below average profit. 194) Identify the four types of competition, the attributes of each type and the expected performance under each. 195) Discuss the difference between a company's rivals and its substitutes and discuss the role substitutes play in an industry.

17 196) Describe the difference between a competitor and a complementor and identify the role complementors play in an industry. 197) Identify the four generic industry structures and the specific strategic opportunities in each of these industries. 198) Identify and clearly distinguish between the four strategic options available to firms in a declining industry. 199) What are customer-switching costs? 200) What is a harvest strategy?

18 1) TRUE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) TRUE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) FALSE 26) FALSE 27) TRUE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) FALSE 33) FALSE 34) FALSE 35) TRUE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) B 42) A 43) B 44) B 45) B 46) D 47) C 48) A 49) A 50) B 51) C ANSWER KEY

19 52) B 53) C 54) A 55) C 56) C 57) C 58) C 59) C 60) B 61) A 62) D 63) C 64) C 65) A 66) B 67) A 68) C 69) D 70) A 71) B 72) B 73) D 74) B 75) C 76) A 77) D 78) D 79) D 80) D 81) C 82) A 83) A 84) A 85) D 86) D 87) B 88) B 89) B 90) C 91) A firm's strategy is defined as its theory about how to gain competitive advantages. This theory is based on a set of assumptions and hypotheses about how competition in this industry is likely to evolve, and how that evolution can be exploited to earn a profit. To the extent that these assumptions and hypotheses accurately describe how competition in this industry actually evolves, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. Thus, a "good strategy" is a strategy that actually generates such advantages. 92) A firm's mission is its long-term purpose and it defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime. If a mission statement does not influence firm behavior, it is unlikely to have an impact on a firm's actions. However, visionary firms, or firms whose mission is central to all they do, tend to earn substantially higher returns than average over the long-run even though their mission statements suggest that profit maximization is not their primary reason for existence. However, missions that are inwardly focused and defined only with reference to the personal values and priorities of its founders or top managers, independent of whether or not those values and priorities are consistent with the economic realities facing a firm are not likely to be a source of competitive advantage.

20 93) Objectives are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission. High quality objectives are tightly connected to elements of a firm's mission and are relatively easy to measure and track over time. Low quality objectives either do not exist or are not connected to elements of a firm's mission, are not quantitative, are difficult to measure or difficult to track over time. 94) Business level strategies are actions firms take to gain competitive advantages in a single market or industry. The two most common business level strategies are cost leadership, such as Wal-Mart, and product differentiation, such as Macy's. Corporate level strategies are actions firms take to gain competitive advantages in multiple markets or industries simultaneously. Common corporate level strategies include vertical integration strategies, diversification strategies, strategic alliances strategies and merger and acquisition strategies. 95) Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy. Three specific organizational policies and practices are particularly important in implementing a strategy: a firm's formal organizational structure, its formal and informal management control systems, and employee compensation policies. 96) In general, a firm has a competitive advantage when it is able to generate more economic value than rival firms. Economic value is simply the difference between the perceived benefits gained by a customer that purchases a firm's products or services and the full economic cost of these products and services. A temporary competitive advantage is a competitive advantage that lasts a very short period of time while a sustained competitive advantage lasts much longer. 97) The two general approaches to estimating a firm's competitive advantage are measuring accounting performance and measuring economic performance. A firm's accounting performance is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheets and a firm's accounting performance is determined by comparing a firm's accounting ratios with other firms in the industry. The greatest measure of accounting measures of competitive advantage is that they are relatively easy to compute. The most significant drawback to accounting measures is that they do not consider a firm's cost of capital. Additionally, accounting measures can be difficult to compare across countries. Economic measures of competitive advantage compare a firm's level of return to its cost of capital instead of to the average level of return in the industry. The primary benefit of economic measures is that if a firm earns at least its cost of capital, it is satisfying two of its important stakeholders debt holders and equity holders. Disadvantages of economic measures include that it can be difficult to calculate a firm's cost of capital, especially for privately held firms, and economic measures may overstate the importance of debt and equity holders. 98) Intended strategies can best be described as a firm's theories of how to gain a competitive advantage that are developed as a result of the strategic management process. Intended strategies are developed when firms choose and implement their strategies exactly as described by the strategic management process. Alternately, emergent strategies are theories of how to gain a competitive advantage in an industry that emerge over time or that have been radically reshaped once they are implemented. Firms employ emergent strategies since some of the information needed to complete the strategic management process may not be available when firms are developing their intended strategies. 99) First, studying strategy and the strategic management process can give individuals the tools they need to evaluate the strategies of the firms that may hire them. Second, once an individual is working for a firm, understanding that firm's strategy, and their place in it, can be very important to their personal success since the expectations of how they perform their function will be impacted by the firm's strategy. Finally, while strategic choices are generally limited to very experienced managers in large organizations, in smaller and entrepreneurial firms, many employees end up being involved in the strategic management process. 100) The residual claimants view is that equity holders only receive payment on their investment in a firm after all legitimate claims by a firm's other stakeholders are satisfied. This view then, posits that maximizing returns to its equity holders, a firm is ensuring that its other stakeholders are fully compensated for investing in a firm. 101) TRUE 102) FALSE 103) TRUE 104) FALSE 105) TRUE 106) TRUE