Contemporary Strategy Analysis 10th

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 Contemporary Strategy Analysis 10e

TEST BANK: CHAPTER 8

Industry Evolution and Strategic Change

True/false questions

1. According to Charles Darwin it is the strongest of a species that survives.

[See p.189]
a. T
*b. F

2. The main drivers of industry evolution are growth of demand and the production and diffusion of
knowledge.
[See p.191]
*a. T
b. F

3. The industry life cycle follows different phases from the product life cycle.
[See p.191]
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.192]
*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. 192]
a. T
*b. F

6. The establishment of a dominant design in an industry requires convergence around a common

technical standard.
[See p.192]
a. T
*b. F

7. The establishment of a dominant design is usually associated with an industry’s transition from the
maturity phase to the decline phase.
[See p.193]
a. T
*b. F

8. Technical standards are usually associated with network effects, dominant designs are usually not.
[See p.193]
*a. T
b. F

© 2019 John Wiley & Sons, Inc.

9. The emergence of a dominant product design tends to coincide with a shift from process innovation to
product innovation
[See p.209]
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.194]
*a. T
b. F

11. Over time, industry life cycles have become increasingly compressed.
[See p.194]
*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.195-196]
*a. T
b. F

13. With the onset of maturity, industries often experience a “shake-out” period.
[See p.196]
*a. T
b. F

14. With the onset of maturity, industries often migrate from advanced industrial countries to emerging
countries.
[See p.197]
*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.199]
a. T
*b. F

16. Organizations tend to prefer exploration for new opportunities over exploitation of existing knowledge.
[See p.199]
*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. 200]
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 pp.201-202]

© 2019 John Wiley & Sons, Inc.

*a. T
b. F

19. For aircraft manufacturers, the jet engine was a threat since it was a “competence destroying”
innovation.
[See p.203]
a. T
*b. F

20. Start-up companies tend to be better at exploiting architectural innovations than established
companies.
[See p.203]
*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.203]
a. T
*b. F

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.203]
*a. T
b. F

23. Organizational ambidexterity refers to the ability of a single organization to possess more than one
organizational capability
[See p.204]
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 pp.204-205]
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.206]
*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.206-208]
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.207-209]
*a. T
b. F

© 2019 John Wiley & Sons, Inc.

28. Dynamic capabilities are “higher order” capabilities that orchestrate change among operational
capabilities.
[See pp. 210-11]
*a. T
b. F

29. Knowledge management is the application of information technology to management processes.

[See pp. 211-12]
a. T
*b. F

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 p.214]
*a. T
b. F

Multiple choice questions

1. The main forces driving industry evolution are:

[See p.191]
*a. Technology and demand
b. Technology and globalization
c. The quest for cost and differentiation advantage
d. Government policies and global financial flows.

2. The different stages of the industry life cycles are defined primarily on the basis of:
[See p.191]
*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.191]
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.192-193]
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
d. Rapid market penetration

5. The duration of the industry life cycle:

[See pp.193-194]
a. Typically extends over a century or more
b. Is determined by the longevity of the firms within the industry
*c. Has become compressed as the pace of technological change has accelerated
d. Depends upon the ability the industry to sustain innovation

© 2019 John Wiley & Sons, Inc.

6. A dominant design is best described as:
[See p.192]
a. A technical standard
b. The product design chosen by the leading firm in an industry
*c. A common product architecture
d. The culmination of the process of commodification that accompanies industry evolution

7. A technical standard tends to emerge in an industry if:

[See p.193]
a. Economies of scale are present
b. The industry has converged around a dominant design
c. The industry is subject to economies of learning
*d. Network effects exist

8. Which statement best describes the extent to which different industries conform to the same life cycle
pattern?
[See pp.193-194]
*a. The duration of the life cycle varies from industry to industry
b. The same stages exist whatever the industry
c. All industries have experienced a shortening of the stages of their life cycle
d. Different go through a renewal of their fife cycle at different stages of their development

9. The transition from the introduction to growth phase of the industry life cycle features:
[See pp.192-196]
a. Increasing product differentiation
b. Declining innovation
c. Offshoring of production
*d. Product innovation giving way to process innovation

10. Firm entry rates tend to be highest during the growth stage of an industry life cycle because:
[See pp.195-196]
a. Shortage of production capacity keeps margins attractive
b. The propensity for entrepreneurs and venture capitalists to imitate one another
c. Growing legitimacy of the industry attracts resources to the industry
*d. Both (a) and (c).

11. The history of the retail sector over the past 150 years points to:
[See p.195]
a. The tendency for retailing to follow the same pattern of growth, maturity and decline as most other
industries
b. Increasing globalization
*c. Revitalization through continuous strategic innovation
d. Increasing commoditization as differentiation declines.

12. Industries change mainly as a result of:

[See pp.195-197]
a. Government policies
*b. The death of existing firms and the birth of new firms
c. Continuous adaptation by a constant population of firms
d. Changing customer preferences.

13. “Shakeout”--a period when many firms exit from an industry following a period of intense competition—
characterizes an industry’s transition from:
[See p.196]
a. Introduction to growth stage
*b. From growth to maturity
c. From maturity to decline

© 2019 John Wiley & Sons, Inc.

d. From product innovation to process innovation.

14. With the onset of the maturity stage, the number of firms in most industries:
[See pp.196-197]
a. Remains stable
*b. Decreases significantly, then stabilizes
c. Rises
d. Rises sharply until shake-out is triggered

15. The term “competency trap”, refers to:

[See p.199]
a. The hubris that affects the senior managers of successful firms
b. The tendency for firms with competitive advantage based in one industry to fail when they diversify into
a new industry
*c The tendency for capabilities based on highly developed organizational routines to be a source of
inflexibility
d. The tendency for managers to be reluctant to change the strategies that brought them their initial
success.

16. According to institutional sociologists, the propensity for organizations to adopt similar structures
(“institutional isomorphism”) is primarily a result of
[See p.199]
a. Common key success factors within an industry
b. Bounded rationality
c. The complementarity among different managerial practices within firms’ “activity systems”
*d. The propensity of firms to imitate one another as they seek legitimacy.

17. An organizational routine is:

[See p.199]
*a. A stable, repeatable, pattern of coordinated activity among organizational members
b. A lower-level, operational capability, as opposed to a dynamic capability which tends not to be
routinized
c. The resource needed to create a new capability
d. A new capability after it has been institutionalized within an organization

18. The field of “organizational ecology” studies:

[See p.201]
a. Companies’ contributions to environmental sustainability
*b. Changes in the population of firms in an industry
c. The process of competition between different types of firm
d. Management practices that promote the evolutionary adaptation of firms.

19. Which of the following is not a source of organizational inertia?

[See pp.199-200]
a. The tendency for organizations to limit themselves to local search
b. Organizational routines
c. Complementarities between the different activities of a firm
*d. The hierarchical structure of large firms

20. When an industry is subject to technological change, the ability of new entrants to displace incumbent
firms will be increased if:
[See pp.203-204]
*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.

© 2019 John Wiley & Sons, Inc.

21. The reluctance of shipping companies to switch from sail to steam propulsion can be attributed to the
fact that:
[See p.203]
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

22. When a company places its new businesses or new products into separate organizational units from
its established business activities, this is an example of:
[See pp.204-205]
a. Contextual ambidexterity
*b. Structural ambidexterity
c. Both contextual and structural ambidexterity
d. Effective change management

23. The experience of Xerox Corporation with its Palo alto research Center and GM with its Saturn division
points to:
[See pp.204-205]
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.206]
*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.207-208]
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.209-210]
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.

27. IBM, 3M, and General Electric are companies that demonstrate, over periods of several decades, the
capacity to adapt to multiple changes in their external environment. These companies are characterized
by:
[See p.211]
a. Dynamic, entrepreneurial CEOs
b. Corporate cultures that value and celebrate risk taking
*c. Business processes that sense and seize opportunities

© 2019 John Wiley & Sons, Inc.

d. Embracing diversity

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 located within processes.
The key advantage of industrial enterprises over craft enterprises is that:
[See pp.211-214]
*a. They can replicate their capabilities 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.

© 2019 John Wiley & Sons, Inc.