Professional Documents
Culture Documents
Multiple Choice Questions
Multiple Choice Questions
22. The successful careers of both Queen Elizabeth II and Lady Gaga may be attributed to
the fact that both:
@ Pages and References: pp4-5
a. Have used dressing up as a means of attracting attention and establishing identity
b. Have a knack for being in the right place at the right time
c. Have a consistency of direction based on clear goals
d. Have built a loyal fan base based on astute use of the media.
23. For both individuals and businesses, successful strategies are characterized by:
@ Pages and References: p8
a. Unrelenting commitment to ambitious goals
b. Clear goals, deep understanding the competitive environment, careful resource appraisal,
and effective implementation
c. Meticulous planning
d. The possession of superior abilities and resources which are then deployed to build
competitive advantage.
25. The main problem of SWOT as a framework for strategy analysis is that:
@ Pages and References: p11
a. Distinguishing opportunities from threats and strengths from weaknesses is often difficult
b. It has been around for five decades and has now been superseded by more sophisticated
analytical frameworks
c. It is focused on strategy formulation and fails to take account of strategy implementation
d. It is so widely used that it no longer has any novelty.
26. If a firm adjusts its strategy to ensure it is consistent with its external environment, it
benefits from a:
@ Pages and References: p10
a. Strategic fit
b. Strategic leadership
c. Location within an attractive industry
d. A license to operate
29. The principal similarity between business and military strategy is that:
@ Pages and References: p12
a. They share the same objective: to annihilate rivals
b. They share common concepts and principles
c. The nature of leadership is much the same whether in a military or business context
d. They are both concerned with tactical maneuvers that can establish positions of
advantage.
30. In the military field, we generally make the following distinction between strategy and
tactics:
@ Pages and References: p12
a. Tactics comprise the overall plan whereas strategy focuses on specific actions
b. Tactics relate to specific actions whereas strategy relates to the overall plan
c. Tactics encompass specific political actions within the firm whereas strategy is the overall
plan for deploying resources to establish a favorable position
d. Tactics form the overall plan whereas strategy is concerned with the maneuvers to win
battles
31. The main reason for the transition from corporate planning to strategic management
during the latter half of the 1970s was:
@ Pages and References: p13
a. The influence of Michael Porter
b. Disappointing returns of corporate diversification
c. A more turbulent business environment that became increasingly difficult to predict
d. Growing disillusionment with central planning.
32. The primary distinction between corporate strategy and business strategy is:
@ Pages and References: p19
a. Corporate strategy is the responsibility of the CEO, business strategy is formulated by the
heads of business units
b. Corporate strategy is concerned with where the firm competes; business strategy with how
it competes
c. Corporate strategy is concerned with establishing competitive advantage; business
strategy with strategy implementation in individual businesses
d. Corporate strategy is concerned with the long-term performance of the firm; business
strategy with resource deployment.
40. The increasingly complex business environment of the 21st century has resulted in:
@ Pages and References: p14
a. Firms shifting their emphasis towards the growth markets of Asia, Africa, and Latin
America. Firms abandoning shareholder value maximization in favor of maximizing
stakeholder interests
c. Firms increasingly depending upon other firms through outsourcing and strategic alliances
d. Firms embracing digital technologies
42. When the environment becomes more turbulent, unpredictable, and full of new
opportunities:
@ Pages and References: p16
a. strategy appears to not be very useful
b. strategy becomes a vital tool to navigate the firm through “stormy seas”
c. strategy should be put into the hands of external consultants
d. strategy becomes an “impossible exercise”
45. How do corporate level strategy and business level strategy differ?
@ Pages and References: p18
a. Corporate strategy defines the scope of a firm’s activities, while business strategy focuses
on how to beat the competition in a specific product market
b. Corporate strategy defines the scope of a firm’s structure, while business strategy
emphasizes the relationship of each business with its environment (state, regulators, etc.)
c. Corporate strategy focuses on the overall strategic plan, while business strategy focuses
on implementing strategic decisions in each product market
d. Corporate level strategy is concerned with long term goals, while business level strategy
focuses on short term sustainability
48. Between the two levels of strategy, the division of responsibility is consistent with the
following principle:
@ Pages and References: p19
a. There is no principle but only limited rationality and trial-and-error processes to find the
best allocation between different levels of management
b. Corporate level strategy is the domain of headquarters executives, while division managers
are in charge of their business level strategies
c. Corporate level strategy is the domain of the parent company; business level strategy is
handled by the functional department managers
d. Corporate and business level strategies are not any specific organizational level’s
responsibility because of the principle of maximum delegation and decentralization
52. In all organizations, strategy making involves a combination of top-down strategy design
and decentralized mergence. The balance between the two depends mainly upon:
@ Pages and References: p23
a. How turbulent and unpredictable is the external environment of the organization
b. The extent to which decision making is centralized
c. The commitment of the organization to experimentation
d. The extent to which the organization has a formalized process of strategic planning.
53. The applicability of the tools and techniques of strategy analysis to not-for-profit
organizations is:
@ Pages and References: p25
a. Greater for organizations that face competitions than those that do not.
b. Greater for organizations that charge for their services than those which do not
c. Greater for organizations that both charge for their services and face competition than
those which are monopolists providing services free of charge.
d. Is severely limited by the lack of a profit motive.
Chapter 2
Goals, Values and Performance
25. Every business enterprise has a distinct purpose, however, common to all businesses is
the goal of:
@ Pages and References: p35
a. Making customers satisfied and happy
b. Creating value
c. Satisfying as many stakeholders as possible
d. Maximizing dividend payments to shareholders over the long term.
28. To survive and prosper over the long run requires a firm to:
@ Pages and References: p37
30. The principal means by which firms create value is through production: transforming less
valuable inputs into more valuable outputs. Firms can also create value through:
@ Pages and References: p35
a. Entrepreneurship: creating new businesses
b. Restructuring: turning around, and selling off divisions or units
c. Commerce
d. Advertising which increases consumer’s perception of a product’s value.
33. The primary justification for the assumption that primary goal of strategy is to maximize
profits over the long term is:
@ Pages and References: p37
a. The fact that in today’s intensely competitive markets, firms must focus on profit
maximization in order to survive
b. The legal requirement on Boards of Directors to ensure that companies are operated in the
interests of their shareholders
c. In order to earn profits over the long run, firms must attend to the interests of all their
stakeholders
d. Shareholders will oust CEOs that are not effective at maximizing profits.
34. The principal difference between accounting profit and economic profit is:
@ Pages and References: p38
a. Accounting profit is distorted by the arbitrary treatment of depreciation and unusual items
b. Economic profit is pure surplus; accounting profit includes the normal return to the
providers of equity capital.
c. Economic profit is cash flow based and is less subject to manipulation that accounting
profit
d.. Economic profit is endorsed by economists who tend to be more rigorous than
accountants.
36. Profit maximization and value of the firm are two concepts which are:
@ Pages and References: p39
a. Unrelated because cash flow is only one component of a firm’s value
b. Closely linked because profit maximization translates into maximizing a firm’s value
c. Unrelated because the Net Present Value is used to assess the value of a firm
d. Closely linked because the value of a firm is the sum of its free cash flows in each year
discounted at the firm’s interest rate
38. Maximizing enterprise value and maximizing shareholder value are linked because:
@ Pages and References: p40
a. Enterprise value and shareholder value are the same thing
b. shareholder value is calculated by adding debt and other non-equity financial claims to the
DCF value of the firm
c. shareholder value is calculated by subtracting debt and other non-equity financial claims
from the enterprise value of the firm
d. It is obvious that they must be linked
39. To use the Discounted Cash Flow method, the future cash flows have to be forecasted. To
determine these estimates management will:
@ Pages and References: p40
a. Make justified assumptions about income, expenses, profit and all other significant figures
b. Use a benchmarking approach to align the firm’s cash flows with its rivals’ cash flows
c. Use accounting data and directly extrapolate from the past the future cash flows
d. Reach consensus by discussion with a group of external experts such as stockbrokers
41. To diagnose the sources of a firm’s poor financial performance, it is useful to:
@ Pages and References: p43
a. Focus on the firm’s cash flow statement rather than its income statement and balance
sheet
b. Concentrate on sales growth and market share rather than profit data
c. Adopt a forward-looking approach through analyzing share price performance rather than
looking at backward-looking accounting statements
44. The fundamental problem of any type of performance management system is:
@ Pages and References: pp45-46
a. The tendency for performance management systems to be based entirely on financial
targets
b. A performance management systems needs short-term measures to assess performance,
yet the ultimate goal is to enhance the long-term performance of the firm
c. Performance targets always lead to unintended consequences because individuals always
“game the system”
d. Managerial, political and personal interests need to be taken into account
45. The Balanced Scorecard is a technique of performance management that establishes
and monitors four dimensions of performance:
@ Pages and References: p46
a. Financial, strategic, operational, and ethical performance
b. Financial, customer, internal, and learning/innovation performance
c. Profit, sales, productivity, and asset management performance
d. Shareholder, customer, employee, supplier, and social performance
46. The main lesson to be drawn from Boeing’s deteriorating performance during the late
1990s when top management emphasized the pursuit of profit and shareholder value is:
@ Pages and References: p48
a. Shareholder value maximization is only appropriate to financial service companies
b. Pursuing profit and shareholder value will inevitably lead to damaging ethical problems
c. Focusing on the interests of shareholders is detrimental to employee morale and customer
satisfaction
d. Management should focus upon the factors that drive profitability and shareholder value
rather than profitability and shareholder value themselves.
47. Influential scholars such as Milton Friedman, Charles Handy, Michael Porter and CK
Prahalad:
@ Pages and References: p49
a. Agree that CSR is an essential “moral imperative”
b. Disagree widely about the justification for CSR
c. Believe that the capitalist system would operate better if all firms adopted CSR
d. Regard most firms’ CSR initiatives as primarily exercises in public relations
48 Michael Porter and Mark Kramer’s notion of “shared value” reconceptualises CSR
(corporate social responsibility) by emphasizing:
@ Pages and References: p50
a. CSR as a value creating activity
b. CSR as advantageous to the firm by conferring reputational and legitimacy benefits
c. CSR a means of transferring value from shareholders to less fortunate members of society
d. CSR as a counterweight to greed and amorality among managers.
50. In formulating strategies under uncertainty, real option analysis is a valuable strategic tool
because:
@ Pages and References: p52
a. It allows firms to create value from flexibility and a wider range of growth opportunities
b. It can assist firms in using complex financial derivatives to hedge risk
c. It allows firms to make investment decisions without the need to forecast cash flows long
into the future
d. It renders obsolete most conventional tools and techniques of strategy analysis.
51. For product development, a “phases and gates” approach means that:
@ Pages and References: p52
a. a firm’s market is divided into specific phases separated by gates, which must be crossed
to establish synergies across segments
b. a firm’s product development relies on time segments that must be linked through gates
c. product development is split into several consecutive phases, at the end of each the
product is reassessed to continue ( go through the “gate” ) or discontinue
d. For each gate, the value of each product is assessed, and some are abandoned until there
is only one left.
52. Viewing strategy as a portfolio of options rather than a portfolio of investments, relies
upon the central idea that:
@ Pages and References: p52
a. strategy needs to reconcile direction and flexibility in an uncertain environment
b. “all or nothing” strategic projects can be such costly mistakes as to be fatal to the firm
c. the advantage of an option follows from the potential to amend or stop a strategic project
during the development
d. All of the above
Chapter 3
Industry Analysis: The Fundamentals
24. Given the plethora of external influences, understanding the external environment
requires managers to:
@ Pages and References: pp61-62
a. Use a framework or a system that allows them to organize information and rank factors
b. Monitor their rivals closely to detect signals of change in their strategies
c. Use all existing techniques to gather and analyze information
d. Work on the matter full-time
30. The profits earned by firms iIn an industry, are determined by:
@ Pages and References: p62
a. The overall state of the economy and the intensity of competition within the industry
b. Hw much customers value the products supplied by the industry
c. The extent to which the industry is protected by barriers to entry
d. The value of the product for customers, the intensity of competition, and the relative
bargaining powers of producers, their suppliers and their buyers
36. Firms suppling niche markets are often hiughl profitable becuae::
@ Pages and References: pp63-64
a. They tend to supply specialty products for high income consumers
*b. They tend to be sufficiently small that a single foirm can establish a dominant position
c. They tend to be disregarded by major corproations
d. Tend to have high entry barriers
38. The American Medical Association encourages limits on the number of medical school
places for training new doctors:
a. In the interests of ensuring that only the the most capable applicnsats are admitted ot the
medical profession
b. To ensure that the United Stsates maintains the highest standards of training in the world
c. To keep doctors’ remuneration high
d. To ensire that medical school graduates will find work at medical doctors
48. To forecast industry profitability consistently accurately, professional analysts have to:
@ Pages and References: p78
a. Look at the link between industry and structure performance , then, use information on
major trends in industry structure to predict their effects upon the forces of competition
b. Look at the probability of new entries in the industry, to determine the major trends, and to
forecast the probable overall industry profit
c. Determine the five larger players in the industry and their relative bargaining power in
regards to their buyers and customers, and to identify their strengths and weaknesses
d. Develop a deep understanding of how the industry creates value now and in the future,
whether they use the tools described in the chapter or not
59. Analyzing key success factors leads one to ask the following two questions:
@ Pages and References: p86
a. What do customers want which we could supply and what should the firm do to survive
competition?
b. What do customers want and what type of operational changes should a firm implement to
survive competition?
c. Which of the five forces of competition most threaten a firm’s survival and how could the
firm deal with them?
d. What should managers do to a information collected from the market and the firm’s
operational units?
64. One useful way to analyse the drivers of a firm’s relative profitability is:
@ Pages and References: p86
a. To disaggregate return on capital employed into component ratios that point to the main
underlying drivers of profitability
b. To disaggregate assets into component parts that point to the main drivers of profitability
c. To undertake a benchmarking study to compare a firm’s profitability with that of its rivals
65. In a nightclub, a single supplier of beverages can charge a price that exploits its position
and the customers’ willingness-to-pay. If many suppliers could offer their products on the
same site:
@ Pages and References: p65
a. The suppliers would collude to maintain an artificially high selling price to preserve their
return
b. The customers would not change their level of consumption, leading to a decrease in the
return for all suppliers
c. The existence of many suppliers would drive down prices to the cost of supplying these
beverages (with the assumption that no collusion emerges)
d. The economic rent would significantly increase for all suppliers
66. Industries exhibit strong differences in structure which is reflected in very different
competitive outcomes—for example, the US chewing tobacco industry and the Chicago grain
market illustrate:
@ Pages and References: p66
a. Commercial activities which are ethically questionable
b. A situation of quasi-monopoly; the other situation of near-perfect competition
c. The immense profits can be earned in both monopolistic and intensely competitive markets
d. Each illustrates, respectively, a situation of low risk and a situation of high risk in terms of
business activity fluctuations
67. Which characteristics differentiate industries such as, on the one hand, aircraft
manufacturers and commercial satellites, and, on the other hand, e-service and fast food
industries?
@ Pages and References: p71
a. The second category of industries has very few players whereas the first category of
industries is very fragmented, with thousands of players
b. The capital requirements are very high for the first category and relatively low for the
second category
c. The first category is highly sophisticated and requires top notch technical skills, whereas
the second category relies upon marketing competencies
d. The intensity of competition is lower in the first category of industries than in the second
category
30. Porter’s five forces model of competition is too simple as originally conceived because it
overlooks phenomena such as:
@ Pages and References: p88
a. The relationships of substitution between products or services within one segment of the
market
b. Competitors’ strategies may shape the industry structure, rather than structure shaping
competition
c. The complexity and stability of the competitive world where rivals’ strategies affect each
other
d. The different levels of industry analysis that the five forces model can be applied to
31. Empirical research shows that proportion of inter-firm differences in profitability that
industry factors explain is:
@ Pages and References: p88
a. More than 75%
b. About half
c. Less than 25%
d. The question is cannot be answered because “industry” is a meaningless concept.
32. The difference between substitute and complementary products may be summarized as
follows:
@ Pages and References: p89
a. Substitutes reduce the value of a product, whereas complements increase value
b. Complements reduce the value of a product, whereas substitutes increase value
c. Complements cannot be used together, whereas substitutes can
d. Complements increase the average price of any of them, whereas substitutes do the
opposite
33. Video game consoles and video games are complementary products: the availability of
one increases the value of the other. How this value is distributed between the suppliers of
video game consoles and the suppliers of video games depends upon:
@ Pages and References: p90
a. Which costs more to develop, consoles or video games
b. Relative bargaining power
c. Whether video games are exclusive to a single video console platform
d. The size of the video console producers relative to the size of the video game publishers.
34. The combined value created by complementary products is shared among different
groups of producers according to:
@ Pages and References: pp90-91
a. Agreement that share it on an equal basis where each player has an incentive to stay
b. The relative technological complexity of the two products
c. The bargaining power of the different groups and the effectiveness with which it is deployed
d. Aggressive rivalry over appropriation where the outcome is often to destroy much of the
aggregate value created
35. The producer of a complementary product can maximize its relative bargaining power by
means of:
@ Pages and References: pp90-91
a. Adopting a differentiation strategy that allows it to sell at a premium price
b. Adopting a cost cutting strategy to provide its product at the lowest possible cost and so
exploit economies of scale
c. Reducing the value contributed by restricting complementors’ access to the market
d. It creates a differentiated market got its product and commodity market for the
complementary good.
38. While the Porter five forces framework views industry structure as determining competitive
behavior, Schumpeter and the Austrian School view:
@ Pages and References: p91
a. Competition as an active rather than a passive force
b. Competition as a disequilibrium phenomenon
c. Competition as determining industry structure
d. Competition as a temporary phase before the emergence of monopolies.
42. In a market where Firm A and Firm B are leading suppliers, if Firm A initiates a price cut,
the likelihood that Firm B responds with an identical price cut will be greater:
@ Pages and References: pp94-96
a. If Firm B’s medium term goal is to maximize profit
b. If Firm B’s medium term goal is to maximize market share○
c. If Firm B is a private rather than a public (listed) company
d. If the market is growing.
46. If administering deterrence is costly or unpleasant for the threatening party, then:
@ Pages and References: p93
a. It appears as not at all credible
b. It appears as extremely credible
c. It does not influence its power
d. It reinforces the power of the threatening party
50. The relationship between competition and cooperation can be described as follows:
@ Pages and References: p93
a. Industries either compete or cooperate; if they cooperate they will be investigated by
competition bodies
b. Cooperation and competition may exist in an industry, but not at the same time
c. Both can co-exist simultaneously
d. Both can co-exist at the same time, but not in the same industry segment or strategic group
53. The distinction between legitimate competitive intelligence and industrial espionage:
@ Pages and References: pp97-99
a. Is clearly defined by legislation and case law relating to trade secrets
b. Is not always clear
c. Is a myth – they are almost the same
d. Is easily resolved by hiring a good lawyer
54. To attempt to predict competitive behaviors, Porter suggests a four-step framework, where
analysts must identify:
@ Pages and References: pp98-99
a. To analyse the rival’s current strategy, its objectives, its assumptions about the industry and
itself, and its available resources and capabilities
b. The rival’s current strategy, its future strategy, its assumptions, and its vulnerabilities
c. The rival’s assumptions about the industry, its available resources and competencies, its
objectives, and its competitive advantage
d. The rival’s available resources and competencies, its objectives, then its competitive
advantage, and finally its performance
60. A firm will choose to compete across multiple segments rather than specialize in a single
segment if:
@ Pages and References: p102
a. It is a family owned firm
b. If the same resources and capabilities can be shared across different segments
c. There are large differences in income among consumers
d. Barriers to mobility are high.
62. The difference between barriers to entry and barriers to mobility is what?
@ Pages and References: p102
a. Barriers to entry target more specifically the entry by aggressive would-be incumbents
b. There is no real difference
c. Barriers to mobility protect a dynamic industry while barriers to entry protect a static
industry
d. Barriers to entry protect the industry as a whole whereas barriers to mobility protect
segments within the industry