CHAPTER 1

The correct answer for each question is indicated by a

1
INCORRECT

The competitive moves and business approaches a company's management

are using grow the business, attract and please customers, compete
successfully, conduct operations, and achieve the targeted levels of
organizational performance is referred to as its:
strategic offensive for becoming a market leader.
A)
business model.
B)
long-term strategic direction.
C)
mission statement.
D)
strategy.
E)

2
INCORRECT

Which one of the following is not related to actions and approaches that
comprise a company's strategy?
How management intends to grow the business.
A)
B)

How to prove to shareholders that the company's business model is

viable.
How to build a loyal clientele and out compete rivals.

C)
How to boost the company's performance.
D)
How each functional piece of the business (R&D, supply chain activities,
production, sales and marketing, distribution, finance, and human

E) resources) will be operated.

3
INCORRECT

In committing to a particular strategy, a company's managers are in effect

saying:
A)
B)

"This is where we are headed and we have a plan for getting where we
want to go.''
"We have a plan for being a winner in the marketplace and our extensive
analysis of the company's situation indicates it will work."
"This is who we are, what we do, and where we are headed."

C)
"Among all the many different business approaches and ways of
competing we could have chosen, we have decided to employ this
D) particular combination of competitive and operating approaches in
moving the company in the intended direction, strengthening its market
position and competitiveness, and boosting performance."
E)

4
INCORRECT

"This is our current business model, but it will probably have to be

modified as market conditions change."

The heart and soul of any strategy is:

A)
B)

to identify actions and operating approaches that will validate the

company's business model work.
to identify business approaches that will produce good bottom-line
results.

the actions and moves in the marketplace that managers are taking to
improve the company's financial performance, strengthen its long-term
C) competitive position, and gain a competitive edge over rivals.
D)
E)

the actions a company takes to steal substantial sales and market share
away from rivals.
pursuing competitive maneuvers that will make the company a market
leader.

5 CORRECT

Which of the following is not one of the most frequently used strategic
approaches to building competitive advantage?
Striving for a competitive edge based on bigger profit margins.
A)
Developing expertise and resource strengths that give the company
competitive capabilities that rivals can't easily imitate or trump with
B) capabilities of their own.
C)

Striving to be the industry's low-cost provider, thereby aiming for a costbased competitive advantage over rivals.

Focusing on a narrow market niche and winning a competitive edge by

doing a better job than rivals of serving the special needs and tastes of
D) buyers comprising the niche.
Outcompeting rivals based on differentiating features.
E)

6
INCORRECT

A company's strategy and its quest for competitive advantage are tightly
related because:
A)

a company's strategy determines whether it will have lower or higher

costs than rivals and thus be at a competitive advantage or disadvantage.
competitive advantage is essential to having a profitable business model.

B)
C)
D)

choosing a competitive advantage to pursue also helps a company choose

which business model is most appropriate.
competitive advantage enables a company to achieve its strategic
objectives.

a company is almost certain to have better profits and financial

performance when its strategy produces a competitive advantage over
E) rivals as opposed to when the strategy results in a competitive
disadvantage--in short, a strategy that leads to sustainable competitive
advantage is a company's most reliable means of achieving aboveaverage profitability and financial performance.

7
INCORRECT

Which one of the following is not something to look for in identifying a

company's strategy?
Its actions to enter new geographic or product markets or exit existing
ones and its actions to form strategic alliances and collaborative
A) partnerships.
B)
C)

Its actions to merge with or acquire another company in order to

strengthen the company's business position.
Its actions to capture emerging market opportunities and defend against
external threats to the company's business prospects.
The company's actions to validate and improve upon its business model.

D)
E)

8
INCORRECT

The actions and approaches that define how a company manages such
functions as R&D, production, sales and marketing, and finance.

What separates a powerful strategy from a run-of-the-mill or ineffective one

is:
A)

whether the strategy allows the company's business model to work as

planned.
whether the strategy produces good bottom-line results.

B)
management's ability to forge a series of moves, both in the marketplace
and internally, that sets the company apart from rivals, tilts the playing
C) field in the company's favor by giving buyers a reason to prefer its
products or services, and produces a sustainable competitive advantage
over rivals.
D)
E)

9
INCORRECT

the extent to which the strategy enables a company to boost its sales and
market share.
whether the strategy ends up being a substantial contributor to achieving
the company's strategic vision.

Company strategies evolve because:

A)

it is a bad idea to do too much strategizing until a company has been in

business long enough to know what strategies will work best.

B)

most managers like to develop the strategy in bits and pieces rather than
all at once.

of the ongoing need to respond to changing market conditions, advancing

technology, the fresh moves of competitors, shifting buyer needs and
C) preferences, emerging market opportunities, new ideas for improving the
strategy, and any evidence that indicates the strategy is not working well.
many managers are conservative, preferring to carefully contemplate the
best responses to new developments and avoiding the risks associated
D) with developing a complete strategy too quickly.
a strategy does not really transition to a well-crafted stage until a
company has been trying to execute it for a number of years and has
E) learned what works and what doesn't.

10
INCORRECT

It is normal for a company's strategy to end up being:

A)

little different from management's original planned set of actions and

business approaches since making on-the-spot changes is too risky.

a combination of defensive moves to protect the company's market share

and offensive initiatives to set the company's product offering apart from
B) rivals.
pretty much like the strategies of other industry members since all
companies are confronting much the same market conditions and
C) competitive pressures.
a blend of proactive actions to improve the company's competitiveness
and financial performance and as-needed reactions to unanticipated
D) developments and fresh market conditions.
E)

11
INCORRECT

a mirror image of its business model, so as to avoid impairing company

profitability.

A company's strategy can be considered "ethical":

A)

if all of its different actions and elements are legal and in compliance
with governmental rules and regulations.

so long as its actions and behaviors can pass the test of "moral scrutiny"
and are aboveboard in the sense of not being shady or unconscionable,
B) injurious to others, or unnecessarily harmful to the environment.
C)

only if all elements of the strategy are in accord with what is generally
considered as being in the overall best interests of society at large.

D)
E)

12
INCORRECT

so long as religious authorities and noted ethics experts find nothing

"wrong" in the company's actions.
if it in compliance with the company's code of ethics and has been
approved by the company's chief ethics officer.

A company's business model:

determines whether its strategy will be ethical or not.
A)
B)

is management's storyline for how the strategy will result in achieving

sustainable competitive advantage.

is management's storyline or rationale for how the strategy will be a

moneymaker--absent the ability to deliver good profitability, the strategy
C) is not viable and the survival of the business is in doubt.
D)
E)

13
CORRECT

identifies how the company plans to outmaneuver and outcompete key

rivals and become a market leader.
sets forth the actions and approaches that it will rely on to earn the best
profit margins in the industry.

Which of the following statements about a company's strategy is false?

Normally, companies have a narrow window of strategic freedom in
choosing the hows of strategy because all competitors are facing the
A) same market conditions and competitive pressures and, therefore, have to
cope with them using very similar strategies.
A company's strategy results in achieving sustainable competitive
advantage when an attractive number of buyers prefer its products or
B) services over the offerings of competitors and when the basis for this
preference is durable.
C)
D)

A company's strategy is based partly on trial-and-error organizational

learning about what has worked well and what hasn't.
A company's strategy and strategic moves are only partly the result of
proactive plotting and management design.
A company's strategy is a work in progress, not a one-time management
exercise.

E)

14
INCORRECT

Comcast's strategy (as described in Illustration Capsule 1.1) does not include
which one of the following?
A)

Continue to roll out high-speed Internet or broadband service to

customers via cable modems

Promote a video-on-demand service whereby digital customers with a

set-top box could order and watch pay-per-view movies using a menu on
B) their remote
Use "voice-over-Internet-protocol" (VoIP) technology to offer
subscribers Internet-based phone service at a fraction of the cost charged
C) by other providers
D)
E)

15
INCORRECT

Partner with Sony, MGM and others to expand Comcast's library of

movie offerings
Seek to combat mounting competition from direct-to-home satellite TV
providers by starting up Comcast's own satellite TV service

Which of the following statements concerning Microsoft's business model

and Red Hat's business model (as discussed in Illustration Capsule 1.2) is
false?
A)

Microsoft has a proven business model while Red Hat's business model
is unproven.

Microsoft's business model involves employing a cadre of highly skilled

programmers to develop proprietary code; keeping the source code
B) hidden from customers/users, and locking them in to using Microsoft's
proprietary software.
Most of Microsoft's costs arise on the front end in developing the
software and are thus "fixed"; the variable costs of producing and
C) packaging the CDs provided to users are only a couple of dollars per
copyonce the breakeven volume is reached, Microsoft's revenues from
additional sales are almost pure profit.
Red Hat relies on the collaborative efforts of volunteer programmers
from all over the world who contribute bits and pieces of code to
D) improve and polish the Linux system.
E)

Red Hat's business model is predicated on closely guarding its source

code while Microsoft is a strong advocate of open or free source code.

16
INCORRECT

Which of the following statements about a company's strategy is true?

Crafting an excellent strategy is more important than executing it well.
A)
B)

C)
D)
E)

17
INCORRECT

Managers at all companies face three central questions in thinking

strategically about their company's present circumstances and prospects:
What's the company's present situation? Where does the company need
to go from here? How should it get there?
A company's strategy deals with whether the revenue-cost-profit
economics of its business model demonstrate the viability of the business
enterprise as a whole.
Masterful strategies come partly (maybe mostly) by doing things in much
the same way as the industry leader but then being better than the leader
in one particular area that counts heavily with buyers.
Whether a company's strategy is ethical or not does not matter a lot
because most customers and most suppliers are relatively unconcerned
whether a company they do business with engages in sleazy practices or
turns a blind eye to below-board behavior on the part of its employees.

A company's strategy:
A)

is shaped partly by management analysis and choice and partly by the

necessity of adapting and learning by doing.

is fluid, representing the temporary outcome of an ongoing process that,

on the one hand, involves reasoned and creative management efforts to
B) craft an effective strategy and, on the other hand, involves ongoing
responses to market change and constant experimentation and tinkering.
stands a better chance of succeeding when it is predicated on actions,
business approaches, and competitive moves aimed at appealing to
C) buyers in ways that set a company apart from rivals and carving out its
own market position.
is revealed in part by its actions to gain sales and market share via lower
prices, more performance features, more appealing design, better quality
D) or customer service, wider product selection, and other competitive
tactics.
All of the above.
E)

18
INCORRECT

A winning strategy is one that:

A)

makes the company a market leader, is ethically and socially responsible,

and maximizes profits.
is highly profitable and boosts the company's market share.

B)
C)
D)
E)

19
INCORRECT

20
INCORRECT

passes the profitability test, the ethics and social responsibility test, the
customer satisfaction test, and the shareholder wealth test.
fits the company's internal and external situation, builds sustainable
competitive advantage, and boosts company performance.
passes the ethical standards test, the competitive advantage test, and the
profitability test.

Crafting and executing strategy are top-priority managerial tasks because:

how managers go about the tasks of crafting and executing strategy sends
a message to shareholders and the entire investment community
A) regarding "what it is we are trying to do and how we plan to achieve our
objectives."
The company is unlikely to be profitable unless senior executives have a
clear answer to "where are we headed, how do we plan to get there, and
B) when do we expect to arrive?"
there is a compelling need for managers to proactively shape how the
company's business will be conducted and because a strategy-focused
C) organization is more likely to be a strong bottom-line performer.
without clear guidance as to what the company's business model and
strategy are, managerial decision-making is likely to be haphazard and
D) inconsistent.
a company cannot hope to be a market leader if all it does is respond to
changing market conditions, new technologies, new opportunities, and
E) threatening moves on the part of competitors.

The most trustworthy signs of a well-managed company are:

a strong emphasis on offensive strategies rather than defensive strategies.
A)

B)

a strategy matched to fast-evolving market conditions and bigger profit

margins than rivals and a steady upward trend in net income.
attractive bottom-line performance and a proven business model.

C)
good strategy and good strategy execution.
D)
having a profitable business model, a willingness to change the
company's business model whenever circumstances warrant, and having
E) a sustainable competitive advantage.

CHAPTER 2
The correct answer for each question is indicated by a
1
INCORRECT

Which one of the following is not an integral part of the managerial process
of crafting and executing strategy?
Developing a strategic vision
A)
Choosing a strategic intent
B)
Setting objectives and crafting a strategy to achieve them
C)
Evaluating performance and initiating corrective adjustments in the
company's long-term direction, objectives, strategy, or execution in light
D) of actual experience, changing conditions, new ideas, and new
opportunities
E)

2
INCORRECT

Implementing and executing the chosen strategy efficiently and

effectively

A strategic vision for a company:

A)
B)

involves how fast to pursue the chosen strategy and reach the targeted
levels of performance.
consists of thinking through what it will take to make the chosen strategy
work as planned.

delineates management's aspirations for the business, providing a

panoramic view of "where we are going" and a convincing rationale for
C) why this makes good business sense for the company--a strategic vision
thus points an organization in a particular direction and charts a strategic
path for it to follow in preparing for the future.
D)
E)

3
INCORRECT

concerns management's view of how to transition the company's business

model from where it is now to where it needs to be.

Which of the following is not an important consideration in deciding to

commit to one directional path versus another?
A)
B)
C)
D)
E)

4
INCORRECT

spells out how the company is going to get from where it is now to where
it want to go and when it is expected to arrive.

Are changes underway in the market and competitive landscape acting to

enhance or weaken the company's prospects?
Where should we head in order to prove that our business model is viable
and that our strategy is working?
Will the company's present business generate sufficient growth and
profitability in the years ahead to please shareholders?
What, if any, new geographic markets and/or customer groups should the
company get in position to serve?
What are our ambitions for the company--what industry standing do we
want the company to have?

The difference between a company's mission statement and the concept of a

strategic vision is that:
the mission statement lays out the desire to make a profit, whereas the
strategic vision addresses what strategy the company will employ in
A) trying to make a profit.

B)
C)

a mission statement deals with "where we are headed " whereas a

strategic vision provides the critical answer to "how will we get there?"
a mission deals with what a company is trying to do and a vision
concerns what a company ought to do.

a mission statement typically concerns an enterprise's present business

scope and purpose--"who we are, what we do, and why we are here"-D) whereas the focus of a strategic vision is on the direction the company is
headed and what its future product-customer-market-technology focus
will be.
E)

5
INCORRECT

a mission is about what to accomplish for shareholders whereas a

strategic vision concerns what to accomplish for customers.

Which one of the following is not a characteristic of an effectively-worded

strategic vision statement (see Table 2.2, as well as the discussion on page
21)?
Directional (is forward-looking;describes the strategic course that
management has charted and the kinds of product-market-customerA) technology changes that will help the company prepare for the future)
B)

Concrete and unambiguous (leaves no doubt as to what the company is

trying to accomplish for shareholders)
Graphic (paints a clear picture)

C)
Easy to communicate (ideally, explainable in 10 minutes)
D)
Focused and flexible (specific enough to provide managers with
guidance in making decisions and allocating resources but stops short of
E) a once-and-for-all-time statement because the strategic path may need to
be changed as as market-customer-technology circumstances change)

6
INCORRECT

According to both the text discussion and the summary in Table 2.3, which of
the following is not a common shortcoming of company vision statements?
Incomplete or vagueshort on specifics
A)

B)

Too reliant on superlatives (best, most successful, recognized leader,

global or worldwide leader, first choice of buyers)

Too broadso umbrella-like and all-inclusive that the company could

head in most any direction, pursue most any opportunity, or enter most
C) any business
D)

Lacking in analysisbased more on managerial emotion and excessive

ambition than on what is realistically achievable

Not distinctiveprovides no unique company identity; could apply to

companies in any of several industries (or at least several rivals operating
E) in the same industry or market arena)

7
INCORRECT

Which of the following statements about a company's values is false?

A company's values are the beliefs, traits, and behavioral norms that
company personnel are expected to display in conducting the company's
A) business and pursuing its strategic vision and strategy.
In companies with long-standing values that are deeply entrenched in the
corporate culture, senior managers are careful to craft a vision, mission,
B) and strategy that match established values, and they reiterate how the
value-based behavioral norms contribute to the company's business
success. If the company changes to a different vision or strategy,
executives take care to explain how and why the core values continue to
be relevant.
A company's core values can relate to such things as fair treatment,
integrity, ethical behavior, the emphasis the company will place on
C) innovativeness or top-notch quality or superior customer service, and the
company's beliefs in high ethical standards, socially responsible
behavior, and giving back to the community.
At companies whose executives take the stated values very seriously, the
values are widely adopted by company personnel, are ingrained in the
D) corporate culture, and are mirrored in how company personnel conduct
themselves and the company's business on a daily basis.
E)

8
INCORRECT

At all but a few companies, the stated values are mostly window-dressing
and serve mainly to embellish the company's public image.

When there's an order of magnitude change in a company's environment that

dramatically alters its prospects and mandates radical revision of its strategic
course, the company is said to have encountered:
a strategy crossroads.

A)
a strategic inflection point.
B)
a new strategic intent opportunity.
C)
D)
E)

a strategic roadblock that requires a new strategic vision and business

model.
a fundamental strategic conflict that usually requires changing either the
company's strategic vision or its strategy or maybe even both.

9 CORRECT

A company's objectives or performance targets:

represent a managerial commitment to achieving specified outcomes and
results; they function as yardsticks for tracking the company's progress
A) and performance--well-stated objectives are quantifiable, or measurable,
and contain a deadline for achievement.
are typically established after a company decides on a strategic vision
and strategy so that they will entail performance targets that truly signal
B) business success.
are best stated in general terms (maximize profits, reduce costs, increase
sales) rather than quantifiable terms (increase after-tax profits by 10% in
C) 2 years, grow sales revenues by 20% annually) so that managers will
have the latitude to adjust target outcomes to levels that can be achieved.
D)

should place far more emphasis on financial performance targets than

strategic performance targets.
All of these.

E)

10
INCORRECT

Which of the following represents the best example of a well-stated strategic

objective (as opposed to a well-stated financial objective)?
Achieve revenue growth of 10% annually
A)
B)

Increase market share from 17% to 22% and achieve the lowest overall
costs of any producer in the industry, both within three years

C)
D)

Invest more money in R&D to enable the company to offer customers the
widest selection of products in the industry
Achieve a AA bond rating within 2 years and an annual cash flow of
$500 million
Pay more attention to reducing costs over the next two years

E)

11
INCORRECT

Establishing and achieving strategic objectives merits very high priority on

management's agenda because
A)
B)

strategic outcomes provide better benefits to shareholders in both the

short-run and the long-run.
a company can't have a shrewd strategic vision without having
aggressive and competitively astute strategic objectives.

the surest path to boosting company profitability quarter after quarter and
year after year is to relentlessly pursue strategic outcomes that strengthen
C) the company's market position and produce a growing competitive
advantage over rivals.
well-chosen strategic objectives help managers craft a good strategy.
D)
a company cannot achieve its strategic intent and strategic vision or gain
a competitive advantage over rivals without having and achieving
E) strategic objectives.

12
CORRECT

Which of the following statements about objectives is false?

A company's managers are well-advised to give the achievement of
financial objectives a much higher priority than the achievement of
A) strategic objectives.
Companywide objectives need to be broken down into performance
targets for each separate business, product line, functional department,
B) and individual work unit because company performance can't reach full
potential without each area of the organization doing its part and
contributing directly to the desired companywide outcomes and results.
A "balanced scorecard" for measuring company performance views
financial performance measures as lagging indicators that reflect the
C) results of past decisions and organizational activities and views strategic

performance measures as leading indicators of a company's future

financial performance.
D)

Objectives should be set at high enough levels to stretch an organization

to reach its full potential.

The experiences of countless companies and managers teach that

precisely spelling out how much of what kind of performance by when
E) and then pressing forward with actions and incentives calculated to help
achieve the targeted outcomes greatly improve a company's actual
performance.

13
INCORRECT

A balanced scorecard for measuring company performance:

entails balancing the pursuit of good bottom-line profit against the
pursuit of non-profit objectives (although achieving profitability targets
A) is nearly always given greater emphasis).
B)
C)
D)

involves putting equal emphasis on the achievement of financial

objectives, strategic objectives, and social responsibility objectives.
entails setting both financial and strategic objectives and putting
balanced emphasis on their achievement.
helps prevent the pursuit of strategic objectives from dominating the
pursuit of financial objectives.

is necessary in order to prevent the drive for achieving financial

objectives from weakening the attention paid to social responsibility,
E) community citizenship, and other worthy goals.

14
INCORRECT

A company exhibits strategic intent when:

it pursues its strategic vision.
A)
B)

it relentlessly pursues an ambitious strategic objective and concentrates

its full resources and competitive actions on achieving that objective.
it adopts a strategic plan and tries to execute it.

C)
it sets objectives and pursues their achievement.
D)

it crafts a strategy and proceeds to implement it.

E)

15
INCORRECT

The task of crafting a strategy is:

the function and responsibility of a few high-level executives.
A)
more of a collaborative group effort that involves all managers and
sometimes key employees striving to arrive at a consensus on what the
B) overall best strategy should be.
the function and responsibility of a company's strategic planning staff.
C)
a job for a company's whole management team--senior executives plus
the managers of business units, operating divisions, functional
D) departments, manufacturing plants, and sales districts (as per the
strategy-making hierarchy shown in Figure 2.2).
E)

16
INCORRECT

first and foremost the function and responsibility of a company's board of

directors.

As per Figure 2.2, the strategy-making hierarchy in a single business

company consists of:
business strategy, divisional strategies, and departmental strategies.
A)
business strategy, functional strategies, and operating strategies, whereas
in a diversified company it consists of corporate strategy, business
B) strategies (one for each business the diversified company is in),
functional strategies, and operating strategies.
business strategy and operating strategy.
C)
managerial strategy, business strategy, and divisional strategies.
D)
corporate strategy, divisional strategies, and departmental strategies
(whereas in a diversified company it consists of corporate strategy,
E) divisional strategy and operating strategy).

17
INCORRECT

Functional strategies:
A)

describe the mission and strategic intent of each key functional piece of
the business.

concern what to do about resolving the specific strategic issues and

operating problems a business confronts in each key part of its business-B) R&D, production, sales and marketing, finance, information technology,
human resources, and so on.
C)

are normally crafted by the executive in charge of the overall business

and approved by the company's board of directors.

add relevant detail to the overall business strategy by setting forth the
actions, approaches, and practices to be employed in managing particular
D) functions or business processes or key activities within a business--the
primary role of a functional strategy is to support the company's overall
business strategy and competitive approaches.
are concerned with what competitive capabilities to build in support of
the overall company strategy and what to do to unify the firm's skills,
E) competencies, and resource strengths across all the various key pieces of
a company's business.

18
INCORRECT

Operating strategies concern:

A)

what a company's various operating departments plan to do to help

execute the company's overall strategy.
the strategic intent of each operating unit.

B)
the relatively narrow strategic initiatives and approaches for managing
key operating units (plants, distribution centers, geographic units) and
C) specific operating activities with strategic significance (advertising
campaigns, the management of specific brands, supply chain-related
activities, and website sales and operations)--operating strategies add
further detail and completeness to functional strategies and to the overall
business strategy.
D)
E)

the specific actions a company's various operating departments plan to

take to unify efforts to achieve a sustainable competitive.
what a company will do once its strategic plan is adopted and approved
by the company's board of directors.

19
INCORRECT

A company's strategic plan consists of:

A)

the actions and market maneuvers it plans to use to achieve a sustainable

competitive advantage.

management's vision of where the company is headed, the established

financial and strategic objectives, and management's strategy to achieve
B) the objectives and move the company along the chosen strategic path.
C)
D)
E)

20
CORRECT

a company's strategic vision, strategic objectives, strategic intent, and

strategy.
an organization's strategy and management's specific, detailed plans for
implementing it.
the specific actions management intends to take in detouring strategic
inflection points and executing its overall strategy.

Which one of the following is not among the chief duties/responsibilities of a

company's board of directors insofar as the strategy-making, strategyexecuting process is concerned?
Directing senior executives as to what the company's long-term direction,
objectives, business model, and strategy should be and, further, closely
A) supervising senior executives in their efforts to implement and execute
the strategy.
B)
C)
D)

Overseeing the company's financial accounting and financial reporting

practices.
Evaluating the caliber of senior executives' strategy-making/strategyexecuting skills.
Being inquiring critics and exercising strong oversight over the
company's direction, strategy, and business approaches.

Instituting a compensation plan for top executives that rewards them for
actions and results that serve stakeholders' interests, most especially
E) those of shareholders.

CHAPTER 3

The correct answer for each question is indicated by a

1 INCORRECT

Which of the following is not one of the questions that needs to be

answered in thinking strategically about a company's industry and
competitive environment?
A)
B)
C)

What kinds of competitive forces are industry members facing, and

how strong is each force?
What emerging opportunities and threats are evident in the industry
environment?
What market positions do industry rivals occupy--who is
strongly/weakly positioned and who is not?
What are the key factors for future competitive success?

D)
E)

What forces are driving changes in the industry, and what impact will
these changes have on competitive intensity and industry profitability?

2 CORRECT

In identifying an industry's dominant economic features, there is a need to

consider such things as:
market size and growth rate, the number of buyers, the scope of
competitive rivalry, the number of rivals, demand-supply conditions,
A) product innovation, the degree of product differentiation, the presence
of scale economies and/or learning/experience curve effects, and the
pace of technological change.
B)
C)

the threat of additional entry into the industry and what the industry's
key success factors are.
the strength of competitive pressures from producers of substitute
products and which competitors are in which strategic groups.

the extent and importance of seller-supplier collaborative partnerships,

the extent and importance of seller-buyer collaborative partnerships,
D) and the bargaining leverage of sellers and buyers.
All of these.
E)

3 INCORRECT

According to both the text discussion and the summary in Figure 3.4,
which of the following is not among the factors that determine whether
competitive rivalry among industry members is strong, moderate, or weak?
Whether buyer demand for the product is growing rapidly or slowly
A)
Whether customers' costs to switch brands is low or high
B)
How active industry rivals are in initiating fresh competitive moves
and in using the various weapons of competition to improve their
C) market standing and business performance
D)

Whether there are few or many rival sellers and whether there are big
differences in their sizes and competitive capabilities

Whether industry members are vertically integrated and whether the

industry is characterized by significant scale economies and rapid
E) technological change

4 INCORRECT

The rivalry among competing sellers in an industry intensifies:

when buyer demand for the product is growing rapidly.
A)
B)
C)
D)

when customers are brand loyal and their costs to switch to competing
brands or substitute products are relatively high.
when buyer demand is strong and sellers have little or no excess
capacity and only minimal inventories.
as the number of rivals increases and as they become more equal in
size and competitive capability.

when the products of rival sellers are highly differentiated products

and the industry consists of so many rivals that any one company's
E) actions have little direct impact on rivals' business.

5 INCORRECT

Factors that cause the rivalry among competing sellers to be weak include:
low buyer switching costs.

A)
slow growth in buyer demand.
B)
strong buyer loyalty, rapid growth in buyer demand, and so many
industry rivals that any one company's actions have little impact on the
C) businesses of its rivals.
standardized or else weakly differentiated products among rival sellers.
D)
E)

6
UNANSWERE
D

the presence of one or more rivals that are dissatisfied with their
current position and market share.

According to both the text discussion and the summary in Figure 3.5,
competitive pressures associated with the threat of new entrants grow
stronger when:
A)
B)

buyer demand is growing slowly and the pool of entry candidates is

small.
the number of customers for the industry's product is large and the
product offerings of rival sellers are strongly differentiated.

industry members are looking to expand their market reachby entering

product segments or geographic areas where they currently do not
C) have a presence, when current industry members are unable or
unwilling to strongly contest the entry of newcomers, and when a
newcomer can reasonably expect to earn attractive profits.
D)

there are not many competitors already in the industry, their products
are highly differentiated, and buyers are brand loyal.

a small percentage of companies in the industry are currently earning

above-average profits, entry barriers are high, and buyers are not brand
E) loyal.

7 INCORRECT

Which of the following conditions generally raise the barriers to entering

an industry?
A)

Low levels of brand loyalty on the part of customers and the presence
of more than 20 rivals in the industry

B)

Rapid market growth, low buyer switching costs, and weak brand
preferences and customer loyalty
Product offerings that are pretty much standardized from rival to rival

C)
High capital requirements, difficulties in building a network of
distributors-retailers and securing adequate space on retailers' shelves,
D) and the likelihood that industry incumbents will strongly contest the
efforts of new entrants to gain a market foothold
The industry is not characterized by scale economies and/or sizable
learning/experience curve effects and few firms in the industry hold
E) key patents and/or possess significant proprietary technology not
readily available to a newcomer

8 CORRECT

Based on both the chapter discussion and the summary in Figure 3.6,
competitive pressures stemming from substitute products are weaker when:
substitutes are higher-priced, buyers don't believe substitute products
have equal or better features, and buyers' costs of switching to
A) substitutes are relatively high.
B)
C)
D)
E)

the industry consists of a relatively large number of rival sellers that

are fairly equal in size and competitive capability.
entry barriers are moderately high but by no means prohibitive and
there is a fairly small pool of entry candidates.
a number of customers buy in large volumes and are in a strong
bargaining position to win concessions from sellers.
buyer loyalty to the products they are currently purchasing is relatively
low.

9 INCORRECT

Which of the following is not a factor in determining whether the suppliers

to an industry are a source of strong, moderate, or weak competitive
pressures?
Whether certain needed inputs are in short supply and whether the
item being supplied is a standard commodity that is readily available
A) from many suppliers at the going market price
Whether it is difficult or costly for industry members to switch their
purchases from one supplier to another or to switch to attractive

B) substitute inputs
Whether industry members are major customers of suppliers and
whether suppliers' sales to members of this one industry constitute a
C) big percentage of their total sales
Whether the industry supply chain is global or mostly national,
whether suppliers have a wide or narrow product line, and whether
D) industry members place orders frequently or infrequently with
suppliers
E)

10
INCORRECT

Whether certain suppliers provide a differentiated input that enhances

the performance or quality of the industry's product

Which of the following is not a reason that industry rivals are often
motivated to enter into strategic partnerships with key suppliers?
A)

To enhance the quality of parts and components being supplied and/or

to reduce defect rates
To speed the availability of next-generation components

B)
C)
D)

To reduce the bargaining power they face from buyers of their

products
To squeeze out important cost savings for both themselves and their
suppliers
To reduce inventory and logistics costs

E)

11
INCORRECT

Whether the buyers of an industry's product have strong or weak

bargaining leverage over the terms and conditions of sale depends on:
how often that sellers alter their prices, how sensitive buyers are to
price differences among sellers, whether the item being purchased is a
A) good or a service, and whether buyers buy frequently or infrequently.
B)

the frequency with which rival firms change strategies and the amount
of advertising that sellers utilize.

whether all buyers have the same degree of negotiating power, whether
the item carries a high or low price tag, and whether there are many or
C) few collaborative partnerships between sellers and buyers.

whether buyers purchase in relatively large or small quantities,

whether the costs of switching to competing brands or to substitute
D) products are high or low, and how well informed buyers are about
sellers' prices, products, and costs.
whether buyer demand is seasonal or year-round, whether entry
barriers are high or low, and whether competitive pressures from
E) substitutes are strong or weak.

12
INCORRECT

As a rule, the stronger the collective impact of the five competitive forces,
the more strategic groups there are in an industry.
A)
the lower the number of industry key success factors.
B)
C)

the lower the combined profitability of industry participants and the

more "competitively unattractive" is the industry environment.
the weaker the industry's driving forces.

D)
E)

13
INCORRECT

the higher the barriers to entry and the less likely it is that industry
members will make fresh strategic moves very frequently.

The task of driving forces analysis is to:

A)
B)
C)
D)

identify all the underlying factors that can cause industry profitability
to rise or fall in the years ahead.
predict what new forces of competitive and market change will emerge
next.
determine which of the five competitive forces is the biggest driver of
industry change.
identify which companies are being driven to move from one strategic
group to another strategic group.

identify what the driving forces are, assess whether the drivers of
change are, on the whole, acting to make the industry more or less
E) attractive, and determine what strategy changes are needed to prepare

for the impacts of the driving forces.

14
INCORRECT

Which of the following is not among the most common types of driving
forces?
A)

Product innovation, marketing innovation, increasing globalization of

the industry, and reductions in uncertainty and business risk

Changes in the long-term industry growth rate, changes in who buys

the product and how they use it, and growing buyer preferences for
B) differentiated products
Ups and downs in interest rates, changes in the number of sellersupplier collaborative alliances, and changes in overall industry
C) profitability
Emerging new Internet applications and capabilities, technological
change, and the diffusion of technical know-how across more
D) companies and more countries
E)

15
INCORRECT

Changes in cost and efficiency, the entry or exit of major firms, and
changing societal concerns, attitudes, and lifestyles

The procedure for constructing a strategic group map involves:

A)

identifying the competitive characteristics that differentiate firms'

market positions and competitive approaches.
selecting variables for the map's axes that are highly correlated.

B)
using only variables for the map's axes that are quantitative in nature
(qualitative measures of market positions and competitive approaches
C) are too subjective and unreliable).
plotting the firms on a two-variable or two-dimensional map, drawing
circles around those firms occupying about the same strategy space,
D) and making the size of the circles for each strategic group proportional
to the size of its members' share of total industry sales revenues.
Both A and D
E)

16
INCORRECT

A strategic group map is a helpful analytical tool for:

A)
B)
C)

assessing why competitive pressures and driving forces usually impact

the biggest strategic groups more so than the smaller groups.
determining which companies have how big a competitive advantage
and how good their prospects are for increasing their market shares.
determining which company is the most profitable in the industry and
why it is doing so well.

determining who competes most closely with whom; evaluating

whether industry driving forces and competitive pressures favor some
D) strategic groups and hurt others; and ascertaining whether the profit
potential of different strategic groups varies due to the strengths and
weaknesses in each group's respective market positions.
E)

17
INCORRECT

pinpointing which of the five competitive forces is the strongest and

which is the weakest.

Trying to determine what strategic moves rivals are likely to make next:
A)
B)

is interesting but usually has little bearing on a company's own best

strategic moves.
usually requires evaluating the industry's key success factors as well as
determining how many driving forces are present.

is best done by monitoring each rival's market share, earnings per

share, and stock price--adverse changes in these measures signal the
C) coming of a fresh move but as long as a company's performance on
these measures is satisfactory the chance of fresh moves is slim.
cannot be done effectively without first drawing a strategic group map.
D)
entails understanding rivals' strategies, watching their actions on a
regular basis, sizing up their strengths and weaknesses, gauging how
E) well they are faring in the marketplace, assessing how much pressure
they are under to improve their performance, and evaluating the
relative merits of their strategic options and alternatives so as to better
predict their likely next moves.

18
INCORRECT

An industry's key success factors:

can best be determined by studying the strategies of those companies

in the industry's best strategic group and those in the worst strategic
A) group.
concern the particular strategy elements, product attributes, resources,
competencies, competitive capabilities, and market achievements that
B) spell the difference between being a strong competitor and a weak
competitor--and sometimes between profit and loss.
C)

are mainly a function of an industry's macro-environment and

dominant economic features.

can best be determined by identifying the similarities in the strategies

of rival companies--those strategy elements that are most commonly
D) found in the strategies of rivals can be considered key success factors.
E)

19
INCORRECT

usually relate to technology and manufacturing-related capabilities and

rarely to distribution or marketing capabilities.

Which of the following is not an important factor for company managers to

consider in drawing conclusions about whether the industry presents an
attractive opportunity?
Whether powerful competitive forces are squeezing industry
profitability to subpar levels and whether competition appears destined
A) to grow stronger or weaker
B)
C)
D)

The industry's growth potential and the degree of uncertainty and risk
in the industry's future
Whether industry profitability will be affected favorably or
unfavorably by the prevailing driving forces
How many of the industry's key success factors do companies in the
industry typically incorporate into their strategies

The company's ability to capitalize on the vulnerabilities of weakly

positioned rivals and whether the company has sufficient competitive
E) strength to defend against or counteract the factors that make the
industry unattractive

20 CORRECT

Which one of the following statements is false?

A company's macro-environment includes all relevant external factors
and influences that bear upon a company's decision to move to a
A) different strategic group, change its strategic intent, or modify its

objectives, strategy, or business model.

A company's strategy is increasingly effective the more it provides
some insulation from competitive pressures and shifts the competitive
B) battle in the company's favor.
C)

The task of driving forces analysis is to separate the major causes of

industry change from the minor ones.

Scouting competitors well enough to anticipate their next moves

allows managers to prepare effective countermoves (perhaps even beat
D) a rival to the punch) and to take rivals' probable actions into account in
crafting their own best course of action.
The degree to which an industry is attractive or unattractive is not the
same for all industry participants or all potential entrants because the
E) attractiveness of the opportunities an industry presents depends heavily
on whether a company has the resource strengths and competitive
capabilities to capture them.

CHAPTER 4
The correct answer for each question is indicated by a

1 CORRECT

Evaluating a company's resources and competitive position does not include

developing answers to which one of the following questions?
How good is the company's value chain?
A)
Is the company competitively stronger or weaker than key rivals?
B)
C)

What are the company's resource strengths and weaknesses and its
external opportunities and threats?
Are the company's prices and costs competitive?

D)
E)

2
INCORRECT

What strategic issues and problems merit front-burner managerial

attention?

Which one of the following is not helpful in identifying the components of a

single-business company's strategy?
The company's moves to respond to changing conditions in its macroenvironment and in industry and competitive conditions

A)
The scope of the company's geographic coverage
B)
The company's resource strengths and weaknesses
C)
The company's key functional strategies
D)
E)

3
INCORRECT

The company's planned, proactive moves to outcompete rivals and its

efforts to build competitive advantage

Which one of the following is not a good indicator of how well a company's
present strategy is working?
Whether its sales are growing faster than, slower than, or about the same
pace as the market as a whole, thus resulting in a rising, falling, or stable
A) market share.
How well the company stacks up against rivals on such factors as
technology, product quality, customer service, product innovation,
B) delivery time, speed in getting new products to market, and other factors
on which buyers base their choice of brands
C)
D)

Whether the firm's profit margins are increasing or decreasing and how
well its margins compare to rival firms' margins
Whether the company's resource strengths and competitive capabilities
outnumber its resource weaknesses and competitive vulnerabilities

The firm's image and reputation with its customers and whether the
company's overall financial strength and credit rating are improving or
E) on the decline

4
INCORRECT

SWOT analysis:
consists of three steps (as shown in Figure 4.2): identifying a company's
resource strengths and weaknesses and its opportunities and threats,
A) drawing conclusions about the company's overall situation, and
translating the conclusions into strategic actions to improve the
company's strategy and business prospects.
provides a quick overview of where on the scale from "alarmingly weak"
to "exceptionally strong" the attractiveness of the company's overall

B) business situation ranks.

C)

helps provide a basis for matching the company's strategy to its internal
resource capabilities and its external opportunities and threats.

helps identify a company's core competencies and competitive

capabilities and the seriousness of its resource weaknesses and
D) competitive deficiencies.
All of these.
E)

5
INCORRECT

A core competence:
is a more durable company resource than a "distinctive competence."
A)
usually resides in a company's technology and physical assets (state-ofthe-art plants and equipment, attractive real estate locations, modern
B) distribution facilities, and so on) whereas a company competence usually
resides in a company's human assets.
is typically knowledge-based, residing in people and in a company's
intellectual capital and not in its assets on the balance sheet; moreover, a
C) core competence tends to be grounded in cross-department combinations
of knowledge and expertise rather than being the product of a single
department or work group.
D)
E)

6
INCORRECT

is usually tied closely to the caliber of a company's manufacturing

capability and/or its proprietary technology and know-how.
is better suited to helping a company defend against external threats than
in pursuing external market opportunities.

Which one of the following groups of characteristics is least likely to

represent company strengths or competitive assets?
A)

Physical assets such as state-of-the-art plants, attractive real estate

locations, and worldwide distribution facilities

More plants than rivals, more employees than rivals, being in business
more years than rivals, and smaller capital investment expenditures than
B) rivals
A well-known brand name, a highly motivated workforce, and the
collective learning embedded in the organization

C)
Short development times in bringing new products to market, a strong
dealer network, strong collaborative partnerships with key suppliers, and
D) an experienced and capable workforce
Proven quality control skills, good supply chain management
capabilities, state-of-the-art systems for doing business via the Internet,
E) and a strong balance sheet

7
INCORRECT

A distinctive competence:
is a more important competitive asset than a core competence.
A)
represents uniquely strong capability relative to rival companiesit
qualifies as a competitively superior resource strength with competitive
B) advantage potential.
C)

is a competitively important value chain activity that a company

performs better than its rivals.
can underpin and add real punch to a company's strategy.

D)
All of the above.
E)

8
INCORRECT

Which of the following is not a measure of the competitive power of a

company's resource strengths?
How hard it is for competitors to copy the resource strength
A)
B)
C)
D)

Whether the company has more resources/capabilities than any other key
rival
Whether a company's resource is really competitively superior to what
rivals have or can do
How easily the resource or capability can be trumped by the different
resources/capabilities of rivals
Whether the resource or capability is durable and has staying power (in
the sense of not losing its value quickly because of new developments)

E)

9
INCORRECT

The industry or market opportunities that are most relevant to a company and
those which its strategy should aim at capturing include:
A)

opportunities that are well-suited to the company's competitive

capabilities and resource strengths.
opportunities which the company has the financial resources to pursue.

B)
opportunities that offer important avenues for growth.
C)
D)

opportunities where the company has the greatest potential for

competitive advantage.
All of the above.

E)

10
INCORRECT

Which of the following is not an example of an external threat to a company's

future business prospects (see Table 4.2)?
A)
B)
C)

Mounting intensity of competition among industry rivals and costly new

regulatory requirements
Having a weaker brand image than rivals and a smaller network of
retailer dealers than rivals
Shifts in buyer needs and preferences away from using the industry's
product

Vulnerability to unfavorable industry driving forces and adverse

demographic changes that are likely to curtail demand for the industry's
D) product
Growing bargaining power on the part of customers and/or suppliers
E)

11
INCORRECT

Which of the following analytical tools are particularly useful for

determining whether a company's prices and costs are competitive?
A)
B)

SWOT analysis, strategy assessment, activity-based costing analysis, and

key success factor analysis.
SWOT analysis, competitive strength assessment, best practices analysis,
and value chain analysis.
Value chain analysis and benchmarking.

C)
D)
E)

12
INCORRECT

Competitive position assessment, competitive strength assessment,

strategic group mapping, SWOT analysis, and value chain analysis.
SWOT analysis, best practices analysis, activity-based costing analysis,
and competitive strength assessment.

A company's value chain consists of:

A)

the activities a company performs in converting its resource weaknesses

into resource strengths.

the collection of activities it performs in the course of designing,

producing, marketing, delivering, and supporting its product or service
B) and delivering value to customersthese activities can be grouped into
(a) the primary activities that are foremost in creating value for
customers and (b) the related support activities that facilitate and enhance
the performance of the primary activities.
those activities a company performs that represent "best practices"only
best practice activities are capable of delivering value to customers and
C) thus qualify to be part of a company's value chain.
D)

the activities that a company performs in developing a distinctive

competence.

the activities that represent a company's competencies, core

competencies, distinctive competencies, and competitive capabilitiesit
E) is these activities that underpin a company's efforts to create value for
customers and shareholders.

13
INCORRECT

Benchmarking:

is inherently unethical if it involves companies that are direct competitors

because it involves gathering competitively sensitive information about
A) the operations and costs of rivals.
B)

is not a valid tool for measuring the cost-effectiveness of an activity

unless it is restricted to companies in the same industry.

is a tool for learning which companies are best at performing particular

activities and then using their techniques (or "best practices") to improve
C) the cost and effectiveness of a company's own internal activities.
loses much of its managerial usefulness if it is done with the aid of thirdparty organizations who insist on protecting the confidentiality of
D) individual company data; moreover, benchmarking is not used very often
by companies because of "borderline" ethical considerations and because
most of the time the information and data used in doing benchmarking
studies has turned out to be unreliable and untrustworthy.
E)

14
INCORRECT

entails calculating the costs of performing each of the primary and

related support activities in a company's value chain.

A company's cost competitiveness is largely a function of:

whether it does a good enough job of benchmarking its value chain
activities against the value chains of competitors so that it knows exactly
A) how low to drive its costs to be cost-competitive.
B)
C)
D)

how efficiently it manages its overall value chain activities relative to

how efficiently competitors manage theirs.
whether it does a better job of building its resource strengths more cost
effectively than rivals.
whether it possesses more core competencies and competitive
capabilities than rivals.

how closely its internally-performed activities are linked to the activities

performed by suppliers and to the activities performed by forward
E) channel allies.

15
CORRECT

Strategic actions to eliminate a cost disadvantage:

can aim at lowering costs (1) in the suppliers' part of the industry value
chain, (2) in a company's own internally-performed activities, and/or (3)
A) in the forward channel portion of the value chain.

work best when they aim at lowering the costs of performing those tasks
and activities where the company has core competencies and distinctive
B) competencies.
work best when aimed at increasing the amount of the company's lowcost competitive assets and decreasing the amount of its high-cost
C) competitive assets.
D)

are likely to be most effective when they are aimed at lowering the costs
of the value chain activities that a company performs internally.

are most likely to be successful when they involve efforts to concentrate

more company resources and talents on those value chain activities
E) where the company already has the lowest costs.

16
INCORRECT

The options for attacking the high costs of items purchased from suppliers
does not include which one of the following?
Pressuring suppliers for more favorable prices
A)
B)

Integrating backward into the business of high-cost suppliers and making

the item in-house so as to better control the cost
Switching to lower priced substitute inputs

C)
Raising prices to customers (so as to cover the high costs)
D)
E)

17
CORRECT

Collaborating closely with suppliers to identify mutual cost-saving

opportunities

For a company to translate performance of value chain activities into

competitive advantage, it:
must (1) develop core competencies and maybe a distinctive competence
that rivals don't have or can't quite match and that are instrumental in
A) helping it deliver attractive value to customers or (2) be more cost
efficient in how it performs value chain activities such that it has a lowcost advantage.
has to develop more core competencies than rivals.
B)

C)
D)

must be more adept than rivals in using benchmarking and activity-based

costing.
has to position itself in the strategic group where profit margins are
highest.
must adopt more best practices than rival firms.

E)

18
INCORRECT

Doing a weighted competitive strength assessment of how a company

compares against key rivals involves:
developing a list of 6 to 10 telling measures of competitive strength and
then assigning weights to each of these strength measures that reflects
A) their relative importance.
rating each company on each strength measure (using a scale of 1 to 10)
and then multiplying the strength rating by the assigned weight to get a
B) weighted strength score.
summing each company's weighted strength scores on the various
strength measures to get an overall measure of competitive strength for
C) each competitor.
drawing conclusions about the size of a company's net competitive
advantage or disadvantage vis--vis its rivals (with the size of the
D) advantage/disadvantage being indicated by the sizes of the differences
among the companies' competitive strength scores).
All of the above.
E)

19
INCORRECT

Which one of the following is not something that can be learned from doing a
competitive strength assessment?
Identifying the competitive factors where a company is strongest and
weakest vis--vis key rivals and the kinds of offensive/defensive actions
A) the company can use to exploit its competitive strengths and reduce its
competitive vulnerabilities
B)
C)

Whether a company utilizes more best practices than rivals in performing

its value chain activities
Which of the rated companies is competitively strongest and what size
competitive advantage it enjoys

Whether a company has a net competitive advantage or is a net

competitive disadvantage relative to key rivals (with the size of the
D) advantage/disadvantage being indicated by the differences among the
companies' competitive strength scores)
Which rival company is competitively weakest and the areas where it is
most vulnerable to competitive attackwhen a company has important
E) competitive strengths in areas where one or more rivals are weak, it
makes sense to consider offensive moves to exploit rivals' competitive
weaknesses

20
INCORRECT

Identifying the strategic issues that company managers need to address:

involves using the results of both industry and competitive analysis and
what has been learned from evaluating the company's present strategy,
A) SWOT analysis, and the evaluations of the company's own
competitiveness.
B)

entails developing a "worry list" of "how to...", "whether to....", and

"what to do about....."

is important because it sets the agenda for deciding what actions to take
next to improve the company's performance and business outlooka
C) good strategy must include actions to deal with all the strategic issues
and problems that stand in the way of the company's future success.
D)

entails locking in on what challenges the company has to overcome in

order to be financially and competitively successful in the years ahead.
All of the above.

E)

21
INCORRECT

Which of the following statements is false?

A)

The higher a company's costs are above those of close rivals, the more
competitively vulnerable it becomes.

Because the value chains of rival companies tend to be quite similar,

costs outside a company's own value chain do not affect whether it is at a
B) cost advantage or disadvantage vis--vis key rivals.
A company's cost competitiveness depends not only on the costs of
internally performed value chain activities but also on the costs of
C) activities performed by its suppliers and forward channel allies.
D)

The stronger a company's financial performance and market position, the

more likely it has a well-conceived, well-executed strategy.

A competence is something a company is good at doing whereas a core

competence is a proficiently performed internal activity that is central to
E) a company's strategy and competitiveness.

CHAPTER 5
The correct answer for each question is indicated by a
1
INCORRECT

A company's competitive strategy deals with:

A)
B)

the specific actions management plans to take to develop a better value

chain than rivals.
how it plans to unify its functional and operating strategies into a
cohesive effort aimed at successfully taking customers away from rivals.

deals exclusively with the specifics of management's game plan for

competing successfullyits specific efforts to please customers, its
C) offensive and defensive moves to counter the maneuvers of rivals, its
responses to whatever market conditions prevail at the moment, its
initiatives to strengthen its market position, and its approach to securing
a competitive advantage vis--vis rivals.
its plans for under-pricing rivals and achieving product superiority.
D)
E)

2
INCORRECT

the specific actions management intends to take to strongly differentiate

its product offering from the offerings of rival companies in the industry.

A company achieves competitive advantage whenever:

A)

it has a product offering that is differentiated from the product offerings

of rivals.
its customers exhibit a high degree of loyalty to the company's brand.

B)
it has more core competencies than its rivals.
C)
it has a better credit rating than rivals.

D)
E)

3
INCORRECT

it has some type of edge over rivals in attracting customers and coping
with competitive forces.

The five generic types of competitive strategies include:

A)
B)
C)

offensive strategies, defensive strategies, differentiation strategies, lowcost strategies, and first-mover strategies.
low-cost leadership, broad differentiation, best-cost provider, focused
low-cost, and focused differentiation.
offensive strategies, defensive strategies, striving to be a market leader,
technological leadership strategies, and product innovation strategies.

low-price strategies, premium price strategies, middle-of-the-road

strategies, product leadership strategies, and market share leadership
D) strategies.
attacking competitor strengths, attacking competitor weaknesses, market
leadership strategies, low-cost leadership strategies, and product
E) superiority strategies.

4
INCORRECT

A low-cost leader's basis for competitive advantage is:

using an everyday low pricing strategy to gain the biggest market share.
A)
bigger profit margins than rival firms.
B)
C)

high buyer switching costs because of the company's differentiated

product offering.
meaningfully lower overall costs than competitors.

D)
a reputation for charging the lowest prices in the industry.
E)

5 CORRECT

A competitive strategy of striving to be the low-cost provider is particularly

attractive when:
buyers are large, have significant power to bargain down prices, use the
product in much the same ways, and incur low costs in switching their
A) purchases from one seller to another.
B)
C)

most rivals are trying to differentiate their product offering from those of
rivals.
there are many ways to achieve higher product quality that have value to
buyers.
buyers are not swayed by advertising and are not very brand-loyal.

D)
most rivals are pursuing best-cost or broad differentiation strategies.
E)

6
INCORRECT

Which of the following is not a way that a company can try to manage the
costs of its value chain activities downward and thus be more cost-efficient
than rivals?
A)

Striving to capture all available economies of scale and taking full

advantage of experience and learning-curve effects

Having outsiders perform all those value chain activities in which a

company odes not have either a core competence or a distinctive
B) competence
C)
D)
E)

7
INCORRECT

Substituting the use of low-cost for high-cost raw materials or

component parts
Using the company's bargaining power vis--vis suppliers to gain
concessions and trying to operate facilities at full capacity
Adopting labor-saving operating methods and using online systems and
sophisticated software to achieve operating efficiencies

Striving to be the industry's low-cost provider and achieving lower costs than
rivals entails:

A)

doing a better job than rivals of performing value chain activities more
cost-effectively.

having a smaller labor force than rivals, paying lower wages than rivals,
locating all facilities in countries where labor costs are low, and
B) outsourcing many value chain activities to suppliers with world-class
technological capabilities.
revamping the firm's overall value chain to eliminate or bypass costproducing activities that produce little value added insofar as customers
C) are concerned.
D)

aggressive use of activity-based costing, utilizing more best practices

than rivals, and having a narrower product line than rivals.
Both A and C.

E)

8
INCORRECT

Which of the following is not an accurate characterization of a strategy to be

the industry's overall low-cost provider?
A low-cost provider strategy works well in market situations where many
buyers are price-sensitive and price competition among rival sellers is
A) especially vigorous.
B)
C)

A low-cost provider strategy entails pursuing cost-saving initiatives that

are difficult for rivals to copy or match.
A low-cost provider strategy entails making a product with minimal
features so as to keeps cost per unit as low as absolutely possible.

A low-cost provider strategy is quite suitable for situations where there

are few ways to achieve product differentiation that have value to buyers,
D) where most buyers utilize the product in the same ways, and buyers incur
low costs in switching their purchases from one seller to another.
A low-cost provider strategy is a particularly powerful strategy when the
industry's product is essentially the same from rival to rival, many buyers
E) are price sensitive, and industry newcomers use low introductory prices
to attract buyers and build a customer base.

9
INCORRECT

A broad differentiation strategy:

is an attractive competitive approach whenever buyers' needs and
preferences are too diverse to be satisfied by a product that is essentially
A) identical from seller to seller.

can produce sustainable competitive advantage if the differentiating

features possess strong buyer appeal and can't be copied or easily
B) matched by rivals.
C)

works best when the basis for differentiation is superior performance

features and buyer switching costs are low.

offers a better chance for gaining market share than low-cost or best-cost
provider strategies, and typically allows a firm to charge the highest price
D) in the industry.
Both A and B.
E)

10
CORRECT

Which of the following is not one of the four basic routes to achieving a
differentiation-based competitive advantage?
A)

Appealing to high-income buyers who are willing and able to pay a

premium price for a high-performing, multi-featured product
Incorporating features that raise product performance

B)
C)
D)
E)

11
INCORRECT

Incorporating product attributes and user features that lower the buyer's
overall costs of using the company's product
Delivering value to customers via competencies and competitive
capabilities that rivals don't have or can't afford to match
Incorporating features that enhance buyer satisfaction in intangible or
non-economic ways

The most appealing approaches to broad differentiation:

A)
B)
C)

are those that hinge upon first-rate R&D and frequent product
innovation.
involve features or attributes that (1) have considerable buyer appeal and
(2) are hard or expensive for rivals to duplicate.
are those that either lower buyer switching costs or enhance the
differentiator's brand image.

generally relate to product superiority or clever merchandising.

D)
E)

12
INCORRECT

are typically based on either superior product quality or superior

customer service.

Successful differentiation allows a firm to:

gain buyer loyalty to its brand (because some buyers are strongly
attracted to the differentiating features and bond with the company and
A) its products).
earn the highest profit margins of any company in the industry.
B)
C)
D)

attract many more buyers by charging a lower price than rivals and
thereby take sales and market share away from rivals.
command a premium price for its product and/or increase unit sales
(because additional buyers are won over by the differentiating features).
Both A and D.

E)

13
INCORRECT

In which one of the following market circumstances is a broad differentiation

strategy generally not well-suited?
A)

When buyer needs and preferences are too diverse to be fully satisfied by
a standardized product
When few rivals are pursuing a similar differentiation approach

B)
C)
D)
E)

When most competitors are using eye-catching ads to set their product
offerings apart and build a brand image that is differentiated
When there are many ways to differentiate the product or service and
many buyers perceive these differences as having value
When technological change is fast-paced and competition revolves
around rapidly evolving product features

14
INCORRECT

Which of the following is not one of the pitfalls of pursuing a differentiation

strategy?
Trying to charge too high a price premium for the differentiating features
A)
B)
C)

Over-differentiating so that the features and attributes incorporated

exceed buyer needs and requirements
Trying to create strong brand loyalty rather than being content with weak
brand loyalty (which usually means lower costs and higher profitability)
Differentiating on features or attributes that rivals can easily copy

D)
Overspending on efforts to differentiate the company's product offering
E)

15
INCORRECT

A strategy of being a best-cost provider:

A)

is the easiest of the five generic types of competitive strategies to copy or

imitate.

combines a strategic emphasis on low cost with a strategic emphasis on

more than minimally acceptable quality, service, features, and
B) performance.
is almost always more profitable than focused or market niche strategies
because of the potential for selling more units and realizing higher
C) revenues.
D)

is the most attractive of all the competitive strategies because it combines

the best features of the four other generic types of competitive strategies.

is usually somewhat less profitable than either top-of-the-line

differentiation or low-cost leadership strategies because it is based on
E) achieving a weaker type of competitive advantage.

16
INCORRECT

What sets focused (or market niche) strategies apart from low-cost leadership
and broad differentiation strategies is:

the extra attention paid to establishing a distinctive competence.

A)
B)

their concentrated attention on serving the needs of buyers in a narrow

piece of the overall market.
greater opportunity for brand loyalty.

C)
D)
E)

17
CORRECT

their suitability for market situations where technological change is fastpaced and continuous product innovation is a key success factor.
their bold strategic intent of global market leadership via heavy
advertising.

A focused low-cost strategy (see Table 5.1):

involves a marketing emphasis that communicates the attractiveness of a
budget-priced product tailored to fit the expectations of buyers
A) comprising the target market niche.
B)

is the hardest of the five generic types of competitive strategies to

employ successfully.
involves the use of deep price discounting to capture customers.

C)
entails trying to wrest market share away from rivals via extra
advertising, above-average expenditures for promotional programs, and
D) heavy use of point-of-sale merchandising techniques.
E)

18
INCORRECT

cannot be sustained over time unless the focuser is aggressive in entering

other segments where it also can achieve a low-cost advantage.

A focused differentiation strategy aims at securing competitive advantage by:

A)
B)

providing buyers in the target market niche with the best performance
features at the best price.
catering to buyers looking for a medium-quality product at an average
price.

C)

offering buyers in the target market niche a product which they perceive
is uniquely well suited to their tastes and preferences.
developing unique product attributes.

D)
E)

19
INCORRECT

convincing buyers that the company is a true leader in product

innovation.

Which of the following are distinguishing features of a best-cost provider

strategy (see Table 5.1)?
The strategic target is price-conscious buyers
A)
B)
C)

A marketing emphasis on charging a slightly higher price than rival

brands having comparable features and attributes
A product line that stresses wide selection, many product variations, and
emphasis on differentiating features
A competitive advantage based on more value for the money

D)
E)

20
INCORRECT

Using constant product innovation, excellent R&D skills, and periodic

technological breakthroughs to sustain the strategy

Based on the information in Table 5.1, which of the following is not a

distinguishing feature of a low-cost provider strategy?
A)
B)
C)

The product line consists of a few basic models having minimal frills and
acceptable quality
The production emphasis is on continuously searching for ways to reduce
costs without sacrificing acceptable quality and essential features
The marketing emphasis is on making virtues out of product features that
lead to low cost
The strategic target is value-conscious buyers and sustaining the strategy
depends on frequent advances in technology and occasional product

D) innovations
E)

Sustaining the strategy revolves around managing costs down year-afteryear and delivering good value at economical prices

CHAPTER 6
The correct answer for each question is indicated by a
1
INCORRECT

Which one of the following is not a strategic choice that a company must
make to complement and supplement its choice of one of the five generic
competitive strategies?
A)
B)
C)
D)

What type of Web site strategy to employ and whether and when to
employ offensive and defensive moves
Whether to bolster the company's market position and competitiveness
via acquisition or merger
Whether to employ a low-end strategy or a middle-of-the-road strategy
or a high-end strategy
Whether to integrate forward or backward into more stages of the
industry value chain
Whether to enter into strategic alliances or collaborative partnerships

E)

2 CORRECT

Which one of the following is not a factor that makes an alliance "strategic"
as opposed to just a convenient business arrangement?
A)
B)

The alliance involves joint contribution of resources and is mutually

beneficial.
The alliance helps block a competitive threat or open up new market
opportunities.
The alliance helps mitigate a significant risk to a company's business.

C)

D)
E)

3
INCORRECT

The alliance helps build, enhance, or sustain a core competence or

competitive advantage.
The alliance is critical to the company's achievement of an important
objective.

Companies are motivated to enter into strategic alliances or cooperative

arrangements:
to expedite the development of promising new technologies or products.
A)
to bring together the personnel and expertise needed to create desirable
new skill sets and capabilities to improve supply chain efficiency, and/or
B) gain economies of scale in production and/or marketing.
to acquire or improve market access through joint marketing agreements.
C)
to help win the race against rivals for global market leadership or to seize
opportunities on the frontiers of advancing technology and build the
D) resource strengths and business capabilities to compete successfully in
the industries and product markets of the future.
All of these.
E)

4
INCORRECT

The best strategic alliances:

A)

aim at teaming up with world-class suppliers or else companies with

world-class know-how in product innovation.
are those whose purpose is helping a company master a new technology.

B)
C)
D)

are those formed to enable the partners to be consistent first movers or

fast followers.
are highly selective, focusing on particular value chain activities and on
obtaining a particular competitive benefit.
aim at insulating the partners against the impacts of the five competitive
forces and industry driving forces.

E)

5
INCORRECT

Companies racing against rivals for global market leadership often utilize
strategic alliances and collaborative partnerships with companies in foreign
countries in order to:
A)
B)

better master new technologies, combat the bargaining power of foreign

suppliers and foreign buyers, and facilitate global vertical integration.
build a bigger customer base quickly and better differentiate their
proiduct offerings.
win stronger brand name recognition among foreign buyers.

C)
get into critical country markets quickly and accelerate the process of
building a potent global market presence, gain inside knowledge about
D) unfamiliar markets and cultures, and access valuable skills and
competencies that are concentrated in particular geographic locations.
E)

6
INCORRECT

gain better control over their foreign-related transportation and logistics

costs.

Which of the following is not a typical reason that many alliances prove
unstable or break apart?
Inability to work well together
A)
Mounting competition between one or more allies in the marketplace
B)
C)
D)

Changing conditions that render the purpose of the alliance obsolete and
the emergence of more attractive technological paths
Disagreement over how to divide the added market share and profits
gained from joint collaboration
Diverging objectives and strategic priorities

E)

7
INCORRECT

Mergers and acquisitions are a much used strategy because they are an
effective means of:
revamping a company's value chain.
A)
facilitating the employment of both offensive and defensive strategies.
B)
creating a more cost-efficient operation, expanding a company's
geographic coverage, and extending a company's business into new
C) product categories.
gaining quick access to new technologies or other resources and
competitive capabilities and trying to invent a new industry and lead the
D) convergence of industries whose boundaries are being blurred by
changing technologies and new market opportunities.
Both C and D.
E)

8
INCORRECT

Which one of the following statements about merger and acquisition

strategies is true?
Merger and acquisition strategies are nearly always a superior strategic
alternative to forming alliances or partnerships with these same
A) companies.
Merger and acquisition strategies tend to be far more successful that
forming strategic alliances and cooperative partnerships with other
B) companies.
Merger and acquisition strategies often do not produce the hoped-for
outcomesexamples of mergers/acquisitions where the results have
C) been disappointing include the merger of AOL and Time Warner, the
merger of Daimler Benz and Chrysler, Hewlett-Packard's acquisition of
Compaq Computer, Ford's acquisition of Jaguar, and Best Buy's
acquisition of Musicland.
Mergers and acquisition strategies are a very high-risk strategy because
of the financial drain of using the company's cash resources to
D) accomplish the merger or acquisition.
E)

Merger and acquisition strategies are one of the best ways for helping a
company strengthen its brand image.

INCORRECT

Which of the following is not a potential advantage of backward vertical

integration?
A)
B)

Adding to a company's differentiation capabilities and perhaps achieving

a differentiation-based competitive advantage
Reduced risk of disruptions in the supply and delivery of crucial
materials and components

Reduced costs for items purchased from suppliers (if internal

manufacture is more economical than buying from powerful suppliers
C) who have big profit margins and provided entry barriers into a supplier's
business are low or can be hurdled)
Enhanced R&D capability, better opportunity to establish a core
competence in supply chain management, more flexibility in
D) incorporating state-of-the-art parts and components, and better overall
product quality
E)

10
INCORRECT

Reduced vulnerability to powerful suppliers (who may be inclined to

raise prices at every opportunity)

Which of the following is typically the strategic impetus for forward vertical
integration?
A)

To charge lower retail prices and thereby attract a bigger, more loyal
clientele of customers
To make it easier to expand the company's product line

B)
To gain better access to end users and better market visibility
C)
D)

To achieve greater control over advertising and in-store retail

merchandising
To gain better access to greater economies of scale

E)

11
CORRECT

Which of the following is not a strategic disadvantage of vertical integration?

It greatly reduces the opportunity for capturing maximum scale
economies and achieving the lowest possible operating costs.

A)
Vertical integration poses all kinds of capacity-matching problems.
B)
C)

It boosts a firm's capital investment in the industry and thus increases

business risk if the industry becomes unattractive later.

Integrating forward or backward can entail taking on the performance of

value chain activities that require radically different skills and business
D) capabilities than the firm possesses.
Vertical integration backward into parts and components manufacture
can impair a company's operating flexibility when it comes to changing
E) out the use of certain parts and components (it is easier to change out
parts and components made by outside suppliers than those made inhouse).

12
CORRECT

Which of the following is not an advantage of outsourcing the performance

of certain value chain activities to outsiders?
Being able to reduce distribution costs by eliminating the use of
wholesale distributors and retail dealers and, instead, selling direct to
A) end-users at the company's Web site.
B)

Allowing a company to concentrate on its core business, leverage its key

resources, and do even better what it already does best

Improving the company's ability to innovate by allying with "worldclass" suppliers who have cutting edge intellectual capital and are firstC) to-market with next-generation parts and components
D)

Being able to speedily and efficiently assemble diverse kinds of

competitively valuable expertise
Obtaining higher quality and/or cheaper components or services

E)

13
INCORRECT

Which of the following is not one of the principal offensive strategy options?
A)
B)

Pursuing continuous product innovation to draw sales and market share

away from less innovative rivals
Trying to take market share away from the industry leaders by
significantly undercutting the prices they are charging

Offering an equally good or better product at a lower price

C)
Leapfrogging competitors by being the first adopter of next-generation
technologies or being first to market with next generation products
D) Attacking the competitive weakness of rivals
E)

14
INCORRECT

Adopting and improving on the good ideas of other companies (rivals or

otherwise)

A blue ocean type of offensive strategy:

A)

is a pre-emptive strike type of price-cutting offensive used by a market

leader to steal customers away from higher-priced rivals.

involves abandoning efforts to beat out competitors in existing markets

and, instead, inventing a new industry or new market segment that
B) renders existing competitors largely irrelevant and allows a company to
create and capture altogether new demand.
C)
D)
E)

15
INCORRECT

involves deliberately attacking those market segments where a key rival

makes big profits.
involves using innovative advertising and deep price discounts to grab
sales and market share from complacent or distracted rivals.
employs highly creative, never-used-before strategic moves to attack the
competitive weaknesses of rivals.

A preemptive strike type of offensive strategy entails:

A)
B)
C)

attacking an industry leader's most profitable market segment via deep

price discounts and heavy advertising.
moving first to secure an advantageous position that rivals are foreclosed
or discouraged from duplicating.
using a distinctive competence that rivals can't match to take sales and
market share away from competitively weak rivals.

surprise introductions of new and very innovative products to secure

market share leadership and then informing shocked rivals that the
D) attacker will use deep price cuts, if necessary, to defend its newly-won

market-leading position.
leading the industry in introducing next-generation products and putting
rivals in the position of being market followers and having to scramble to
E) imitate the leader's innovations.

16
INCORRECT

Which one of the following is not a good type of rival for an offensiveminded company to target?
Market leaders that are vulnerable
A)
Runner-up firms with weaknesses in areas where the challenger is strong.
B)
Small local and regional companies with limited capabilities
C)
D)

Other offensive-minded companies with a sizable war chest of cash and

marketable securities
Struggling enterprises that are on the verge of going under

E)

17
CORRECT

Defensive strategies:
serve the purpose of helping protect competitive advantage, lowering the
risk of being attacked, weakening the impact of any attack that occurs,
A) and influencing would-be challengers to aim their attacks elsewhere; they
often entail actions that signal would-be challengers that retaliation is
likely.
B)

are the best ways to counter the efforts of firms trying to make market
inroads with substitute products.

tend to work more frequently than offensive strategies because they are
usually less risky and are more likely to succeed if they are predicated on
C) actions to capture first-mover advantages via preemptive strikes that
foreclose imitation by rivals.
employ efforts to block challengers from using end-run offensives and
pre-emptive strike strategies and they are most likely to succeed when
D) the defensive actions to thwart challengers stress vigorous price-cutting
and added advertising.

work best when they involve a combination of vertical integration,

acquisition of other firms, outsourcing certain value chain activities, and
E) strategic alliances with suppliers.

18
INCORRECT

One very important advantage of a product-information-only Web site

strategy is:
lower advertising costs.
A)
avoiding the extra costs associated with operating Web site e-stores.
B)
avoiding channel conflicttrying to sell online in direct competition
with retail dealers signals both a weak strategic commitment to dealers
C) and a willingness to cannibalize dealers' sales and growth potential.
added ability to create a positive image of the company.
D)
lower sales force costs.
E)

19
INCORRECT

Two big appeals of a brick-and-click strategy are:

A)

lower customer service costs and more ability to achieve strong product
differentiation.

economically expanding a company's geographic reach and giving

existing and potential customers another choice of how to communicate
B) with the company, shop for company products, make purchases, and/or
resolve customer service problems.
the low-cost economics of establishing a Web site and the ability to use
existing company store locations as "distribution centers" for filling
C) customer orders and then scheduling them for same-day delivery.
an ability to use a well-known brand name to draw buyer traffic to the
company's Web site and then use the company's local store locations as
D) pickup points for the items customers order on the Web site.
E)

the low-cost economics of establishing a Web site and low order-filling

and delivery costs.

20
INCORRECT

In which of the following situations is being first to initiate a particular move

not likely to result in a positive payoff?
A)
B)
C)
D)

When pioneering helps build up a firm's image and reputation with

buyers
When first-time buyers remain strongly loyal to a pioneering firm in
making repeat purchases
When late movers can copy a successful pioneer's moves quickly and at
lower cost
When moving first can constitute a preemptive strike, making imitation
extra hard or unlikely
When moving first can result in a cost advantage over rivals

E)

CHAPTER 8
The correct answer for each question is indicated by a
1
INCORRECT

The most important drivers shaping a company's most appealing strategic

options tend to revolve around:
whether to try to strongly or weakly differentiate the company's product
offering from the offerings of rivals and how to bolster its brand image
A) and reputation with buyers.
B)

which strategic group the company is in and whether is a market leader, a

close runner-up, a potential market contender, or an also-ran.

the nature of industry and competitive conditions and the firm's own
resource strengths and weaknesses, competitive capabilities,
C) opportunities and threats, and market position.
D)

a company's internal strengths and weaknesses and its external

opportunities and threats.
whether it is more adept at lowering costs or at differentiating its product,
the company's competitive strength vis--vis rivals, and a company's

E) financial strength.

2
INCORRECT

Which of the following is not an aspect of the strategy-making challenge

associated with competing in emerging industries?
A)

Strong learning and experience curve effects may be present, allowing

significant price reductions as volume builds and costs fall

Many potential buyers expect first-generation products to be rapidly

improved and delay their purchase until technology and product design
B) mature
The marketing challenge is to induce first-time purchase and overcome
customer concerns about product features, performance reliability, and
C) conflicting claims of rival firms
D)

Whether to compete locally, regionally, nationally, internationally or

globally

There are often uncertainties surrounding an emerging industry's

technology and there may also be no consensus regarding which product
E) attributes will prove decisive in winning buyer favor

3
INCORRECT

Which one of the following is not likely to be a suitable strategy option for
companies competing in rapid-growth industries?
A)

Driving down costs per unit so as to enable price reductions that attract
droves of new customers

Pursuing rapid product innovation, both to set a company's product

offering apart from rivals and to incorporate attributes that appeal to
B) growing numbers of customers
Gaining access to additional distributional channels and sales outlets
C)
D)
E)

4
INCORRECT

Expanding the product line to add models/styles that appeal to a wider

range of buyers
Putting top priority on heavy advertising and other marketing-related
actions calculated to strongly differentiate its product offering from rivals

Which one of the following statements does not represent one of the typical
fundamental changes in an industry as it approaches maturity?
A)

Firms encounter growing difficulty in coming up with new product

innovations and developing new uses and applications for the product

The established rules of competition disintegrate, market conditions

become quite turbulent, and business risk increases because of growing
B) uncertainty about whether the industry will stagnate
Industry profitability falls temporarily or permanently, international
competition increases, and mergers and acquisitions that drive industry
C) consolidation to a smaller number of larger players
D)
E)

5
INCORRECT

Greater head-to-head competition for market share and increased

competitive emphasis on lowering costs and improving service
New scale economies develop and overall costs per unit produced and
sold drop significantly

In a maturing market where growth rates are getting smaller, rival firms can
often improve their competitive position in the marketplace by:
A)
B)

closely imitating the strategies of the market leaders and being adept fast
followers.
aggressively cutting prices, trimming product quality, and spending
heavily on advertising to strengthen their brand image.

pruning marginal products and models, improving value chain efficiency,

trimming costs, emphasizing cost reduction, acquiring rival firms at
C) bargain prices, building new or more flexible competitive capabilities,
and expanding internationally.
D)

making greater use of outsourcing, significantly widening their product

lines, and being cautious about expanding into new geographic markets.

shifting to a differentiation strategy based on superior customer service,

vertically integrating backward to gain better control of the supply chain,
E) and buying out money-losing rivals at bargain prices.

6 CORRECT

For a company to succeed in competing in stagnant or declining industries, it

is well advised to:
pursue one of three strategic courses: (1) rely on a focus strategy that
involves identifying, creating, and exploiting growth segments within the

A) overall industry, (2) pursue differentiation strategies keyed to quality

improvement and product innovation, or (3) work diligently and
persistently to drive costs down and become the low-cost leader.
depend heavily on defensive strategies rather than offensive strategies
and be patient and willing to wait the hard times out until the market
B) turns around (as it usually does) and business conditions improve.
C)
D)

pursue short-term cash flow maximization rather than long-term profit

maximization.
steer a middle course between low-cost and differentiation and pursue a
best-cost provider strategy.
draw cash out of the business quickly via a fast-exit strategy.

E)

7
INCORRECT

A company that decides to stick with a stagnant or declining industry:

is well-advised to pursue aggressive expansion into the markets of
foreign countries and commit its full energies to being the global market
A) leader.
may still be successful if it aggressively expands its production capacity,
launches a price war that drives weak rivals out of business, and achieves
B) a market share of at least 35 percent.
is doomed to have declining revenues and profits.
C)
may be able to grow and prosper if market demand decays very slowly
and it has the competitive capabilities to take market share away from
D) weaker competitors
E)

is well-advised to pursue backward and forward vertical integration in

order to gain maximum control over the entire industry value chain.

8 CORRECT

A slow-exit type of end-game strategy involves:

a gradual phasing down of operations coupled with an objective of
generating the greatest possible harvest of cash from the business for as
A) long as possible.
B)

selling off assets gradually and liquidating the business over a period of
5-10 years.

gradually reducing the size of the company's customer base, starting with
the least profitable customers and moving steadily toward the most
C) profitable customerswith the intent of selling out to the highest bidder
when the business starts to become unprofitable.
withdrawing, one by one, from the various country markets where the
firm competes and gradually retreating to the country market where sales
D) and profits are highest.
E)

9
INCORRECT

In trying to cope with a turbulent, high-velocity market environment, a

company:
should usually put a strong emphasis on short-term profitability rather
than worrying excessively about building and strengthening the
A) company's long-term market positionthe direction of market change is
too volatile and unknowable to put much time into worrying about the
long-term.
can assume any of three strategic posturesit can react to change, it can
anticipate change, and it can lead change; typically all three postures will
B) have to be employed at one time or another (though not in the same
proportion).
should strive to be a fast follower and occasionally a slow-mover (like
when the actions of early movers involve adoption of a radically different
C) technological approach)being an aggressive first mover carries too
much risk and can dismay shareholders.
D)
E)

10
INCORRECT

pruning the operating budget by 5-10 percent annually and outsourcing

more and more value chain activities to outside suppliers.

generally needs to put most of its strategic emphasis on defensive-type

strategies because offensive strategies are so risky.
is well-advised to compete with a broad differentiation or best-cost
strategy.

Which one of the following strategic moves and initiatives is unlikely to be

an attractive option for competing in a turbulent, high velocity market
environment?
A)
B)

Initiating fresh actions every few months, not just when a competitive
response is needed to counter or match what rivals are doing
Relying on strategic partnerships with outside suppliers and with
companies making tie-in products

Investing aggressively in R&D to stay on the leading edge of

technological know-how and keeping the company's products fresh and
C) exciting enough to stand out in the midst of all the change that is taking
place
Avoiding the perils of first-mover disadvantages and, instead, putting
heavy emphasis on developing strong defensive strategies to neutralize
D) the changes occurring in the marketplace
Developing quick response capabilities
E)

11
INCORRECT

12
CORRECT

Competing in fragmented industries:

entails operating under conditions where there are many, many buyers of
the product and the quantity sold to any one buyer constitutes a tiny
A) fraction of total industry sales volume.
can entail such characteristics as low entry barriers, an absence of
economies of large-scale production, an exploding number of
B) technological paths, a need for the product/service to be
delivered/available in neighborhood locations, and/or a market situation
where very large numbers of firms can easily coexist trying to
accommodate differing buyer tastes, expectations, and pocketbooks.
is very conducive to the use of low-cost leadership and broad-appeal
differentiation strategies (because it is in a fragmented industry
C) environment that these strategies most readily lead to industry
domination).
tends to be more profitable and more likely to result in sustainable
competitive advantage when a company employs a focused
D) differentiation strategy instead of a focused low-cost strategy.
tends to be more profitable when a company employs a broad
differentiation strategy and develops a product offering that appeals to
E) buyers in many different market segments.

Which of the following is unlikely to be a promising option for competing in

a fragmented industry?
Employing deep price discounting, extensive advertising, and other
muscle-flexing maneuvers to gain market dominance in a select few
A) country markets
Specializing by product type or becoming a low-cost operator
B)

Specializing by customer type

C)
Focusing on a limited geographic area
D)
E)

13
INCORRECT

Constructing and operating "formula" facilities at many different

locations

Companies that are determined to grow their revenues and earnings at a rapid
or above-average pace year-after-year:
typically form an array of strategic alliances with foreign firms to
accelerate access to the markets of foreign countries and diversify their
A) product lines so as to offer buyers a wide selection.
B)
C)

have to be aggressive first-movers and strive to build a dominant market

share via merger and acquisition.
usually have to pursue global strategies and enter as many new foreign
markets each year as their resources will permit.

need to have a portfolio of strategic initiatives that range from

strengthening their existing businesses to entering businesses with
D) promising growth opportunities to planting the seeds for entirely new
ventures.
are usually industry leaders that employ muscle-flexing strategies, that
have a strategic intent of being the global market leader, and that are
E) heavily prone to using offensive strategies to build new profit
sanctuaries.

14
CORRECT

To sustain their market positions, industry leaders usually need to consider

which of the following strategic options?
A)
B)
C)

A stay-on-the-offensive strategy, a fortify-and-defend strategy, or a

muscle-flexing strategy
A multiple profit sanctuary strategy, a preemptive strike strategy, a
growth-via-acquisition strategy, or a rapid diversification strategy
A global expansion strategy, a fortify-and-defend strategy, a market
consolidation strategy, or an every-day low price strategy

D)
E)

15
INCORRECT

A "formula facilities" strategy, a 900-pound gorilla strategy, a market

dominance strategy, a home-run strategy
A first-mover strategy, a harvesting strategy, a price war strategy, or a
dominant profit sanctuary strategy

The strategic options most suitable for runner-up competitors include:

A)
B)

a strategy of imitating the strategic actions and approaches of the

industry leader.
a "try harder" strategy, a stay-on-the-offensive strategy, a slow-exit
strategy, and a retreat-to-a-vacant-niche strategy.

a growth-via-acquisition strategy, a vacant niche strategy, a specialist

strategy, a superior product strategy, a distinctive image strategy, or a
C) content follower strategy.
D)

a price war strategy, a "mover-and-shaker" offensive, a sell-out quickly

strategy, an fast follower strategy, or a preemptive strike strategy.

a "try harder" strategy, an international expansion strategy based on

exporting, a muscle-flexing strategy, and a home-field advantage
E) strategy.

16
INCORRECT

An ambitious runner-up firm that aspires to join the ranks of industry frontrunners needs a strategy aimed at:
A)
B)
C)

achieving strong product differentiation based on superior product

performance and superior customer service.
hitting a home-run with a radically new product and thereby gaining a
reputation as a true product innovator.
building a competitive advantage of its own and making some waves in
the marketplace.

attacking the leaders head-on with a series of guerilla initiatives in many

different geographic regions, thereby throwing industry leaders offD) balance and creating an opening for the challenger to launch a
preemptive strike.
gaining buyer attention by significantly outspending rivals on
advertising.

E)

17
INCORRECT

Potentially attractive turnaround strategy options for a struggling business

include:
A)

a merger and acquisition strategy, a stay-on-the-offensive strategy,

attacking rivals' profit sanctuaries, or a price war strategy.

selling off assets to raise cash for saving the rest of the business, revising
the existing strategy, launching efforts to boost revenues, and/or
B) launching efforts to reduce costs.
C)
D)
E)

18
INCORRECT

a fortify-and-defend strategy, a product line expansion strategy, a retreatto-a-vacant-niche strategy, and a price discounting strategy.
acquiring several smaller rivals so as to build a critical mass of customers
and get in position to capture economies of scale.
a fast-follower strategy, a product line expansion strategy, a costreduction strategy, and a geographic concentration strategy.

The overriding objective of a harvesting strategy is to:

raise price to a level that will yield the highest possible profit margins.
A)
cut the operating budget to the bone.
B)
C)

sell off pieces of the pieces and thereby raise sufficient cash to save the
remaining part of the business.
maximize short-term cash flows from operations for as long as possible.

D)
generate the highest possible revenues for the longest possible time.
E)

19
INCORRECT

In which of the following instances is a harvesting strategy not a reasonable

strategic option for a weak business?

When a company is in a weak competitive position, its profit prospects
are not good, and rejuvenating the business would be costly or at best
A) marginally profitable
B)

When a company is trapped in a fragmented industry and can readily

outsource some key value chain activities to trusted strategic allies

When reduced levels of competitive effort will not trigger an immediate

or rapid decline in sales and the enterprise can re-deploy the freed
C) resources to other higher-opportunity areas
D)
E)

20
INCORRECT

When industry demand is stagnant or declining and there's little hope that
either market conditions will improve
When trying to maintain or grow the company's present sales is
becoming increasingly costly

Which of the following does not qualify as a "commandment" for crafting

successful business strategies?
A)

Place top priority on crafting and executing strategic moves that will
enhance a company's competitive position for the long-term.

Avoid stuck-in-the-middle strategies that represent compromises between

lower costs and greater differentiation and between broad and narrow
B) market appeal.
C)

Strive to open up very meaningful gaps in quality or service or

performance features when pursuing a differentiation strategy.
Be judicious in cutting prices without an established cost advantage.

D)
E)

Sell or close a crisis-ridden business immediatelyturnaround strategies

are doomed to fail

CHAPTER 9
The correct answer for each question is indicated by a
1 CORRECT

Which one of the following is not one of the elements of crafting corporate
strategy for a diversified company?
Picking the new industries to enter and deciding on the means of entry
A)
B)
C)
D)
E)

2
INCORRECT

Initiating actions to boost the combined performance of the businesses

the firm has entered
Standardizing the resource fits across the group of businesses the
company has diversified into
Establishing investment priorities and steering corporate resources into
the most attractive business units
Pursuing opportunities to leverage cross-business value chain
relationships and strategic fits into competitive advantage

Important reasons for a company to consider diversification include:

a desire to avoid putting all of its "eggs" in one industry basket.
A)
B)

diminishing market opportunities and stagnating sales in its principal

business.

opportunities to leverage existing competencies and capabilities by

expanding into businesses where these same resource strengths are key
C) success factors and valuable competitive assets attractive.
an opportunity to lower costs by entering closely-related businesses
and/or opportunity to transfer a powerful and well-respected brand name
D) to the products of other businesses and thereby increase the sales and
profits of these newly-entered businesses.
All of these.
E)

3 CORRECT

To judge whether a particular diversification move has good potential for

building added shareholder value, the move should pass the following tests:
the attractiveness test, the barrier-to-entry test, and the growth test.
A)

the strategic fit test, the resource fit test, and the profitability test.
B)
the barrier-to-entry test, the growth test, and the shareholder value test.
C)
the attractiveness test, the cost-of-entry test, and the better-off test.
D)
E)

the resource fit test, the strategic fit test, the profitability test, and the
shareholder value test.

4 CORRECT

The better-off test for evaluating whether a particular diversification move is

likely to generate added value for shareholders involves:
evaluating whether the diversification move will produce a 1 + 1 = 3
outcome such that the company's different businesses perform better
A) together than apart and the whole ends up being greater than the sum of
the parts.
B)

assessing whether the diversification move will make the company better
off by increasing its resource strengths and competitive capabilities.

evaluating whether the diversification move will make the company

better off by making it less subject to the bargaining power of customers
C) and/or suppliers.
D)

assessing whether the diversification move will make the company better
off by increasing its profit margins and returns on investment.
All of these.

E)

5 CORRECT

Which of the following is not accurate as concerns entering a new business

via acquisition, internal start-up, or a joint venture?
The big dilemma of entering an industry via acquisition of an existing
company is whether to pay a premium price for a successful company or
A) to buy a struggling company at a bargain price.
Acquisition is generally the most profitable way to enter a new industry,
tends to be more suitable for an unrelated diversification strategy than a
B) related diversification strategy, and usually requires less capital than
entering an industry via internal start-up.

Acquisition is the most popular means of diversifying into another

industry, has the advantage of being quicker than trying to launch a
C) brand-new operation, and offers an effective way to hurdle entry barriers.
Joint ventures are an attractive way to enter new businesses when the
opportunity is too complex, uneconomical, or risky for one company to
D) pursue alone, when the opportunities in a new industry require a broader
range of competencies and know-how than a company can marshal on its
own, and/or when it aids entry into a foreign market.
The big drawbacks to entering a new industry via internal start-up
include the costs of overcoming entry barriers, building an organization
E) from the ground up, and the extra time it takes to build a strong and
profitable competitive position.

6 CORRECT

The defining characteristic of related diversification (as opposed to unrelated

diversification) is:
A)

that each business the company has diversified into are utilizing similar
competitive strategies.
the presence of cross-business value chain relationships and strategic fits.

B)
C)
D)
E)

that each business the company has diversified into has very similar core
competencies and competitive capabilities.
that the company has about the same number of cash cow businesses as it
does cash hog businesses.
the existence of cross-industry resource fits and similar key success
factors from industry to industry.

7 CORRECT

The strategic appeal of related diversification is that:

it allows a firm to reap the competitive advantage benefits of skills
transfer, lower costs (due to economies of scope), cross-business use of a
A) powerful brand name, and/or cross-business collaboration in creating
stronger competitive capabilities.
it is less capital intensive than unrelated diversification because related
diversification emphasizes getting into cash cow businesses (as opposed
B) to cash hog businesses).
it involves diversifying into industries having the same kinds of key
success factors.

C)
D)

it is less risky than unrelated diversification because it avoids the

acquisition of cash hog businesses.

it facilitates the achievement of greater economies of scale since the

company only enters those businesses that serve the same types of buyer
E) groups and/or buyer needs.

8 CORRECT

Which of the following is the best example of related diversification?

A)

A manufacturer of golf shoes diversifying into the production of fishing

rods and fishing lures
A homebuilder acquiring a building materials retailer

B)
A steel producer acquiring a manufacturer of farm equipment
C)
A producer of snow skis and ski boots acquiring a maker of ski apparel
and accessories (outerwear, goggles, gloves and mittens, helmets and
D) toboggans)
A publisher of college textbooks acquiring a publisher of magazines
E)

9 CORRECT

Economies of scope:
A)
B)
C)
D)
E)

stem from the cost-saving efficiencies of scattering a company's

manufacturing/assembly plants over a wider geographic area.
have to do with the cost-saving efficiencies of operating across a bigger
portion of an industry's total value chain.
stem from cost-saving strategic fits along the value chains of related
businesses.
refer to the cost-savings that flow from being able to combine the value
chains of different businesses into a single value chain.
are like economies of scale and arise from being able to lower costs via a
larger volume operation.

10
CORRECT

Cross-business strategic fits can exist:

A)

in the R&D and technology portion of the value chains of related

businesses.
in the supply-chain portion of the value chains of related businesses.

B)
C)
D)
E)

11
CORRECT

in the manufacturing or production portions of the value chains of related

businesses.
in the sales and marketing portion of the value chains of related
businesses.
All of the abovesince cross-business strategic fits can exist anywhere
along the values chains of related businesses.

The defining characteristic of unrelated diversification (as opposed to related

diversification) is:
the presence of cross-business resource fit (whereas the defining
characteristic of related diversification is the presence of cross-business
A) strategic fit).
that the value chains of different businesses are so dissimilar that no
competitively valuable cross-business relationships are present (in other
B) words, the value chains of a company's businesses offer no opportunities
to benefit from skills or technology transfer across businesses, economies
of scope, cross-business use of a powerful brand name, and/or crossbusiness collaboration in creating stronger competitive capabilities).
the presence of cross-business strategic fit (whereas the defining
characteristic of related diversification is the presence of cross-business
C) resource fit).
that the company's businesses are in different industries.
D)
the presence of cross-business financial fit.
E)

12
CORRECT

Which one of the following is not part of the task of critiquing a diversified
company's strategy, assessing its business makeup, and deciding how to
improve overall company performance?
Checking whether each business a company has diversified into can pass
the profitability test, the capital gains test, the growth rate test, and the
A) resource strength test
Checking for strategic fits and resource fits
B)
Ranking the performance prospects of the businesses from best to worst
and determining what the corporate parent's priority should be in
C) allocating resources to its various businesses
D)

Assessing the attractiveness of the industries the company has diversified

into, both individually and as a group

Assessing the competitive strength of the company's business units and

determining how many are strong contenders in their respective
E) industries

13
CORRECT

Calculating quantitative attractiveness ratings for the industries a company

has diversified into involves:
determining the strength of the five competitive forces in each industry,
calculating the ability of the company to overcome or contend
A) successfully with each force, and obtaining overall measures of the firm's
ability to compete successfully in each of its industries.
determining each industry's average profit margins, calculating how far
the firm's profit margins are above/below the industry averages, and then
B) using these values to draw conclusions about industry attractiveness.
rating the attractiveness of each industry's strategic and resource fits,
summing the attractiveness scores, and determining whether the overall
C) scores for the industries as a group are appealing or not.
selecting a set of industry attractiveness measures, weighting the
importance of each measure (with the sum of the weights adding to 1.0),
D) rating each industry on each attractiveness measure, multiplying the
industry ratings by the assigned weight to obtain a weighted rating,
adding the weighted ratings for each industry to obtain an overall
industry attractiveness score, and using the overall industry attractiveness
scores to evaluate the attractiveness of all the industries, both
individually and as a group.
identifying each industry's average price, rating the difficulty of charging
an above-average price in each industry, and deciding whether the
E) company's prospects for being able to charge above-average prices make
the industry attractive or unattractive.

14
CORRECT

The basic purpose of calculating competitive strength scores for each of a

diversified company's business units is to:
determine which business unit has the greatest number of resource
strengths, competencies, and competitive capabilities and which one has
A) the least.
assess how strongly positioned each business unit is in its industry and
the extent to which it already is or can become a strong market
B) contender.
rank the each business unit's strategic fits from highest to lowest.
C)
rank the each business unit's resource fits from highest to lowest.
D)
rank each business unit's strategy from best to worst.
E)

15
CORRECT

The 9-cell industry attractiveness-competitive strength matrix:

A)
B)
C)

is a valuable tool for ranking a company's different businesses from best

to worst based on strategic fit.
shows which of a diversified company's businesses have good/poor
resource fit.
indicates which businesses have the highest/lowest economies of scale
and which have the highest/lowest economies of scope.

uses quantitative measures of industry attractiveness and competitive

strength to plot each business's location on the matrixthe thesis
D) underlying the matrix is that there are good reasons to concentrate the
company's resources on those businesses having relatively strong
competitive positions in industries with relatively high attractiveness and
to invest minimally or even divest those businesses with relatively weak
competitive positions in industries with relatively low attractiveness.
E)

pinpoints which of a diversified company's businesses are resource-rich

cash cows and which are resource-poor cash hogs.

16
CORRECT

Checking a diversified company's business line-up for the competitive

advantage potential of cross-business strategic fits involves searching for and
evaluating how much benefit a diversified company can gain from value
chain match-ups that present:
A)
B)

opportunities to combine the performance of certain activities,thereby

reducing costs and capturing economies of scope.
opportunities to transfer skills, technology, or intellectual capital from
one business to another, thereby leveraging use of existing resources.
opportunities to share use of a well-respected brand name.

C)
opportunities for sister businesses to collaborate in creating valuable new
competitive capabilities (such as enhanced supply chain management
D) capabilities, quicker first-to-market capabilities, or greater product
innovation capabilities).
All of the above.
E)

17
CORRECT

Checking a diversified company's business lineup for resource fit does not
involve which one of the following "tests?"
Determining whether a company has or can develop the specific resource
strengths and competitive capabilities needed to be successful in each of
A) its businesses.
Determining whether recently acquired businesses are acting to
strengthen the company's resource base and competitive capabilities or
B) whether they are causing its competitive and managerial resources to be
stretched too thinly.
C)
D)

Determining whether each business adequately contributes to achieving

companywide performance targets.
Determining whether the company has enough cash hog businesses to
supply capital to its cash cow businesses.

Determining whether the company has adequate financial strength to

fund the needs of its various businesses and maintain a healthy credit
E) rating.

18
ANSWERED

Ranking a diversified company's businesses in terms of priority for resource

allocation and new capital investment:

should be done chiefly on the basis of appealing industry attractiveness
and resource fit and secondarily on the basis of competitive strength and
A) strategic fit with other businesses.
entails arraying the various businesses from the biggest cash hog down to
the biggest cash cow; big cash hogs get the highest priority for resource
B) allocation and big cash cows get the lowest priority.
should be done principally on the basis of which businesses offer the best
prospects (given their industry attractiveness and competitive strength)
C) and, also, have solid and appealing strategic fits and resource fits.
D)

should be based chiefly on relative market share, recent profitability, and

potential for achieving cash cow status.

should be based primarily on cross-business resource fit considerations,

each business unit's relative market share, and each business's projected
E) ability to cover its debt payments and generate positive cash flows.

19
CORRECT

Once a firm has diversified and established itself in several different

businesses, then its main strategic alternatives include all but which one of
the following?
A)

Broadening the firm's business scope by diversifying into additional

businesses
Shifting from a multi-country to a global strategy

B)
C)
D)
E)

20
CORRECT

Restructuring the company's business lineup and putting a whole new

face on the company's business makeup
Pursuing multinational diversification and striving to globalize the
operations of several of the company's business units
Retrenching to a narrower base of business operations by divesting some
of its present businesses

A multinational diversification strategy can be particularly attractive to a

diversified company because it allows the company to pursue maximum
competitive advantage potential via actions to:
fully capture economies of scale and cross-business economy of scope
opportunities.

A)
B)

capitalize on opportunities for both cross-business and cross-country

collaboration and coordination.
leverage use of a well-known and competitively powerful brand name.

C)
D)

transfer competitively valuable resources both from one business to

another and from one country to another.
All of these.

E)