Chapter 1 Test Bank: Strategic Management (Louisiana State University)

Chapter 1 test bank
Strategic Management (Louisiana State

University)
1. Strategy today is essentially a detailed plan which every member of the organization must follow
to ensure success.
@Pages and References: Page 2
a. T
*b. F
2. Strategy is a unifying theme that gives coherence and direction to the actions and decisions of an
individual or an organization.
*a. T
b. F
3. For most firms, although good luck may play a part, success is more likely to be a result of a
soundly grounded and well executed strategy.
@Pages and References: Page y
*a. T
b. F
4. Sound strategy and effective implementation largely determine the probability and extent of the
success of a firm.
@Pages and References: Page y
*a. T
b. F
5. A sound strategy relies on four factors: measurable short-term targets; sound understanding of
the competitive environment; objective appraisal of resources; and top down implementation of
strategic decisions.
@Pages and References: Pages y-7
a. T
*b. F
y. Usually, business success has been proved to rely in the end on superior resources.
a. T
*b. F
7. From the military arena, tactics are about actions and techniques for winning battles, whereas
strategy is about winning the war.
*a. T
b. F
8. Strategic decisions are likely to have important implications for the organisation as a whole and
involve major resource commitment.
@Pages and References: Pages 8
*a. T
b. F
9. The evolution of business strategy has been driven more by academic thinking than the practical
needs of business.
a. T
*b. F
10. Strategy in the 1950's and 19y0's was dominated by corporate planning based on economic
forecasting..
*a. T
b. F
11. In the 1970's and 1980's, strategy evolved to be viewed more in terms of positioning the
company in markets and in relation to competitors in order to maximise the potential for profit..
*a. T
b. F
12. Strategy has been forced to evolve to cope with an increasingly fast-paced and volatile
environment, making inflexible long-term plans redundant.
*a. T
b. F
13. Strategy has evolved from "strategy as a detailed plan" to become "strategy as direction" in the
early 21st century.
*a. T
b. F
14. Corporate strategy is also called business strategy, or competitive

strategy. @Pages and References: Page 12
a. T
*b. F
15. Strategy is predominantly about countering short-term

competition. @Pages and References: Page 13
a. T
*b. F
1y. Much can be learned about a firm's actual strategy by looking at where it invests most money, and
what products, services and technologies it is working on.
*a. T
b. F
17. Some observers have noticed that there's only a weak link between a firm's intended or stated
strategy, and its actual or realised strategy.
*a. T
b. F
18. Stakeholder analysis is a useful tool for analysing how profit is distributed amongst
shareholders.. @Pages and References: Page 18-20
a. T
*b. F
19. Company law throughout the developed, industrialised world obliges firms to primarily focus on
profit for shareholders.
@Pages and References: Pages 20-21
a. T
*b. F
20. Paradoxically, the most consistently profitable companies are those whose primary goals are not
stated in terms of profits.
*a. T
b. F
21. Strategy is fundamentally about:

a. Being better than rivals
*b. Success in achieving long-term goals
c. Satisfying all stakeholders
d. Being an excellent “corporate citizen”
22. Success is fundamentally linked to:

a. A soundly formulated strategy and luck
b. An effectively formulated strategy and a strong awareness of the rivals’ strengths
c. A clear understanding of the environment and strong political skills
*d. A soundly formulated and effectively implemented strategy
23. From the two illustrations describing key attributes of strategy at the beginning of the chapter,
four factors stand out:
a. Goals, environment, appraisal of resources, and social and cultural implications
b. Goals, internal and external analysis of the environment, effective implementation, and
awareness of rivals’ strengths
*c. Consistent goals, understanding the environment, objective appraisal of resources, and effective
implementation
d. Goals, environment, irreversibility of decision, and effective implementation
24. Strategic goals should be:

a. Simple
b. Consistent
c. Long term
*d. All of the above
25. Appraising a firm’s resources consists of:

a. Protecting the firm from its weaknesses and trying to reduce or eliminate them
b. Leveraging the firm’s strengths to increase market share and profit
*c. Being very realistic yet creative about what can be achieved with what you've got
d. Completing 3y0-degree analytical evaluations of top managers’ strengths and weaknesses
2y. The success of an organization in general, depends on the following:

a. Being consistently focused on an achievable goal
b. Having a strong and in-depth knowledge of the competitive environment
c. Realistic appraisal of its own strengths and weaknesses
*d. All of the above plus the ability to implement strategy with commitment, consistency and
determination
27. Modern strategy applied to the business world shares with military
strategy: @Pages and References: Page 8
a. Only linguistic roots
b. Some authors such as Sun Tzu and his “Art of War”
c. The existence of resources, conflict, and battle between players
*d. Decisions of significance to overall success, and major resource commitment
28. In the military field, we generally make the following distinction between strategy and
tactics: @Pages and References: Pages 8
a. Tactics are the overall plan whereas strategy focuses on specific actions
*b. Tactics are a scheme of specific everyday actions, practices and techniques whereas strategy
relates to the top-level plan
c. Tactics encompass specific political actions within the firm whereas strategy is the overall plan for
deploying resources to establish a favourable position
d. Tactics are the overall plan whereas strategy is concerned with the manoeuvres to win battles
29. Strategy and tactics:

a. Are interchangeable terms
*b. Relate to achievement of overall long-term objectives, and multiple short-term objectives,
respectively
c. Can be seen as what top managers do and what lower level employees do, respectively
d. None of the above
30. Corporate strategy and business

strategy @Pages and References: Pages 9-
12
a. Are interchangeable terms
b. Relate to achievement of overall long-term objectives, and multiple short-term objectives,
respectively
c. Can be seen as what top managers do and what lower level employees do, respectively
*d. concern the scope of the firm’s activities and how the firm competes in its chosen areas
respectively
31. Modern business strategy has evolved across time due to:
a. Business school academics developing new theories, which are taught to new graduates
b. Earlier methods have simply been seen as old-fashioned
*c. Changes in the practical needs of business and developments in academic thought
d Computerisation and the internet age meaning that we know more about what's really going on
nowadays
32. By the early 1980s, thinking on strategy had shifted to:

a. an emphasis on macro-economic forecasting and financial planning
b. the development of formal corporate plans
*c. the positioning of firms in markets and a focus on competition
d. the analysis the drivers of profitability and the development of diversification strategies
33. The shift from Corporate Planning to Strategy-Making implies:

a. From the sources of profit outside the firm to the sources of profit within the firm
b. To the Resource-based view of the firm
*c. Both a and b
d. From the structure-based approach to the value-added perspective
34. The contemporary phenomena of “winner-takes-all markets” and “standards battles” are a
feature of which of the following:
@Pages and References: Pages 9-
10 a Smartphone operating
systems
b. online auctions
c.the market for digital media storage devices
*d. all of the above
35. The simplest useful definition of business strategy would be:

a. A sort of plan
b. A conceptual construct relating to the juxtaposition of corporate richness versus the snakes and
ladders of a kaleidoscopic environment
c. How to win the corporate wars; price wars, technology races, develop killer applications
*d. The means by which organisations achieve their long-term objectives
3y. Corporate and Business strategy differ mainly in that:

a. Corporate Strategy has a broader scope, including decisions about which industries to operate in
b. Business strategy is subordinate to corporate strategy
*c. Both a and b
d. There is no real difference; they are the same thing
37. Business strategy defines:

a. The way a firm competes in a particular industry or market
b. How a firm gains a competitive advantage over its rivals within a specific industry or market
*c. Both a and b
d. Neither a nor b
38. Business strategy can be summarized

as: @Pages and References: Pages 11-13
*a. The means by which organisations achieve their long-term objectives
b. The means by which individuals achieve their objectives
c. The formal detailed plans used by organizations to guide their actions
d. The will of top managers to change their organization
39. Two basic questions concern corporate and business strategy:

*a. Where and how to compete?
b. How and when to compete?
c. What are the best arenas and structures to compete?
d. When and where to compete?
40. A mission statement:

a. is a statement of the company’s values
*b. is a basic statement of the organization’s purpose
c. outlines what the company wants to be
d. articulates the company’s competitive strategy
41. In addition to just reading published information, to identify a firm's strategy you
could @Pages and References: Pages 14-15
a. Identify where the company is making most of its investments
b. Identify where the company is doing most of its business
c. Find out what new products and services the company is putting most effort into
42. The 1950's/y0's style of Corporate Planning assumed that:

a. There would be almost no difference between the intended strategy and the realised strategy
b. The business world is essentially a predictable environment
c. There was unlikely to be anything unexpected to occur of sufficient importance to disrupt the
strategic plan
43. The shift in strategy from a plan to a direction leads

to: @Pages and References: Pages 15-17
a. A downgrade its role in management
*b. An overt quest for flexibility and responsiveness
c. A need for top managers’ training
d. Less work for top managers
44. As the environment becomes more turbulent, or

unpredictable: @Pages and References: Pages 15-17
a. Strategy appears to not be very useful
*b. Strategy remains just as vital a tool to navigate the firm through “stormy seas”
c. Strategy is put into the hands of external consultants
d. Strategy becomes an “impossible exercise”
45. The difference between intended and realised strategy

is: @Pages and References: Pages 15-17
*a. Significant because studies suggest that only 10 to 30% of intended strategy becomes realised
b. Greater in unsuccessful companies
c. Unimportant, because no-one ever expects the intended strategy to seriously be implemented
d. Only a very small difference, in general
4y. A strategy can be described as:

*a. Intended, emergent, or realized
b. Intended, emergent, or sustained
c. Emergent, critical, or sustained
d. Realized, emergent, failed
47. In practice, strategy making is:

*a. A combination of centrally-driven rational design and decentralized adaptation
b. A combination of luck, organizational politics, and centrally-driven planning
c. The expression of political games among top managers
48. In regard to strategy making, most firms are likely to exhibit:

a. A combination of design and emergence
b. A process labeled as “planned emergence”
c. An interaction between strategic design, through formal top-level processes, and strategic
enactment through decisions made by all management levels of the organization
49. The balance between designed strategy and emergent strategy depends mostly
on: @Pages and References: Pages 15-17
a. The type of organizational structure
*b. The stability and predictability of a firm’s environment
c. Top managers’ personalities
d. Middle managers’ autonomy
50. The role of strategy today is claimed to be:

a. A unifying role underpinning all consequent decisions
b. A means by which top management can communicate and gain commitment to a sense of
direction
c. A means by which top management can inspire and motivate the workforce
51. Profit-making firms are about creating value:

a. This value is simply the profit generated at the end of the year
b. They must create value for several stakeholder groups if this is to result in sustainable long-term
profit generation
c. Value to some stakeholders eg customers, may be difficult to quantify in money terms
*d. Both c and b
52. To business organizations, the term ‘stakeholders’ refers to:

a. the organizations shareholders

b. all those parties the organization does business with
*c. all those who have an interest in the company
d. all potential and actual employees
53. Stakeholder analysis:

a. is a useful tool for deciding the distribution of profit to shareholders

*b. is a useful tool for identifying, understanding and prioritizing the needs of key stakeholders
c. is a useful tool for mapping potential futures for the organization
d. all of the above
54. What should organizations seek to do with stakeholders that have high levels of interest in the
organization but low power?
a.monitor
b. keep satisfied
*c. Keep informed
d. Manage closely
55. Maximising shareholder value:

a. Is the sole objective of all profit-making companies in every country
b. Is the primary legal obligation only in the English-speaking countries
c. Is not the only legal obligation in central & southern Europe, and in Asia. Firms here are legally
obliged to take account of a broad range of stakeholder interests
*d. Both b and c
5y. Corporate Social Responsibility:

a. Fits more readily with the central/southern Europe and Asian legal framework of broader
stakeholder obligations
b. Is not seen as an imperative requirement by all influential thinkers
c. Is becoming more important for all firms to take account of due to the threat of adverse publicity
57. Shareholder interests are commonly prioritised over those of other stakeholders because:
a.unless the firm earns a rate of profit that covers its cost of capital it will not survive
b. decision-making is simplified and excessive political wrangling avoided
c. management teams that fail to maximise the profits of their companies will be replaced by those
that do
58 The fundamental role of strategy is to:

a. Determine how the firm will make a profit in its industry environment:
b. Determine how the firm will deploy its resources to satisfy its short-term financial goals
*c. Determine how the firm will deploy its resources to satisfy its long-term goals, given the
conditions in the competitive environment
d. Determine how the firm can organize its own activities and achieve dominance
59. If a firm's strategy ensures it is consistent with both its internal and external environment, it
achieves:
*a. Strategic fit
b. Strategic adjustment
c. Environment consistency
d. Political and social fit
y0. The notion of “strategic fit”:

a. Does not mean much, and is a common statement made in strategic literature
b. Implies coherence between resources, capabilities, structure and systems
c. Expresses how well a firm’s strategy fits its internal and external environment
*d. Answers b and c
Chapter 2 test bank

University)
1. The business environment of a firm consists of all the internal and external influences that
affect its performance.
a. T
*b. F
2. PEST analysis is a popular environmental scanning

framework. @Pages and References: Pages 42-45
*a. T
b. F
3. Value is created when the price the customer is willing to pay for a product exceeds the
costs incurred by the firm in supplying the product.
*a. T
b. F
4. Value creation translates directly into

profit @Pages and References: Page 45
a. T
*b. F
5. The level of profit in an industry is determined by three factors: the value of products to
customers, the intensity of competition, and the relative bargaining power of producers
and suppliers.
*a. T
b. F
6. When a firm dominates a specific segment in an industry, it is well-placed to earn a higher level
of profit than the average.
*a. T
b. F
7. We analyse industry structure because this is helps us explain variations in the profitability
of different industries.
*a. T
b. F
8. Michael Porter’s five forces model is a framework for analysing the factors that determine a
firm’s competitive strategy.
a. T
*b. F
9. For a specific product or service, the existence of close substitutes means that customers could
switch to these substitutes if prices, service levels or other factors make it in their interests to do
so.
*a. T
b. F
10. In a contestable market there does not always need to be actual competition to keep
prices relatively low – just the threat of competitors entering the market.
*a. T
b. F
11. Economies of scale, absolute cost advantages, high capital start-up costs, and access to
channels of distribution are all examples of “barriers to entry”.
*a. T
b. F
12. Retaliation against a new entrant may take the form of aggressive price-cutting,
increased advertising, sales promotion, or vexatious litigation.
*a. T
b. F
13. A high ‘Concentration Ratio’ is typical of oligopolistic industries, dominated by a few

large players.
*a. T
b. F
14. Excess capacity often leads firms to cut prices to hold on to existing business for fear that
competitors will do the same first, leaving them with a lower market share, and adverse
average costs.
*a. T
b. F
15. Having high fixed costs makes it hard to make a profit in a recession, so is indicative of poor
cost- control.
a. T
*b. F
16. The bargaining power of one player in the industry relative to another player rests, ultimately,
on refusal to deal with the other player.
*a. T
b. F
17. Understanding the structure of the industry helps managers to work out how to make a profit
in future and to possibly identify ways to change the industry structure to their advantage.
*a. T
b. F
18. There is no single absolute definition of what an “Industry”

is. @Pages and References: Page 62-63
*a. T
b. F
19. Porter's 5 Forces model arguably has some deficiencies and does not answer all
possible questions. But this is true of all models.
*a. T
b. F
20. Key success factors are defined by the market and by customers not by the
company. @Pages and References: Pages 68-69
*a. T
b. F
21. Which of the following is a framework for categorising key elements of an organization’s
external environment?
a. SWOT
*b. PEST
c. The BCG matrix
d. Porter’s value chain
22. Systematic, continual scanning of a wide range of external influences would appear desirable
but: @Pages and References: Pages 42-45
a. merely listing a large number of external factors is rarely helpful
b. environmental analysis can be expensive to undertake
c. extensive scanning can result in information overload
23. The starting point for industry analysis is:

a. Classifying the environmental influences by source
b. Classifying the environmental influences by proximity
c. understanding the value of the product to customers and suppliers
*d. understanding the value of the product to customers, the intensity of competition and the
bargaining power of producers relative to their suppliers
24. One can view the connection between the general environment and the industry
environment as:
a. The general environment is diffuse, whereas the industry environment consists of a small
number of close competitors
b. The industry environment consists of customers, suppliers, rivals, and new entrants, whereas
the general environment comprises everything else
*c. The industry environment includes customers, competitors and suppliers, whereas the general
environment matters to the extent that it affects the industry environment
d. The critical influence of the industry environment on the wider social environment
25. The core of a firm’s business environment is determined by:

*a. Its relationships with customers, competitors, and suppliers
b. Its relationships with key pressure groups and shareholders
c. Its relationships with its major stakeholders
d. Its vision and mission
26. If top management understands customers, suppliers, competitors and the general
environment then:
a. the company will be successful
b. a successful strategy will emerge from these factors
*c. they are able to evaluate industry attractiveness,
d. they can predict the success of their company
27. Value is created when:

a. The price that the customer is willing to pay for a product exceeds the price the customer
is actually charged
b. Competition ensures that no firm can make above average profit
c. Surpluses are appropriated by suppliers
*d. The price that the customer is willing to pay for a product exceeds the firm’s cost
28. Once value is created, it is, in general:

a. Equally shared between customers and producers
*b. Not equally shared between customers and producers
c. Distributed to the firm’s shareholders
d. Reinvested into the firm or put aside as a reserve
29. In Porter’s five forces framework, the term "industry attractiveness” refers
a. the appeal of the industry to a particular firm

*b. overall industry profitability
c. the extent to which the industry draws in new entrants
d. the potential for one firm to dominate the industry
30. In an industry, the profits earned by firms are determined

by: @Pages and References: Pages 47-57
a. The overall economic situation, and the intensity of rivalry between established firms
b. The degree of concentration of the industry and the availability of substitutes
c. The existence of barriers to entry in the industry
*d. The value of the product for customers, the intensity of competition, and the relative
bargaining powers of producers, their suppliers and their buyers
31. The basic premise of industry analysis is that:

a. Competition depends, primarily, on the number of firms within an industry
*b. The level of profitability within an industry is largely determined by the industry structure
c. The internal variables of the firm determine a firm’s performance within the industry
d. Profits are squeezed by powerful suppliers
32. Porter’s 5 Forces model is intended to be:

a. Used as an alternative to the earlier PEST model
b. Used primarily as an academic tool
*c. Used in conjunction with PEST and other models
d. Used to analyse industries in the 1980’s and 1990’s
33. The idea with Porter’s 5 Forces is to:

a. Quantify the 5 forces, to produce ideally a mathematical model of the industry
*b. Identify which forces are relatively more powerful, and to assess their impact on competition
and industry profitability
c. Work out how management can eliminate each of the competitive forces
d. Use it to construct a plan to achieve monopoly power
34. A barrier to entry is:

a. Anything that facilitates the entry of would-be new entrants in a specific industry
b. Capital requirements, cost advantages, and product differentiation
c. A law restricting trade
*d. Anything that makes entry into an industry as a new competitor more difficult, more costly,
slower or even impossible
35. If an industry earns a return on capital in excess of its cost of

capital: @Pages and References: Pages 49-52
a. Incumbents will earn abnormal profit, and build entry barriers
b. The government will intervene to make sure that competition will increase
*c. It is likely to attract the attention of firms looking to enter the industry, which may eventually
lead to the return on capital falling
d. It will attract firms outside the industry, but the incumbents will have erected entry barriers
36. Industries such as pharmaceuticals have typically earned high returns on investment
because they
a. have tended to be protected from competition by legal restrictions
b. have spent large sums on research and development
c. have tended to have high entry barriers and differentiated products
*d. both a and c
37. Economies of scale are a barrier to entry

because: @Pages and References: Pages 49-52
a. New entrants do not know where they are positioned on their learning curve
b. New entrants do not yet understand the scale economies so they cannot precisely determine
their selling price
c. New entrants face a risk of price retaliation from the incumbents which could occur
immediately on a large scale
*d. New entrants face the cost and risk of creating large-scale capacity to start with or a severe cost
disadvantage if they enter on a smaller scale
38. For a manufacturer access to distribution is a barrier to entry

*a. New entrants face a disadvantage from retailers who are reluctant to carry their new products
b. Retailers have limited capacity of distribution to offer to new entrants
c. Retailers are risk-averse
d. Carrying new products induces fixed costs
39. Barriers to entry are effective:

*a. Yes, because long-term empirical evidence shows that industries with high barriers to entry
exhibit higher returns on investment on average
b. Yes, because once established they are irreversible
c. No, because firms can overcome these barriers by modifying their strategies
d. No, because higher returns attract more new entrants who want to benefit from higher
returns than in non-protected industries
40. Barriers to exit are:

*a. The non-recoverable costs of quitting or scaling down capacity in an industry
b. Legal restrictions which prevent a firm from leaving an industry
c. The opposite of barriers to entry
d. Of no consequence if you don’t plan to leave the industry
41. Firms in any industry can be said to operate in two major

markets: @Pages and References: Pages 54- 55
a. The labour market and the output market
*b. As a buyer in the market for inputs, and as a seller in the output market
c. The labour market and the input markets
d. The product market divided in two or more segments (such as mid-size car and SUV market
segments)
42. The overall bargaining power of buyers depends on:

a. The buyer’s price sensitivity
b. The intensity of rivalry among sellers and the willingness of the buyer to exploit this
*c. The buyer’s price sensitivity and the relative bargaining power between the seller and the buyer
d. The intensity of rivalry among buyers and the ability to vertically integrate
43. Bargaining power rests, ultimately, on:

a. The negotiating skills of the buyer versus the seller
b. Historic and accidental events
c. The respective effectiveness and cohesion of top management teams
*d. The perceived or real threat for one party to refuse to deal with the other party
44. The relative bargaining power of buyers depends on:

a. The size and concentration of buyers relative to suppliers
b. A buyer’s access to information about products and costs
c. The ability or threat to integrate vertically
45. The bargaining power of suppliers is likely to be high:

a. When the suppliers’ industry is concentrated
b. When suppliers are supplying differentiated products
c. When the industry with which suppliers are transacting is relatively fragmented
46. Which of the following changes in industry structure are likely to improve industry attractiveness:
Pages and References: Pages 57-58
a. a change in consumer buying patterns that favours substitute products

b. a wave of new entrants joining the industry
*c. industry consolidation through mergers and takeovers
d. a and b
47. To forecast industry profitability consistently accurately, professional analysts have

to: @Pages and References: Page 58
a. Look at the link between performance and industry structure, then to identify major trends and
to examine the link between these trends and 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 largest 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 or not they use the tools described in chapter 2.
48. An industry’s current profitability:

*a. On its own tends to be a poor predictor of future profitability
b. Is an excellent predictor of its future profitability
c. Explains the past in that industry
d. Is determined by the forces of competition and so many other factors that gaining insights into
its causes is almost impossible
49. Changing the industry structure is:

a. Not really within the power of a single firm
b. An endeavour that firms are undertaking on a permanent basis with great success
c. A risky strategic move that may backfire, because of retaliation from the industry’s incumbents
*d. Sometimes possible even by small firms, if the mix of drivers for change and existing structure
make it susceptible to change
50. Understanding the competitive forces in an industry is:

a. A largely futile exercise for managers
b. Is of academic interest, but does not bring any value for strategic management
c. A way to enable managers to allocate their resources where competition is the strongest
*d. A way to enable managers to position the firm where its particular capabilities can be
deployed to best advantage
51. Suppose that an industry’s profitability is zero or negative

overall: @Pages and References: Pages 64-65
a. Then all firms in the industry are performing badly
b. Then no firm in the industry can be performing well
c. Then the biggest firm in the industry is performing badly
*d. Then even so it’s entirely possible that some firms are making very good profits
52. “The market” and “the industry” are:

*a. Related but not the same thing
b. Unrelated and different
c. Exactly the same concept, and can be used interchangeably
d. Exclusively used in marketing and strategic management respectively
53. Market and industry are:

a. Very specific economics terms which must be rigidly adhered to
b. Are concepts which require careful consideration of their philosophical underpinning to
use correctly
*c. Somewhat flexible in scope depending on what aspect of business you are considering
d. Close concepts where market is identified with broader sectors, while industries refer to specific
technologies
54. A market’s boundaries are defined by:

a. The geographies of the markets that are supplied by the incumbents
b. The type of product which is sold, and the type of customers willing to pay for the product
c. Substitutability on the demand side and on the supply side
*d. Substitutability on both the demand side and the supply side, combined with an element of
judgment depending on context and purpose
55. In practice, drawing the boundaries of industries and markets

a. A matter of personal preference on behalf of top managers
b. Almost impossible to carry out with rigor because it requires many “rules of thumb”
and approximations
*c. Largely a matter of judgment and experience contingent on the purpose of the analysis
d. Critical to the output of the analysis and therefore should only be undertaken with the help of an
academic or consultant
56. A 6th force – Complements - should arguably be added to Porter’s 5 Forces Model
because: @Pages and References: Page 65-66
a. Porter’s original analysis was inadequate
*b. It’s clear that since Porter devised his model, complementers have become more important
c. Porter’s model was developed over 30 years ago, so is old-fashioned
d. Answers b and c
57. Analysing key success factors leads one to ask the following two
questions: @Pages and References: Page 68-70
*a. What do customers want which we could supply profitably 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 are critical for a firm’s survival and how could the firm
deal with them?
d. How should managers analyse information collected from the market and what should they
do about it?
58. The question “What do customers want?”:

a. Is not relevant because customers will show their preferences through their behaviour
*b. Must be asked by managers, and an accurate answer obtained and understood, since it’s the
driving force behind generating profit
c. Can be outsourced to a Market Research company
d. Is best answered by ensuring that certain managers are educated in Marketing
59. The question “What does a firm need to survive competition?”:

a. Can be addressed through analysis of competitors using all possible means, even at the edge
of legality and ethics
b. Can be addressed by studying very carefully the two largest rivals in the industry
*c. Requires an understanding of the current and future basis of competition specific to the
industry
d. Can never be answered clearly, because competitors will not divulge what they are doing
60. The value to managers of understanding key success factors is:

a. Self-evident
b. Legitimate because it is accepted by the academic world
c. That it generates “generic strategies” which guarantee success
*d. To help maintain a strategic perspective of what needs to be done to survive, and help them
avoid degenerating into a fire fighting approach
Chapter 3 test bank

University)
1. The trend over time has been to see sources of profit as lying mainly in the external environment
rather than being located within firms.
a. T
*b. F
2. In a world where customer preferences are volatile and the technologies for serving them are
changing, a market-focussed strategy may not provide the stability and constancy needed to guide
the company
*a. T
b. F
3. The Honda Motor Company has always defined itself as a supplier of motor
vehicles. @Pages and References: Page 88
a. T
*b. F
4. The greater the rate of change in a firm’s external environment, the more likely it is that internal
resources and capabilities will provide a secure foundation for long term strategy
*a. T
b. F
5. Resources are a firm’s productive assets; capabilities are what a firm can
do. @Pages and References: Page 89
*a. T
b. F
6. Intangible resources are often more valuable than tangible resources in conferring competitive
advantage
*a. T
b. F
7. The value of a brand is the confidence it instils in customers regarding the expected benefits
associated with that brand.
*a. T
b. F
8 Resources are ultimately more important than capabilities.

a. T
*b. F
9. Human resources are always listed on a firm’s balance

sheet. @Pages and References: Page 93
a. T
*b. F
10. The culture of an organization is a key intangible

resource @Pages and References: Page 93
*a. T
b. F
11. The term “organizational capability” refers to those things an organization does particularly well
relative to its competitors.
a. T
*b. F
12. A core competence makes a disproportionate contribution to ultimate customer

value.. @Pages and References: Page 94
*a. T
b. F
13. Individual products may succeed or fail: the key to success is learning from both successes and
failures in order to build capability
*a. T
b. F
14..Value chain analysis identifies organizational capabilities in relation to each of the principal
functional areas of the firm
a. T
*b. F
15. Value chain analysis separates the activities of the firm into a sequential chain and explores the
linkages between activities.
*a. T
b. F
16. Drawing up an inventory of an organization’s capabilities is

straightforward @Pages and References: Pages 97-100
a. T
*b. F
17. Organizational routines are a critical element of organizational

capabilities. @Pages and References: Pages 97-100
*a. T
b. F
18. The employees of McDonald’s hamburger restaurants develop efficient work routines because
the tasks they undertake are regular and predictable.
*a. T
19. For a resource or capability to establish a competitive advantage, the resource or capability
needs to be widely available and relevant to key success factors within the market
a. T
*b. F
20. Once established, competitive advantage tends to be sustained over

time. @Pages and References: Pages 100-102
a. T
*b. F
21. The internal environment:

a. Is the structure inside an industry
b. Has become less important as an explanation of firms’ profitability
*c. focuses on the relationship between a firm’s resources and capabilities and its business strategy
d. focuses on industry attractiveness as a primary source of profit
22. Prahalad and Hamel’s 1990 paper:

a. Summarized the main constraints of the external environment
b. Summarized the strategic positioning school’s point of view
c. Emphasized technological innovation as the as main source of “competitiveness”
*d. Was one of the papers that popularised the modern resource-based view of the firm
23. The resource-based view of the firm can be described as:

a. the outside-in approach
*b. the inside-out approach
c. the positioning approach
d. the planning approach
24. In fast changing environments:

a. A firm should focus on its oldest markets
*b. A firm may define itself by its resources and capabilities
c. Both a and b
d. Neither a nor b
25. 3M is:
a. A successful conglomerate comprising a group of unrelated businesses
b. A group of businesses linked by their use of glue-based technologies
c. A group of businesses with an outstanding ability to develop and market new Fast Moving
Consumer Products
*d. A group of businesses with a core capability to develop and launch new products using
adhesives, thin-film coatings, and other technologies
26. In our discussion of the resource-based view of the firm, we categorise the resources of a firm as:
*a. Human, Intangible and Tangible
b. Fixed, Variable and Human
c. Human, Fungible and Tangible
d. Physical, Financial, and Brand-related
27. When valuing a firm’s tangible resources:

@Pages and References: Page 90-91
a. We should take the historic cost book value
b. We must update historic cost assets to current cost (modern replacement cost) assets
*c. We need to understand their potential for creating competitive advantage
d. We need to rely on the services of professional accountants
28. Companies’ “book values” can be much less than their stock market valuations
because: @Pages and References: Page 91-92
a. Auditors tend to err on the conservative side
*b. Accountants are generally required by accounting standards to ignore the value of brands and
all other reputational assets
c. To be on the safe side accountants tend to undervalue brand values
d. Accountants and marketing experts have different methods of valuing brands
29. Brand values are a:

a. Type of tangible resource
*b. Type of intangible resource
c. Type of synergistic resource
d. Type of sustainable resource
30.'Reputation' in the context of an organization's resources can provide competitive

advantage because:
*a. It is difficult to copy

b. It is based on word-of-mouth
c. it is essential for a firm to do business
d. it is easily destroyed by bad publicity
31. Human Resource capabilities:

*a. Include the skills to train and develop people
b. generally constitute a firm’s greatest resources
c. Are the distinctive capability of most large organisations
d. Answer b and c
32. Organizational culture is:

@Pages and References: Page 91-
93
a. The way a firm is organized
b. A firm’s distinctive myths, rituals and symbols
c. A firm’s deeply held values, traditions and social norms
*d. Answers b and c
33. Jay Barney in his 1986 paper argues that a strong organizational
culture: @Pages and References: Pages 91-93
a. is rarely of strategic importance
b. is often associated with poor financial performance
c. often results in inflexibility and corporate rigidity
*d. is potentially a very valuable strategic resource
34. Which of the following is not a primary characteristic of Emotional

intelligence: @Pages and References: Page 91-93
*a. the ability to perceive emotions accurately
b. the recognition of the importance of interpersonal skills
c. the ability to think rationally and solve problems
d. the ability to access and generate feelings
35. A capability requires:

a. Many unique resources
b. Just one unique resource
c. No unique resources
*d. Individuals to coordinate with each other, and some capital or technology, to achieve a valuable
transformation to goods or services
36. The difference between a capability and a competence is:

a. A competence is core to a firm’s operations
b. A capability is necessary to survive, but a competence is essential to thrive
c. A competence is necessary to survive, but a capability is essential to thrive
*d. No difference in this textbook where they are taken as interchangeable
37. Threshold capabilities enable a firm to do what every firm in its industry must do. Distinctive or
core competences:
*a. Enable it to earn higher profits or greater market share than its competitors in the same
industry
b. Are its unique selling point
c. Are those product features that stop non-customers from buying the product
d. Are captured in logos, trademarks etc.
38. Which of the following is typically viewed as a functional area of firm

activity: @Pages and References: pages 95-96
a. financial control
b. research and development
c. marketing
39. Porter’s firm value chain is often used to:
a. Estimate the revenue the firm derives at each stage of a good’s production and distribution
b. Show the after-tax profit generated by each part of the firm
c. Show the pre-tax profit generated by each part of the firm
*d. Map out a firm’s main activities into threshold and distinctive capabilities
40. When firms develop organizational routines they are:

a. Seeking to liven up boring production manuals
*b. Learning by doing
c. In the mature stage of an industry’s life cycle
d. In the declining stage of an industry’s life cycle
41. Tight complex organizational routines:

a. Are based on unique corporate structures
b. Can be copied if rivals hire the right employees
*c. Are hard for rivals to replicate
d. Answers a and c
42. The hierarchy of capabilities refers to:

*a. How capabilities to do market research time-effectively and buy advertising cost-effectively,
belong under marketing capabilities
b. How capabilities are made up of processes that use resources to achieve a desired result
c. How the CEO should have more capabilities than the CFO, the COO etc.
d. How core capabilities are more valuable than threshold capabilities
43. The creation of organizational capabilities:

a. is simply a matter of allowing routines to merge
*b. requires conscious and systematic action by management
c. is a result of lucky coincidences
d. requires a stable environment
44. A capability that is “needed to play” is often referred to as:

a. A threshold resource
b. A unique resource
*c. A threshold competence
d. A core competence
45. For a resource or capability to establish a competitive advantage two conditions must be
present. These are:
a. The resource or capability must be widely available and relevant to the key success factors in the
market
*b. the resource or capability needs to be scarce and relevant to the key success factors in the
market
c. The resource or capability must be central to operations and its strategic role well understood by
all employees
d. The resource or capability must be central to operations and its strategic role appreciate by just a
few members of the organization
46. Resources and capabilities can generate higher

profits @Pages and References: Pages 101-102
a. If competition is fierce
*b. If the competitive advantage they generate is sustained for some years
c. Only if governments allow firms to share resources
d. Only where cartels are effectively allowed
47. To stop rivals acquiring a core resource or capability:

a. Is foolish: a firm cannot stop its rivals from doing things they want to
*b. Firms must make that resource or capability immobile
c. Firms have to rely on patent and copyright legislation
d. Everyone involved in this activity must be paid at a higher rate than that offered by rivals
48. Three characteristics of resources and capabilities determine the sustainability of the
competitive advantage they offer:
*a. durability, transferability and replicability
b. scarcity, relevance and property rights
c. property rights, relative bargaining power and embeddedness
49. Superior capabilities are often traced to staff skills and efforts
so: @Pages and References: Pages 101-102
a. the organization should, if possible, lock key staff in through their employment contracts
b. the organization needs to pay a good market rate to attract and retain top talent
c. it is important to have the right corporate culture and motivate staff
50. Firms try to develop resources and capabilities to:

a. Maximize attractiveness to our customers
*b. Create sustainable competitive advantage
c. Maximize current profit rates
d. Attract the best employees
51. We need to appraise our resources and capabilities

against: @Pages and References: Pages 103-105
a. Our past record; we must continually improve
b. The best firms around the world, no matter in what country, market or industry
*c. Our competitors’ resources and capabilities
d. The best that our competitors might attain in the future
52. Internal appraisal of a company’s capabilities against the best competitors:

a. Cannot be done; only external appraisal is valid
b. Can be done using discussion of past successes and failures
c. Can be done using external benchmarking
*d. Answers b and c
53. The final appraisal of the strengths and weaknesses of a firm’s resources &
capabilities: @Pages and References: Pages 103-105
a. Is a quantitative appraisal by an objective outside body
*b. Requires an objective appraisal of the firm’s resources and capabilities
c. Requires artistic flair and creative questioning
d. Requires detailed knowledge of business strategy theory, and all its intellectual roots
54. If a company has only a few key strengths this suggests the company should :
a. sell up and exit its existing business as soon as possible
*b. adopt a niche strategy
c. move into new unrelated product markets
d. recruit a more dynamic management team
55. Outsourcing to specialists can help a firm:

a. Reduce unnecessary costs
b. Increase control over a key production process
*c. Reduce a relative weakness in its capabilities
d. Improve launch times for new products
56. Harley-Davidson retained its competitiveness in the motorcycle market

by: @Pages and References: 106-108
a. investing heavily in new technology
b. introducing a broad range of motorcycles targeted at different customer segments
*c. making a virtue out of its traditional designs
d. by outsourcing much of its production process
57. In appraising resources and capabilities we need to acknowledge the important role that
industry context plays. In general it is best to define the industry context:
a. very narrowly
*b. relatively broadly
c. on the basis of the firm’s existing strategy
d. on the basis of the firm’s likely future strategy
58. The management systems of most firms:

*a. pay more attention to the physical and financial assets on their balance sheets than to their
intangible and human resources
b. pay more attention to intangible and human resources than to the physical and financial
resources on their balance sheet
c. provide detailed and up-to-date information on the firm’s resources and capabilities
d. provide an easy way of identifying key resources and capabilities
59. Developing the strategic implications of the resource-based view of the firm, requires the firm
a. identify its strengths and assess how these can be exploited more fully
b. identify its weaknesses and
c. consider whether it can outsource activities that can be performed better by other organizations
identify its weaknesses and assess whether these can be corrected by acquiring new resources and
capabilities
Chapter 4 test bank

University)
1. One firm possesses a competitive advantage over other firms when it earns or has the potential to
earn a persistently higher profit margin.
a. T
*b. F
2. In the long run competition eliminates differences in profitability between

firms. @Pages and References: Pages 123
*a. T
b. F
3. The extent to which external change creates competitive advantage depends on the magnitude of
the change and the extent of firms’ strategic differences.
*a. T
b. F
4. Entrepreneurship can be defined as the ability to identify and rapidly respond to opportunities in
the environment.
*a. T
b. F
5. For some firms, speed of new product development appears to be the only real source of
competitive advantage in today’s economy.
*a. T
b. F
6. The concept of “time-based” competition refers to the entry of emergence of new competitors
over time
a. T
*b. F
7. A “Blue ocean strategy” refers to the creation of entirely new

markets. @Pages and References: Pages 125-126
*a. T
b. F
8. Isolating mechanisms are forces tending to equalize profit rates among firms, i.e. phenomena that
erode a firm’s competitive advantages.
a. T
*b. F
9. For a firm to imitate the strategy of another firm, it must do four things: identify the target firm,
incentivize the rival, diagnose the sources of competitive advantage, and acquire the resources
needed.
a. T
*b. F
10. Starting a price war immediately a firm enters your industry is an entry deterrent tactic that may
dissuade other potential entrants for years to come.
*a. T
b. F
11. To “pre-empt” an entrant, a firm can occupy existing and potential strategic niches to reduce the
range of opportunities open to potential entrants.
*a. T
b. F
12. “Causal ambiguity” is the failure to clearly understand the source of a rival’s competitive
advantages – in particular which of the rival’s distinctive features are causes and which are effects of
another feature.
*a. T
b. F
13. Because some resources are valuable and not perfectly uniform (they are unique, not
homogenous) acquiring or developing these can take years before a firm achieves and sustains
higher profitability.
*a. T
b. F
14. In the airline industry where genuinely unique resources or capabilities are hard to find and
imitation is fast, sustainable competitive advantage is hard to achieve and often depends on
corporate culture.
*a. T
b. F
15. Firms can achieve competitive advantage by supplying a product at lower cost than competitors
or by effectively differentiating their product so that the customer is willing to pay a higher price.
*a. T
b. F
16. The two main sources of competitive advantage are cost leadership and
differentiation. @Pages and References: Pages 131-132
*a. T
b. F
17. A firm has a differentiation advantage when it offers many product features that distinguish its
product from everyone else’s.
a. T
*b. F
18. Porter’s value chain is mostly used to analyse the success or otherwise of cost leadership
strategies.
a. T
*b. F
19. If scale economies are a key cost driver, increasing sales volume provides an opportunity for cost
reduction
*a. T
b. F
20. The objective of differentiation is to yield cost savings for the

firm @Pages and References: Page 138
a. T
*b. F
21. Singapore Airlines appears to have competitive advantages

from: @Pages and References: Pages 121-123
a. Lower costs than many of its rivals
b. Better plane utilization rates than its rivals
c. Better service levels than many of its rivals
22. Competitive advantage can be defined as:

a. The difference between a firm’s return on assets and its return on sales
b. A firm’s ability to earn persistently higher revenue than its rivals
*c. A firm’s ability to earn a persistently higher profit rate than its rivals
d. A firm’s ability to outwit its competitors
23. A firm with a competitive advantage that is not manifest in higher profitability may
have? @Pages and References: Page 123
a. A rising market share
b. Strong and rising customer loyalty, or good executive perks, or both
c. Invested in new technologies its rivals do not have
*d. Some or all of the above
24. Competitive advantage:

Pages and References: Pages 123-125
a. Exists only when an industry is in long term equilibrium
*b. Emerges from external and internal sources
c. Both a and b
d. Neither a nor b
25. If an industry has a stable environment and firms pursue similar

strategies: @Pages and References: Pages 123-25
*a. Firms with similar resources and capabilities should have similar profit rates
b. Firms with similar resources and capabilities should have similar structures
c. Firms without similar resources and capabilities will have left the industry
d. All of the above
26. A firm’s ability to turn change in its external environment into

profit: @Pages and References: Pages 123-125
a. Requires just one key resource: information
*b. Depends on its ability to respond by changing its capabilities appropriately
c. Is the test of a Sustained Focus strategy
d. Is always measured by its market share
27. Requirements for quick organizational response to a turbulent environment

are: @Pages and References: Pages 123-125
a. Flexible manufacturing systems and a good ‘gut’ feel for customer trends
b. Excellent resources and capabilities
c. Short product launch cycle times and excellent quality control
*d. Quick, accurate information, and short product launch cycle times
28. Zara’s response to very fast-changing fashion demands was:

a. To fight on price by cutting costs to the absolute minimum
b. To have thousands of products in stock at all times
*c. To cut the product launch cycle from concept to store to three weeks
d. To hire the best designers and decide new fashions in advance
29. “Strategic innovation” means introducing:

a. New products
b. New markets
c. New technologies
*d. All of the above, or introducing new ways of doing business
30. “Strategic innovation” involves:

a. Limitless financial and organizational resources
b. Spending more on Research & Development than your competitors
c. Top managers’ total dedication to achieving timely innovations
*d. Pioneering in at least one of the three dimensions: new industry, new customer segment, or
new source of competitive advantage
31. Once established, competitive advantage is:

a. Relatively stable over time
*b. Subject to erosion by competitors or entrants
c. A firm’s reward for leading the industry
d. Easily maintained unless entry barriers are high
32. Isolating mechanisms are:

*a. Barriers that slow or stop the equalization of profits between firms, such as barriers to imitation
b. Mechanisms that speed up the equalization of profits between firms
c. Barriers that prevent potential entrants from grabbing a significant market share in the industry
d. Mechanisms that limit or enhance the ex post equilibration of rents among individual
firms, depending on their relative bargaining powers
33. To successfully imitate the strategy of another firm, an organization

must: @Pages and References: Pages 127-131
*a. Identify and diagnose the rival’s advantage, believe in its ability to deliver a superior return,
and, finally, acquire the necessary resource and capabilities
b. Identify and diagnose the rival’s advantage, and then acquire the necessary resources and
capabilities
c. Benchmark the rival’s activities and resources, believe in a superior return, and build the rival’s
resource in-house
d. Benchmark the rival’s activities and resources, identify the rival’s weaknesses, and, finally, believe
in its ability to deliver a superior return
34. How can a firm hide its superior

profits? @Pages and References: Pages
127-131
a. By masking its results so that rivals fail to see its success
b. By avoiding disclosing financial performance
c. By temporarily lowering prices, so that the firm forgoes short term profits but succeeds in
dissuading potential entrants
*d. Any of the above
35. A firm can pre-empt imitation by:

a. Vigorous legal action
b. Threatening to imitate its imitators
*c. Introducing new products to fill each niche, investing in capacity ahead of market growth and
filing many patents
d. None of these: imitators cannot be deterred
36. Rivals can be pre-empted from entering a firm’s markets only

if: @Pages and References: Page 129
a. The market is small relative to the minimum efficient scale of production
b. There are significant first-mover advantage available to the firm
c. Brand names matter to consumers in this industry
*d. Answers a and b
37. To imitate the competitive advantage of another company, a firm must

first: @Pages and References: Page 129
*a. Understand the basis of its rival’s success
b. Collect comprehensive information about its rival
c. Analyse its rival’s marketing strategy
38. Is it easy for Sears Holdings (Kmart) to understand Wal-Mart’s competitive

advantages? @Pages and References: Page 130
*a. No, it is not that easy
b. Yes: just walk into any Wal-Mart store
c. Any professional retailer could
d. Answers b and c
39. Causal ambiguity and uncertain imitability are:
a. Two academic phrases to describe the difficulty of linking superior performance to the strategic
decisions that generate that performance
b. Related because causal ambiguity causes uncertain imitability (the rival doesn’t know what to
imitate)
c. related because competitive advantage is often based on complex bundles of organizational
capabilities
40. Overall, the Singapore Airlines case shows:

a. SA’s biggest resource is the innate culture of its staff
b. SA’s biggest resource is the location of its hub
*c. That rivals may copy parts of your business strategy but some unique resources and causal
ambiguity can successfully hide your key distinctive capabilities
d. Answers a and b
41. The fundamental choice for capability acquisitions is the decision to

either: @Pages and References: Pages 130-131
a. Buy them or sell them
b. Develop them or maintain them
*c. Buy them or build them
d. Buy them or copy them
42. According to Porter and Siggelkow, Urban Outfitters was successful

because: @Pages and References: Page 130
a. it developed a set of management practices that were distinctive
b. It tailored its retail environment to target customers
c. It developed a highly integrated strategy
43. Cost leadership means a firm must:

a. Exploit all sources of cost advantage before tailoring the product to each customer
*b. Exploit all sources of cost advantage in providing customers with a standardised product
c. Exploit all sources of cost advantage in providing each customer with their minimum requirements
d. Exploit all sources of cost advantage while providing every customer an individual service
44. Differentiation is when a firm:

a. Offers customers something valuable and unique at a significantly lower price than rivals
*b. Offers customers something valuable and unique for which customers are willing to pay a price
premium
c. Offers customers a uniquely low price
d. Offers customers products with many additional features
45. The seven drivers of cost

advantage: @Pages and References:
Pages 132-133
a. Must be equally examined in all firms
b. Can be a useful framework within which to compare a firm’s cost improvements in the last few
years
*c. Can be a useful framework within which to compare a firm’s costs with its competitors
d. Can be a useful framework within which to compare a firm’s profit margins with its competitors
46. When using value chain analysis to analyse a firm’s competitive strategy, the main aim is
*a. compare costs with those of competitors
b. identify where costs have increased over time
c. identify opportunities for reducing costs
d. a and c
47. The value chain analysis of Singapore Airlines, illustrated in Case Insight 4.3,
is : @Pages and References: Page 135
a. sufficiently comprehensive to guide strategic decision-making
b. irrelevant because Singapore Airlines doesn’t have a cost leadership strategy
*c. is a reasonable start on analysis but now needs to be followed up with hard figures of cost
comparisons between SA and its rivals
d. of little practical value
48. The central task of a differentiation strategy is:

a. To yield a price premium for the firm
b. To add valuable new features to your product so long as the extra value to customers exceeds the
extra cost to you of supplying it
c. To ask how all your customers’ interactions with your product could be enhanced even more
*d, All of the above
49. Increasing flight reliability at Singapore Airlines, alluded to in Case Insight

4.4: @Pages and References: Page 139
*a. Is likely to be the outcome of several linked activities
b. Is basically down to the age of the planes
c. Depends on the incentives given to ground and air crew for planes to take off on time
d. Answers b and c
50. Porter’s value chain:

a. Can only be used to analyse cost leadership strategies
b. Can be used to look at the current and additional costs of changes in a differentiation strategy
c. Can be used to examine the current and additional service levels offered to customers in a
differentiation strategy
*d. Answers b and c
51. Porter (1980) in his early work suggests that combining cost leadership and differentiation
strategies:
a. is relatively easy. Successful firms can pursue both strategies at the same time
b. can be accomplished by focussing on a narrow market segment
*c. is likely to result in a firm becoming ‘stuck in the middle’
d. is likely to result in above average performance
52. Being ‘stuck in the middle’ gives low profits because:
a. The firm loses those customers who want the lowest prices
b. The firm loses those customers who want the best product on the market
c. Employees become confused about what the firm’s goals and strategy really are
53. A typical cost leadership strategy involves:

a. A firm producing a few limited-feature standard products, or providing a very standardised service
b. A medium or small firm with minimal overheads, and cheaply acquired (sometimes second-hand)
assets
*c. Answers a and b
d. Being the firm with the highest market share, and, often, the best-known brand in the industry
54. A cost leadership strategy:

a. Requires a commodity product
*b. Requires a firm to produce a “no frills” product – even if the industry’s product is differentiable
(e.g. cars or airlines)
c. Can be achieved with a unique brand image
d. Can only be achieved in the modern world by outsourcing to cheap-labor countries
55. In many industries the market

leaders @Pages and References: Pages
140-141
*a. Manage to reconcile low costs with some effective differentiation
b. Are the cost leaders
c. Have very well-differentiated brands
a. Answers b and c
56. The success of Japanese Total Quality Management:

a. Shows that it is possible to pursue Cost Leadership and Differentiation strategies simultaneously
*b. Refutes the perceived trade-off between low cost products and high quality products
c. Has made Porter’s analysis outdated
d. Answers b and c
57. Porter says that firms get stuck in the middle because:
a. The mindsets of cost-minimization and differentiation are culturally opposed, and firms cannot
optimize the investments needed for both at once
*b. As a above and firms need very different organizational processes to achieve the lowest costs or
effective differentiation in the industry
c. Mid-market positions are unattractive to consumers
d. Many firms have had several different CEOs, each determined to pursue different strategies
58. Overall, the Singapore Airlines case shows that:

a. Firms do face the stark choices of being stuck in the middle that Porter cites
*b. Firms can create cultures that do motivate staff to continually eliminate waste, reduce costs and
improve customer service
c. Firms that create causal ambiguity cause creative ambiguity
d. Cost leadership and low costs are the same thing
59. Cost leaders are frequently:

a. Market leaders
b. Firms with cheaply acquired assets
c. Smaller competitors with minimal overheads
*d. b and c
60. Competitive advantage depends on:

@ Pages and References: Page 141
*a. the existence of market imperfections
b. the ability of the firm to compete in more than one market
c. the absence of barriers to exit
d. all of the above
Chapter 5 test bank
Strategic Management (Louisiana State University)

1. Change in industries is driven chiefly by the forces of technology, market demand and
economics. @Pages and References: Page 152
*a. T
b. F
2. Massive and unpredictable changes occur in some industries, but less so in

others. @Pages and References: Page 152
*a. T
b. F
3. Firms are continually trying to erode the competitive advantage of rivals, and to build and
maintain their own competitive advantage.
*a. T
b. F
4. The industry life cycle comprises 4 stages: introduction, growth, maturity, decline – so is
indistinguishable from the product life cycle.
a. T
*b. F
5. Two main factors drive industry evolution: demand growth and the production and diffusion of
knowledge.
*a. T
b. F
6. The introduction to maturity phases of the industry life cycle curve is characteristically U-
shaped. @Pages and References: Page 157-158
a. T
*b. F
7. The industry life cycle consists of four stages: 1) Introductory, 2) Growth, 3) Plateau, and 4)
Rejuvenation.
a. T
*b. F
9. The duration of the industry life cycle varies greatly from one industry to
another. @Pages and References: Pages 157-160
*a. T
b. F
10. Over time, industry life cycles become longer and

longer. @Pages and References: Pages 157-160
a. T
*b. F
11. A dominant design is one which is the most noticeable, or receives the most
publicity. @Pages and References: Pages 157-160
a. T
*b. F
12. The emergence of a dominant product design tends to coincide with a shift towards process
innovation
*a. T
b. F
13. A dominant design defines the look, functionality and production method for a product and
becomes accepted by the industry as a whole.
*a. T
b. F
14. Technical standards have the most dramatic effect in markets exhibiting network effects because
users not adopting the standard risk isolation.
*a. T
b. F
15. Emphasis often shifts from product innovation to process innovation, once a dominant design
emerges.
*a. T
b. F
16. Firms often imitate each other’s strategies in order to gain

legitimacy @Pages and References: Pages 167-168
a. T
*b. F
17. Anderson and Tushman point out that all technological change is “competence
destroying” @Pages and References: Pages 168-170
a. T
*b. F
18. Established firms often find it difficult to adapt to new technologies even though they are well
aware of these technologies
*a. T
b. F
19. The emphasis of organizational development is upon individual organizational units and bottom-
up change
*a. T
b. F
20. A firm is said to be “ambidextrous” when it is able to exploit its existing technology successfully
a. T
*b. F
21. Change in the industry environment faced by a firm is:

a. Massive and unpredictable
b. Gradual and predictable
*c. Could be either answer a or b, depending on the industry and the prevailing conditions
d. Easier for large firms to cope with
22. Change in an industry is the result of:

a. The forces of technology, consumer preferences, and economic growth
*b. Both external forces and the incumbents’ competitive strategies
c. The effect of the "5 forces" model of competition
d. Economic and psychological factors
23. The industry life cycle:

a. Is an extension of the concept of the product life cycle
b. Uses the same stages as the product life cycle
c. Often lasts much longer than a typical product life cycle
24. The text claims that two factors are fundamental to the industry life cycle. One of these
*a. The production and diffusion of knowledge
b. Industrial production and the diffusion of knowledge
c. Demand during the growth phase
d. Demand for growth in the diffusion of knowledge
25. The decline phase of the industry life cycle is caused by:
*a. The emergence of a radically better substitute product, representing a new industry
b. Tired old firms running out of new ideas
c. Existing firms leaving the industry to move to a more profitable one
d. Excessive market saturation
26. A new industry life cycle begins when:

a. A very large gap in the market emerges
b. Another industry dies
*c. New knowledge manifests itself in the guise of a sufficiently radical product innovation
d. There are sufficient entrepreneurs
27. A dominant design is:

a. One which has won the most industrial design awards
*b. An emergent de facto industry standard broad product format
c. The one advertised most strongly by the market leader
d. The latest new product which gains the most media attention
28. A technical standard:

a. Only occurs in computing when there is a network effect
b. Emerges when there are interconnectivity and interface compatibility issues
c. Can emerge for safety and other reasons from standards bodies
*d. Answers b and c
29. The different stages of the industry life cycles are characterised by:
*a. The evolution of the industry growth rate over time
b. The evolution of the competition in the industry
c. The evolution of a firm’s market share
30. An industry life cycle:

a. Always follows the theoretical pattern
*b. May never enter the decline phase in industries supplying basic essential products or services
c. Must be the same everywhere, due to globalisation
d. Can never really experience a resurgence
31. The PC industry clearly began in the 1970's because:

a. It did not exist at all prior to this time
b. The introduction phase was typical: no mass market, many product variants, small firms
C. By the 1980's, the growth phase had begun, with a design standard emerging
*D. All of the above
32. As the industry life cycle progresses, overall strategies need to:
a. Stay steady and not waver; don't change anything
*b. Change in most major aspects
c. Primarily focus on cost-cutting
33. Start-up firms in a new industry are also sometimes known as:
a. de alio entrants
*b. de novo entrants
c. de bono entrants
d. de facto entrants
34. Firms entering a new industry who were already established in a related industry are sometimes
known as:
*a. de alio entrants
b. de novo entrants
c. de facto entrants
d. Both b and c
35. The basis of entering a new industry at the Introduction phase is:
*a. Effective product innovation
b. Effective process innovation
c. Effective promotional material
d. Effective sales people
36. A "born global" company is one which:

*a. Interacts across the world from the outset – especially regarding selling
b. Is a "virtual" company
c. Is spun out of an existing global company
d. Has an international cultural appreciation
37. Often, to succeed in the evolution from introduction to growth a

firm: @Pages and References: Page 224
a. Needs to acquire an injection of cash from a venture capital company
*b. Needs to be closely associated with the dominant design which emerges
c. Needs to buy a major competitor
d. Needs to pull back on product innovation
38. The key challenges for firms entering the growth phase of the industry life cycle
is @Pages and References: Pages 163-164
a. "scaling up" its output
b. obtaining sufficient resources and capabilities to support effective scaling-up of operations
c. adapting their product designs and manufacturing capabilities to accommodate large-scale
production
39. To survive going into the maturity phase of the industry life cycle a firm needs
to: @Pages and References: Page 164
a. Outsource all production
b. Get rid of all research and development staff
*c. Emphasise cost efficiency
d. Cut wages
40. With the onset of the maturity stage, the number of firms in most
industries: @Pages and References: Page 164
a. Remains relatively stable
*b. Tends to decrease significantly
c. Increases significantly
d. Decreases or increases, depending on the industry
41. The typical cause of the decline phase in an industry

is: @Pages and References: Page 165
a. Technological substitution e.g. the horse and cart replaced by the car
b. Local regional decline due to low-cost foreign competition
c. Changing consumer tastes e.g. tobacco
*d. Any of the above
42. Key features of the decline phase of the industry life cycle typically
include: @ Pages and References: Page 165
*a. aggressive price competition and a declining number of competitors
b. aggressive price competition and an increasing number of competitors
c. excess capacity and rapid technical change
d. shortages in capacity and a lack of technical change
43. The determining factors of how calamitous the decline phase turns out to be
are: @Pages and References: Pages 165
*a. The way capacity is dismantled as demand declines, and how dramatic is the decline in demand
b. Whether a price war breaks out, and how many firms remain
c. The actions of foreign competition, and how fast workers can be fired
d. How quickly the new industry can ramp up production, and what prices they sell at
44. The key success factor in the Introduction phase of the industry is:
*a. Effective product innovation i.e. getting new products launched and in front of customers
b. Making sure the workforce is multi-skilled
c. Having a committed workforce, e.g. prepared to work weekends for no extra wages
d. Just being creative
45. The key success factor for leading firms in the Growth phase is:
a. Knowing what competitors are doing – even resorting to espionage
b. Taking business away from rivals
c. Employing a commission-oriented sales force
*d. Being able to scale up volume production and operations effectively and efficiently
46. The key success factor for firms surviving in the Maturity phase is:
a. Buying as many competitors as you can
*b. Maintaining cost efficiency that matches or exceeds that of competitors
c. "Two for One" deals and other special offers
d. All of the above
47. Which of the following elements function as limitations for organizational

change? @Pages and Reference: Page 167
a. anthem quest for satisfactory rather than optimal performance
b. Managers limiting the scope of options they are able or willing to consider
c. Preference for exploitation rather than exploration
48. The fact that some firms such as BASF, Exxon, and General Electric have been leaders
in their industries for almost a century, indicates that:
*a. Some firms have built the capability to adapt themselves to change in their
environment time after time
b. Economies of scale are the most powerful drivers of performance
c. Size is the key predictor for success
d. A firm’s age is the critical variable for profitability
49. Firms that create new products or services are often not the ones that successfully
market them. The reason is that:
*a. The capabilities needed for invention are different and even conflict with those
required for commercialization
b. There is a connection between the stage of the industry life cycle and the age of firm
c. :arge companies steal their ideas.
d. The innovators have shifted their strategic orientations to different products or services
50. Disruptive technologies are:

*a. Innovations that threaten existing industry leaders and generally offer potentially
superior performance at lower price than existing products
b. Innovations that radically change the product or service
c. Innovations that overcome existing barriers to entry in the industry
d. Quite normal in an industry’s life
51. The starting point for managing change is:

@pages and References: Pages 170-172
*a. For managers to recognize the sources of inertia or barriers to change
b. That managers do not let their own agenda supersede the firm’s overall interest
c. To possess enough resources to implement change
d. That managers exhibit enough courage and will to change
52. Some firms create new organizational units instead of modifying the existing structure,
*a. Existing structures are often locked into existing routines
b. There is not enough time to transform existing structures
c. These firms want a fresh start
d. These firms do not plan; they manage change reactively
53.A firm can simultaneously pursue dual strategies:

a. This goes against all the theory on strategy
*b. It can, so long as it maintains separate organizations to pursue each strategy
c. This is impossible
d. This is only possible in large multinational firms.
54. Radical top-down organizational change:

a. Is usually only successfully implemented if the workforce is convinced that a crisis looms
b. Often should be implemented in advance of a crisis occurring
c. Is typically only undertaken following declining performance.
55. Dynamic capabilities:

@Pages and References: Pages173-174
*a. Are the capacity to learn new capabilities
b. Can be acquired through ‘reverse takeovers’
c. Develop rapidly in some industries, then die
d. Answers b and c
56. Scenario analysis is usually used to deal with:

a. What a firm might do in the long-term future
b. The uncertainty and consequences of radically different possible futures
c. How flexibly managers should think in coping with
uncertain futures
57. The value of the scenario analysis lies in:

@Pages and References: pages 174-176
a. The results of the analysis
*b. The process of managers being involved in the analysis
c. The practical implications of the results
d. Its low cost
58.A succession of management gurus including Tom Peters to Gary Hamel have argued
that the key to achieving competitive advantage is:
a. adapting quickly to external change
b. changing incrementally
*c. initiating change and achieving internal “revolution”
d. adapting to change in an orderly fashion
59. The statement that organizational capabilities are path dependent

means that: @Pages and References: Page 177
a. past circumstances influenced past capabilities
*b. a company’s capabilities today are the result of its history
c. a company needs to plan how it develops new capabilities
d. Both a and c
60. The building for developing new capabilities include:

a. creating mechanisms that facilitate “learning by doing”
b. locating the people that can contribute to the capability in the same organizational unit
c. ensuring the components of the capability are aligned

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Chapter 1 test bank

Strategic Management (Louisiana State

14. Corporate strategy is also called business strategy, or competitive

15. Strategy is predominantly about countering short-term

21. Strategy is fundamentally about:

22. Success is fundamentally linked to:

24. Strategic goals should be:

25. Appraising a firm’s resources consists of:

2y. The success of an organization in general, depends on the following:

29. Strategy and tactics:

30. Corporate strategy and business

32. By the early 1980s, thinking on strategy had shifted to:

33. The shift from Corporate Planning to Strategy-Making implies:

35. The simplest useful definition of business strategy would be:

3y. Corporate and Business strategy differ mainly in that:

37. Business strategy defines:

38. Business strategy can be summarized

39. Two basic questions concern corporate and business strategy:

40. A mission statement:

42. The 1950's/y0's style of Corporate Planning assumed that:

43. The shift in strategy from a plan to a direction leads

44. As the environment becomes more turbulent, or

45. The difference between intended and realised strategy

4y. A strategy can be described as:

47. In practice, strategy making is:

48. In regard to strategy making, most firms are likely to exhibit:

50. The role of strategy today is claimed to be:

51. Profit-making firms are about creating value:

52. To business organizations, the term ‘stakeholders’ refers to:

a. the organizations shareholders

53. Stakeholder analysis:

a. is a useful tool for deciding the distribution of profit to shareholders

55. Maximising shareholder value:

5y. Corporate Social Responsibility:

58 The fundamental role of strategy is to:

y0. The notion of “strategic fit”:

Strategic Management (Louisiana State

2. PEST analysis is a popular environmental scanning

4. Value creation translates directly into

13. A high ‘Concentration Ratio’ is typical of oligopolistic industries, dominated by a few

18. There is no single absolute definition of what an “Industry”

23. The starting point for industry analysis is:

25. The core of a firm’s business environment is determined by:

27. Value is created when:

28. Once value is created, it is, in general:

a. the appeal of the industry to a particular firm

30. In an industry, the profits earned by firms are determined

31. The basic premise of industry analysis is that:

32. Porter’s 5 Forces model is intended to be:

33. The idea with Porter’s 5 Forces is to:

34. A barrier to entry is:

35. If an industry earns a return on capital in excess of its cost of

37. Economies of scale are a barrier to entry

38. For a manufacturer access to distribution is a barrier to entry

39. Barriers to entry are effective:

40. Barriers to exit are:

41. Firms in any industry can be said to operate in two major

42. The overall bargaining power of buyers depends on:

43. Bargaining power rests, ultimately, on:

44. The relative bargaining power of buyers depends on:

45. The bargaining power of suppliers is likely to be high:

a. a change in consumer buying patterns that favours substitute products

47. To forecast industry profitability consistently accurately, professional analysts have