Chapter 1—Strategic Management and Strategic Competitiveness TRUE/FALSE 1. The Chapter 1 Opening Case shows that Borders was unsuccessful in competing in Internet book sales, but not against brick-and-mortar stores. ANS:F 2. According to the Chapter 1 Opening Case, Barnes & Noble and Amazon were more competitive than Borders and adjusted more effectively to changes in the retail book market. ANS:T 3. The Chapter 1 Opening Case illustrates that while Borders was able to achieve strategic competitiveness, it did not achieve above-average returns because of conditions beyond the control of of its top management.
ANS:F 4. According to the Chapter 1 Opening Case, Barnes & Noble and Amazon were more effective than Borders in using the strategic management process as the foundation for the commitments, decisions, and actions they took to pursue strategic competitiveness and above-average returns. ANS:T 5. Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. ANS:T 6. Alligator Enterprises has earned above-average returns since its founding five years ago. Since no other firm has challenged Alligator in its articular market niche, the firm’s owners can feel secure that Alligator has established a competitive advantage. ANS:F 7. The goal of strategic management is to develop a competitive advantage that is permanent. ANS:F 8. Risk in terms of financial returns reflects an investor’s uncertainty about economic gains or losses that will result from a particular investment. ANS:T 9. Average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. ANS:F 10. Returns can only be measured in accounting terms such as return on assets, return on equity, or return on sales.
The Assumptions Of The Industrial Organization Model And The Resource-based Model Are Contradictory. Therefore, Organizational Strategists Must Choose One Or The Other Model As The Basis For Developing A Strategic Plan.
ANS:F 11. According to the Chapter 1 Strategic Focus, Huawei was successful in the US market primarily because of its ability to build Guanxi with the US government. ANS:F 12. The Chapter 1 Strategic Focus shows that while Guanxi is an important element of doing business in China, it is unimportant in doing business in the United States as Huawei discovered when it entered US markets. ANS:F 13. Economies of scale and huge advertising budgets are just as effective in the new competitive landscape as they were in the past, but they must be reinforced by strategic flexibility. ANS:F 14.
The two primary drivers of hyper-competition are the emergence of the global economy and technology. ANS:T 15. The rate of technology diffusion has been steadily increasing over the last two decades. ANS:T 16. While patents may be an effective way of protecting proprietary technology in some industries such as pharmaceuticals, many firms competing in the electronics industry do not apply for patents. ANS:T 17. Examples of incremental innovations include iPods, PDAs, WiFi, and web browser software. ANS:F 18. The rapid rate of technological diffusion has increased the competitive benefits of patents.
ANS:F 19. Apple (Chapter 1 Strategic Focus) is a source of hypercompetition through its development and introduction of disruptive technologies such as the iPod. ANS:T 20. Developed countries still have major advantages in access to information technology over emerging economies because of the significant cost of the infrastructure needed for computing power. ANS:F 21. The rate of growth of Internet-based applications could be affected by the possibility of Internet service providers charging users for downloading those applications. ANS:T 2. The new CEO of Opacity Enterprises is determined to make the long-established firm strategically flexible. The CEO feels that the employees of the company have the ability, training, and resources to engage in continuous learning. The main obstacle the CEO must face is inertia. ANS:T 23. One capability characteristic of a firm with strategic flexibility is the capacity to learn. ANS:T 24. The I/O (industrial organization) model assumes that the uniqueness of a firm’s resources and capabilities are its main source of above-average returns.
ANS:F 25. The CEO of Twin Spires, Inc. , is emotionally and intellectually committed to using the resources of the firm to serve the needs of the natural gardening community by providing rare and native plants to individuals and nurseries around the United States. This commitment has carried the CEO through long periods of below average returns on investment. The perspective of the CEO of Twin Spires is consistent with the assumptions of the industrial organizational (I/O) model. ANS:F 26.
Although the fast food (or quick-service) industry is unattractive, McDonald’s has earned above-average returns through product innovations, enhancing existing facilities, and buying properties outside the United States. ANS:F 27. The five forces model suggests that firms should target the industry with the highest potential for above-average returns and then implement either a cost-leadership strategy or a differentiation strategy. ANS:T 28. The uniqueness of a firm’s resources and capabilities is the basis for a firm’s strategy and determines its ability to earn above-average returns under the I/O view. ANS:F 9. Research shows that a greater percentage of a firm’s profitability is explained by the I/O rather than the resource-based model. ANS:F 30. The resource-based model assumes that if firms have resources that are rare or costly to imitate, this is sufficient to form a basis for competitive advantage. ANS:F 31. Resources are considered rare when they have no structural equivalent. ANS:F 32. The assumptions of the industrial organizational model and the resource-based model are contradictory. Therefore, organizational strategists must choose one or the other model as the basis for developing a strategic plan.
ANS:F 33. An effective vision statement will specify the market to be served. ANS:F 34. An effective vision stretches and challenges people and can result in increased innovation as illustrated by Apple’s CEO Steve Jobs who is known to think bigger and differently than most people (“putting a dent in the universe”). ANS:T 35. Organizational mission statements typically do not include statements about profitability and earning above-average returns. ANS:T 36. A firm’s mission tends to be enduring while its vision can change in light of changing environmental conditions.
ANS:F 37. Organizational stakeholders are the firm’s internal resources, capabilities, and core competencies that are used to accomplish what may at first appear to be unattainable goals in the competitive environment. ANS:F 38. The degree to which the firm is dependent on a stakeholder group gives that stakeholder less influence. ANS:F 39. The needs and desires of organizational stakeholders are inherently contradictory. ANS:T 40. Relative power is the most critical criteria for prioritizing the demands of stakeholders. ANS:T 41.
Hourly workers on the production line of a chicken-processing plant are considered organizational stakeholders. ANS:T 42. Customers, suppliers, unions, and local governments are examples of capital market stakeholders. ANS:F 43. When the firm earns lower-than-average returns, the highest priority is given to satisfying the needs of capital market stakeholders over the needs of product market and organizational shareholders. ANS:FPTS 44. Six years ago, Colette Smith founded a successful catering company that specializes in providing a wide assortment of miniature cheesecakes for corporate and social events.
Although Ms. Smith is no longer active in the actual production of the cheesecakes, she continues as president of the catering company. Ms. Smith could be considered a strategic leader of this firm. ANS:T 45. Organizational culture refers to the core values shared by the firm’s top-level managers but not necessarily accepted by lower-level employees who are often transitory and not committed to the organization. ANS:F 46. Although organizational cultures vary considerably, one cannot make an objective judgment that some organizational cultures are more or less functional than others.
ANS:F 47. Strategic leaders must have a strong strategic orientation while embracing change in the dynamic competitive landscape. ANS:T 48. Profit pools allow strategic leaders to predict the outcomes of their decisions before taking efforts to implement them. ANS:T 49. Corporate-level strategy in a diversified organization requires a common business strategy for each component business. ANS:F 50. An organization’s willingness to tolerate or encourage unethical behavior is a reflection of its core values. ANS:T