CH04JJ

1.
One firm possesses a competitive advantage over other firms when it earns or has the potential to
earn a persistently higher profit margin.
@Pages and References: Page 123
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.
@Pages and References: Pages 124-125
*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.

*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
© 2012 John Wiley & Sons Ltd.

www.foundationsofstrategy.com
*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.
*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
a. T
*b. F
21. Singapore Airlines appears to have competitive advantages from:

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
*d. All of the above
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?
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:
*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:
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:

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:

*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?

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:

@Pages and References: Page 128-131
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:
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:
*a. Understand the basis of its rival’s success
b. Collect comprehensive information about its rival
c. Analyse its rival’s marketing strategy
d. None of the above
38. Is it easy for Sears Holdings (Kmart) to understand Wal-Mart’s competitive advantages?
*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:
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:
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:

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 to:
*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 :
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:
*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

*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


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1.

2. In the long run competition eliminates differences in profitability between firms.

7. A “Blue ocean strategy” refers to the creation of entirely new markets.

© 2012 John Wiley & Sons Ltd.

© 2012 John Wiley & Sons Ltd.

21. Singapore Airlines appears to have competitive advantages from:

22. Competitive advantage can be defined as:

24. Competitive advantage:

© 2012 John Wiley & Sons Ltd.

27. Requirements for quick organizational response to a turbulent environment are:

28. Zara’s response to very fast-changing fashion demands was:

29. “Strategic innovation” means introducing:

30. “Strategic innovation” involves:

31. Once established, competitive advantage is:

32. Isolating mechanisms are:

© 2012 John Wiley & Sons Ltd.

33. To successfully imitate the strategy of another firm, an organization must:

34. How can a firm hide its superior profits?

35. A firm can pre-empt imitation by:

© 2012 John Wiley & Sons Ltd.

40. Overall, the Singapore Airlines case shows:

43. Cost leadership means a firm must:

44. Differentiation is when a firm:

45. The seven drivers of cost advantage:

© 2012 John Wiley & Sons Ltd.

48. The central task of a differentiation strategy is:

50. Porter’s value chain:

© 2012 John Wiley & Sons Ltd.

53. A typical cost leadership strategy involves:

54. A cost leadership strategy:

55. In many industries the market leaders

56. The success of Japanese Total Quality Management:

58. Overall, the Singapore Airlines case shows that:

© 2012 John Wiley & Sons Ltd.

59. Cost leaders are frequently:

60. Competitive advantage depends on:

© 2012 John Wiley & Sons Ltd.

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