Professional Documents
Culture Documents
1. Strategy is a unifying theme that gives coherence and direction to the actions and decisions of an
organization.
[See p.4]
*a. T
b. F
2. The successful careers of both Queen Elizabeth II and Lady Gaga may be attributed to their
commitment to systematic strategic planning
[See pp.6-7]
a. T
*b. F
4. If a firm can devise a brilliant strategy, it will be successful irrespective of how effectively it is
implemented.
[See p.7]
a. T
*b. F
5. A major problem of using SWOT analyses in distinguishing strengths from weaknesses and
opportunities from threats.
[See p.9
*a. T
b. F
6. “Strategic fit” refers to the consistency between a firm’s strategy and, on one hand, its external
environment and, on the other, its internal resources and capabilities.
[See pp.9-10]
*a. T
b. F
7. Contingency theory postulates that a firm’s strategy must be flexible enough to meet every possible
contingency.
[See pp.10]
a. T
*b. F
8. Strategy denotes an overall plan whereas a tactic is a scheme for a specific action.
[See p.12]
*a. T
b. F
10. Strategic decisions are important, involve a significant commitment of resources, and should be easily
reversible.
[See p.12]
a. T
*b. F
11. The main factor causing the transition from corporate planning to strategic management was the
increasing inability of companies to forecast economic conditions four or five years into the future.
[See p.12]
*a. T
b. F
12. Strategy is a detailed plan that programs the actions of an organization or an individual.
[See p.11]
a. T
*b. F
13. Strategic choices involve two basic questions: where and how to compete?
[See pp.15-16]
*a. T
b. F
14. In the large, complex firm, two main levels of strategy can be distinguished: corporate strategy and
business (or competitive) strategy.
[See p.16]
*a. T
b. F
15. When describing the strategy of a firm, it is best to ignore the current positioning of the firm in order to
concentrate upon the direction in which the firm will develop in the future.
[See pp.17-18]
a. T
*b. F
17. The reason that a firm’s realized strategy diverges from its intended strategy is because strategy
making is, to a great extent, an emergent process.
[See pp.18-19]
*a. T
b. F
18. According to Henry Mintzberg, firm strategy should be formulated by top management through rational
deliberation utilizing all available data.
[See pp.18-19]
a. T
*b. F
20. Applying the tools of strategy analysis to not-for-profit organizations is simplified by the fact that they
do not need to be concerned with maximizing profit.
[See pp.21-22]
a. T
*b. F
2. The successful careers of both Queen Elizabeth II and Lady Gaga may be attributed to the fact that
both:
[See pp.4-7]
a. Have used dressing-up as a means of attracting attention and establishing identity
b. Have a knack for being in the right place at the right time
*c. Have a consistency of direction based on clear goals
d. Have built a loyal fan base based on astute use of the media.
3. For both individuals and businesses, successful strategies are characterized by:
[See pp.7-8]
a. Unrelenting commitment to ambitious goals
*b. Clear goals, understanding their competitive environment, awareness of internal strengths and
weaknesses, and effective implementation
c. Meticulous planning
d. Possessing superior resources that are deployed to build competitive advantage.
11. The book that is considered as the first treatise on strategy is:
[See p.12]
a. Carl Von Clausewitz’s “On War” (“Vom Kriege”)
*b. Sun Tzu’s “The Art of War”
c. The Bible
d. Niccolo Machiavelli’s “The Art of War” (“Dell’arte della Guerra”)
13. The main reason for the transition from corporate planning to strategic management during the late
1970s and 1980s was:
[See p.12]
a. The increasing costs of corporate planning departments
b. Disappointing outcomes of corporate diversification
*c. A more turbulent business environment that was increasingly difficult to predict
d. Growing disillusionment with central planning.
15. In the late 1970s and early 1980s, Michael Porter pioneered:
[See p.12]
*a. The application of industrial organization economics to strategic management
b. Empirical research into the relationship between market share and firm profitability
c. The resource-based view of the firm
d. The application of game theory to competitive analysis
16. During the 21st century, the complexity of the challenges posed by disruptive, digital technologies and
accelerating rates of change have encouraged companies to:
[See pp.12-13]
a. Shift their strategic focus towards the growth markets of Asia, Africa, and Latin America.
b. Rejecting shareholder value maximization in favor of maximizing stakeholder interests
*c. Depend increasingly upon strategic alliances and other forms of collaboration
d. Prefer mergers and acquisitions to organic growth.
17. The more turbulent a firm’s external environment, the more must its strategy:
[See p.11]
a. Be formulated top-down rather than bottom-up
*b. Be about direction rather than specific plans
c. Emphasize innovation
d. Rely upon inputs from external consultants
18. When a firm’s external environment becomes more turbulent and unpredictable:
[See p.11]
*a. Strategy becomes an increasingly important in providing direction for the business
b. Strategy becomes based upon intuition rather than analysis
c. Cost cutting becomes a dominant priority
d. Strategy becomes an impossible exercise
20. Which of the following is not one of the ways in which a systematic, strategy-making process improves
an organization’s decision making:
[See pp.11-13]
a. Reducing the number of choices being considered
b. Integrating and pooling the knowledge of different members of the organization
c. Facilitating the use of analytic tools
*d. Providing algorithms that generate optimal solutions to strategic problems
22. When identifying a company’s strategy, its statements of a strategy found in its public documents need
to be:
[See pp.15-16]
a. Treated with skepticism
*b. Checked against the company’s decisions and actions
c. Interpreted using modern techniques of textual analysis
d. Checked against its statements of vision and mission
23. The primary distinction between corporate strategy and business strategy is:
[See pp.16-17]
a. Corporate strategy is the responsibility of the CEO, business strategy is formulated by the heads of
business units
*b. Corporate strategy is concerned with where the firm competes; business strategy with how it competes
in particular markets
c. Corporate strategy is concerned with establishing competitive advantage; business strategy with
strategy implementation in individual businesses
d. Corporate strategy is concerned with the long-term performance of the firm; business strategy with
resource deployment.
27. The relationship between design and emergence in strategy making is best described as:
[See pp.18-19]
a. An interactive process between strategic planners and line managers
b. A tension between the forces of centralization and decentralization
*c. A process in which intended strategy is adapted as it is implemented
d. An example of the agency problem in which the interests of salaried managers displace the interests of
owners
29. The extent to which an organization’s strategy is determined by decentralized emergence rather than
by centralized design depends mainly upon:
[See p.19]
*a. How turbulent and unpredictable is the external environment of the organization
b. How the organization is structured
c. The commitment of the organization to experimentation
d. Whether the organization has a formalized process of strategic planning.
31. The applicability of the tools and techniques of strategy analysis to not-for-profit organizations is:
[See pp.21-24]
*a. Greater for organizations that face competition than those that do not
b. Greater for organizations that charge for their services than those which do not
c. Greater for organizations that compete to for funding than those which compete for customers.
d. Is severely limited by the lack of a profit motive
32. For charities and other not-for-profit organizations that supply goods and services for free, the most
important focus for strategy making tends to be:
[See p.24]
“a. Competing in the market for finance from donors and other sources
b. Competing with other organizations seeking to supply similar goods or services to the same consumers
c. Establishing internal consensus around organizational goals
d. Managing relations with government and regulatory bodies.
1. T h e entrepreneurs who create business enterprises are motivated primarily by the desire for personal
wealth.
[See p. 31]
a. T
*b. F
3. The value created by a firm is the value received by the customers for that firm’s products, minus the
real cost of producing these products.
[See p.32]
* a. T
b. F
4. If a firm to pursue stakeholder interests rather than shareholder interests, it means that it maximizes
value received by all stakeholders rather than the value received by shareholders alone.
[See pp.32-33]
* a. T
b. F
5. Implementing stakeholder value maximization is inherently more difficult than implementing shareholder
value maximization because of the difficulties of measuring total value creation.
[See p.33]
*a. T
b. F
6. In most continental European countries, company law requires boards of directors to ensure that their
companies operate primarily in the interests of shareholders, while in most English-speaking countries are
required to take account of employees, society, and the interests of the company as a whole.
{See p.33]
a. T
*b. F
7. The tendency for stakeholder interests and shareholder interests to converge means that stakeholder
value maximization and shareholder value maximization leads to identical corporate behavior.
stakeholders.
[See p.34]
a. T
*b. F
8. Firms are often constrained from pursing goals other than profit maximization by the pressure of
competition and threat of acquisition.
[See p.34]
*a. T
b. F
10. Economic profit is a better indicator of a firm’s performance than accounting profit because economic
profit takes account of the normal, expected return to capital.
[See pp.35-36]
*a. T
b. F
11. Basing management decisions on economic profit (e.g. Economic Value Added) rather than accounting
profit is more important for companies with few fixed assets (such as software companies and consulting
firms) than capital-intensive companies such as chemical companies and vehicle manufacturers.
[See p.36]
a. T
*b. F
12. Maximizing profit over the life of the firm bears no relationship to the goal of maximizing shareholder
value.
[See pp.36-37]
a. T
*b. F
13. Stock market capitalization offers the best available indicator of the net present value of a firm’s future
free cash flows.
[See p.38]
*a. T
b. F
15. When comparing the profitability of firms in different industries, it is better to use profit margins on sales
rather than profitability ratios based upon balance sheet items (such as return on equity or return on
capital employed)?
[See pp. 40-40]
a. T
*b. F
16. Disaggregating return on capital employed into sales margin and capital turnover offers a useful
starting point for diagnosing firm performance.
[See pp.39-40]
*a. T
b. F
17. Since the long term is a series of short terms, short-term profit maximization will always lead to long-
term profit maximization.
[See pp.43-45]
a. T
*b. F
18. A major difficulty in selecting performance targets for a firm is that performance goals tend to be long
term, but effective monitoring must be short term.
19. The balanced scorecard is a useful tool for setting and monitoring performance targets for firms that
pursue stakeholder goals; it is less useful for firms that seek to maximize profits over the long term.
[See p.43]
a. T
*b. F
20. If a firm is to achieve superior profit performance, it is essential that profitability targets are set for
managers. If managers focus on the drivers of profitability rather than profitability itself, their efforts will be
diffused.
[See pp.43-45]
a. T
*b. F
21. A major problem encountered by firms that adopt the goal of maximizing shareholder value is the
tendency to concentrate on increasing short-term profits at the expense of long-term profits.
[See pp.39, 43]
*a. T
b. F
22. According to Milton Friedman, the social purpose of a business is to make profit.
[See p.45]
*a. T
b. F
23. Values and ethical principles can complement a firm’s strategy through creating a sense of identity and
supporting cohesion.
[See pp.45-46]
*a. T
b. F
24. Michael Porter and Mark Kramer’s concept of shared value is based upon the notion that business
enterprises should focus, first, on creating value and, second, on distributing that value among different
participants (including shareholders and society-at-large).
[See p.47]
a. T
*b. F
25. “Bottom of the pyramid” initiatives embody the notion that multinational corporations should use a
portion of their profits on community-based projects in developing countries.
[See p.48]
a. T
*b. F
26. One implication of real option analysis is that when pursuing a new strategic initiative, there is value in
a firm making an irreversible commitment to continuing that initiative.
[See pp.49-50]
a. T
*b. F
27. A “phases and gates” approach to new product development is an example of a business process
designed to create option value.
[See p.49]
*a. T
b. F
2. Every business enterprise has a distinct purpose, however, common to all businesses is the goal of:
[See p.31]
a. Satisfying customers
*b. Creating value
c. Satisfying stakeholders
d. Maximizing shareholder value.
6. For the purposes of strategy analysis, it is convenient to view business strategy is primarily a quest for:
[See p.34]
a. Attractive markets
*b. Profit over the long term
c. Customer loyalty
d. Motivated and talented personnel
9. Although firms may pursue a variety of goals, the assumption that primary goal of strategy is to
maximize profits over the long term may be justified by:
[See p.34]
a. The fact that in today’s intensely competitive markets, firms must focus on profit maximization in order
to survive
*b. The external pressures on firms that arise from (i) strong competition in product markets and (ii) the
threat that firms that do not maximize profits will be acquired by firms that do
c. The legal requirement on Boards of Directors to ensure that companies are operated in the interests of
their shareholders
d. Shareholder pressure on CEOs to maximize profits.
10. The principal difference between accounting profit and economic profit is:
[See pp.35-36]
a. Accounting profit is distorted by the arbitrary treatment of depreciation and unusual items
*b. Accounting profit includes both economic profit and the normal return on capital to the providers of
equity capital
c. Economic profit is cash flow based and is, hence, less subject to manipulation that accounting profit
d. Economic profit is endorsed by economists who tend to be more rigorous than accountants.
11. The divergence between accounting profit and economic profit is likely to be:
[See pp.35-36]
a. Greater for highly leveraged firms than for equity-financed firms
b. Greater for labor-intensive firms than for capital-intensive firms
*c. Greater for capital-intensive firms than for labor-intensive firms
d. Greater for technology-based firms than firms in mature industries
12. Profit and value of the firm are two concepts which are:
[See p.37]
a. Unrelated because cash flow not profit is the main determinant of firm value
*b. Closely linked because the present value of a firm’s expected future profits approximates to the market
value of its securities
c. Closely linked because dividends are paid out of profits, and it is dividends that determine the market
value of a firm’s shares
d. Closely linked because the market value of a firm is determined by its profits multiplied by the price-
earnings ratio of its shares
13. The main difference between accounting measures of firm performance and stock-market measures of
firm performance is:
[See pp.38-39]
a. Accounting measures are less reliable because of firms’ discretion over how they apply accounting
conventions
b. Stock market measures are less reliable because share prices are so volatile
c. Accounting data offers a sound basis for forecasting future performance
*d. Accounting measures are backward looking; stock market measures are forward looking
16. To assess the adequacy of the return on capital employed (ROCE) that a firm earned in its most recent
financial year, which of the following would not be an appropriate benchmark:
[See pp.39-40]
a. The ROCE earned by the same firm in previous years
b. The ROCE earned by competitors during the same period
*c. The firm’s cost of equity capital
d. The firm’s weighted average cost of capital
18. To assess whether or not a firm is earning an adequate rate of profit, return on capital employed
(ROCE) is a better indicator than return on sales because:
[See pp.39-40]
a. Sales are more variable than capital employed
*b. Return on sales vary between industries according to their capital intensity
c. A firm’s return on sales depends upon the choice between gross margin, operating margin, and net
margin
d. ROCE is based upon cash flow
19. To diagnose the sources of a firm’s poor financial performance, it is useful to:
[See pp.40-41]
a. Focus on the firm’s cash flow statement rather than its income statement and balance sheet
b. Concentrate on sales growth and market share rather than profit data
c. Adopt a forward-looking approach through analyzing share price performance rather than looking at
backward-looking accounting statements
*d. Disaggregate overall return on capital into its component items
20. The biggest problem in designing a performance management system arises as a result of:
[See pp.41, 43]
a. The tendency for performance management systems to be based entirely on financial targets
*b. A performance management system needs short-term indicators to monitor performance, yet the
ultimate goal is to enhance the long-term performance of the firm
c. Performance targets are always ineffective because individuals will “game the system”
d. The personal interests of organizational members need to be taken into account
22. The main problem of a company establishing shareholder value creation as its primary performance
goal is:
[See pp.43-45]
a. Shareholder value maximization is appropriate only for financial service companies
b. Pursuing shareholder value inevitably leads to unethical behavior by senior managers
*c. Focusing on shareholder value does not necessarily encourage managers to concentrate on the
actions and activities that create the profits that are the source of shareholder value
d. Pursuing shareholder value is likely to be detrimental to employee morale and customer satisfaction
23. In relation to the social responsibilities of firms, leading economists and management theorists:
[See pp.46-47]
a. Agree that CSR is an essential “moral imperative”
*b. Have fundamental disagreements about the justification for CSR
c. Believe that the capitalist system would operate better if all firms adopted CSR
d. Regard most firms’ CSR initiatives as primarily exercises in public relations
24. Michael Porter and Mark Kramer’s notion of “shared value” reconceptualizes CSR (corporate social
responsibility) by emphasizing:
[See p.47]
*a. CSR as a value creating activity
b. CSR as a source of legitimacy for a company
c. CSR a means of transferring value from shareholders to less fortunate members of society
d. CSR as a counterweight to greed and amorality among managers and investors.
25. Which of the following activities by Starbucks Inc. is least likely to be an example of Michael Porter and
Mark Kramer’s “shared value creation”:
[See pp.46-48]
*a. The 2015 “Race Together” initiative to combat racism and promote racial harmony
b. The introduction in 2014 of college tuition benefits to employees
c. Participating in the Coffee and Farm Equity program to benefit growers
d. Setting targets for reducing energy utilization and increasing recycling.
26. In new product development, a “phases and gates” approach means that:
[See p.49]
a. A firm’s market is divided into specific segments (or “phases”) linked by “gates” which allow synergies
to be exploited
b. A firm’s product development relies on time segments that must be linked through gates
*c. The process is divided into consecutive stages, at the end of each a decision is made as to whether to
continue to the next stage of development
d. The product is divided into separate modules where the interface between them are viewed as gates
27. Viewing strategy as a portfolio of options rather than a portfolio of investments, relies upon the
rationale that:
[See pp.49-51]
a. Uncertainty means that flexibility is valuable
b. Committing to a long-term program of investment can be disastrous if circumstances change
c. Most investment projects can be divided into a sequence of stages where, at any point of time, it is only
necessary to decide the next stage
*d. All of the above
29. The two main categories of real options are growth options and flexibility options. Which of the
following investments is not a growth option?
[See pp.49-51]
*a. Ford’s acquisition of programmable robots that allow different models of car to be produced on a single
assembly line
b. Facebook’s acquisition of WhatsApp 2014
c. Apple’s program of research into virtual reality
d. Callaway Golf’s strategic alliance with Automobili Lamborghini to develop new composite materials
1. According to Warren Buffett brilliant managers can succeed, even in businesses with poor
fundamental economics.
[See p.54]
a. T
*b. F
2. According to Charlie Munger, the profitability in the reinsurance industry is depressed by the fact that
many companies believe it to be an attractive business.
[See p.54]
*a. T
b. F
3. Formal, broad-based scanning of the external environment is an essential activity for all business
enterprises.
[See pp.55-56]
a. T
*b. F
4. If a firm is to create profit, the first condition is that it must supply a product for which the price the
customer is willing to pay exceeds the cost incurred in supplying that product.
[See p.56]
*a. T
b. F
5. Consumers receive “consumer surplus” when the price they pay for a product is below the maximum
price they would have been willing to pay for that product.
[See p.56
*a. T
b. F
6. The greater the value of a product to its customers, the more profitable will it be to supply that product.
[See pp.56-57]
a. T
*b. F
7. The main reason that niche markets are often highly profitable for incumbents is because their
customers tend to be insensitive to prices.
[See p.59]
a. T
*b. F
8. Michael Porter’s five forces of competition framework links the structure of an industry to its overall level
of profitability.
[See p.59]
*a. T
b. F
9. A product that has close substitutes will tend to have inelastic demand.
[See pp.60-61]
10. In a “contestable market”—one where there are no barriers to entry of exit—the threat of entry is
sufficient to keep prices at their competitive level.
[See p.61]
*a. T
b. F
11. Economies of scale, absolute cost advantages, high capital requirements, and limited access to
channels of distribution give established firms an advantage over new entrants to an industry.
[See p.62]
*a. T
b. F
12. Threats of retaliation by incumbents against a new entrant (e.g. threatening to make aggressive price-
cuts), cannot be regarded as a source of entry barriers.
[See p.62]
a. T
*b. F
13. Entry barriers that are effective against small, start-up companies tend to be equally effective against
established firms diversifying from other industries.
[See p.62]
a. T
*b. F
14. Concentration in an industry is measured by its concentration ratio—a common measure of which is
the combined market share of the leading firms.
[See p.62]
*a. T
b. F
15. The more similar are the firms in an industry in terms of costs, strategies, and locations, the more
intensely will they compete.
[See p.63]
a. T
*b. F
16. Lower levels of capacity utilization impose higher costs on firms (as fixed costs are spread over a
smaller volume of business). This encourages firms to raise prices.
[See p.63]
a. T
*b. F
17. An exit barrier is anything that is an impediment to excess capacity leaving an industry.
[See p.63]
*a. T
b. F
18. The reason that the shares of steel, automobile and chemical companies are regarded as “cyclical” is
that the high fixed costs of these industries make profits highly sensitive to changes in the level of
demand.
[See p.63]
*a. T
b. F
18. Suppliers of technically sophisticated components are more likely to be able to exercise supplier power
than the suppliers of raw materials.
[See p.64]
*a. T
b. F
19. Batteries represented about 40% of the cost of electric vehicles in 2018. Because battery prices are
expected to decline at the rate of about 5% per year for the next six years, electric vehicles will become
increasingly profitable for automobile manufacturers
[See pp. 62-64]
a. T
*b. F
20. The mergers and acquisitions that have increased seller concentration in iron ore mining, chemicals,
and the US airline industry and in the world metals mining industry were motivated by the desire to save
costs, not to reduce competition in order to raise prices.
[See pp. 66-68]
a. T
*b. F
21. Official industry classifications such as the Standard Industrial Classification mean that there is no
ambiguity over delineating industry boundaries.
[See pp.68-69]
a. T
*b. F
22. Although washing machines and refrigerators are not close substitutes as far as consumers are
concerned, we can consider them to be part of the same industry because of supply-side substitutability.
[See p.69]
*a. T
b. F
23. In identifying key success factors in an industry, it is sufficient to concentrate upon the factors which
determine how customers choose between alternative suppliers.
[See pp.70-71]
a. T
*b. F
24. In commodity businesses, such as growing wheat, mining for gold, or fabricating DRAM
semiconductors, the principal key success factors are concerned with the sources of cost efficiency.
[See pp.77-78]
*a. T
b. F
1. Given the range of external influences that impact a firm, understanding the external environment
requires managers to:
[See pp.55-56]
10. As the competitors in an industry become more diverse in terms of their goals, cost structures, and
strategies, it is likely that:
[See p.63]
a. Their incentives to collude on price increase
*b. They will compete more fiercely on price
c. Their products will become increasingly differentiated
d. Mergers, acquisitions and alliances among them will increase
11. Industries where a decline in demand is most likely to cause industry-wide losses tend to have the
following characteristics:
[See pp.63-64]
a. High concentration, lack of product differentiation and scale economies
*b. High exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs
c. High exit barriers, lack of product differentiation, and powerful buyers
d. Powerful buyers and suppliers and high exit barriers
12. Which of the following does not enhance buyers’ bargaining power
[See p.64]
a. Low switching costs for buyers
b. The size of buyers relative to that of sellers
*c. A high level of differentiation among the products that buyers purchase
d. The ability of buyers to backward integrate
14. The restrictions that governments place on the advertising of tobacco products:
[See pp.61-64)
a. Reduce the demand for tobacco thereby depressing profitability
b. Reduce the marketing costs of tobacco companies and impede the entry of newcomers to the market,
boosting the profitability
*c. Cause both (a) and (b)
d. Cause neither (a) nor (b)
15. To obtain a license to drive a “black cab” taxi in London, requires passing a rigorous test of the driver’s
knowledge of London’s streets involving 2 to 4 years of study. This test affects the profitability of the
London taxi industry:
[See pp.61-64]
16. Profitability of the wireless communications services industry tends to be low throughout the world. A
major reason for this is:
[See pp.61-64]
a. In most markets there are only three or four competitors
*b. In almost every country, the national government is a monopoly supplier of wireless spectrum
c. Entry barriers are high due to the high costs of infrastructure
d. Video streaming and online gaming are increasing the demand for wireless telecommunications
17. The most useful approach to forecasting industry profitability in the future is:
[See pp.65-66]
a. To estimate the industry’s revenues and costs in future years
b. To use an industry’s probability at similar stages of the business cycle in the past as an indicator of
future profitability
c. To extrapolate the trend of industry profitability into the future
*d. To understand how the industry’s structure has determined competitive intensity and profitability in the
past, then to use information on an industry’s changing structure to predict how profitability is likely to
change in the future
18. Airlines’ frequent flyer programs and retailer loyalty schemes are both examples of efforts to:
[See p.66]
a. Offer disguised price reductions to customers
*b. Establish product differentiation by measures that reward customer loyalty
c. Establish competitive advantage that failed because they could be easily imitated by competitors
d. Promote a company’s product to new customers
19. Initiatives to improve an industry’s profitability through changing its structure are:
[See p.66]
a. Only feasible for the dominant player within an industry
*b. More difficult in fragmented industries than in concentrated industries
c. Feasible in any industry that is subject to ruinous price competition
d. Always risky because they attract the attention of antitrust authorities
24. Identifying key success factors within an industry requires answers to the following questions:
[See p.71]
*a. What do customers want and what should the firm do to survive competition?
b. What is a firm’s unique selling proposition?
c. Which of the five forces of competition most threaten a firm’s survival and how could the firm deal with
them?
d. What are the main sources of a company’s cost efficiency?
1. Porter’s five forces model offers a rigorous, theory-based, empirically-validated approach to explaining
the variation in profitability across industries
[See pp.77-78]
a. T
*b. F
2. Industry membership is the single most important source of profitability differences between firms.
[See p.77]
a. T
*b. F
3. The Schumpeterian view of competition emphasizes the role of innovation and entrepreneurship
[See p.78]
*a. T
b. F
4. In common with the Porter five forces framework, the Schumpeterian approach views competitive
behavior as the outcome of industry structure.
[See p.78]
a. T
*b. F
5. In hypercompetitive markets, the quest for sustainable competitive advantage is the overwhelmingly
important priority for firm strategy.
[See p.78]
a. T
*b. F
6. Empirical studies on hypercompetition show unanimously that industries are becoming increasingly
turbulent and competitive advantage increasingly short-lived
[See p.78]
a. T
*b. F
7. A “winner-take-all industry” is one in which the market leader earns the great majority of the industry’s
total profits.
[See pp.78-79]
*a. T
b. F
8. In the supply of inkjet printers, the profitability of Canon will be greatly enhanced if Canon can prevent
other companies from supplying compatible ink cartridges for its printers.
[See pp.79-80]
*a. T
b. F
9. The value of a product to its consumers tends to be reduced by availability of close substitutes.
Similarly, the value if a product to its consumers is reduced by the availability of complements.
[See pp.78-79]
10. When products A and B are complements, the division of profit between the supplier of A and the
supplier of B will depend upon which builds the stronger market position and is better able to reduce the
value contributed by the other.
[See p.79]
*a. T
b. F
11. In digital markets, a “platform” is an interface that links multiple suppliers with multiple users.
[See p.80]
*a. T
b. F
12. Digital marketplaces such as eBay and Amazon.com are platforms, while operating systems such as
Windows and Android cannot be viewed as platforms.
[See p.80]
a. T
*b. F
13. The concept of a “business ecosystem” can be applied not only to digital industries, but also to
traditional industries such as the Hollywood movie industry. [See p.80]
*a. T
b. F
14. The firms that extract the most profit from a business ecosystem tend to be those who control the
“bottlenecks” in that ecosystem. [See p.81]
*a. T
b. F
15. Within a business ecosystem, the migrates of value between groups firms is the result of external
forces such as technology, regulation, and changing customer preferences. Individual firms have little
power to influence value migration.
[See p.81]
a. T
*b. F
16. Unlike most strategic management concepts, there is little ambiguity over what a business model is.
[See p.81]
a. T
*b. F
17. Business models can assist strategy formulation for firms that are located within complex business
ecosystems.
[See pp.81-82]
*a. T
b. F
16. Game theory seeks to predict the outcome of competitive situations by modeling the interactive
decisions by firms,
[See p.84
*a. T
b. F
18. The propensity for similar businesses to cluster in the same locality (e.g., IT companies in Silicon
Valley, fashion houses in Milan) is evidence of the intensity of the competitive instincts that drive the
owners of these businesses.
[See p.84]
a. T
*b. F
19. Credible deterrent are typically those typically those which impose significant costs upon the initiating
firm.
[See pp.84, 86]
a. T
*b. F
20. After arriving in Mexico in 1519, Hernan Cortes destruction of his own ships was a signal to his troops
of his commitment to the conquest of the Aztec empire.
[See p.86]
*a. T
b. F
21. The tendency for both Coca-Cola and Pepsi to compete through large advertising budgets which have
little impact on their relative market shares cannot be a true example of a “prisoners’ dilemma” because
both firms remain highly profitable.
[See p,85]
a. T
*b. F
22. The “prisoners’ dilemma” can be resolved by changing the payoffs in a way that induces cooperative
behavior.
[See pp.85, 86]
*a. T
b. F
23. A “prisoners’ dilemma” situation in which a failure to cooperate leaves both parties worse off is just as
likely in a multi-period game as in a single-period game.
[See p.85]
a. T
*b. F
24. Deterrence is a competitive action that is more attractive to firms that compete in multiple markets than
in a single market because the resulting reputation can be transferred from one market to another.
[See p.86]
*a. T
b. F
25. When applied to real business situations, the usefulness of game theory is enhanced by its ability to
predict very different outcomes on the basis of small changes in initial conditions.
[See p.87]
a. T
*b. F
26. Competitive intelligence involves the systematic collection and analysis of public information about
suppliers and customers to aid decision making.
[See p.88]
a. T
*b. F
28. The tendency for the managers within an industry to share common beliefs about their industry and
about the key success factors within it may hinder their ability to respond to an external threat.
[See pp.88-89]
*a. T
b. F
29. Disaggregating industries into segments and identifying particularly attractive segments is seldom
useful for competitive positioning.
[See p.89]
a. T
*b. F
30. To divide an industry into segments it is always preferable to focus on the characteristics of different
customers rather than the characteristics of different products.
[See p.90]
a. T
*b. F
31. The more variables that are deployed to segment a market, the more useful is the resulting
segmentation likely to be.
[See p.90]
a. T
*b. F
32. To analyze the profit potential of different industry segments, we can use the same Porter five forces of
competition framework that we use to analyze the profit potential of different industries.
[See pp.90]
*a. T
b. F
33. In the automobile industry barriers to firms’ mobility between different segments tend to be low, hence
profitability differences between segments are not sustained over long periods of time.
[See p.91]
*a. T
b. F
34. The more similar are key success factors across the different segments of an industry, the more likely
it is that the firms within that industry will specialize by segment.
[See p.92]
a. T
*b. F
35. A strategic group is a group of firms in an industry that serving the same market segment.
[See p.92]
a. T
*b. F
38. The main usefulness of strategic group analysis is in analyzing interfirm profitability
differences within an industry; it is less useful as a tool for describing the strategic positioning of firms
within an industry.
1. Empirical research shows that proportion of inter-firm differences in profitability that industry factors
explain is:
[See p.77]
a. More than 75%
b. About half
*c. Less than 20%
d. The question is unanswerable because “industry” is a meaningless concept.
2. A key limitation of Porter’s five forces framework is that:
[See p.78]
a. I looks only at single industries not at relationships between industries
*b. Competitive strategies may shape industry structure, rather than structure shaping competition
c. Industries are more complex than can be reduced to five competitive forces
d. It offers qualitative, not quantitative predictions
4. The concept of competition as “creative destruction” challenges Porter’s five forces of competition
framework by:
[See p.78]
a. Introducing concepts of renewal and rebirth into the analysis of industrial change
b. Recognizing the cooperation is as important in business as competition
*c. Proposing that competitive behavior determines industry structure rather than the other way round
d. Viewing competition is essential for the renewal of mature and declining industries
7. Winner-take-all industries, where the leading firm accounts for the great majority of the industry’s total
profit, are usually the result of:
[See pp.78-79]
a. Economies of scale
b. Economies of scope
*c. Network externalities
8. The difference between substitute and complementary products may be summarized as follows:
[See p.79]
*a. Substitutes reduce the value of a product, whereas complements increase its value
b. Complements reduce the value of a product, whereas substitutes increase its value
c. Substitutes cannot be used together, whereas complements must be used in combination
d. Complements encourage collusion; substitutes encourage competition
9. Video game consoles and video games are complementary products. In the past, the suppliers of the
consoles (Nintendo, Sony, and Microsoft) earned more profit than the suppliers f games because:
[See pp.79-80]
a. Video game consoles cost more to develop than video games
b. The consoles were more powerful determinant of the consumer experience than the games
*c. The console suppliers were few, the suppliers if games were many, and the console suppliers
controlled technology and market access
d. The console makers—Nintendo, Sony and Microsoft—were bigger companies than the suppliers of
video games.
10. The producer of a complementary product can maximize its relative bargaining power by means of:
[See p.79]
a. Adopting a differentiation strategy that allows it to sell at a premium price
b. Adopting a cost cutting strategy to provide its product at the lowest possible cost and so exploit
economies of scale
c. Restricting complementors’ access to the market
*d. Commoditizing the market for the complementary good.
11. The key problem facing Nespresso in implementing a “razors and blades” strategy for its Nespresso
system is that:
[See pp.79-80]
*a. It is unable to prevent the emergence of other suppliers of Nespresso-compatible coffee capsules
b. Its Nespresso coffee machines are manufactured under license by other companies
c. Keurig Green Mountain is the market leader for capsule coffee systems in the US
d. The high cost of Nespresso capsules compared to traditionally-packaged coffee
13. The concept of a “business ecosystem” is especially useful in digital markets because:
(See p. 81)
a. Firms must be more ecologically aware
b. Digital technologies have made the concept of ”industries” less relevant
c. Ecosystems are inherently dynamic in nature
d. Digital markets typically comprise a broader array of actors than are identified in the traditional “five
forces” framework
16. The key insight from the “prisoners’ dilemma” game is:
[See pp.84-85]
*a. Competitive behavior can create an outcome that is inferior for all involved in a situation
b. The principle of “honor among thieves” is inapplicable either to thieves or to business executives
c. In every social interaction, the inability to communicate effectively always results in an inferior outcome
d. Trust can play a critical role in creating favorable outcomes form both crime and business
18. The relationship between competition and cooperation can be described as follows:
[See p.84]
a. Industries either compete or cooperate; if they cooperate, they are likely to be in breach of competition
law
b. Cooperation and competition may exist in an industry, but not at the same time
*c. Both can co-exist simultaneously
d. Both can co-exist at the same time, but not in the same industry segment or strategic group
20. Competitive intelligence, the systematic collection and analysis of information about rival firms, is:
[See pp.87-88]
a. A practice which, though legal in most countries, is unethical
b. Likely to distract firms from their efforts to establish positions of competitive advantage based upon
their distinctive strengths
*c. An important component of a firm’s environmental scanning and strategic analysis
d. A useful activity because it can help firms imitate the strategies of their more successful competitors.
22. The distinction between legitimate competitive intelligence and industrial espionage:
[See p.88]
a. Is clearly defined by legislation and case law relating to trade secrets
*b. Is not always clear
23. To attempt to predict competitive behaviors, Porter suggests a four-step framework, where analysts
must identify:
[See pp.88-89]
*a. The competitor’s current strategy, its objectives, its assumptions about the industry and itself, and its
available resources and capabilities
b. The competitor’s current strategy, its future strategy, its assumptions, and its vulnerabilities
c. The competitor’s assumptions about the industry, its available resources and competencies, its
objectives, and its competitive advantage
d. The competitor’s available resources and competencies, its objectives, then its competitive advantage,
and finally its performance
27. The difference between barriers to entry and barriers to mobility is:
[See p.92]
a. The sources of barriers to mobility are different than the sources of barriers to mobility
b. There is no real difference
c. Barriers to mobility are less effective than barriers to entry
*d. Barriers to entry protect the industry as a whole whereas barriers to mobility protect segments within
the industry
1. Strategy is concerned with matching a firm’s resources and capabilities to the opportunities emerging
from its environment.
[See p.98]
*a. T
b. F
2. David’s victory of over Goliath (as portrayed in The Bible) demonstrates the importance of aligning
strategy with one’s resources and capabilities.
[See pp. 98-99]
*a. T
b. F
3. The “resource-based view” emphasizes that a firm’s strategy needs to be environmentally sustainable.
[See p.98]
a. T
*b. F
4. The more unstable is a firm’s external environment, the more likely it is that customer needs rather than
the firm’s resources and capabilities will offer a more stable foundation for strategy.
[See p.99]
a. T
*b. F
5. Honda Motor Company and 3M Corporation are examples of companies whose long-term success is
based upon corporate strategies that are focused on satisfying a clearly defined customer need.
[See p.100]
a. T
*b. F
6. The failure of Eastman Kodak points to the difficulties that companies face in acquiring the resources
and capabilities needed to adapt to a radical technological change that transforms their core business.
[See p.101]
*a. T
b. F
7. The successful product diversification of W.L. Gore from Gore-Tex fabric into guitar strings, dental floss,
and surgical implants is based upon its ability to continually develop new technological capabilities.
[See p.99]
a. T
*b. F
8. The profits arising from market power are called monopoly rents, whereas those arising from superior
resources are Ricardian rents
[See p.101]
*a. T
b. F
10. Corporate balance sheets do not include human resources (since these are not owned by the firm),
apart from this major exception, balance sheets offer a comprehensive picture of a firm’s resources.
[See pp.102-103]
a. T
*b. F
11. One indicator of the growing importance of intangible resources is the widening difference between
firms’ market capitalization and the balance sheet value of their assets.
[See p.103].
*a. T
b. F
12. Companies with the highest ratios of market value to book value tend to be those, either with valuable
brands or valuable proprietary technologies.
[See pp. 105]
*a. T
b. F
13. The trend among companies to “hire for attitude; train for skills” is the result of research identifying that
the importance of psychological and social aptitudes in determining superior work performance.
[See p.105]
*a. T
b. F
14. “Organizational capability” and “organizational competence” refer to two concepts which, although
related, are different.
[See pp.104-105]
a. T
*b. F
15. According to Prahalad and Hamel, a company’s core competences are those capabilities that are
fundamental to its strategy and to its performance.
[See p.104-105]
*a. T
b. F
16. Porter’s value chain is useful tool for understanding the sequence of activities that a firm performs but
is of limited value in mapping a firm’s resources and capabilities.
[See p.106]
a. T
*b. F
17. Organizational capabilities are built upon an organization’s processes and routines.
[See p.107]
*a. T
b. F
18. The notion that organizational capabilities form a “hierarchy of integration” in which specialized
capabilities are combined to form more general capabilities is only relevant to mature, stable industries.
[See pp.106-107]
a. T
20. For a resource or capability to be a source of competitive advantage it must be scarce and relevant.
[See p.108]
*a. T
b. F
21. A strong brand is unlikely to be a source of sustainable competitive advantage since brands lack
durability and can be purchased or created through advertising and promotion.
[See p.110]
a. T
*b. F
22. The more a capability is based on complex networks of interacting organizational routines, the more
strategically important it is because it is difficult for rivals to replicate.
[See p.110],
*a. T
b. F
23. When a firm’s capabilities are based upon team effort rather than the skills of star employees the
returns from those capabilities accrue to employees rather than to shareholders.
[See pp.110, 111]
a. T
*b. F
24. Benchmarking is seldom an effective means of assessing the strength of a firm’s resources and
capabilities relative to those of competitors.
[See p.111]
*a. T
b. F
25. When a firm identifies a resource or capability that is a key weakness, the strategic response should be
to upgrade that resource or capability through investment.
[See p.113]
a. T
*b. F
26. For the purposes of strategy formulation, a firm needs to consider only those resources and
capabilities that are strategically important. Any strengths in strategically unimportant resources and
capabilities (“superfluous strengths”) are best ignored.
[See p.113]
a. T
*b. F*
2. Strategy needs to take account of both the requirements of the firm’s external environment and the
firm’s own resources and capabilities. Resources and capabilities rather than requirements of the external
environment offer a more stable basis for strategy formulation when:
[See pp.99, 101]
a. The firm is engaged in the exploitation of natural resources such as petroleum or metal
*b. The external environment is in a state of flux
c. When the firm is supplying producer goods rather than consumer goods
d. When the firm is a multinational corporation.
3. The main strategic lesson to be drawn from the Biblical story of David and Goliath is:
[See p.99]
a. The importance of first-mover advantage
*b. Adapt strategy to your relative strengths
c. Conventional strategies don’t work for newcomers
d. The Israelis usually win.
4. In 1990, C.K. Prahalad and Gary Hamel introduced the concept of “core competence.” Their argument
was that:
[See p.99]
a. Competence was more important than capability as a basis for sustainable competitive advantage
b. Management should accumulate the resources that form the basis of competences
*c. Strategy should be focused on both developing and exploiting firms’ distinctive capabilities
d. Competitive advantage rather than industry attractiveness was the primary source of superior
profitability
5. The difficulties faced by Eastman Kodak, Smith Corona. and Olivetti in adapting to radical technological
change within its industry point to:
[See p.101]
a. The failure of senior managers to understand the implications of new technologies.
b. The power of digital technology as a force for creative destruction
c. The need for firms to devote more resources to technological forecasting
*d. The difficulties established firms experience in building the new capabilities
9. The main problem in using a company’s balance sheet to identify its resources and capabilities is that:
[See pp.102-103]
a. Human resources are not included
b. Intangible resources are mis-valued, and some are excluded
*c. Both (a) and (b)
d. Neither (a) nor (b)
10. To exploit its tangible assets more effectively requires that a firm:
[See pp.102-104]
a. Economizes on these assets by changing its depreciation policy
*b. Economizes on underutilized assets and redeploys assets into more profitable uses
c. Expands sales in order to ensure they are fully deployed
d. Leases assets rather than owning them in order to boost return on capital employed
11. Organizational culture is an important resource for most business enterprises because:
[See pp.103-104]
a. It help employees to understand one another
b. It has a powerful motivating effect
*c. It influences the capabilities a business develops and how these capabilities are exercised
d. It shapes a business’s vision
12. Intangible resources tend to be more valuable than tangible resources because:
[See p.103, 110]
a. They are easier to acquire
b. They are cheaper to acquire
*c. They are more likely to provide sustainable competitive advantage
d. All of the above
13. A major reason why many companies have the high valuation ratios (ratio of stock market value to
balance sheet net asset value) is:
[See pp.103, 105]
a. Stock market irrationality which results in some companies becoming overvalued
*b. The undervaluation of intangible resources on companies’ balance sheets
c. Stock market doubts over the valuation of financial assets by companies and their auditors
d. The rise of intellectual property valuation as a result of recent patent litigation.
14. The main reason that intangible assets are undervalued in firms’ balance sheet is:
[See pp.103]
*a. They are valued at cost rather than their market value
b. Their strategic significance is under-rated by chief financial officers
c. They are seldom the basis for sustainable comparative advantage
d. In an increasingly digital world, the main intangible assets—technologies and brands—are becoming
increasing obsolescent
16. Prahalad and Hamel’s “core competences” tend to be broad-based organizational capabilities that:
[See pp.106-107]
*a. Integrate a number of more specialist organizational capabilities
b. Are also known as “dynamic capabilities”
17. Enterprise Resource Planning software (such as that supplied by SAP and Oracle) is unlikely, on its
own, to be source of competitive advantage because:
[See p.110]
a. It is expensive to install hence its benefits are offset by its costs
*b. It is available to any firm that wishes to purchase it; hence, it is not scarce
c. It needs to be updated periodically, hence it lacks durability
d. Its benefits are limited to those activities that require substantial information processing
21. The firm’s ability to appropriate the rents generated by its organizational capabilities:
[See pp.110, 111]
a. Is guaranteed by the fact that firms have full ownership of their capabilities
b. Is greater for firms in high technology than in low technology industries
c. Is weakened if a firm uses independent contractors instead of full-time employees
*d. Depends upon the extent to those capabilities are embedded in team-based processes that are heavily
dependent upon corporate systems
22. A bank is establishing a fixed income trading department. It is considering whether to hire a team of
star traders or to invest a similar sum of money in developing a proprietary, automated trading system. The
most valid reason for investing in the automated trading system in preference to hiring star traders is:
[See pp.110, 111]
*a. The proprietary trading system is likely to generate better returns since star traders are in a powerful
position to negotiate pay packages which appropriate the major part of the profit they create
b. Advanced software is better than human intuition at identifying mispricing in financial markets
c. Star traders are difficult to manage and can easily become “rogue traders”
d. It’s difficult to motivate traders once they have earned their first few million.
23. When a company has weaknesses relative to competitors among strategically important resources
and capabilities, the appropriate strategic response is to:
[See p.113]
a. Invest heavy in order to upgrade weaknesses
b. Diversify in order to find new areas of business where these resources and capabilities are unimportant
to competitive advantage
24. If an organization possesses strengths in a resource or capability that bears little relationship to the
industry’s key success factors it should:
[See pp.114-115]
a. Regard that resource or capability as strategically irrelevant
b. Seek to sell that resource or capability to another organization
*c. Seek an innovative approach to making that resource or capability strategically relevant
d. Adopt a niche strategy.
1. Jamie Dimon’s comment, “I’d rather have first-rate execution and second-rate strategy
anytime than brilliant ideas and mediocre management” reflects the view that strategy
implementation is more important than strategy formulation.
[See p.121]
*a. T
b. F
2. The comment, “Brilliant strategy; lousy implementation” confirms the essential fact that
strategy formulation and strategy implementation are distinct, separable activities.
[See p.123]
a. T
*b. F
4. Linking strategic plans to annual operating plans and an operating budget is undesirable
since it encourages short-term thinking.
[See p.125]
a. T
*b. F
5. The strategic planning processes of large companies are almost entirely top-down.
[See p.124]
a. T
*b. F
6. Capital expenditure budgets are the key mechanisms through which strategy drives
resource allocation.
[See p.125]
*a. T
b. F
7. Firms exist in order to achieve the efficiency benefits of specialization and division of
labor.
[See p.125]
*a. T
b. F
8. The “agency problem” refers to the difficulties experienced by travel agents, real estate
agents, and sales agents in responding the threat posed by e-commerce.
[See p.126]
*a. T
b. F
9. The fundamental organizational problem is that specialisation creates the need for
cooperation and coordination.
[See p.126]
*a. T
b. F
10. The shared values embodied in an organization’s culture cannot substitute for direct
management control.
[See p.126]
a. T
*b. F
13. The example of capability building at the consulting company, Booze & Company,
suggests that when affirm expands its portfolio of organizational capabilities, it needs to
adopt a more complex organizational structure.
[See p. 130]
*a. T
b. F
14. Hierarchy is a feature of all complex organizational forms whether human, biological, or
physical. that
[See p.131]
*a. T
b. F
15. In determining how to group the employees into organizational units, the intensity with
which they need to collaborate with one another is less important than the need for social
harmony.
[See p.132]
a. T
*b. F
17. An important advantage of the functional structure is that it allows a business enterprise
to diversify while retaining strong centralized control.
[See p.133]
*a. T
b. F
18. A matrix structure is one that coordinates across products, functions, and geography.
Holding companies are organizational forms that exist primarily to facilitate control over
large
[See p.134]
*a. T
b. F
19. Contingency theory advocates that the best organizational design is one that can
respond to multiple contingencies.
[See pp.135-136]
a. T
*b. F
21. The rigidities of hierarchical control have resulted in most business enterprises no longer
being organized as hierarchies.
[See p.136]
a. T
*b. F
22. The quest for organizational responsiveness has favoured vertical rather than horizontal
patterns of communication within companies.
[See p.136]
a. T
*b. F
23. High levels of job specialization tend to favour mechanistic approaches to organizing.
[See p.136]
*a. T
b. F
25. In recent decades many large corporations have reorganized their matrix structures such
that financial and strategic control is exercised through a single dimension.
[See p.159]
*a. T
b. F
26. Adhocracy is a structure where values, motivation, participation, and mutual respect,
allow a high level of coordination without the need for formal control
[See p.137]
*a. T
b. F
27. The distinctive feature of project–based organizations is that the operating units—the
project teams—are temporary.
[See p.137]
*a. T
b. F
1. Jay Galbraith and Ed Lawler’s comment that: “Ultimately, there may be no long-term
sustainable advantage that the ability to organize and manage” may be justified by:
[See p. 121]
a. Firms vulnerability to disruptive technologies
b. The need for all firms to adopt new business models
*c. The need for firms to continually develop and renew their organizational capabilities
d. The scarcity of good managers
5. The main reason that most entrepreneurial start-up companies adopt a formalized
process of strategic planning processes at some stage of their development is:
[See p.123]
a. To allow quantitative analysis to be applied to strategic decision
b. To limit the power of founders
*c. To facilitate coordination and control as a company grows in size and complexity
d. To enable decisions to become focused more on long term development ○
7. The primary mechanisms through which companies translate strategic plans into action
are:
[See pp.124-125]
a. Balanced scorecards
*b. Operating plans and capital expenditure budgets
c. Key performance indicators
d. Resolutions by the board of directors.
8. Specialization and the division of labor give rise to the organizational problems of:
[See p.126]
*a. Cooperation and coordination
b. Knowledge integration
c. Effective leadership
d. Agency
11. The major determinant of the organizational culture of most companies is:
[See p.127]
*a. The personality and beliefs of the founder
b. The impact of the company’s local environment
c. The personal traits of employees
d. The cultural change initiatives promoted by top management.
12. It is important for in incoming CEO to be intimately familiar with the culture of the
organization he/she is joining because:
[See p.127]
a. Culture is a vital lever that the CEO can manipulate
*b. Top management initiatives that conflict with the culture of the organization are likely to
fail
c. A critical task for a new CEO is to adapt the organization’s culture to the strategy that the
CEO wishes to pursue
d. The fact that “culture eats strategy for lunch” means that managing culture is a more
important task for a CEO than managing strategy
14 In doubles tennis, the main mechanism through which the players coordinate their
actions is:
[See p.128]
a. Rules and directives
b. Routines
*c. Mutual adjustment
d. Shared values
15. As a company broadens its set of organizational capabilities, it will tend to:
[See p. 130]
a. Re-assess its corporate culture
b. Augment its board of directors
*c. Adopt a more complex organizational structure
d. Adopt a matrix structure
18. When deciding how to group individuals into organizational units, the basic criterion to
be applied is:
[See p.132]
*a. Where are coordination needs most intense
b. Which individuals are undertaking the most similar tasks
c. Where are communication links strongest
d. All the above
19. The main advantage of the multidivisional structure as an organizational form is:
[See p.133]
a. Line-and-staff structures allow companies to serve to a broader geographical area
*b. The potential for decentralized decision-making
c. The advantages of a separate corporate headquarters
d. The performance benefits of business divisions competing with one another for
corporate resources
22. The tendency for matrix organizations to be top-heavy and over complex has resulted in:
[See p.134]
*a. Formalized coordination and control to be exercised through a single dimension of the
matrix
b. The replacement of matrix structures by multidivisional structures
c. The deployment of management consultants to introducer innovative organizational
structures such as team-based structures and adhocracies
d. Increased reliance on self-management
1. Of the two sources of superior profitability, industry attractiveness and competitive advantage within an
industry, the latter is more important.
[See p.144]
*a. T
b. F
2. If a firm is more profitable than its rivals, this invariably means that it possesses a competitive
advantage.
[See pp.144-145]
a. T
*b. F
3. Competitive advantage may arise without purposeful activity by a firm—it may be the result of a firm
being favored by an external change.
[See p.145]
*a. T
b. F
4. Strategic innovation occurs through the introduction of novel products or processes that embody new
technology
[See p.146]
a. T
*b. F
5. Most business model innovation involves novel approaches to creating and/or capturing value within an
industry.
[See pp.146-147]
*a. T
b. F
6. Most of the business models deployed in electronic commerce have no historical precedence
[See p.147]
a. T
*b. F
7. The main challenge of business model innovations is conceiving of novel business models, not
implementing them.
[See p.148]
a. T
*b. F
8. In order to discover a “blue ocean” of uncontested market space, a firm must use technological
innovation to create a new product market
[See pp.148-149]
a. T
*b. F
10. A firm’s competitive advantages can only be sustained if it is protected by some form of “isolating
mechanism.”
[See p.150]
*a. T
b. F
11, Between July 2012 and August 2014, Uber launched in 42 countries outside the US. The speed of this
global rollout may be viewed as an attempt to pre-empt the market for ride-sharing services.
[See p.151]
*a. T
b. F
12. Causal ambiguity—difficulties over diagnosing the sources of a rival’s competitive advantage—creates
uncertain imitability—uncertainty over the ability to replicate that competitive advantage.
[See p.151
*a. T
b. F
14. The fact that a firm’s “activity system” comprises closely linked, complementary activities simplifies the
task of imitating a competitor’s strategy.
[See pp.151-152]
a. T
*b. F
15. Sustainable competitive advantage can be established in all types of market—including those financial
markets deemed to be “efficient.”
[See p.153]
a. T
*b. F
16. If the prices of securities fully reflect all the information available, then passive investors are best
advised to invest in index-based mutual funds (unit trusts) with the lowest administration costs.
[See p.153]
*a. T
b. F
17. A contrarian strategy—doing the opposite to what the majority of other market participants are doing—
is likely to generate superior returns in markets subject to systematic behavioral trends.
[See p.153]
*a. T
b. F
18. There are two primary sources of competitive advantage: cost advantage and differentiation
advantage.
[See p.154]
*a. T
b. F
20. The main strategy implication of the Boston Consulting Group’s analysis of experience curves was that
firms should avoid cutting prices in order to expand market share.
[See p.155]
a. T
*b. F
21. The predominance of large companies in most manufacturing industries is mainly the result of
economies of scale.
[See p.157]
*a. T
b. F
22. In most highly concentrated industries, scale economies in production are more important than scale
economies in product development or in marketing.
[See p.157]
a. T
*b. F
23. Achieving productivity gains from process innovation usually requires that new production processes
are matched by other management changes—including changes in human resource management.
[See p.158]
*a. T
b. F
24. A basic principle of Business Process Reengineering is that dramatic improvements in cost efficiency
are better achieved through incremental improvements rather than fundamental redesign.
[See p.158]
a. T
*b. F
25. Business Process Reengineering that starts with a “clean sheet of paper” runs the risk of destroying
some valuable organizational capabilities which have taken many years to build
[See pp.158]
*a. T
b. F
26. The potential for spreading fixed costs over a greater volume of output means that unit cost continues
to decline even after full capacity utilization has been reached.
[See p.159]
a. T
*b. F
27. One reason that the value chain analysis is a valuable tool for cost analysis is that cost drivers tend to
be very different between the different activities of the firm.
[See pp.160, 161]
*a. T
b. F
28. Achieving a differentiation advantage means making your offering unique in a way that makes it more
valuable to customers, irrespective of the costs of creating that differentiation.
[See pp.160-162]
29, Commodity products lack the potential for differentiation: competitive strategy is limited to exploiting the
sources of cost advantage.
[See p.160]
a. T
*b. F
30. Physical characteristics of a product are of little importance in determining its potential for
differentiation
[See p.162]
a. T
*b. F
31. Designing a differentiation strategy requires understanding every possible interaction between a firm
and its customers
[See pp.160-162]
*a. T
b. F
32. Tangible differentiation comprises observable product features such as shape, color, size, and style; it
does not include performance dimensions such of the product – for instance its reliability and durability.
[See pp.162]
a. T
*b. F
33. The principal distinction between segmentation and differentiation is that segmentation is a strategic
choice by a firm while differentiation is a feature of market structure.
[See pp.162-163]
a. T
*b. F
34. Cost and differentiation strategies are similar in terms of their potential to confer sustainable
competitive advantage.
[See p.163]
a. T
*b. F
35. To understand customer’ willingness to pay for differentiation, it is important to know what motivates
customers, and the criteria they apply when choosing among competing products.
[See pp.163]
*a. T
b. F
36. Product integrity refers to the consistency of a firm’s differentiation across all differentiated features – it
is the balance of the overall impression left on most customers’ minds
[See p.166]
*a. T
b. F
37. The difference between “search goods” and “experience goods” depends upon whether customers can
ascertain the product’s true attributes: on inspection or only after consuming the product
[See p.167]
*a. T
b. F
2. A firm’s competitive advantage is not necessarily revealed in higher profitability; it may be reflected in:
[See p.145]
a. Expanding market share
b. An aggressive quest for acquisitions
c. Increasing employee bonuses
*d. Expanding market share and/or increasing employee bonuses
3. When an industry is subject to externally generated changes, the firms which are most likely to establish
a competitive advantage are:
[See pp.145-146]
a. Those with the highest market share
*b. Those that that respond most quickly to the change and have the resources and capabilities that are
most closely aligned to the emerging success factors
c. Those with the greatest agility and capacity for innovation
d. A combination of (a), (b), and (c).
4. As markets become more turbulent and unpredictable, seizing opportunities to establish competitive
advantage depends primarily upon:
[See p.158]
a. Good forecasting
b. Quick identification of emerging changes
c. Speed of response
*d Alertness to change and the agility to respond to them
8. The usefulness of the strategy canvas in developing blue ocean strategies rests on its ability to:
[See pp.148-149]
a. Suggest possible applications of frontier technologies
11. Pre-emption strategies can help sustain a firm’s competitive advantage through:
[See p.151]
*a. Reducing the opportunities available to competitors to invade the firm’s strategic space
b. Threatening competitors with retaliation
c. Engaging in limit pricing that makes entry unprofitable for would-be rivals
d. Reinforcing barriers of mobility
12. Causal ambiguity allows a firm’s competitive advantage to be sustained because potential rivals are:
[See pp.151-152]
a Deterred from directly competing with the advantaged firm
*b. Unable to identify the sources of the advantaged firm’s superior performance
c. Unable to acquire the resources needed to compete against the advantaged firm
d. All the above
14. In retailing, the cost advantage of large retail chains (such as Walmart in the US, Tesco in Britain,
Metro in Germany, and Carrefour in France) is primarily the result of:
[See pp.156-159]
a. Scale economies in operating large individual retail units
*b. Lower costs of bought-in products as a result of superior bargaining power○
c. Higher capacity utilization in retailing and distribution
d. Using superior bargaining power to pay lower wage rates.
15. Compared with simple products like flour or toilet paper, complex products such as cars or hotels:
[See p.162
a. Fewer opportunities for differentiation
*b. Greater potential for differentiation○
c. Offer similar opportunities for differentiation--it all depends upon the creativity of product designers and
marketers
d. Fewer incentives for differentiation because of their high costs
18. In supplying “lifestyle” products which are designed to meet consumers’ social and psychological
needs, the key to differentiation advantage is:
[See pp.164-165]
a. A relentless pursuit of quality
b. Thorough market research
*c. Product integrity
d. Market segmentation.
19. Banks spend more money on their head office buildings than most other large corporations because:
[See pp.166-167]
a. They tend to be located in financial centers where property prices are high
*b. They offer “experience goods”, hence they need to signal wealth and stability
c. Their CEOs are more committed to the display of wealth than other CEOs
d. Because their products are essentially commodities, they need to find alternative ways of
differentiating.
21. Firms pursuing differentiation advantages will implement their strategies differently from those pursuing
cost advantage. The implementation of differentiation strategy is likely to feature:
[See p.170]
a. Employee remuneration based upon individual productivity
b. Frequent performance reporting
c. High levels of outsourcing
*d. Low levels of job specialization.
True/false questions
2. The main drivers of industry evolution are growth of demand and the production and diffusion
of knowledge.
[See p.175]
*a. T
b. F
3. The industry life cycle follows different phases from the product life cycle.
[See p.175]
a. T
*b. F
4. During the introduction phase of the industry life cycle, different technologies and design
configurations compete for market acceptance.
[See p.176]
*a. T
b. F
5. The firm which sets the dominant product design usually goes on to be the most profitable
firm in the industry.
[See p. 176]
a. T
*b. F
8. Technical standards are usually associated with network effects, dominant designs are usually
not.
[See p.176]
*a. T
b. F
9. The emergence of a dominant product design tends to coincide with a shift from process
innovation to product innovation
[See p.177]
a. T
*b. F
10. Ford’s assembly-line, mass production system and Toyota’s system of lean production were
the two process innovations that transformed the manufacture of automobiles during the 20th
century.
[See p.178]
*a. T
b. F
11. Over time, industry life cycles have become increasingly compressed.
[See p.178]
*a. T
b. F
12. The field of organizational ecology (a.k.a. organizational demography) proposes that a key
factor encouraging the entry of new firms during an industry’s early phases of development is
the increasing legitimacy of the industry.
[See pp.179]
*a. T
b. F
13. With the onset of maturity, industries often experience a “shake-out” period.
[See pp.179-180]
*a. T
b. F
15. Firms that develop high levels of capability tend to find change easy because they are also
able to develop new capabilities.
[See p.182]
a. T
*b. F
16. Organizations tend to prefer exploration for new opportunities over exploitation of existing
knowledge.
[See p.182]
*a. T
b. F
17. “Punctuated equilibrium” refers to the tendency for organizations to follow a gradual
process of transition from one equilibrium to another.
[See p. 183]
a. T
*b. F
18. Long-term change within most industries is achieved through the birth and death of
companies rather than through adaptation by existing companies.
[See p.184]
*a. T
b. F
19. For aero engine manufacturers, the turbofan—the core component of the jet engine—was a
technological threat since it was a “competence destroying” innovation.
[See p.186]
a. T
*b. F
20. Start-up companies tend to be better at exploiting architectural innovations than established
companies.
[See p.186]
*a. T
b. F
21. If a firm pays closely to the needs of its existing customers, it is unlikely to be blindsided by
disruptive technologies.
[See p.186]
22. The steam engine was a disruptive innovation for the builders of ocean-going sailing ships
because steam ships were initially slower and less reliable than sailing ships.
[See p.186]
*a. T
b. F
23. Organizational ambidexterity refers to the ability of a single organization to possess more
than one organizational capability
[See p.187]
a. T
*b. F
24. IBM’s decision in the late 1970s to establish its new personal computer division in Florida,
rather than close to its headquarters in New York state is an example of “contextual
ambidexterity.”
[See p.187]
a. T
*b. F
25. Steve Jobs’ insistence that Apple’s development teams commit to “insanely great products”
that combined seemingly impossible performance attributes is an example of how “stretch
goals” can combat organizational inertia.
[See p.188]
*a. T
b. F
26. Multiple scenario analysis is an approach to forecasting that relies heavily upon applying
advanced statistical analysis to “big data.”
[See pp.189-190]
a. T
*b. F
27. Organizations are like people: their essential characteristics—including their capabilities—are
formed in their early stages of development.
[See pp.191-192]
*a. T
b. F
28. Dynamic capabilities are “higher order” capabilities that orchestrate change among
operational capabilities.
[See pp. 192-193]
*a. T
30. A major challenge for businesses that rely upon individual, tacit knowledge is that, unless
that knowledge can be systematized and embodied in standardized processes, the growth
prospects of the business are limited.
[See pp.194-196]
*a. T
b. F
2. The different stages of the industry life cycles are defined primarily on the basis of:
[See p.175]
*a. The rate of growth of industry sales
b. The characteristics of competition within the industry
c. The pace of innovation within the industry
d. None of the above
3. The characteristic profile of an industry life cycle has an ‘S’ shaped curve because:
[See p.175]
a. It is modeled on the Product Life Cycle, which is also ‘S’ shaped
b. It is generated by a quadratic function
c. It reflects the changing pace at which technology is diffused
*d. It is the result of changes in rates of growth of market demand.
4. Which of the following developments is not a typical feature of the transition from the
“introductory” to the “growth” phase of the industry life cycle?
[See pp.176-177]
a. The emergence of a dominant design
b. The shift from product to process innovation
*c. The shift of production from advanced to emerging countries
9. The transition from the introduction to growth phase of the industry life cycle features:
[See pp.176-178]
a. Increasing product differentiation
b. Commoditization
c. Offshoring of production to emerging markets
*d. Product innovation giving way to process innovation
10. The wave new “craft breweries” entering the beer industry during the 21st century is an
example of:
[See p.180
a. Increasing awareness of healthy nutrition causing a switch from spirits to beer
b. The propensity for entrepreneurs and venture capitalists to imitate one another
*c. Resource partitioning
d. Industry fragmentation
13. “Shakeout”--a period when many firms exit from an industry following a period of intense
competition—characterizes an industry’s transition from:
[See pp.179-180]
a. Introduction to growth stage
*b. From growth to maturity
c. From maturity to decline
d. From product innovation to process innovation.
14. Firms tend to limit their search for opportunities to areas that are close to their existing
activities because of:
[See p.182]
a. A preference for exploitation over exploration
b. Managers’ bounded rationality
c. Both (a) and (b)
d. Neither (a) nor (b)
16. According to institutional sociologists, the propensity for organizations to adopt similar
structures (“institutional isomorphism”) is primarily a result of
[See p.182]
a. Common key success factors within an industry
17. The tendency for firms to develop through periods of incremental change interspersed by
period f kore radical and comprehensive change is referred to as:
[See pp.182-183]
a. Organizational inertia
*b. Punctuated equilibrium
c. The combined effects operational and dynamic capabilities
d. The butterfly effect
20. When an industry is subject to technological change, the ability of new entrants to displace
incumbent firms will be increased if:
[See p.188]
*a. The technological change represents an architectural innovation rather than component
innovation
b. The technological change is competence enhancing rather than competence destroying
c. Incumbent firms are insufficiently attentive to the industry’s largest customers
d. Incumbent firms are geographically dispersed.
21. The reluctance of shipping companies to switch from sail to steam propulsion can be
attributed to the fact that:
[See p.188]
a. The owners of shipping company were resistant to new technology
*b. For several decades after the introduction of steam ships, sailing ships were faster, cheaper,
and more reliable
c. Complementary resources such as engineers and coaling stations were scarce
d. Shipping company owners were over the environmental impact of coal burning ships
23. The experience of Xerox Corporation with its Palo alto research Center and GM with its
Saturn division points to:
[See pp.189-190]
a. The disadvantages of geographically separated business units
b. The folly of mixing contextual and structural ambidexterity
*c. The difficulty of transferring innovation developed in a separate exploration unit back to the
main company
d. The need for chief executives to be more closely involved in R&D.
24. Changing a company’s organizational structure can facilitate strategic change because:
[See p.191]
*a. It can help break down established power centers
b. It provides a means for CEOs to centralize decision making power
c. It can convince investment analysists that real change is taking place
d. It can improve the alignment of organizational capabilities with organizational units. The
managers which head different organizational capabilities need to have clear lines of reporting
25. The main reason why a firm’s distinctive capabilities reflect the conditions that the firm faced
during the early years of its development is because:
[See pp.192-193]
a. Most managers adhere to the old adage: “If it ain’t broke, don’t fix it”
*b. Capabilities that develop early become embedded in a firm’s organizational culture
c. Exploitation tends to dominate exploration
d. Managers’ bounded rationality
26. The approach that Hyundai Motor and Panasonic have taken to developing organizational
capabilities involves:
[See pp.194, 195]
a. An unrelenting commitment to continuous improvement
b. Imposing stretch goals on managers backed by strong financial incentives
c. Ensuring high levels of collaboration among employees
*d. A product sequencing approach in which each product phase s linked to the development of
specific capabilities.
28. The capabilities of “craft enterprises” are based upon the tacit knowledge of skilled
employees. The capabilities of “industrial enterprises” are based upon systematized knowledge
embodied within processes. The key advantage of industrial enterprises over craft enterprises is
that:
[See pp.196-198]
*a. They can replicate their businesses at low cost in multiple locations
b. They are less vulnerable to shortages of skilled workers
c. They can standardize their offerings
d. They can automate their production.
2. The cycle of innovation—from the generation of new scientific knowledge to the diffusion of
the innovation—takes about the same length of time for digital products as for analogue
products.
[See pp.203-204]
a. T
*b. F
3. The history of innovation supports Emerson’s prediction that superior technology (“a better
mousetrap”) is usually translated into commercial success.
[See p.205]
a. T
*b. F
4. Research shows that across firms, R&D intensity and frequency of new product introductions
is positively correlated with profitability
[See p.204
a. T
*b. F
5. In relation to innovation, the term “regime of appropriability” describes the conditions which
influence how the returns to innovation are distributed between the innovator and other parties
[See p.204]
*a. T
b. F
6. The ability of an innovating firm to appropriate the returns to its innovation is wholly
dependent on establishing property rights in the innovation
[See p.204-205]
a. T
*b. F
8. Willie Wonka’s (Charlie and the Chocolate Factory) commitment to secrecy suggests that his
innovative candies probably lacked patent protection.
[See p.208]
*a. T
b. F
9. Across most industries patents offer the greater protection to product innovations than to
process innovations.
[See p.208]
*a. T
b. F
10. ‘Freedom to design’ refers to firms’ ability to use each other’s patents through a
comprehensive cross licensing agreement
[See pp.208-209]
*a. T
b. F
11. The main advantage of licensing as a means of exploiting an innovation is that the innovator
can profit from the innovation without the need to invest in the complementary resources and
capabilities required for commercialization
[See pp.209-210]
*a. T
b. F
12. The best strategy for exploiting an innovation depends on two major factors: first, the
strength of the firm’s intellectual property in the innovation and, second, the resources and
capabilities available to the firm.
[See pp.209-210]
*a. T
b. F
13. Being the leader in introducing an innovation to the market is usually better than being a
follower.
[See pp.211-212]
a. T
14. It is difficult to be successful as a first mover unless your innovation has strong patent
protection.
[See pp.211-212]
*a. T
b. F
15. The primary consideration in managing the risks of innovation is minimizing commitments in
order to maximize flexibility.
[See p.213]
*a. T
b. F
17. Network externalities exist when the value of a product to an individual depends on the
number of other users.
[See p.215]
*a. T
b. F
18. The network externalities that support eBay’s dominance of the market online auctions are
primarily the result of user-based network effects.
[See pp.215-216]
*a. T
b. F
17. In the markets for digital products, the most effective types of “platform” are operating
systems, since these provide an interface that links users to the providers of different
applications.
[See pp.216-217]
*a. T
b. F
18. A shopping mall provides an interface between two types of customer: the retailers which
lease retail stores and the consumers that shop at these stores. Hence a shopping mall may be
regarded as a platform.
[See p.217]
*a. T
b. F
20. The main lesson learned from the standards wars involving VHS and Betamax in VCRs and
between the Apple Mac and IBM PC in personal computers was that liberal licensing of
technology is the key to building market leadership.
[See pp.217-220]
*a. T
b. F
24. An organization’s capacity for innovation depends primarily on the innate creativity of the
people within the organization rather than the organization’s internal environment.
[See pp.220-221]
a. T
*b. F
22. Recognition tends to be more effective at motivating innovation than financial rewards.
[See p.221]
*a. T
b. F
21. Open innovation is based upon the assumption that although there are huge gains from
collaborative knowledge sourcing; these gains can be outweighed by risks outsiders
expropriating one’s own knowledge.
[See p. 223]
a. T
*b. F
1. The 1949 quotation that “computers in the future may…weigh only 1.5 tons” indicates:
[See p.201]
a. Engineers are generally very poor at forecasting
*b. It is difficult to forecast the development of technology more than a few years ahead
c. The lack of communication among technologists—the prediction fails to recognize that the
transistor had been invented in 1947
d. The acceleration of technological change during the second half of the 20th century.
3. Which statements about the relationship between innovation and invention is correct?
[See pp.203-204]
*a. Invention is often the result of an individual’s efforts; innovation typically involves business
organizations
b. Intellectual property law offers greater protection to innovation than to invention
c. Complementary resources are more important in supporting invention than in supporting
innovation
d. Innovation requires genius, invention requires practical insight.
4. During recent years, the cycle of innovation (from initial knowledge generation to final
diffusion) has:
[See pp.203-204]
*a. Got faster
b. Got slower
c. Become more global
d. Become more uncertain
5. Comparing the development of the jet engine to satellite-based global positioning (GPS) and
instant messaging illustrates that:
[See pp.203-204]
a. Invention always precedes innovation
b. Financial resources are critical to introduce successful innovations
*c. The innovation cycle has speeded up over time
d. Digital technology has fundamentally changed the nature of innovation
7. An innovator may fail to earn any significant returns from an innovation if:
[See pp.204-206]
a. The innovation fails to create value for users
b. The innovator is unable to appropriate the value the innovation creates
c. Both (a) and (b) are present
*d. If either (a) or (c) is present.
11. The main factor that determines the relative effectiveness of patents in protecting an
innovator is:
[See pp.204-206]
a. The legal system of the country in which the firm resides
b. The effectiveness of the firm’s lawyers
c. How much competition the firm faces
*d. The characteristics of the innovation that is being protected
12. Monsanto’s NutraSweet artificial sweetener, Pfizer’s Viagra, and Pilkington’s float glass
process are innovations that are examples of:
[See pp.205-209]
a. Weak regimes of appropriability because the innovations could not be patented
*b. Strong regimes of appropriability because of the effectiveness of patent protection
c. Strong regimes of appropriability because the innovators possessed strong complementary
resources
d. Network externalities leading to a winner-take-all market
15. If technological breakthroughs increase the feasibility of fuel cells as a means of propulsion
for vehicles, the profits that can be earned from the developers of the fuel cell technology will
be limited by:
[See pp.204-207]
a. The greater environmental attractiveness of battery-powered electric vehicles
*b. The dependence of fuel cell technology on specialized investments by auto makers in
designing new cars and fuel suppliers in supplying hydrogen refueling facilities
c. The likely ineffectiveness of patents relating to fuel cells
d. Lack of interest in vehicle owners in fuel cell technology
16. Secrecy is the most important mechanism for protecting innovations in food products
because:
[See pp.207-208]
a. Few new food products qualify as patentable inventions
b. Most new food products are easily imitated
*c. (a) and (b)
d. Neither (a) nor (b)
17. The more an innovative product embodies multiple technologies owned by different
companies:
[See pp.208-209]
a. The less useful are patents to the innovating firm
b. The more important it is for the innovating firm to develop capabilities that span a wide range
of technologies
*c. The more important it is for the innovating firm to possess a strong patent portfolio that
enhances its bargaining power with other technology-owning firms
d. The more difficult it is for the innovating form to launch its innovation
18. The argument that patents are the most effective protection for an innovation is:
[See p.208]
a. Proven by a century of evidence
b. Impossible to confirm or disprove
*c. Shown to be true only in a few industries
19. Which of the following factors does not contribute to the attractiveness of licensing provides
as a means of exploiting an innovation:
[See pp.227-229]
*a. The innovating firm possesses most of the complementary resources needed to exploit the
innovation
b. Patent are strong
c. The potential for the innovation to enhance the performance of existing products has been
clearly demonstrated
d. The innovation has potential applications is several different industries
20. A firm has an innovation that has weak patent protection, but its exploitation requires a
number of complementary resources that it does not possess. It’s best mode of exploiting the
innovation is likely to be:
[See pp.209-210]
a. Licensing
*b. Joint venture
c. Internal commercialization
d. Acquiring a company that does possess the required complementary resources.
21. The main consideration influencing the choice of being a leader or a follower in innovation
are:
[See pp.211-212]
a. The extent of legal protection of the innovation, the type of the knowledge involved, and the
potential to establish a standard
b. The development cost of the innovation, the importance of complementary resources, and
the profitability of the industry in which the innovation is to be applied
*c. The extent of protection of the innovation, the potential to establish a standard, and the
importance of complementary resources
d. The potential to establish a standard, the relative powers of the other players in the industry,
and the development cost of the innovation
22. In deciding when entering a new product market with an innovative product, an established
company should be influenced mainly by :
[See pp.229-231]
a. Recognition that early-mover advantage is the key to success in new markets
b. The need to minimize risk by waiting to see how technology and customer requirements
evolve in the emergence of the new market
*c. Assessing how the firm’s resources and capabilities affect the relative importance of early-
mover and follower advantages
d. The potential to exploit network externalities in order to establish a dominant market
position
24. Cooperation with lead users is a useful tool of innovation management because:
[See p.213]
a. Lead users set the trend for the mass market
b. Due to their price insensitivity, lead users tend to be the most profitable customers
*c. Lead users provide both information feedback and revenues that can assist ongoing product
development
d. Because lead users are so discerning, they provide both discipline and incentives
26. The principal difference between public and private standards is:
[See pp.214-215]
a. Standards set by public firms vs. standards established by privately-owned companies
b. Standards established by governments vs. standards set by companies
*c. Standards available for all organizations and industry players vs. standards owned by firms or
individuals
d. Free standards vs. standards users have to pay for
27. It may be preferable for government to intervene to impose a public standard rather than let
a private, de facto standard be determined through competition because:
[See pp.214-215]
a. Governments are superior to markets in selecting the best technology
*b. A private, de facto standard can take a long time to become established, thereby delaying
the adoption of a new technology
c. Competition is always wasteful
d. De facto standards tend to be set by US companies
28. A common feature of the world’s most valuable companies—Apple, Alphabet, Microsoft,
Amazon, and Facebook in 2021 was:
[See p.217]
*a. They owned a platform (or platforms)
31. When network externalities are present in a market, the typical outcome is:
[See p.216]
*a. A winner-take-all market
b. Monopolistic abuse requiring antitrust intervention
c. More rapid technological innovation
d. Lack of consumer choice
32. In video cassette recorders (VCRs), Matsushita’s VHS format won against Sony’s Betamax
format because:
[See pp.216-220]
a. VHS was technically superior to Betamax
b. VHS VCRs were cheaper than Betamax VCRs
*c. Matsushita’s licensing of its VHS format to other manufacturers of VCRs led to its gaining a
lead in market share
d. Sony entered the market too early
33. The market share leadership in smartphone operating systems possessed by Google’s
Android operating system reveals:
[See pp.217, 219]
a. It’s generally better to be a follower than a first mover
b. In digital markets where network externalities are present, Google’s huge user base typically
gives it a huge advantage over rivals
34. For “creative abrasion” to be effective in facilitating new product development, it requires:
[See p.221]
a. Creating a working environment where assertive individualism is cultivated
b. Establishing strong financial incentives for individual creativity
*c. Establishing forums where conventions of politeness and respect are temporarily abandoned
but criticisms are directed at the product not at individuals
d. Establishing a strong sense of community so that team members are not alienated, even
when they disagree
35. Cross-functional product development teams, product champions, and incubators are
organizational devices used:
[See pp.225-226]
a. By top managers to control the technological development of their firms
*b. To reconcile the conflicting requirements of operations and innovation
c. To build new organizational structures, inspired by innovation in high-tech industries
d. To reconcile coordination and specialization needs
1. Corporate strategy is concerned with how a firm competes in a particular industry, whereas
business strategy is concerned the choice of which industries the firm competes in.
[See p.234]
a. T
*b. F
2. Corporate strategy is concerned with decisions over product scope, geographical scope, and
vertical scope.
[See p.234]
*a. T
b. F
3. Transaction cost analysis is important for understanding a firm’s vertical integration decisions,
but is not relevant to decisions over the product and geographical scope of the firm.
[See p.234]
a. T
*b. F
4. Economic organization in the capitalist economy is achieved through markets by the price
mechanism and through firms by administrative direction.
[See pp.234-235]
*a. T
b. F
5. Alfred Chandler described the administrative mechanism of firms as the “invisible hand” of
economic coordination.
[See pp.234-235]
a. T
*b. F
6. Transaction costs of markets include search costs and costs of negotiating contracts, but usually
exclude the costs incurred in enforcing contracts.
[See p.235]
a. T
*b. F
8. The growth in the size and scope of companies throughout most of the 19th and 20th centuries
can be attributed primarily to the increasing transaction cost of markets.
[See pp.236-237]
a. T
*b. F
9. A major factor causing the narrowing in the scope of the activities of large corporations during
the last two decades of the 20th century was increasing turbulence of the economic environment.
[See pp.236-238]
*a. T
b. F
10. When a farmer operates a stall in a local farmers’ market; this is a form of forward integration.
[See p.238]
*a. T
b. F
11. For most of the 20th century companies expanded their vertical scope in the belief that vertical
integration reduced risk and permitted superior coordination compared to relying on markets.
[See pp.236-237]
a. T
b. F
12. The main manifestation of the trend towards vertical de-integration is the growth of
outsourcing.
[See p.238]
a. T
*b. F
13. During the past three decades, increased emphasis on flexibility and the need to develop
superior organizational capabilities has caused large companies ot reduce their vertical scope.
[See p.238
]
*a. T
b. F
15. Jewelry companies typically do not own gold and silver mines because the markets for gold
and silver are highly competitive and impose few transaction costs on jewelry makers.
[See p.240]
*a. T
b. F
16. Manufacturers of final products such as motor vehicles, airplanes, and domestic appliances
are more likely to backward integrate into the productions of commodity components than
components that are specialized to the specific requirements of the manufacturer of the final
product.
[See p.241]
a. T
*b. F
17. Managing vertically-related businesses that are strategically very different is not a problem if
companies adopt an appropriate organizational structure.
[See p.242]
a. T
*b. F
18. One of the advantages of a company providing its own facilities maintenance services is that
the incentives that a wholly owned and directly managed maintenance unit is subject to “high
powered” incentives.
[See p.242]
a. T
*b. F
19. Vertical integration allows a firm to extend its monopoly position from one stage of an
industry’s value chain to adjacent stages, this allows the firm to increase the amount of monopoly
profit it can extract.
[See pp.242-243]
a. T
*b. F
20. By offering the possibility of repeat business, the suppliers and buyers can avoid the problems
of opportunism that give rise to transaction costs.
[See p.245]
21. In fashion clothing, one reason why mass-market distributors such as H&M, Forever 21, and
Gap outsource their production is to reduce new product cycle time (the time between the initial
design of a product and its delivery to a retail store).
[See p.243]
a. T
*b. F
22. Franchising offers a means of reconciling the coordination and control benefits of vertical
integration with the entrepreneurial flexibility and high-powered incentives of market contracts.
[See p.246]
*a. T
b. F
1. The opening quotation concerning Bath Fitter illustrates the following benefits of vertical
integration:
[See p.234]
a. Technical economies from the physical integration of processes
*b. Avoiding the transactions costs involved monitoring and enforcing contracts with external
suppliers
c. Economies of scale
d. None of the above.
2. The opening quotation from Tom Peters urges companies to specialize in those activities they
do best and outsource everything else. The main exceptions to this rule are in situations where:
[See p.234]
a. Competitors are vertically integrated
b. Global supply chains are disrupted (as during late 2021)
*c. Alliances and partnerships
d. All of the above.
4. The principal feature of the corporate scope of Tesla Inc, compared to other automobile
manufacturers, is:
5. The main business of the Coca-Cola Company is manufacturing, marketing and distributing
concentrate for soda drinks to bottlers in over 200 countries of the world. The corporate scope of
the Coca-Cola Company is best described as:
[See pp.235-238]
a. A broad product, geographical, and vertical scope
b. A broad product and vertical scope, and a narrow geographical scope
*c. A broad geographical scope and narrow product and vertical scope
d. A broad product and geographical scope and narrow vertical scope.
6. The capitalist economy comprises two forms of economic organization, the market mechanism
operated by prices and the administrative mechanism of firms.
[See pp.235-238]
a. The market mechanism is referred to as the “visible hand” while the administrative mechanism
of firms is referred to as the “invisible hand”
*b. The market mechanism is referred to as the “invisible hand” while the administrative
mechanism of firms is referred to as the “visible hand”
c. The simultaneous operation of both “hands” means that the capitalist system is often referred
to as an “ambidextrous organization”
d. The notion of the capitalist economy as governed by market processes is a myth. In reality the
global capitalist economy is controlled by large corporations.
8. The growth in the scope of business enterprises for most of the 19th and 20th centuries can be
attributed to a drop in administrative costs of firms relative to the transaction costs of market.
This resulted from:
[See pp.236-237]
a. The monopolistic power of large firms to raise prices and push down wages
b. Globalization
c. The growing transaction costs of markets as a result of taxes, regulation, and litigation
*d. Innovation in information and communications technology and in management
11. When a winery opens a tasting room through which it sells its wine to visitors, this represents:
[See p.238]
a. Backward integration
*b. Forward integration
c. A marketing initiative
d. Diversification
12. When Amazon,com founded Amazon Studios to create content for its Amazon Prime video
streaming service, this represented:
[See p. 238]
a. Forward integration
*b. Backward integration
c. Full integration
d. Outsourcing
13. Vertical integration by industrial firms during the major part of the 20th century was motivated
primarily by firms’ desire for:
[See p.238]
a. Reducing costs
b. Securing scare inputs
*c. Reducing risk and improving coordination
d. Increasing speed
14. The main reason that the producers of wood pulp have often forward integrated into the
production of paper is:
[See pp.239-240]
a. To increase value added by moving closer to the final customer
*b. To exploit technical economies of co-locating pulp and paper making plants while avoiding
transaction costs caused by transaction-specific investments
15. Which of the following factors is not conducive to vertical integration between two adjacent
stages of production?
[See pp.256-262]
a. Similarity of the optimum scale of production between the two stages
b. Few companies at each of the two stages
c. The need for transaction-specific investments by the firms involved
*d. Distinctly different organizational capabilities are required at each stage
16. Which of the following factors has not contributed to the trend towards outsourcing in recent
decades:
[See pp.239-241]
a. Increasing emphasis on cost efficiency
*b. Increasing transaction costs
c. Increasing turbulence of the business environment
d. Increasing emphasis on the need for competitive advantage based upon superior capabilities
17. The main reason that most universities and other educational institutions outsource catering
services for their students and employees is:
[See pp.241-242]
a. Catering is a less profitable business than education
b. Market contracts between catering companies and universities are efficient because there is
little need for transaction-specific investments
*c. The capabilities required in education and catering are very different
d. External caterers can respond more effectively to changes in students’ preferences and eating
habits than an internal catering service
19. McDonalds--like most other fast-food chains--prefers to franchise rather than directly operate
its retail outlets. An advantage of franchising over vertical integration is:
[See pp.245-246]
a. Franchising permits superior coordination of retail activities with upstream activities
*b. Franchising subjects the operators of retail outlets to “high-powered” incentives
c. Franchising permits more effective quality control of the retail outlet
20. Vendor partnerships based on relational contacts—such as the relationships between vehicle
manufacturers and their component suppliers—are superior to either pure market contracts or
vertical integration because:
[See pp.245-246]
a. They give manufacturers immense bargaining power over their suppliers
b. They offer similar benefits of high-powered incentives and flexibility that market contracts
c. They offer similar coordination benefits as vertical integration
*d. They combine the coordination benefits of vertical integration with the incentive and flexibility
benefits of market contracts.
21. The main lesson to be drawn from the delays to the launch of Boeing’s 787 Dreamliner is that,
when developing complex products that embody diverse new technologies:
[See p.247-248]
a. It is best to do it in-house without heavy reliance on external suppliers
b. Extensive outsourcing is inevitable as no single company has sufficient technological
capabilities in-house
*c. The principal firm must possess well-developed integration capabilities ○
d. A competitor such as Airbus Industrie which began as an alliance among a number of separate
companies will always have an advantage.
22. Vertical integration by Zara, the main division and brand of the Spanish clothing firm Inditex,
illustrates:
[See pp. 238-244]
a. The potential of vertical integration to offer flexibility in responding to seasonal fluctuations in
demand
*b. The potential for vertical integration to offer flexibility in responding to rapid changes in
customer product preferences
c. The potential for vertical integration to overcome problems arising from the need for
transaction-specific investments by garment manufacturers
d. The potential for vertical integration to exploit technical economies from co-locating adjacent
processes.
1.The remarkable growth of Shenzhen between 1980 and 2020 can be attributed primarily to
investment by China’s state-owned enterprises.
[See p. 251]
a. T
*b. F
2. Internationalization offers a remarkable opportunity for businesses to expand and prosper. Only
the unimaginative and the pessimistic would regard it as a threat.
[See p.252
a. T
*b. F
3. Internationalization occurs through two main mechanisms: trade and government policy.
[See p.253]
a. T
*b. F
4. International trade is motivated by the quest for market opportunities in other countries, while
foreign direct investment is motivated by the desire to exploit resources and capabilities in other
countries.
[See pp.253-254]
a. T
*b. F
6. Internationalization often involves mergers and acquisitions, hence, it tends to reduce seller
concentration within individual national markets.
[See p.253]
a. T
8. Sheltered industries are shielded from imports by government restrictions such as import quotas
and high tariffs and .
[See pp.254-255]
a. T
*b. F
9. Service industries such as commercial banking and hotels tend to be “multidomestic” in their
pattern of internationalization.
[See pp.254-255]
*a. T
b. F
10. When competition is international, competitive advantage depends not just on a firm’s internal
resources and capabilities, it also depends upon the availability of resources within each firm’s
country base.
[See p.255]
*a. T
b. F
11. In an international context, comparative advantage and competitive advantage are identical
concepts.
[See pp.254-256]
a. T
*b. F
12. Comparative advantage refers to countries’ relative efficiencies in producing different products
[See p.256]
*a. T
b. F
14. Switzerland’s comparative advantage in clocks and watches is likely to reflect national demand
characteristics (e.g. the Swiss emphasis on punctuality) rather than national resource endowments.
[See pp.256-257]
*a. T
b. F
15. Porter’s “national diamond” framework implies that government policies which foster “national
champions” within technology-based industries are likely to be successful in stimulating national
competitiveness in these sectors.
[See pp.257-258]
a. T
*b. F
16. Porter’s “national diamond” framework suggests that a significant factor explaining the
dominance by German firms of the world market for luxury and high-performance automobiles is to
be found more in the factors of production available in Germany than in the demand characteristics
of German consumers.
[See pp.256-258]
a. T
*b. F
17. For high-tech products such as aircraft and smartphones, the international fragmentation of the
value chain tends to be driven less by cost considerations and more by the availability of
sophisticated technical capabilities.
[See pp. 259-260]
*a. T
b. F
18. The benefits from fragmenting a product’s value chain across multiple locations almost always
outweigh the costs of coordinating globally dispersed activities.
[See pp.259-261]
a. T
*b. F
20. In pharmaceuticals (where patent protection tends to be strong), exports or direct foreign
investment will tend to be preferred over licensing as a means of exploiting overseas markets.
[See pp.261-263]
a. T
*b. F
21. In most countries of the world, Starbucks owns and operates its retail coffee shops. It’s decision
to enter India by means of a joint venture with Tata Group reflects the complexity of the Indian
market and Starbucks need for local knowledge and local connections.
[See pp.262-263]
a. T
*b. F
23. A global strategy is only advantageous in industries where national markets are too small to
permit scale economies to be fully exploited .
See pp.263-264]
a. T
*b. F
24. Pankaj Ghemawat’s “CAGE framework,” which analyzes the cultural, administrative and political,
geographical, and economic differences between countries, can help firms adapt their strategies to
the particular characteristics of a foreign market .
[See p.265]
*a. T
b. F
25. National cultures are important in influencing consumer preference, but have little impact on
how people behave within the workplace.
[See p. 266]
a. T
26. Traditionally, European-based multinational companies such as Unilever, Shell, and Philips have
been highly centralized; Japanese multinationals such as Honda, Sony, and Hitachi have been highly
decentralized.
[See pp.269-270]
a. T
*b. F
27. A key difference between Bartlett and Ghoshal’s “transnational corporation” and the
conventional US multinational corporation (described by Bartlett and Ghoshal as a “coordinated
federation”) is that communication and coordination occurs between national units rather than
exclusively between each national unit and the corporate HQ
[See pp.269-270]
*a. T
b. F
1. The rise of Shenzhen to become one of the world’s most important industrial centers is evidence
of:
[See p.251]
a. The superiority of the Chinese economic model over western market model
b. The growth benefits from maintaining an artificially low exchange rate
*c. The transformative potential of internationalization
d. The spillover benefits from being close to a dynamic business hub such as Hong Kong.
4. With internationalization, the threat of new entry into domestic industries are increases because:
[See p.253]
a. Customers prefer imported products to domestically-produced products
b. The World Trade Organization (WTO) prevents governments protecting their domestic industries
through subsidies and import restrictions
*c. Barriers to entry that would deter domestic firms may be easily overcome by large firms from
other countries
d. Foreign-based, state-owned enterprises are not deterred by losses earned in overseas markets
5. Which aspect of internationalization by companies does not increase the intensity of competition
within national markets:
[See p.253]
a. Internationalization increases the diversity of firms competing in each national market
b. Internationalization increases the number of firms in each national market
*c Internationalization stimulates mergers and acquisitions within an industry
d. Internationalization increases investment in new capacity
7. Large countries have an advantage over small countries in technology-intensive and capital-
intensive industries, because:
[See pp.256-257]
a. They can influence the rest of the world’s technical standards
8. According to Porter’s “national diamond” analysis, the competitive advantage of Swiss firms in
watches, German firms in luxury cars, and Japanese firms in cameras is a result of:
[See p.257]
a. The availability of highly skilled workers in each of these countries
b. The lack of natural resources in each of these countries
*c. The characteristics of local demand in each of these countries
d. High levels of domestic competition
10 Toyota operates automobile assembly plants in all five continents of the worlds. This reflects:
[See pp.258-261]
a. The widespread availability of the resources needed for automobile production
b. The high costs of transporting automobiles between countries
c. The need to adapt products to the requirements of local markets
*d. Toyota’s ability to transfer its production capabilities worldwide.
11. The value chain for a product will tend to be dispersed across different countries when:
[See pp.259-261]
*a. Different stages of the value chain require different types of resources and capabilities ○
b. The product is subject to import tariffs and quotas
c. The product is knowledge-intensive
d. The different stages of the value chain need to be closely coordinated.
12. Saudi Aramco and Statoil are both major oil producers. Saudi Aramco’s competitive advantage is
based on its access to low-cost domestic oil reserves; Statoil’s competitive advantage is its capability
in offshore exploration and production. The implications for the internationalization strategies of
the two companies are:
[See pp.258-260]
a. Both companies should focus on exporting from their own countries
*b. Saudi Aramco should focus on exporting; Statoil should pursue direct foreign investment
13. A start-up company based in Canada and led by an academic microbiologist has patented
genetically-modified, drought-resistant maize particularly suitable to arid regions of Africa. The firm
has been unable to attract significant venture capital investment. How should the firm exploit
commercial opportunities for its product in Africa?
[See pp.261-263]
a. It should form a joint venture with a multinational agricultural seed company
b. It should establish seed production in Canada and set up sales offices in African countries
c. It should establish seed production in Canada and appoint sales agents in different African
countries
*d. It should license its patent to a multinational agricultural seed company and continue research
on other projects for the genetic modification of agricultural crops
14. Internationalization among New York-based law firms is the result of:
[See pp.261-263]
a. The US possessing a comparative advantage in legal services
*b. US law firms following the opportunity to provide global service to their multinational clients
c. US law firms seeking to benefit from knowledge transfer between different legal systems
d. US law firms seeking to exploit economies of scale in human capital and IT systems.
15. Many retailers that have been outstandingly successful in their how markets have experienced
much poorer performance when they have entered overseas markets. These include: Tesco, Marks
& Spencer, Laura Ashley, and Body Shop in the UK); Best Buy, Sears, Macy’s, and Walmart in the US.
This reflects:
[See pp.263-265]
a. The lack of major efficiency benefits from international scope in retailing
b. The lack of scale economies in retailing
c. Limited opportunities for exploiting learning benefits in retailing (e.g. by transferring best
practices)
*d. The lack of major efficiency benefits from international scope combined with the need for
national differentiation.
16. A common approach to reconciling the benefits of global scale with the need for national
differentiation is to:
[See pp.266-267]
a. Develop a global brand but rely on local promotional activities
*b. Create standard product platforms in terms of design and components, then adapt product
features, complementary services, and marketing approaches to national market conditions.
17. The “centralized hub” strategy that Japanese multinationals pursued during the 1970s and
1980s is likely to be most successful in industries with:
[See pp.269-270]
a. Innovation as the primary source of competitive advantage
*b. Large economies of scale and limited need for national differentiation
c. Substantial opportunities for transfer of learning among countries
d. Rapid rates of technological change
18. The Dutch-based electrical and consumer electronics multinational, Philips, has transferred the
headquarters for several of its global business away from the Netherlands. In terms of Bartlett and
Ghoshal’s typology of multinational strategies, this represents a transition from:
[See pp.269-271]
a. A “centralized hub” to a “decentralized federation”
b. A “centralized hub” to a “transnational”
*c. A “decentralized federation” to a “transnational” ○
d. A “coordinated federation” to a “decentralized federation”
20. McDonald’s introduction of a greater number of local products on its menus, then transferring
these items across national borders points to:
[See p.268]
a. The tendency for global products to lose their appeal
b. The versatility of the McDonald’s business system
*c. The potential for localized adaptation within the multinational enterprise to be a source of innovation and strategic
renewal
d. Growing competition in the fast-food industry as the McDonald’s system is increasingly imitated by local rivals.
21. McKinsey & Company’s finding that found that successful MNCs are underperforming successful “national
Champions” is evidence of:
[See p.274]
*a. The benefits of exploiting the benefits of multinationality being outweighed by the cost imposed by the complexity
b. The rise of economic nationalism and the governments’ waning commitment to free trade
c. The declining importance of global scale economies
Diversification Strategy
1. Harold Geneen’s statement that: “Telephones, hotels, insurance—it’s all the same. If you
know the numbers inside out, you know the company inside out” is basically correct: the
essentials of a business are revealed by its metrics; industry-specific knowledge is not essential
to the effective running of a business.
[See p.278]
a. T
*b. F
2. Diversification has been an important source of value creation for most of the firms that have
dared to expand beyond the boundaries of their own industry.
[See p.279]
a. T
*b. F
3. A dominant trend in corporate strategy over the past three decades has been for companies
to expand their product scope.
[See pp.279, 281-282]
a. T
*b. F
4. Diversification decisions by firms involve two key issues: how attractive is the industry to be
entered and can the acquire a firm within it at an attractive price?
[See p.279]
*a. T
b. F
5. The primary motive for diversification during the period 1960-1980 was the quest to create
shareholder value.
[See pp.280, 281]
a. T
*b. F
6. The capital asset pricing model predicts that corporate diversification that reduces the
unsystematic risk of a company’s securities will result in those securities being higher valued by
the stock market.
[See p.280]
a. T
7. The history of diversification since the mid-20th century features two periods: during 1950 to
1980, the trend was to diversify; since 1980, most large companies have refocused upon their
core businesses.
[See pp.281-282]
*a. T
b. F
8. A major reason for the trend to corporate refocusing after 1980 was a shifting of corporate
goals from growth to profitability.
[See pp.281-282]
*a. T
b. F
11. The critical test of whether diversification will create shareholder value is whether it will
contribute to competitive advantage.
[See p.284]
*a. T
b. F
12. When a firm is diversifying through acquiring a firm in another industry, the critical issue is
whether the synergies that can be realized will offset the acquisition premium paid.
[See pp.283-284]
*a. T
b. F
13. Economies of scope may be viewed as economies of scale that are exploited over multiple
products.
[See p.284]
*a. T
b. F
15. Demand-side economies of scope can justify diversification by a firm even if it doesn’t
achieve cost savings from supplying multiple products.
[See p.285]
a. T
*b. F
16. If a company can deploy its intellectual property in a different industry, the higher are the
transaction costs of licensing that intellectual property, the more likely it is that the firm will
choose to diversify into that industry.
[See p.286]
*a. T
b. F
18, The principle of “parenting advantage”—that a company should own a business only if it is
able to add more value to that business than any other potential parent—is a more rigorous
criterion for justifying diversification than Michael Porter’s “three essential tests.”
[See pp.286-287]
*a. T
b. F
19. In principle, the information advantages of a diversified company mean that internal capital
markets are more efficient than external capital markets. In practice internal capital markets
tend not to reallocate investment funds from poorly-performing subsidiaries to highly-
performing subsidiaries.
[See p.287]
*a. T
b. F
20. A critical advantage of diversified over specialized firms is in their allocation of human
resources where diversified firms can utilize their superior information on their employees to
allocate individuals according to their proven abilities.
21. The continuing dominance of highly-diversified business groups in many emerging countries
is a result of the less developed capital and labor markets in these countries.
[See p.288]
*a. T
b. F
22. Empirical evidence on the relationship between diversification and profitability shows that
diversification has a negative impact on profitability.
[See p.308]
a. T
*b. F
23. Empirical studies of the outcomes of corporate refocusing initiatives show that divesting
diversified businesses increases profitability and generates positive returns for shareholders.
[See p.289]
*a. T
b. F
24. One reason for the inconsistent findings over the relative performance of related
diversification and unrelated diversification is uncertainty and imprecision over what constitutes
related diversification
[See pp.289-290]
*a. T
b. F
25. Tata Group, the Virgin Group, and Berkshire Hathaway are holding companies that comprise
largely independent businesses with few relationships with one another. Inevitably, these
groups lack significant potential to add value to the individual businesses.
[See pp. 290-291]
a. T
*b. F
1. Tyco International’s decision to split into three separate companies was motivated by:
[See p.278]
a. The scandal involving its former CEO
*b. The belief that Tyco’s businesses could achieve greater flexibility and growth as independent
companies than as subsidiaries of Tyco
3. The key drivers of diversification for most of the 20th century were:
[See p.298]
a. Shareholder value maximization
*b. The quest for growth and risk reduction
c. The desire to escape mature sectors and enter new, technology-based industries
d. The quest to exploit economies of scope.
4. Diversification whose sole impact is to reduce the variability of profits does not create value
for shareholders because:
[See pp.280-281]
a. Shareholders are interested in return more than in risk
b. The most important risks (such as a global financial crisis or the collapse of the Euro) are
systemic in nature, against which diversification offers little protection
c. The risk which is relevant to stock market valuations is perceived risk--this bears little
relationship to profit variability
*d. If investors can spread risk by diversifying their portfolios, diversification adds no additional
value in terms of risk spreading.
5. Diversification that reduces unsystematic risk is likely to be associated with less variance of a
firm’s cash flows. This is likely to benefit:
[See pp.280-281]
a. Shareholders, because they are sensitive to all forms of risk
*b. Bondholders, because greater variability of cash flows increases a firm’s vulnerability to
default on payments to bondholders
c. Both groups
d. Neither group
7. The general trend of the past four decades has been for companies to divest their “noncore”
businesses. Exceptions to this trend include:
[See pp.281-282]
a. Large e-commerce companies such as Amazon, Alphabet, Alibaba, and Tencent
b. Large business groups in emerging market countries
*c. Both (a) and (b)
d. Neither (a) nor (b)—the refocussing trend is general across sectors and across countries.
9. When diversification combines two businesses in different industrial sectors, the most
important determinant of whether the diversification is likely to create value is whether the
diversification:
[See pp.283-284]
a. Changes the debt/equity ratio of the combined company
b. Is between businesses with similar values and management systems
c. Causes management to lose its focus on its core business
*d. Offers opportunities for sharing resources and capabilities.
10. When a company in industry A acquires a company in industry B, Porter’s “better-off” test is
satisfied when:
[See pp.283-284]
a. The competitive advantage of the business B is increased
b. The competitive advantage of business A is increased
*c. The competitive advantage of either or both businesses in increased
d. There are shared resources and capabilities between the two businesses
11. The key difference between economies of scale and economies of scope:
[See p.284]
a. Economies of scale relate to manufacturing activities; economies of scope relate to a wide
range of functions
*b. Economies of scale relate to expanding the output of a single product; economies of scope
relate to expansion across multiple products
c. There is no practical difference
d. Scale economies are relevant to business strategy; economies of scope to corporate strategy.
13. Demand-side economies of scope are economies that accrue to customers from buying
bundles of different products. Examples include:
[See p.285]
Sa. Discount stores that offer a wide range of products
b. Suppliers of electronic systems that comprise hardware, an operating system, and
applications
*c. Both (a) and (b)
d. Neither (a) nor (b)
14. The continuing prominence of large, highly diversified business groups in many emerging
market countries (e.g. Tata Group in India) is mainly the result of:
[See p.288]
a. The political connections of a few leading business leaders
*b. High transaction costs in capital and labor markets in these countries which favor the
deployment of resources within large diversified corporations ○
c. Barriers to direct investment which protect these companies from overseas competition
d. The failure of emerging market business leaders to appreciate the benefits of refocusing
15. The British fashion company, Burberry, is considering diversifying into the hotel business. Its
best strategy is most likely to be to:
[See pp.286-287]
a. Set up its own luxury hotel chain—that way it can appropriate all the profits from the venture
*b. License its brand to an existing hotel operator—that way it can avoid the costs and risks of
having to invest in all the resources and capabilities required by the hotel business
c. Stay away from hotels all together since this business is unrelated to Burberry’s core fashion
business
d. Establish a separate start-up company, Burberry Hotels, in which Burberry Group retains a
minority equity holding
16. The principal difference between the “parenting advantage” framework and Porter’s “three
essential tests” in evaluating the value-adding potential of diversification is:
[See pp.286-287]
a. The “corporate parenting” framework focuses on the role of the corporate headquarters
17. The statement: “Economies of scope on their own do not provide an adequate rationale for
diversification” is:
[See pp.287-288]
a. Correct: Cost savings form shared resources are of little value unless there are also
organizational capabilities that can be transferred between the businesses
*b. Correct: to justify diversification economies of scope need to be supported by transactions
costs in the market for the particular resources
c. Incorrect: economies of scope are sufficient grounds for diversification on their own
d. Incorrect: the benefits from economies of scope need to exceed the administrative costs of
the corporate HQ.
19. Which is a more efficient mechanism for allocating capital among different businesses: the
internal capital allocation of diversified firms or the external capital market?
[See p.287]
a. The internal capital allocation process of diversified firms
b. The external capital market
c. It depends on the effectiveness of the specific firm’s capital allocation process
*d. It depends on the effectiveness of the specific firm’s capital allocation process and the
efficiency of the capital market in the country where the firm is located.
20. The internal labor market provides a large, diverse firm with the chance to make savings, by:
[See p.288]
a. Developing senior managers with wide experience
b. Relying less on external recruitment consultants
c. Having first-hand knowledge of a large pool of internal recruits for transfer between
businesses
*d. All of the above
22. The failure of empirical research to find unambiguous evidence that related diversification
outperforms unrelated evidence points to:
[See pp. 289-290]
a. The fact that firm performance is the outcome of many factors of which diversification
strategy is only one
b. Reverse causation: it may be that poorly performing firms are more likely to take the risk of
unrelated diversification
c. Difficulties in determining whether diversification is related or unrelated
*d. All the above. ○
23. The main difference between two businesses being strategically related rather thasn
operationally related is:
[See pp.290-291]
*a. Strategic relatedness involves the application of common general management systems and
capabilities to the two businesses; operational relatedness involves the sharing of resources
b. Strategic related is about corporate-level synergies; operational relatedness involves business-
level synergies
c. Operational relatedness requires a multidivisional structure; for strategic relatedness, a
holding company structure sufficed
d. Operational relatedness requires that the different products share production plants and
distribution systems; strategic relatedness does not.
24. “Strategic relatedness” (as distinct from “operational relatedness”) in diversification refers
to:
[See pp.290-291]
a. The ability to use very different marketing strategies that fit with different countries
b. The ability to sell similar products
*c. The ability to apply similar strategies, resource allocation procedures, and control systems
across the businesses
d. The ability to maximize the allocation of financial resources across the businesses
25. Despite the heterogeneity of the goods and services supplied by LVMH (e.g. leather bags and
shoes, wine and spirits, fashion clothing, jewelry and watches), we can consider LVMH’s
diversification to be into strategically-related industries because:
[See pp. 289-290]
a. Most of its products are sold at airport, tax-free shops
1. According to Jack Welch, the former CEO of General electric, advantages of focus that single
business companies possess are outweighed the advantage that multibusiness companies
possess in terms of their ability to share ideas and knowledge.
[See p.295]
*a. T
b. F
2. Implementing corporate strategy is concerned mainly with the relationships between the
corporate headquarters and the company’s individual businesses.
[See p.296]
*a. T
b. F
3. Corporate strategy is a two-stage process: first, tsking decisions over the scope of the
company and, second, determining how best to implement those decisions.
[See p.297]
*a. T
b. F
6.. The GE/McKinsey portfolio planning matrix is less sophisticated than the BCG growth-share
matrix, but is easier to apply.
[See pp.300-301]
a. T
*b. F
7. The axes of the BCG and GE/McKinsey business portfolio matrixes represent the two
fundamental sources of profitability for a business: the attractiveness of its industry and its
competitive advantage.
[See pp. 300-301]
*a. T
b. F
8. The Ashridge portfolio display is distinguished by the fact that it takes account of fit between
each business and the corporate owner.
[See pp. 300-301]
*a. T
b. F
9. Increasingly, the corporate headquarters of multibusiness companies are being divided into
two parts: that which exerts financial and strategic control over the businesses and that which
provided common services to the businesses.
[See p.299]
*a. T
b. F
10. In large multibusiness, multinational companies shared service organizations are almost
always located close to their corporate headquarters.
[See p. 299]
a. T
*b. F
11. Typically, a common corporate identity and well-established corporate systems means that
there are few barriers to transferring best practices between business units within a company.
[See p.302]
a. T
*b. F
12. Sharing resources and activities between business units can often impose costs which exceed
the value of the synergies gained.
[See p.302]
13. The closer the linkages between the business units of a multibusiness corporation, the more
involved must corporate management be in coordinating across the businesses.
[See pp.302]
*a. T
b. F
14. Multibusiness corporations with close linkages between their businesses tend to have
smaller corporate headquarters than multibusiness corporations with more independent
businesses.
[See p.302]
a. T
*b. F
15. “Restructuring” is a corporate strategy that involves acquiring companies then intervening to
cut costs, divest assets, revise competitive strategies, and adjust financial structure.
{see pp.323-324]
*a. T
b. F
16. The strategic planning systems of multibusiness corporations have been criticized for the fact
that they do not make strategy.
[See p.305]
*a. T
b. F
17. Most multibusiness companies have a dual planning process: strategic planning focuses on
the short and medium term, financial planning on the medium to long term
[See p.305]
a. T
*b. F
18. A strategic planning system that is oriented towards setting and monitoring financial targets
tend to be effective in identifying and illuminating strategic issues.
[See p.305]
*a. T
b. F
19. The mechanisms through which the corporate headquarters exercises control over individual
businesses can be classified into “input control” and “output control.” Performance
management systems represent a form of “input control.”
[See pp.306-307]
20. If corporate management focuses heavily upon enforcing financial performance targets on its
individual businesses, this increases the need for corporate management to guide the strategic
plans of the individual businesses.
[See pp.306-307]
a. T
*b. F
21. The system of performance contracts that John Browne introduced at BP were highly
suitable for an industry where investments are long-term and the costs of accidents are very
high.
[See p.307]
a. T
*b. F
22. A strategic inflection point is a point where major changes in a firm’s competitive
environment require a complete change of strategy
[See p.311]
*a. T
b. F
23. The record of most large, mature corporations in developing new businesses is poor.
[See p.311]
*a. T
b. F
23. As boards of directors have become increasingly preoccupied with compliance issues, they
have become less effectives in guiding the strategies of the companies they oversee.
[See p.313]
*a. T
b. F
24. Evidence that companies make only minor changes in their allocation of capital expenditure
among their businesses from year to year supports Oliver Williamson’s argument that
multidivisional structures (the “M-form”) permit more rationale, less politicized decision making
at the corporate level.
[See pp.309-310, 314]
a. T
*b. F
25. Mintzberg identified a key rigidity of the multidivisional firm is its tendency to impose
standardized management systems across all of its divisions.
2. The success of Berkshire Hathaway over the past five decades under the leadership of Warren
Buffett may be attributed primarily to:
[See p.298]
a. Warren Buffett’s ability to guide strategic decisions at each of Berkshire Hathaway’s
subsidiaries
*b. Acquiring well-managed companies in attractive industries, then exerting rigorous discipline
in allocating capital among them
c. Acquiring poorly-performing companies at bargain prices, turning around their performance,
then divesting them at high prices
d. All of the above
3. Besides managing the overall corporate portfolio of businesses, corporate management can
add value to individual businesses by:
[See p.297]
*a. Managing the individual businesses, exploiting linkages between them, and managing
change.
b. Developing and managing corporate-level capabilities
c. Designing strategic orientations, and developing detailed operational plans for each business
d. Communicating the strategic orientations to the main stakeholders, and managing conflicts at
lower divisional levels
5. The development of portfolio planning techniques at the end of the 1960s was initiated by:
[See 300-301]
a. The Rand Corporation
*b. General Electric
c. Michael Porter
d. Peter Drucker
6. The axes of the BCG and GE/McKinsey portfolio planning matrices act as proxies for two key
strategic variables:
[See pp. 300-301]
a. Market share and market growth
b. Competitive advantage and market growth
*c. Competitive advantage and market attractiveness ○
d. Individual business unit performance and potential for synergy.
7. Portfolio planning techniques, (also called portfolio matrixes), contribute to the following
corporate management function:
[See pp. 300-301]
*a. Allocating resources among businesses
b. Selecting diversification opportunities
c. Formulating competitive strategies for individual businesses
d. Establishing performance targets for each business
11. What are the two dimensions of the Ashridge portfolio display?
[See pp. 300-301]
a. The relative organizational power of the parent, and the business’s innate profitability
b. The parent’s potential to add value to a business, and its potential to impose effective control
on the business
*c. The parent’s potential to create value and to destroy value in a business
d. The cultural fit between the parent and the business.
12. The principal merit of the BCG portfolio planning matrix is:
[See pp. 300-301]
a. Its accuracy in predicting profit and cash flow potential
b. Its empirical basis: the relationship between market share and profitability has been widely
observed
*c. Its simplicity
d. Its use of metaphor (dogs, cash cows, stars, etc.)
13. By separating their corporate headquarters into a corporate management unit and a shared
services organization, large corporations anticipate the following benefits:
[See p.302]
a. Better exploitation of synergy among the business units
*b. Economies of scale and greater responsiveness to user needs in supplying services to the
business units
c. Ensure standardization in the support services provided to business units
d. Encourage the identification and transfer of best practices.
14. Managing linkages among businesses through transferring skills and sharing resources would
appear to offer greater potential for creating value than portfolio management because:
[See pp.299, 302]
a. Economies of scope have a greater impact on profitability than industry attractiveness
b. The size of acquisition premiums means that acquisitions typically destroy value for the
acquirer
*c. Increasingly efficient capital markets limit the potential either to acquire undervalued
companies or to create value through internal capital allocation among businesses
d. Stock markets apply a conglomerate discount to highly diversified companies
17. The type of corporate strategy through which most leading private equity groups such as
Carlyle Group, Kohlberg Kravis Roberts, and Blackstone add value to the businesses they acquire
is best described as:
[See pp.303-304]
a. Portfolio management
*b. Restructuring
c. Transferring skills
d. Sharing resources
18. The principal mechanisms through which the corporate headquarters seeks to improve the
strategic and operational management of its businesses are:
[See pp.303-308]
a. Management development activities
b. Providing corporate services
c. Creating strong financial incentives for business unit managers
*d. Direct involvement in business-level management, strategic planning, and performance
management and financial control
19. Corporate management can enhance the performance of its individual businesses through
imposing corporate systems for performance management and resource allocation, however,
the main downside of such corporate intervention is:
[See p.306]
a. Constraining innovation
*b. Undermining autonomy and motivation of business-level managers
c. Limiting opportunities for exploiting synergies between businesses
20. One of the consequences of the deficiencies of formalized systems of strategic planning is
that:
[See pp.305-306]
a. Operational management is increasingly being prioritized over strategic management
b. Strategies are increasingly being formulated outside the formal strategic planning system
c. Strategic planning is increasingly viewed as an extension of financial planning
d. Companies are increasingly relying upon external consultants for their strategy formulation.
21. A corporate management system based upon financial performance targets is likely to be
best suited to those multibusiness companies :
[See pp.327-329]
a. That are managed in the interests of stakeholders rather than shareholders
b. That are in the early stages if their development
*c. Whose investment projects have short horizons and whose businesses are not closely related
d. Whose top management teams have financial backgrounds
22, The greatest deficiency of John Browne’s management system for BP based upon
performance contracts for individual managers was
[See p.307]
a. Power was not really decentralized because of Browne’s dominant influence
b. As a former state-owned oil company, BP’s culture could not adapt to a performance
management system that emphasized individual initiative
*c. Decentralized, performance management is not appropriate to sector where time horizons
are long term, key strategic decisions are centralized, and risk management is critical
d. Oil and gas companies must be run by engineers and technical specialists who do not
respond well to performance targets.
23. IBM and Samsung Electronics are examples of large, mature corporations that have:
[See pp.309-310]
a. Sustained their positions as two of the world’s most innovative companies in terms of patents
awarded and new products launched
*b. Developed corporate systems that promote strategic adaptation
c. Demonstrated the potential of large established companies rich in complementary resources
to outperform technology-based start-ups
d. Shown that strong leadership and centralized decision making is the key to corporate success
during turbulent times.
26. The changes in the ways in which CEOs and senior executives have been compensated in
recent decades, particularly the growth of share options and performance incentives have:
[See pp.313-314]
a. Done much to align the interests of top management with those of shareholders
b. Provided major incentives for CEOs to manipulate and mis-report financial performance
*c. Greatly boosted compensation while doing little to align the interests of CEOs and
shareholders
d. Helped t ensure that market forces determine executive compensation
27. Oliver Williamson said two main corporate governance advantages of the multidivisional
structure (“M-form”) for large, diversified companies were:
[See p.314]
a. Allowing decision-making to be decentralized while centralizing high-frequency decision
making
b. Allowing decision-making to be decentralizing while centralizing strategic decision making
*c. Creating competitive internal capital market in which capital allocation is not dominated by
political consideration and creating a corporate headquarters that can represent shareholder
interests
d. Ensuring that the divisional managers were dependent on capital allocation at the corporate
level
28. Which of the following is not a key difference between a multidivisional company and a
holding company?
[See p.315]
a. Multidivisional companies have a centralized treasury; holding companies do not
b. The parent of a holding company appoints the boards of directors of its subsidiaries; the HQ
of a multidivisional company directly appoints divisional managers
*c. The subsidiaries of a holding company are responsible for their own financing decisions; the
divisions of a multidivisional company need only to consider their credit ratings
d. Multidivisional corporations typically have a single, integrated strategic planning process;
holding companies do not.
1. Mergers, acquisitions, and alliances may be viewed not just as instruments of corporate
strategy but as strategies in themselves.
[See p.317]
a. T
*b. F
2. The key difference between a merger and an acquisition is that, in the case of a merger, the
participating companies combine to create a new company.
[See pp.317-318]
*a. T
b. F
4. Mergers and acquisitions go in waves. Because acquirers prefer to pay low prices for acquired
companies, these M&A waves tend to be inversely correlated with stock market fluctuations.
[See pp.318-319]
a. T
*b. F
5. Mergers and acquisitions are attractive to the managers who instigate them because of the
speed with which they can effect strategic changes rather than their proven financial benefits.
[See pp.319-320]
*a. T
b. F
6. The main parallel between the merger boom in the US at the end of the 19th century and the
recent merger boom in the chemicals, beer, food, media and communications, and
pharmaceutical industries is that both involves horizontal mergers and resulted in the creation
of market-dominating companies:
[See pp.318-320]
*a. T
b. F
8. Cross-border acquisitions tend to have the weakest strategic logic but give rise to the few
challenges of post-merger integration.
[See p.320]
a. T
*b. F
10. Hewlett-Packard’s disastrous acquisition of the software and services company, Autonomy,
points to the problem that the acquirer has much less information about the company than the
seller. An additional problem of the Autonomy acquisition is that acquisitions that are intended
to change the acquirer’s business model are riskier than acquisitions that seek to leverage the
existing business model.
[See pp.320-321]
*a. T
b. F
11. Strategic alliances are only stable if they are reinforced by equity ownership between the
partners.
[See pp.321-322]
a. T
*b. F
12. In most cases, the primary goal of a strategic alliance is to acquire that than simply to access
the partner’s organizational capabilities.
[See p.322]
a. T
*b. F
13. An important lesson from the troubled development of Boeing’s 787 Dreamliner is that, for
developing complex, technically-advanced products, the hub firm needs to have the capability to
manage networks of strategic alliances.
[See p.322]
14. The main reason that multinational corporations choose to enter emerging markets by
means of a joint venture with a local partner is usually the desire to share risk rather than the
need to access local knowledge and distribution channels.
[See p.322]
a. T
*b. F
20. In Capron and Mitchell’s decision framework for selecting the right growth path, if a firm
finds that its resources and capabilities do not fit with its current strategy, then acquisition
should be first option considered and internal development the last option.
[See p.323]
a. T
*b. F
2. Most of the biggest mergers and acquisitions since 2000 have been horizontal—i.e. between
companies in the same industry. This reflects the fact that:
[See p.318]
a. Antitrust authorities have been more concerned with vertical than horizontal mergers and
acquisitions
b. By showing that diversification does not offer significant risk-spreading benefits, modern
financial theory has undermined the attractions of diversifying mergers and acquisitions
*c. Horizontal mergers and acquisitions offer the greatest potential for value creation through
cost reduction and moderating competition
d. CEOs favor horizontal mergers and acquisitions because of their desire to eliminate rivals.
4. For acquiring firms, empirical studies show that, on average, the returns to shareholders are:
[See pp.318-319]
a. Slightly positive
*b. Slightly negative
c. Insignificant from zero
d. Too varied to generalize.
5. Studies that compare post-merger accounting profitability with the pre-merger accounting
profitability of the companies involved show little consistency. This is because:
[See pp.318-319]
a. The identification problem: it is difficult to distinguish the effects of mergers from the many
other factors that influence profitability
b. The effects of mergers on profitability are diverse
*c. Both (a) and (b)
d. Neither (a) nor (b)—we do not know why studies of the effects of mergers on firm
performance have been s inconclusive
7. A primary motive for the acquisition of public companies by private equity companies is:
[See p.319]
a. To inject additional equity capital
*b. To create value through increasing financial leverage
c. To stimulate innovation
d. To pursue international expansion
9. Acquiring companies typically pay between 20% and 40% more than the pre-bid market
capitalization to acquire target companies. The main reason for this sizable acquisition premium
is:
[See p.319]
*a. To gain acceptance of the bid by the majority of a target company’s shareholders, acquirers
must pay a significant premium over the target company’s stock market valuation
b. Information asymmetry: acquiring companies knows less about the true value of target
companies than do these companies themselves
c. Excessive optimism causes acquirers to overvalue their acquisition targets
d. Investment bankers typically mislead the9r clients in their company valuations in an effort to
boost their fees
10. Which are the following statements about pre-merger planning is untrue?
[See pp.320-321]
a. It is easier to predict the outcomes of horizontal M&A than other types of M&A
*b. In the case of horizontal M&A, it is easier to predict the impact on revenues than the impact
on costs
c. The outcomes of a hostile acquisition are more difficult to predict than the outcomes of a
friendly acquisition
d. Acquisitions that are directed towards a firm reinventing its business model should be
regarded as riskier than those which leverage its existing business model.
11. What distinguishes a joint venture from other types of strategic alliance is that in a joint
venture:
[See p.321]
a. The partners hold equity stakes in one another
b. The partners combine their top management teams
*c. The partners create a new company which they jointly own
d. The partners are from different countries.
12. The main reason that a strategic alliance is often an attractive alternative to a merger or
acquisition is:
[See pp.321-322]
a. Alliances avoid government restrictions relating to antitrust and foreign direct investment
13. Strategic alliances frequently play an important role in a firm’s internationalization strategy
because:
[See p.322]
a. Alliances offer a means of sharing the high risks involved in international expansion
*b. Internationalizing firms often lack the local knowledge and access to distribution channels
that a local partner can provide
c. Alliances offer greater security than a wholly-owned subsidiary
d. Alliances offer greater flexibility than alternative internationalization modes.
14. Compared to alliances between domestic partners, international alliances typically offer:
[See p.322]
a. Greater risk without greater potential return
* b. Higher potential returns but with greater risk of disagreement and failure
c. A wider range of possible outcomes dependent upon the compatibility of the national
cultures of the partners involves
d. Higher potential return and moderate risks so long as the potential for disagreement is
recognized and a mechanism is established for arbitrating disputes.
15. For companies that are seeking to augment their own resource and capability base with
those of another company, the choice between acquisition and strategic alliance rests primarily
upon:
[See p.323]
*a. How close a relationship is necessary in order to gain access to the desired resource or
capability
b. Whether or not the companies are located in different countries
c. Whether the companies involved are listed or privately held
d. Whether the desired resource or capability is tradable
1. The forces reshaping business during the first two decades of the 21st century bear no
resemblance to those which reshaped business during the first two decades of the 20th
century.
[See p.327]
a. T
*b. F
3. Rising concentration and growing monopoly power in the 21st century is a feature of
mature industries such as beverages, chemicals, and mining. In technology-based sectors, the
disruptive effects of digital technologies ensure robust, dynamic competition.
[See p.328]
a. T
*b. F
4. Increasing levels of interconnectedness within the global economy and human society help
to stabilize the impact of potentially disruptive forces.
[See p.328]
a. T
*b. F
5. The emergence of a multipolar world where the US no longer exercises a dominant role has
meant that the “G20” leading economies now collaborate to address the world’s most
pressing economic and environmental problems.
[See p.329]
a. T
*b. F
6. The financial crisis of 2008-9, a series of corporate scandals, and increasing inequality have
undermined the legitimacy of market capitalism.
[See pp.328-329]
7. For shareholder value maximization to be a helpful goal for top management it needs to
focus not on stock market value but on the fundamental drivers of value.
[See p.329]
*a. T
b. F
9. Companies such as Toyota, Wal-Mart, 3M, and Samsung have sustained strong
performance over long periods of time by basing their competitive advantage on a single core
competence.
[See p.330]
a. T
*b. F
10. The quest for more complex sources of competitive advantage encourages firms to exploit
linkages across their entire ecosystems.
[See p.330]
*a. T
b. F
11. “Managing real options” means that firms should take a greater interest in how share
option packages are managed, to achieve the best value for shareholders
[See pp.331-332]
a. T
*b. F
12. Applying real options thinking to industry analysis implies that industry attractiveness is
less about an industry’s profit potential and is more concerned with the range of strategic
opportunities that an industry offers.
[See p.331]
*a. T
b. F
14. Building more versatile enterprises while maintaining efficiency and agility increasingly
involves a shift from formal to informal organization.
[See pp.332-333]
a. T
*b. F
15. Self-organization can work for the birds and bees; it doesn’t work in business enterprise.
[See p.333]
a. T
*b. F
16. Research into leadership generally supports the view that complex organizations facing
uncertain environments require leaders that are decisive decision makers rather than
enablers who embody humility, empathy, and equanimity.
[See p.334]
a. T
*b. F
1. The first two decades of the 20th and 21st centuries were similar in terms of factors that
were reshaping the business environment. The most significant of these common factors
were:
[See p.327]
a. Political turbulence: in the early 20th century the collapse of the Austro-Hungarian and
Ottoman empires, in the 21st century the ethnic and religious strife and the rise of populism
*b. Technology: in the 20th century electricity, the telephone, and the automobile; in the 21st
century the internet and mobile communication
c. Popular disaffection with big business: in the 20th century opposition to the concentration
of economic power in monopolies and trusts, in the 21st the inequality associated with the
capitalist economy
d. Corporate social responsibility: in the 20th century outrange against unsafe and unhealthy
products and worker exploitation; in the 20th century concerns over environmental
irresponsibility and exploitation of third world workers.
3. The main impact of digital technology on the competitive structure of industries during the
21st century has been:
[See pp. 327-328]
a. Lower entry barriers
b. Increased fragmentation of established industries
*c. The rise of large, market dominating digital giants
d. “Business ecosystems” displacing “industries” as the relevant arenas in which competition
occurs
5. The first 16 years of the 21st century have been characterized by unprecedented
turbulence in the global economy, politics, and society. This turbulence is likely to continue
into the future because:
[See pp.328-329]
a. Declining legitimacy of political leaders in many countries and growing ineffectiveness of
international institutions
b. A growing ineffectiveness of international institutions and a decline in US global influence
*c. Increased global interconnectedness causes disturbances to be amplified while the
declining global influence of the US implies a lack leadership in managing these disturbances
d. The global financial system remains fragile
9. Among industries based upon digital technologies, a key factor that determines the
industry’s structure and sources of its competitive advantage are whether:
[See p.330]
*a. It is subject to network externalities
b. It supplies hardware or software
c. The firms within it deploy the same business model or different business models
d. The scope of competition is national or global
10. As strategy becomes increasingly viewed as the management of a portfolio of options, the
emphasis of strategy formulation shifts:
[See pp.331-332]
a. From strategic planning to business model innovation
b. From growth through acquisition to growth through creating a network of strategic
alliances
c. From shareholder value maximization to stakeholder value maximizations
*d. From making resource commitments to creating opportunities
11. If organizations are to become increasingly self-managed rather than controlled through
top-down commands, they need to develop:
[See p333]
a. Advanced artificial intelligence systems
b. A strong organizational culture
*c. Identity, free-flowing information, and internal social networks
d. Organizational members who are well trained and possess a sense of empowerment