SM

Chapter1StrategicLeadership:Managing
theStrategyMakingProcessforCompetitive
AdvantageKey
1.Astrategycanbedefinedasasetofrelatedactionsthatmanagerstaketoincrease
theircompany'sperformance.
TRUE
2.Strategic leadership is concerned with how to most effectively manage a

company'sstrategymakingprocesstocreatecompetitiveadvantage.
TRUE
3.To increase shareholder value, managers must pursue strategies that increase
revenueandmarketshare,whethertheresultsareprofitableornot.
FALSE
4.A firm obtains competitive advantage when its strategy results in superior
performancerelativetoitscompetitors.
TRUE
5.ROICisameasureofhowefficientlyandeffectivelymanagersusethecapitalat
theirdisposaltoproduceprofitability.
TRUE
6.Theprofitgrowthofacompanycanbemeasuredbytheincreaseinitsstockprice
overtime.
FALSE
7.Abusinessmodelismanagers'conceptionofhowthesetofstrategiestheir
companypursuesshouldmeshtogetherintoacongruentwhole,thusenablingthe
companytogainacompetitiveadvantageandachievesuperiorprofitabilityandprofit
growth.
TRUE
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8.Oneofthefactorsthatdistinguishesorganizationsinthenonprofitsectorfromfor
profitbusinessesisthelackofconcernforstrategicmanagement.
FALSE
9.Walmart'sbusinessmodelfocusedonurbanandsuburbanlocations.
FALSE
10.TimeInc.experiencedanincreaseinitssubscriberbasebecauseofearlyentryinto
Webpublishing.
FALSE
11.Generalmanagersbearresponsibilityfortheoverallperformanceofthecompany
orforoneofitsmajorselfcontainedsubunitsordivisions.
TRUE
12.TheCEOisacompany'sprincipalgeneralmanager.
TRUE
13.The first component of the strategic management process is crafting the

organization's missionstatement,whichprovidestheframeworkorcontextwithin
whichstrategiesareformulated.
TRUE
14.Theconceptsvisionandmissioncanbeusedinterchangeably.
FALSE
15.Thevisionofacompanylaysoutsomedesiredfuturestateandarticulateswhatthe
companywouldliketoachieve.
TRUE
16.Valuesarepersonalandhavelittletodowithorganizationalcultureorcompetitive
advantage.
FALSE
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17.Wellconstructedgoalsprovideameansbywhichtheperformanceofmanagers
canbeevaluated.
TRUE
18.SWOTanalysisisimplementedtofinetunestrategies.
TRUE
19.SWOTanalysisconcernsidentifyingstrengths,weaknesses,options,andthreats.
FALSE
20.Thefeedbackloopinthemodelofthestrategicmanagementprocessindicatesthat
theprocessisongoing;itneverends.
TRUE
21.Thetraditionalplanningmodelsuggeststhatacompany'sstrategiesaretheresult
ofaplanfromahighlystructuredprocessorchestratedbytopmanagement.
TRUE
22.Mintzberg's model suggests a company's realized strategy is the product of

whateverstrategiesareactuallyputintoactionintendedandemergent.
TRUE
23.Hondaintendedtobecomeamarketleaderinthesmallmotorbikecategoryby
approachingSearswiththeideaofmarketingtonontraditionalcustomers.
FALSE
24.Inpractice,thestrategiesofmostorganizationsareprobablyacombinationofthe
intendedandemergentstrategies.
TRUE
25.Emergentstrategiesariseinacompanywithcarefullongtermplanning.
FALSE
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26.Thegreatvirtueofscenarioplanningisthatmanagersmustthinkoutsidethebox
toanticipatewhattheymightdoindifferentsituations.
TRUE
27.Leaders who exhibit a high degree of emotional intelligence tend to be more

effectivethanthosewhodonot.
TRUE
28.Ivorytowerplanningignorestheimportantstrategicroleofautonomousaction
bylowerlevelmanagers.
TRUE
29.Rulesofthumbrarelyifeverleadtosevereerrorsinthedecisionmakingprocess.
FALSE
30.Using informal and unconventional ways to gather information is an unwise

practiceforanorganization.
TRUE
31.Theprincipaldriver(s)ofshareholdervalueis(are)
A.profitability.
B.profitgrowth.
C.marketshare.
D.profitabilityandprofitgrowth.
E.allofthesechoices.
32.Acompetitiveadvantageisconsideredtobeasustainedcompetitiveadvantage
whentheA.
advantageenduresforalongtime.
B.firmisabletospreadtheadvantagetoallofitsbusinessunits.
C.advantageisverylarge.
D.advantagewasgainedatalowcost.
E.managerswhodevelopedtheadvantagearestillemployedatthefirm.
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33.Which ofthe following dimensions are encompassed bya company's business

model?A.Selectingcustomers
B.DefininganddifferentiatingitsproductofferingsC.Determininghowitwill
producegoodsandservices
D.DetermininghowitwillgrowthebusinessovertimeE.
Allofthesechoices.
34.Thestrategiesthatacompany'smanagerspursue
A.haveamajorimpactonthecompany'sperformancerelativetoitscompetitors.
B.havelittleornoeffectonoverallprofitability.
C.typicallyresultinhigherperunitcostofproduction.
D.resultinsignificantindustrystructuralchanges.
E.noneofthesechoices.
35.Which of the following is the organization's principal general manager? A.

ChairmanoftheBoardofDirectors
B.DivisionheadC.CFO
D.CEO
E.Controller
36.Within a diversified company, the responsibilities ofcorporatelevelstrategic

managers include A. translating the corporate mission statement into concrete
strategiesforindividualbusinessunits.
B.closelysupervisingtheformulationofstrategiesatthefunctionallevelthatsupport
thecompany'sbusinessandcorporatelevelstrategies.
C.allocatingresourcestofunctionswithinbusinessunits.
D.overseeingthedevelopmentofstrategiesforthetotalorganizationandallocating
resourcesamongitsdifferentbusinessareas.
E.identifyingandestablishingrelationshipswithsupplierfirms.
37.Generalmanagersarefound
A.onlyatthecorporatelevel.
B.onlyatthebusinesslevel.
C.onlyatthefunctionalandbusinesslevels.
D.atthefunctional,business,andcorporatelevels.
E.onlyatthecorporateandbusinesslevels.
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38.Vice President Chung is responsible for executing decisions about human

resources.Mr.ChungisA.acorporatelevelgeneralmanager.
B.bothacorporateandbusinesslevelgeneralmanager.C.abusinesslevelgeneral
manager.
D.afunctionalmanager.
E.acorporatelevel,businesslevel,andfunctionalmanager.
39.Profitgrowthisbestmeasured
A.bytheincreaseinshareprice.
B.bythereturnoninvestment.
C.bytheincreaseinnetsales.
D.overtime.
E.byincreasesinliquidity.
40.Functionalmanagers
A.areresponsibleforthespecificbusinessfunctionsoroperationsthatconstitutea
companyoroneofitsdivisions.
B.lookattheoverallpictureofacorporation.
C.havenostrategicrole.
D.formulategenericstrategies.
E.executebusinessleveldecisions.
41.BetsyHoldenistheheadofKraftFoods,adivisionofthePhilipMorrisCompany.
WhichofthefollowingisnotlikelytobeoneofMs.Holden'sresponsibilities?
A.TurningcorporatelevelstrategyintoactionB.
DefiningPhilipMorris'smission
C. Deciding how to compete in the foods industry D. Supervisingfunctional
levelmanagers
E.Developingabusinesslevelstrategy
42.Thefirststepinthestrategicmanagementprocessis
A.definingthemissionandmajorgoalsoftheorganization.
B.analyzingthemacroenvironment.
C.analyzingtheindustryenvironment.
D.determiningthefirm'sstrengthsandweaknesses.
E.deciding on a fit between the organization's strengths and weaknesses and the
environment'sopportunitiesandthreats.
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43.Strategyformulationreferstothe
A.taskofdesigningorganizationalstructuresandcontrolsystems.
B.processbywhichstrategiesareputintoaction.
C.topdownplanning process that gives rise to the implementation of emergent
strategies.
D.taskofanalyzinganorganization'sexternalandinternalenvironmentandthen
selectinganappropriatestrategy.
E.processofchoosingarealizedstrategy.
44.Matchinganorganization'sstructureandcontrolsystemstotherequirementsofa
company'sstrategyisA.
partofthestrategymakingprocess.
B.partoftheSWOTanalysis.
C.facilitatedthroughthefeedbackloop.D.partofinternalanalysis.
45.Strategicleadershipisabout
A.strategyformulation.
B.strategyimplementation.
C.howtoeffectivelymanageacompany'sstrategyandcreatecompetitiveadvantage.
D.establishingeffectivecontractprocesses.
E.reducingacompany'soperatingcosts.
46.Maximizingshareholdervalueis
A.abyproductofacompany'scostreductionprograms.
B.notgenerallyaviablegoalforacompany.
C.nottheresponsibilityofacompany'smanagers.
D.theultimategoalofprofitmakingcompanies.
E.notrequiredtoattractriskcapital.
47.Aaronplannedtocutpricesathisbicycleshop,butwhenacompetingshopbegan
toofferfreerepairs,Aarondecidedtocopythem.Aaron'snewstrategy(offerfree
repairs)isanexampleofa(n)
A.mistake.
B.emergentstrategy.
C.deliberatestrategy.
D.intendedstrategy.
E.unrealizedstrategy.
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48.ThefitmodelofstrategyformulationandimplementationA.wasproposedand
supportedbyPrahaladandHamel.
B.isnotusefulbecausethefutureisuncertain.
C.isusefulforbothintendedandemergentstrategies.
D.cangiveacompanyasustainablecompetitiveadvantage.
E.focusesmoreonthecurrentsituationthanonthefuturesituation.
49.Whenconsideringemergentstrategies,itisimportantforafirm'smanagerstoA.
ensurethatthechosenstrategiesaretheresultofdeliberateplans.
B.ignorestrategiesthatarenottheresultofaformalplanningprocess.
C.evaluate each one carefully, using only those that show the most promise. D.
substituteemergentstrategiesforformalplanswheneverpossible.
E.developtheemergentstrategiesthemselves.
50.Thescenarioapproachtostrategicplanninginvolves
A.devisingplansforcopingwithanumberofdifferentpossiblefuturestatesofthe
world.
B.hominginonasinglepredictionoffuturedemandconditionsusinganiterative
planningprocess.
C.functionalmanagerssettingkeycorporateobjectives.
D.usingcomputerstobuildvirtualworldsfortoplevelmanagers.
E.makingplanningtheexclusivedomainoftoplevelmanagers.
51.Aneffectivebusinessmodel
A.involveshowacompanyselectsitscustomers.
B.createsvalueforitscustomers.
C.achievesandsustainsahighlevelofprofitability.
D.producesgoodsandservices.
52.Asustainedcompetitiveadvantage
A.enablesacompanytomaintainaboveaverageprojectsforanumberofyears.
B.cannotbemaintainedformorethanthreeyears.
C.isseldompossibleintoday'shighlycompetitiveenvironment.
D.typicallyarisesoutofunforeseeneconomicevents.
E.AandD.
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53.Scenariobasedplanning is a technique for coping with the problem

ofA.
uncertainty.
B.planningequilibrium.C.bottomupplanning.D.strategicfit.
E.cognitivebias.
54.Whichofthe followingcognitive biases occurs whendecision makers commit

evenmoreresourcesiftheyreceivefeedbackthattheprojectisfailing?
A.PriorhypothesisbiasB.ReasoningbyanalogyC.Illusionofcontrol
D.EscalatingcommitmentE.Representativeness
55.Whichofthefollowingcognitivebiasesreferstothefactthatdecisionmakerswho
havestrongpriorbeliefsabouttherelationshipbetweentwovariablestendtomake
decisionsonthebasisofthesebeliefs,evenwhenpresentedwithevidencethattheir
beliefsarewrong?
A.PriorhypothesisbiasB.ReasoningbyanalogyC.Illusionofcontrol
D.EscalatingcommitmentE.Representativeness
56.Sam Walton wanted Walmart to keep costs low. Therefore, as an example to

others,hedrovehisowncarandfurnishedhisofficewithplain,steeldesks.Inthis
case,Mr.Waltonwasdisplayinghis
A.commitment.B.vision.
C.astuteuseofpower.D.emotionalintelligence.E.eloquence.
57.Edward Wrapp's ideas about the astuteness of political power suggest that
successfulstrategicmanagers
A.areskilledorganizationalpoliticianswhocanbuildconsensusandgettheirideas
pushedthrough.
B.areunwillingtolivewithlessthantotalacceptanceoftheirprograms.
C.maintaintightcontroloverasmanydecisionsaspossible.
D.publiclycommitthemselvestoboldstrategicagendas.
E.recognizethefutilityofpursuingintendedstrategies.
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58.TheroleofcorporatelevelmanagersistoA.defineoperationallevelstrategies.
B.outlinefunctionallevelstrategiesandplans.
C.oversee the development of strategies for the whole organization. D.
developbusinesslevelstrategies
E.overseethedevelopmentofbusinesslevelandfunctionallevelstrategies.
59.JeffreyPfefferbelievesthatamanager'spoliticalpowercomesfromhisorher
controloverA.employees'paychecks.
B.thefirm'sstrategicvision.
C.importantorganizationalresources.D.internalcommunicationchannels.E.the
company'swebsite.
60.Whichofthefollowingisnotacognitivebias?
A.Escalatingcommitment
B.Reasoningbyanalogy
C.Ivorytowerthinking
D.Representativeness
E.Illusionofcontrol
61.FeelingsofpersonalresponsibilityforaprojectaremostlikelytoleadtoA.prior
hypothesisbiases.
B.escalatingcommitment.C.reasoningbyanalogy.D.representativeness.
E.ivorytowerplanning.
62.Devil'sadvocacy
A.issimplerthantheexpertapproach.
B.isanexampleofivorytowerplanning.
C.resultsinunproductiveconflict.
D.involvesonegroupmemberbeingresponsibleforquestioningtheassumptionsofa
plan.E.resultsinafinalplanthatisacombinationofaplanandacounterplan.
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63.Hollyownsalandscapecompanyandisthinkingaboutexpandingherservicesto
includeoutdoorwaterfeatures(waterfalls,streams,ponds).If,beforemakingthis
decision,shelooksattheexperienceofsimilarfirmsthathaveaddedoutdoorwater
features,sheisemploying
A.wishfulthinking.B.aquaevaluation.C.devil'sadvocacy.D.
outsideview.
E.dialecticinquiry.
64.Whichofthefollowingisnotacharacteristicofwellconstructedgoals?
A.Theyarepreciseandmeasurable.
B.Theyaretheresultofagroupdecisionprocess.
C.Theyspecifyatimeperiod.
D.Theyarechallengingbutrealistic.
E.Theyaddresscriticalissues.
65.ThefirststepinthestrategicmanagementprocessistoA.analyzethecompetitive
environment.
B. examine the organizational structure to seewhat changes may be required. C.
analyzeinternalstrengths.
D.analyzeinternalweaknesses.
E.selectthecorporatemissionandmajorcorporategoals.
66.Strategicimplementationinvolves
A.takingactionsatthefunctional,business,andcorporatelevels.
B.comparingcompanyperformancewithleadingcompaniesintheindustry.
C.analyzing the macroenvironment for anylastminutechanges that may have
occurred.
D.onlyactivitiesatthecorporatelevel.
67.Animportantfirststepintheprocessofformulatingacompany'smissionisto
A.describethetechnologicalprocessor.
B.identifythecustomersegmentservedbythecompany.
C.answerthequestion,"Whatisourbusiness?"
D.decidewhatthecompanywillbeliketenyearsfromnow.
E.evaluatethecompany'smostrecentperformance.
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68.The primary goal of a SWOT analysis is to A. benchmark a company's

performance.
B. force managers to think creatively rather than analytically. C. forecast future
events.
D.developshortrungoals.
E.create,affirm,orfinetuneacompanyspecificbusinessmodel.
69.Inthetypicalscenarioplanningexercise,
A.mostscenariosarepessimistic.
B.mostscenariosareoptimistic.
C.somescenariosareoptimisticandsomescenariosarepessimistic.
D.onlyworstcaseoutcomesshouldbeconsidered.
E.onlybestcaseoutcomesshouldbeconsidered.
70.CompetitionfromindustrytoindustryA.isnormallythesameinallindustries.
B.ischaracterizedbydifferentcompetitiveconditionsindifferentindustries.C.does
notvaryovertime.
D.cannotbemeasured.E.noneofthesechoices.
71.Acompany'smission
A.laysoutthedesiredfuturestateofthecompany.
B.outlinesthemannerinwhichemployeesandmanagersshouldconductthemselves.
C.definesthemannerinwhichstrategieswillbedevelopedandattained.
D.describeswhatthecompanydoes.
E.answersthequestion,"Whatwillourbusinessbecome?"
72.Acomponentofstrategyimplementationis
A.designingthebestorganizationstructure,culture,andcontrolsystemstoputa
strategyintoaction.
B.enumerating the number and kind of periodic reports that must be submitted
byfunctionallevelmanagers.
C.analyzingthemacroeconomicenvironmentofthecompany.
D.answeringthequestion,"Whatisourbusiness?"
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73.Anemergentstrategyis
A.theresultofaplannedstrategy.
B.anunplannedresponsetounforeseencircumstances.
C.theproductofcarefultopdownplanningmechanisms.
D.thesameasarealizedstrategy.
E.agroupresponsetoaproblemarea.
74.Systematic errors in thedecisionmakingprocess are caused by A. inadequate

information.
B.informationoverload.
C.cognitivebiasesonthepartofdecisionmakers.D.poordatacollectionprocedures.
75.Wellconstructedgoalsshould
A.bepreciseandmeasurable.
B.addressspecificissues.
C.beboundedbyaparticulartimeperiod.
D.beallofthesechoices.
E.AandB.
76.Goodstrategicleaders
A.possessawillingnesstodelegateandempowersubordinates.
B.controlallfacetsofdecisionmaking.
C.areconfidentintheirabilitytomakesounddecisionswithoutconsultingothers.
D.assureuniformityofpurposethroughtheexerciseofpower.
E.havetheabilitytobeinconsistentwhenthesituationrequiresinconsistency.
77.Whichofthefollowingisnotacharacteristicofemotionalintelligence?
A.Selfawareness
B.Selfregulation
C.Selfesteem
D.Empathy
E.Socialskills
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78.Identifyanddiscussthecriticismsofthetraditionalstrategicplanningprocessand
whyitisusefultoviewstrategyasanemergentprocess.
Thetraditionalplanningprocessisviewedasarational,highlystructuredprocessthat
isorchestratedbytopmanagement.Thisviewofthestrategyprocesshasbeen
criticizedforanumberofreasons.First,theworldisuncertain,complex,andfullof
ambiguity,anditisanenvironmentinwhichsmall,chanceeventscanhavealarge
andunpredictableimpactonoutcomes;thus,planscanbecomeobsoleteinashort
amountoftime.Inthisenvironment,itiscriticalthatorganizationsrespondquicklyas
conditionschange.
Asecondcriticismofthetraditionalapproachisthatitplacestoomuchimportanceon
theroleoftopmanagement.Thealternativeviewisthatmanagersdeepwithinan
organizationoftendoexertaprofoundinfluenceoverthestrategicdirectionofthe
firm.Thetraditionalmodeldoesnotallowfortheimportantstrategicrolethatlower
levelmanagerscanplay.
Thethirdcriticismofthetraditionalmodelisthatitdoesnotaddressserendipitythe
stumbling across good things accidentally. Because serendipitous discoveries can
yieldnumerousopportunities,companiesmustbeabletopursuethem,evenifthey
areinconsistentwiththecurrentstrategicplan.
Giventhesethreecriticisms,theroleofemergentstrategiesbecomesclear.Unplanned
responsestounforeseencircumstancesthatoftenarisefromautonomousactionby
individualmanagersdeepwithintheorganizationcanallowacompanytoprosper.
79.Explaintheformalstrategicplanningprocess.Nameeachstepintheprocessand
describethespecificactivitiesincludedineachstepandtherelationshipbetweenthe
steps.
Thestrategyformulationportionoftheformalstrategicplanningprocessbeginswith
thespecificationofanorganization'smission,values,andgoals.Inthisstep,top
levelmanagers,membersoftheboardofdirectors,andthecompany'sCEOmeetand
worktogethertocreateabroadsetoflongtermaspirationsforthefirm,asetof
corporatevaluesthatdescribesthewayemployeesshouldconductbusiness,and
thelongtermgoalsofthecorporation.
Next,anexternalandinternalanalysisisconductedtoidentifystrengths,weaknesses,
opportunities,andthreats.Thisanalysisistypicallyperformedbygeneralmanagers,
sometimesbyspecializedplanningstaff.Inthisstep,informationaboutcompetitors,
products,processes,functions,andtheindustryandcommunityconditionsisgathered
andinterpreted,resultingindetailedforecastsandestimates.
Basedontheresultsofthesefirsttwosteps,appropriatestrategiesarechosen,atthe
corporate,business,andfunctionallevels,bythemanagersateachofthoselevels.In
thisstep,decisionsaremadeaboutactionstobetakeninthefuture.
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80.Identifythelevelsofstrategicmanagersanddiscusstheirroleinthestrategic
managementprocess.
Thethreelevelsofstrategicmanagersarecorporate,business,and
functional.CorporatelevelmanagersincludetheCEO,otherseniorexecutives,the
boardofdirectors,andcorporatestaff.Theroleofcorporatelevelmanagersisto
overseethedevelopmentofstrategiesforthewholeorganization,includingwhich
businessesitshouldbeinandhowresourcesshouldbeallocatedamongthese
businesses.
Businesslevelmanagers oversee business unitsaselfcontaineddivision of a
company with its own functions that are performed within the unit. The role
ofbusinesslevelmanagers is to translate the general statements of direction and
intentthatcomefromcorporatelevelmanagersintoconcretestrategiesforindividual
businesses.
Functionallevelmanagersareresponsibleforthespecificbusinessfunctionsor
operationsthatconstituteacompanyoroneofitsdivisions.Thesemanagersare
generallyresponsibleforoneorganizationalactivity.Theirstrategicroleistodevelop
functionalstrategiesintheirareathathelpfulfillthestrategicobjectivessetby
businessandcorporatelevelmanagers.
81.Describeatleastthreecharacteristicsofstrongstrategicleaders.Explainhoweach
ofthethreecharacteristicswouldhelpmotivateandleadanorganization'spersonnel.
Strongleadershaveaclearvisionofwheretheywanttheorganizationtogo,andthey
areeloquentandconsistentinarticulatingthatvision.Thisensuresthatemployees
understandthefundamentalgoalstheyareworkingtoward,guidingthemasthey
makedecisionsabouttheirdailywork.
Strongleadersarecommittedtoaccomplishmentoftheorganization'sgoals,andthey
demonstratetheircommitmentthroughtheiractionsaswellastheirwords.By
observingtheirleader'scommitmentdirectlyintheiractions,employeesbelievethat
thegoalsaretrulyimportant,andtheyalsobenefitfromseeingtheappropriate
behaviormodeledforthem.
Strongleadersarewellinformedandseekoutinformationthroughbothformaland
informalchannels.Employeesseethatleadersvaluetheirinput;theyalsorespect
leaderswhoareabletocommunicatewellwithindividualsatdifferenthierarchical
levels.
Strongleadersdelegatewhenpossiblebutmaintaincontrolovercriticaldecisions.
Workersaremotivatedbydecisionmakingpowerandareabletoreducetheworkload
oftheirleaderswhentheyareempowered.However,strongleadersunderstandthat
criticaldecisionsmustbemadebyleaders.Thisisbestfortheorganization,andit
alsoprotectslowerlevelworkersfromtheconsequencesofdisastrouschoices.
Strongleadersusepowereffectively,buildingconsensus,relyingonallies,
committingtoavisionratherthanaspecificcourseofaction,andworkingto
accomplishlargegoalsoneportionatatime.Workersareloyalwhentheyare
consultedandreliedon.Politicallyastuteleadersdonotfallintothetrapof
advocatinganactionthatmightlaterbeabandoned,nordotheytrytomaketoomany
changesatonce.
Strongleadershaveemotionalintelligencethatis,theyareselfaware,self
regulated,passionateabouttheirwork,empathetictowardothers,andfriendly.
Workershaverespectandtrustforleaderswhoexhibitselfcontrol.Workersare
inspiredbyobservinganother'spassionforthework,andtheyappreciatebeing
treatedwithempathyandfriendliness.
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82.Describeatleastthreeofthecognitivebiasesthatindividualdecisionmakers
experience.Thendescribearealorhypotheticalsituationforeachofthethreebiases,
explaininghowthebiasisevidentinthesituation.
Thepriorhypothesisbiasclaimsthatindividualsformulateandusetheoriesabout
causation,whichtheysometimesuseinappropriatelyorinspiteofevidencethatthe
theoryisfalse.Forexample,managersforU.S.automakersinthe1960sand1970s
believedthatAmericansboughtcarsfortheluxuryfeaturesandstyling,andtherefore
theycompletelymissedthetrendtowardcarsthatweremorereliable,safer,andfuel
efficient.Japaneseautomakerssawthetrendsandwereabletofillthatdemandfirst.
Escalatingcommitmentcausesmanagerstocontinueto"throwgoodmoneyafter
bad,"toinvestinprojectsthatarefailing.Thistakesresourcesawayfromsuccessful
projects.Studentsexhibitthisbiaswhentheyworkhardertoraisetheirclassgrade
fromaDtoaCthantheywillworktoraisetheirgradefromaBtoanA,eventhough
bothimprovementshavethesameimpactontheiroverallgradeaverage.
Managersusereasoningbyanalogywhentheyinappropriatelymakedecisionsbased
onsimpleanalogies.Forexample,somemanagersusewarasametaphorforbusiness
competition.However,thisanalogylimitstheirabilitytoconsideroptionssuchas
cooperationinjointventures.
Therepresentativebiasassertsthatdecisionmakersmakechoicesbasedon
overrelianceonjustafeworevenjustonedatapoint.Managerswhohavehadone
extremelypositiveornegativeoccurrencetendtorememberandrelyonthat
occurrencewhentheymakefuturedecisions.Ifagamblergetsveryluckythefirst
timehewagers,hetendstowagergreateramountsandmoreoftenthandogamblers
whoareinitiallyveryunlucky.
Illusionofcontroloccurswhenmanagersareoverconfidentabouttheirabilitiesto
controlevents.Managerswhotakeonprojectsthatarebeyondtheircapabilitiesor
whorefusetoadmitthattheyneedhelpareguiltyofthisbias.
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Chapter2ExternalAnalysis:TheIdentification
ofOpportunities
andThreatsKey
1.In determining its opportunities and threats, a firm should focus on internal
processesandcapabilities.
FALSE
2.Opportunities arise when a company takes advantage of conditions in its

environmenttoformulateandimplementstrategiesthatallowittobemoreprofitable.
TRUE
3.Over the last few decades, the United States steel industry has become less
concentrated.
FALSE
4.Thedemandforsteelworldwidehassurgedinrecentyears,ashaveU.S.producers'
profits.
TRUE
5.TheCottCorporationisanexampleofhowacompanyfailedtoovercomebarriers
toentryinanindustry.
FALSE
6.The bottled water industry created new competitors forCocaCola,but did not
changethebasicindustryboundaries.
FALSE
7.InPorter'sframework,thestrongerthefiveforces,themorelimitedtheabilityof
establishedcompaniestoraisepricesandearngreaterprofits.
TRUE
8.Substituteproductsarenotathreatifacompanyisthemarketleader.
FALSE
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9.Thepersonalcomputerindustryisuniquelydependentuponapowerfulsupplier.
TRUE
10.Accesstocheapercapitalisanexampleofaneconomyofscale.
FALSE
11.Evenwhenentrybarriersareveryhigh,newfirmsmaystillenteranindustryif
theyperceivethatthebenefitsoutweighthecostsofentry.
TRUE
12.OneofthekeyfactorsinthesuccessofWalmartisthebuyingpowergainedby
dealingdirectlywithmanufacturers.
TRUE
13.Ingeneral,themorethatanindustry'sproductislikeacommodity,thelowerthe
intensityofanypricewarthatmaydevelop.
FALSE
14.Strongbrandloyaltyandhighcustomerswitchingcostsarelowbarrierstoentering
anindustry.
FALSE
15.Highexitbarriersaremostseriousasacompetitivethreatwhenindustrydemandis
declining.
TRUE
16.Governmentderegulationoftelephoneserviceloweredthebarrierstoentryand
loweredindustryprofitmargins.
TRUE
17.When buyers are in a weak bargaining position, companies in the supplying

industrymustlowertheirpricestoincreaseprofits.
FALSE
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18.Intenserivalrylowerspricesandraisescosts.
TRUE
19.High tech industries are often dependent on complementor industries for their
mutualsuccess.
TRUE
20.Starbucksandanindependentlocalcafbothsellcoffeeandthereforebelongto
thesamestrategicgroup.
FALSE
21.Strategicgroupswithinanindustrycompeteamongstthemselveseventhoughtheir
businessmodelsmayvarygreatly.
TRUE
22.Rapidgrowthinindustrydemandenablescompaniestoexpandtheirrevenuesand
profitswithouttakingmarketshareawayfromcompetitors.
TRUE
23.Successfulinnovationcantransformthenatureofindustrycompetition.
TRUE
24.Oneofthedefiningcharacteristicsofthematurestageoftheindustrylifecycleis
thatgrowthisloworzero.
TRUE
25.The punctuated equilibrium view can also be described as a freezing and

unfreezingprocessinanindustry'slifecycle.
TRUE
26.Whenthevalueofthedollarislowcomparedwiththevalueofothercurrencies,
products made in the United States are relatively inexpensive and products made
overseasarerelativelyexpensive.
TRUE
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27.Changesinthecharacteristicsofapopulation,suchasageorrace,isirrelevantto
theanalysisofanindustry'smacroenvironment.
FALSE
28.Anheuser Busch, because it dominates themassmarketbeer segment, does not

completewithmicrobrewers.
FALSE
29.Deregulationofthemortgageindustryisanexampleofhowpoliticalandlegal
forcescanimpactanindustry.
TRUE
30.AtechnologicalchangesuchastheriseoftheInternetcanrepresenteitheran
opportunityorathreat.
TRUE
31.Agroupoffirmsallmakewritingimplementspens,pencils,andmarkers.This
groupshouldbereferredtoasa(n)
A.substitute.
B.marketsegment.C.sector.
D.supplier.E.
industry.
32.UnitedAirlines,Amtrak,andGreyhoundareallcompaniesinthetransportation
A.industry.
B.sector.
C.game.
D.segment.
E.strategicgroup.
33.Cosmeticsmakersfocusontheuniqueneedsofcustomersofdifferentages.The
cosmeticsmakersrecognizetheimportanceof
A.shiftingindustryboundaries.
B.thethreatofnewentrants.
C.sectors.
D.marketsegments.
E.substitutes.
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34.Anindustrycanbedefinedasagroupof
A.companiesofferingproductsorservicesthatareclosesubstitutesforeachother.
B.twentyormorecompaniesofferingproductsorservicesthatareclosesubstitutes
foreachother.
C.companies.
D.companiesthatofferdissimilarproductsorservices.
E.companiesthatofferproductsorservicestodissimilarcustomers.
35.Whatistheimpactofshiftingindustryboundariesonfirmswithintheindustry?A.
Higherexitbarriers
B.Morecompetitors
C.Reducedthreatofsubstitutes
D.GreaterbargainingpowerofsuppliersE.Lesserbargainingpowerofbuyers
36.Which of the following isnotone of Porter's five forces, as proposed in his

originalmodel?A.
Threatofcomplementors
B.Bargainingpowerofsuppliers
C.RivalryamongestablishedcompaniesD.Threatofnewentrants
E.Threatofmarketchanges
37.WhichofthefollowingisnotacomponentofPorter'sfiveforcesmodel?
A.Riskofentrybypotentialcompetitors
B.Theintensityofrivalryamongestablishedcompanieswithinanindustry
C.Thebargainingpowerofbuyers
D.Thebargainingpowerofsuppliers
E.Thelackofsubstitutesforanindustry'sproducts
38.Whichofthefollowingisnotabarriertoentry?
A.Economiesofscale
B.Brandloyalty
C.Absolutecostadvantages
D.Highcustomerbargainingpower
E.Highcustomerswitchingcosts
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39.Ifeconomiesofscaleareanindustry'sprimaryentrybarrier,anewentrant'smajor
riskisA.itsinabilitytoaccesslaborandmaterials.
B.theinferiorqualityofitsproducts.
C.itsinabilitytomatchtheinnovationoftheestablishedfirm.
D.its inability to produce in sufficient volume to match the cost advantages of
establishedproducers.E.itsinabilitytogetbuyerstoswitchtoitsproduct.
40.Asabarriertonewentry,absolutecostadvantagescanbebasedon
A.continuousadvertisingofbrandandcompanynames.
B.highproductquality,serviceorientedinnovations,andgoodaftersalesservice.
C.costreductionsthatarisefromthemassproductionofstandardizedoutput.
D.the unique ability of established companies to spread fixed costs over a large
volume.
E.controloverlowcostinputsrequiredforproduction,betheylabor,materials,
equipment,ormanagementskills.
41.Whichofthefollowingindustrystructuresconsistsofalargenumberofsmall
andmediumsizedcompanies,noneofwhichisinapositiontodetermineindustry
price?
A.FragmentedindustryB.ConsolidatedindustryC.Oligopoly
D.MonopolyE.Sector
42.Whichofthefollowingindustrystructuresisdominatedbyasmallnumberof
largecompanies?A.Fragmentedindustry
B.ConsolidatedindustryC.
Oligopoly
D.MonopolyE.Sector
43.Which of the following isnota determinant of the extent of rivalry among

established companies? A. The number and size distribution of companies in the
industry
B.Demandconditions
C.ThecoststructureoffirmsinanindustryD.Exitbarriers
E.Thepowerofbuyers
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44.The extent of rivalry among established companies is lowest when A. the

industry'sproductisacommodity.
B.demandisgrowingrapidly.C.exitbarriersaresubstantial.
D.theindustryisenteringadeclinestage.
E.theindustryisdominatedbyasmallnumberoflargecompanies.
45.Theriskofapricewarisgreatestinwhichofthefollowingcircumstances?A.
Ahighgrowthindustry
B.Anindustrycharacterizedbyfallingdemand,highexitbarriers,andexcess
productivecapacityC.Anindustrycharacterizedbyacommoditytypeproduct,
strongdemand,andlowexitbarriersD.Amatureindustryduringaneconomicupturn
E.Anindustrycharacterizedbytacitpriceagreements
46.Thebargainingpowerofanindustry'ssuppliersisgreaterwhen
A.thesupplyindustryisfragmented.
B.switchingcostsarehigh.
C.theindustrybuysinlargequantities.
D.manysubstitutesareavailable.
E.firmsintheindustrycanthreatenbackwardverticalintegration.
47.ThecompetitiveforceofsubstituteproductstendstobestrongerwhenA.buyers
viewthepricesofsubstitutesastoohigh.
B.thecoststhatbuyersfaceinswitchingovertosubstitutesarelow.C.thequality
andperformanceofsubstitutesarerelativelylow.
D.substitutesdonotembodymanycharacteristicsthataresimilartothoseofproducts
alreadyservingthemarket.
48.Salesofcomplementors'productstendto
A.increasesalesoftheindustry'sproduct.
B.decreasesalesoftheindustry'sproduct.
C.havenoeffectonsalesoftheindustry'sproduct.
D.increasesalesofsubstituteproducts.
E.decreasesalesofsubstituteproducts.
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49.Economiesofscalemayarisefrom
A.costreductionsgainedthroughmassproduction.
B.discountsonbulkpurchasesofrawmaterialinputsandcomponentparts.
C.advantagesgainedbyspreadingproductioncostsoveralargeproductionvolume.
D.costsavingsassociatedwithspreadingmarketingandadvertisingcostsoveralarge
volumeofoutput.
E.allofthesechoices
50.Whichofthefollowingiscurrentlyanembryonicindustry?A.Personalcomputers
B.BiotechnologyC.InternetretailingD.
Nanotechnology
E.Wirelesscommunications
51.Membersofastrategicgroup
A.competedirectlywithmembersofotherstrategicgroups.
B.areaffectedbyPorter'sfivecompetitiveforcestothesamedegreethatmembersof
otherstrategicgroupsareaffected.
C.followabusinessmodelthatissimilartothatpursuedbyothercompaniesinthe
group.
D.earnthesamerateofreturn.
E.moveeasilytoothergroupsasdesired.
52.Amarketsegmentisagroupof
A.customerswithinamarketthatcanbedifferentfromeachotheronthebasisof
theirdistinctattributesandspecificdemands.
B.companiesthatproducesimilargoodsorservices.
C.customerswithinamarketthatpurchasegoodsorservicesinsimilarquantities.
D.customerswithinamarketthathavesimilarlevelsofprofitability.
E.noneofthesechoices
53.Brandloyaltymaybecreatedby
A.continuousadvertising.
B.patentprotectionofproducts.
C.productinnovationachievedthroughcompanyresearchanddevelopment.
D.emphasisonhighproductquality.
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54.Switchingcostsmayarisewhen
A.changingfromonecomputersystemtoanother.
B.substituteproductsareavailableatalowerunitcost.
C.whentherearealargenumberofinterchangeableproducts.
D.productsarecommoditylikeinnature.
55.Historically,governmentreputationhasA.encouragednewentrantsintoan
industry.
B.constitutedamajorentrybarrierintomajorindustries.
C.neitherhamperednorencouragednewentrantsintoanindustry.D.encouragedthe
growthofnewcompanies.
56.Rivalryrefersto
A.competition.
B.theintensityofcompetitionamongestablishedcompanieswithinanindustry.
C.astruggleamongfirmsusingprice,productdesign,andadvertising.
D.allofthesechoices
57.ThecompetitivestructureofanindustryreferstotheA.numberofsegmentsinthe
industry.
B.number and size distribution of companies in the industry. C. the number of
consumersintheindustry.
D.numberofcompetingproductsintheindustry.E.formthatcompetitioninthe
industrytakes.
58.Commonexitbarriersinclude
A.investmentsinspecificassets.
B.emotionalattachmentstoanindustry.
C.highfixedcostsassociatedwithleavingtheindustry.
D.bankruptcyregulations.
E.allofthesechoices
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59.Mobilitybarriers
A.preventmovementwithinastrategicgroup.
B.inhibitthemovementofcompaniesbetweenstrategicgroupsinanindustry.
C.inhibitthemovementofacompanyfromoneindustrytoanother.
D.includeexitbarriersofthestrategicgroupthatacompanywantstoenter.
E.arelowwhenexitbarriersinthestrategicgroupthatacompanyisamemberofare
high.
60.In which ofthe following arenas would Walmart's Sam's Club stores compete
againsttheirclosest,mostintenserivals?
A.Theretailingsector
B.Thediscountretailingindustry
C.Theclubstorediscount retailing strategic group D. Sam's Club stores face no
close,intenserivals.
E.Sam'sClubstoresfaceclose,intenserivalsineveryarenainwhichtheycompete.
61.Ingrowthindustries,
A.replacementdemandisincreasingrapidly.
B.technologicalexpertiseisthemostimportantentrybarrier.
C.rivalryishigh.
D.distributionchannelsarepoorlydeveloped.
E.buyersarefamiliarwiththeindustry'sproduct.
62.EntrybarriersintheembryonicstagearefrequentlybasedonA.brandloyalty.
B.economiesofscale.
C.absolutecostadvantages.D.economiesofscope.
E.technologicalknowhow.
63.Growthindustries
A.typicallysufferfromhighmobilitybarriers.
B.tendtobecharacterizedbyweakrivalry.
C.havehighrivalryamongestablishedcompanies.
D.increasepricesbecausecustomersaremoreawareoftheindustry'sproduct.
E.provideeconomiesofscaletoexistingcompanies.
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64.Anindustry'sbuyershavehighbargainingpowerwhenA.buyerspurchaseinlarge
quantities.
B.switchingcostsarelow.
C.itiseconomicallyfeasibleforbuyerstopurchaseinputsfromseveralcompaniesat
once.D.buyerscanthreatentoenteranindustryandproducetheproductthemselves.
E.allofthesechoices
65.Demandreachestotalsaturationinthe____stageoftheindustrylifecycle.
A.embryonic
B.growth
C.shakeout
D.maturity
E.decline
66.Thethreatfromnewentrantsisgreatestinthe____stageoftheindustrylifecycle.
A.embryonic
B.growthC.shakeoutD.maturityE.decline
67.Whichofthefollowingisnotoneofthefactorsintheeconomicforces ofthe
macroenvironment?A.Interestrates
B.InflationC.
Regulation
D.CurrencyexchangeratesE.Economicgrowthrate
68.Suppliersinanindustryaremostpowerfulwhen
A.therearefewsubstitutesfortheproductsupplierssell.
B.switchingcostsarelow.
C.companiesintheindustrycanthreatentoenterthesuppliers'industry.
D.substituteproductsarereadilyavailable.
E.allofthesechoices
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69.Julianisaskedtoexaminethedemographicenvironmentfacinghisemployer,a
clothingmanufacturer.WhichofthefollowingshouldJulianexamine?
A.GovernmentregulationsB.Inflation
C.ManufacturingtechnologyD.
Agingofthepopulation
E.Society'sgrowinginterestinexercise
70.Beveragemakers arefindingthatwatersales areincreasingduetoconsumers'

preferences for healthy drinks. Which part of the macroenvironment does this
represent?
A.EconomicforcesB.DemographicforcesC.EmbryonicforcesD.Politicalforces
E.Socialforces
71.Thelevelofindustrydemand
A.haslittleeffectoncompetitionintheindustry.
B.isoneofthedeterminantsoftheintensityofrivalryintheindustry.
C.increasesasthenumberofcustomersgrows.
D.isinfluencedbybankruptcyregulations.
E.allofthesechoices
72.TheInternetisanexampleofaA.
technologicalforce.
B.socialforce.
C.politicalandlegalforce.D.demographicforce.
E.globalforce.
73.Due to a recent relaxation in pollution standards, Ford Motors is withdrawing

itselectricpoweredcarsfromsalesintheU.S.market.Fordisrespondingtoachange
inwhichofthefollowingmacroenvironmentalforces?A.Economic
B.Demographic
C.PoliticalandlegalD.Social
E.Strategic
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74.All of the companies in a strategic group are A. pursuing different business

models.
B.ofsimilarsize.
C.pursuingasimilarbusinessmodel.D.allofthesechoices.
75.Theindustrylifecyclemodelincludeswhichofthefollowingstages?A.Growth
B.ShakeoutC.MaturityD.Decline
E.Allofthesechoices
76.Asanindustryenterstheshakeoutstage,
A.rivalryamongcompaniesdeclines.
B.demandisstillgrowingatahighrate.
C.pricesrise.
D.excesscapacityemerges.
E.newentrantscomeintothemarket.
77.Whenanindustryentersthematurestage,A.themarketistotallysaturated.
B.demandislimitedtoreplacementdemand.C.growthisloworzero.
D.whatgrowththereisintheindustrycomesfrompopulationexpansion.E.
allof
thesechoices
78.Eventuallymostindustriesenteradeclinestagewhere
A.growthbecomesnegative.
B.rivalryamongestablishedcompaniesusuallydecreases.
C.competitivepressuresabate.
D.excesscapacitydeclines.
E.demandcontinuestoholdsteady.
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79.Whichofthefollowingisnotaforcewithinthemacroenvironment?A.Levelof
interestrates
B.CurrencyexchangeratesC.Inflation
D.Deflation
E.Ratesofsocialchange
80.Why is it important to understand the external environment in order to think

strategically?
Strategicthinkingallowsmanagerstoselectthosestrategiesthatallowtheir
companiestoestablishcompetitiveadvantageandoutperformrivals.Astheexternal
environmentcontinuestochangeinrapidandunpredictableways,itisimportantfor
managerstounderstandtheconditionsthatexistandthatimpacttheirperformance
andprofitability.Withoutanunderstandingoftheexternalenvironment,thestrategy
processwouldbearbitraryandperformancewouldbelowerthanitshouldbe.By
understandingthedynamicsthatdriveindustriesandthemacroenvironmentalforces
thatpresentbothopportunitiesandthreats,managersareinapositiontocraft
strategiesthatallowthemtoeffectivelysteertheircompaniesthroughchallenging
times.
81.Defineandthenrelatetheconceptsofsectors,industries,marketsegments,and
strategicgroups.
Alloftheseconceptsareusefulintermsofunderstandingthenatureofcompetition
andtheforcesintheindustryenvironmentthataffectperformance.Askilledstrategic
managermusttakealloftheseintoaccountwhendevelopingstrategies.
Asectorreferstoagroupofcloselyrelatedindustries.Intermsofscope,sectors
encompassthebroadestsetoffirms.Asectoristypicallycomposedofseveral
interrelatedindustries.Anindustryreferstoagroupofcompaniesofferingproducts
andservicesthatareclosesubstitutesforeachother.Marketsegmentsrefertoa
distinctgroupofcustomerswithinanindustrymarketthatcanbedifferentiatedfrom
eachotheronthebasisoftheirdistinctattributesandspecificdemands.Astrategic
groupisagroupofcompanieswithinanindustryinwhicheachcompanyfollowsa
businessmodelthatissimilartothatpursuedbyothercompaniesinthegroup.A
usefulwaytolookatastrategicgroupisasanintersectionofmarketsegmentsand
industries.Theconceptofastrategicgroupisespeciallyusefulinthestrategyprocess
becauseithelpsacompanydetermineitsdirectcompetition.
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82.Usingtheindustrylifecyclemodel,explainhowthethreatsandopportunitiesfor
existingfirmsinanindustrychangeovertime.
Intheembryonicstageoftheindustrylifecycle,barrierstoentrycomefromaccessto
technologicalknowhow(athreat).Rivalryisrelativelylowduetothefragmented
natureoftheindustry(anopportunity).Supplierstendtobelargeandpowerful
relativetoexistingcompanies,asdobuyers(threats).Substituteproductsmaybe
plentiful,inexpensive,andbetterknowntoconsumers(athreat).
Inthegrowthstage,barrierstoentryaretypicallyquitelow(athreat).Rivalryislow
becausethegrowingindustrycreatesplentyofdemand(anopportunity).Buyersand
suppliersaresomewhatlesspowerfulrelativetothelargercompaniesofthegrowth
stage(movingtowardopportunities).Substituteproductsmaybefeworplentiful(an
opportunityorthreat).
Inamatureindustry,barrierstoentryrelyoneconomiesofscaleandbrandloyalty,
andtheyarequitehigh(anopportunity).Rivalrybecomesmuchmoreintense(a
threat).Buyersandsuppliersbecomeevenlesspowerfulrelativetothelargeexisting
companies(opportunities).Substituteproductsmaybefeworplentiful(opportunity
orthreat).
Inthedeclinestage,therearefewnewentrants(anopportunity).Rivalryremainsvery
intense(athreat).Buyersandsuppliersbecomemorepowerfulrelativetoexisting
firms (moving toward threats). Substitute products are likely to be plentiful and
appealingtoconsumers(athreat).
83.Describeonemajorlimitationofeachofthefollowingmodelsforcompetitive
analysis:thefiveforcesmodel,thestrategicgroupsmodel,andtheindustrylifecycle
model.Doestheexistenceoftheselimitationsmeanthatthemodelsarenotuseful?
Whyorwhynot?
Allthreeofthesemodelsfailtoaccountfortheimpactthatradicalchangeand
innovationcanhaveonanindustry.Radicalchangecanaltertheimpactofthefive
forces;itcanshiftthestrategicgroupingswithinanindustry;anditcanspeed,slow,
ordisruptanindustry'sprogressthroughthestagesofthelifecyclemodel.Because
thesethreemodelsallrelyonhistoricalevidencetoprojectfuturetrends,the
possibilityandimpactofradicaldiscontinuityisnotincorporatedintothem.
Anotherlimitationofeachofthesemodelsisthelackofaccountingforfirm
specificcharacteristicsandactions.Thesethreemodelsallassumethatthe
environmentisamajordeterminantoffirmperformanceandthateveryfirminthe
industry(orthestrategicgroup)experiencestheindustrystructureinthesameway.
Yetempiricalevidencedemonstratesthatfirmswithintheindustryhavewidely
differinglevelsofperformance,sotheremustbeotherexplanatoryvariables.
Accordingtosomestudies,industrycharacteristicsaccountfornomorethan20
percentofthevarianceinperformanceacrossfirms.
Alimitationofthelifecyclemodelisthatnoteveryindustrymovesthroughthesame
stepsorinthesameorderoratthesamerate.Empiricalevidenceshowsthat
industriesvarytremendouslyintherateandwayinwhichtheymature.
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84.Considerthemacroenvironmentfacingalarge,internationalairlineheadquartered
intheUnitedStates(suchasAmericanorUnited).Giveatleastthreeexamplesof
importanttrendsoreventsfromeachofthefivesegmentsoftheairline's
macroenvironment(macroeconomic,technological,demographic,social,political,
andlegal),andexplainwhethereachrepresentsathreatoranopportunityforthefirm.
Studentsdon'tneedtoconductresearchtoanswerthisquestion;theyshouldbeableto
answerfromtheirownunderstandingandgeneralknowledge.Examplesofthetypes
ofanswerstheyshouldwritearegivenbelow.
Theairlineindustrybenefitsfromlowinterestrates,partofthemacroeconomicenvironment,becauseitenablesairlinesto
borrowthefundsforpurchasingnewplanesatlowercost.
Americansaretakingshorterbutmorefrequentvacations.Thissocialtrendpresentsanopportunityforairlinesto
sellmoretickets.
Technologicaladvanceshaveallowedrailroadstousefast,fuelefficientbullettrains,whichcaneconomicallysubstitute
forplanesonshort,heavilytraveledcommuterroutes,suchasalongtheBostonNewYorkWashingtoncorridor.
Thisdevelopmentthreatensairlinesbecauseitreducesthenumberofticketstheycansellandthepricestheycan
chargeinthosemarkets.
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Chapter3InternalAnalysis:Distinctive
Competencies,
CompetitiveAdvantage,andProfitabilityKey
1.Internal analysis is concerned with identifying a company's strengths and
weaknesses.
TRUE
2.Togetherwithananalysisofthecompany'sexternalenvironment,internalanalysis
givesmanagerstheinformationtheyneedtochoosethebusinessmodelandstrategies
thatwillenabletheircompanytoattainasustainedcompetitiveadvantage.
TRUE
3.ThemostimportantsourceofMcDonald'slowcoststructureisthehighqualityof
itsproducts.
FALSE
4.Ifacompany'sprofitabilityishigherthantheindustryaverage,ithasacompetitive
advantage.
TRUE
5.Distinctive competencies arefirmspecificstrengths that allow a company to

differentiateitsproductsand/orachievesubstantiallylowercoststhanitsrivals.
TRUE
6.Toyota'sleanproductionsystemisthebasisofitscompetitiveadvantage.
TRUE
7.Resourcesaretangible;thereisnosuchthingasintangibleresources.
FALSE
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8.Themorearesourceisfirmspecificanddifficulttoimitate,themorelikelya
companyholdingthatresourceissaidtohaveadistinctivecompetency.
TRUE
9.AccordingtoRoseMarieBravoofBurberry,creativeideasmaycomefroma
numberofsources,exceptfromtheaccountingdepartment.
FALSE
10.ArapidresponsetimeisoneofthekeyfactorsthatenablesthefashionhouseZara
toquicklyaddresschangesinthefashionindustry.
TRUE
11.Thepriceacompanychargesforagoodorserviceistypicallymorethanthe
utilityplacedonthatgoodorservicebythecustomer.
FALSE
12.Themoreutilityacompanycreatesforitscustomers,themoreflexibilityithasin
determiningprices.
TRUE
13.Attheheartofanycompany'sbusinessmodelisthecombinationofcongruent
strategiesaimedatcreatingdistinctivecompetenciesthatdifferentiateitsproductsand
resultinalowercoststructure.
TRUE
14.Whenacompanyhasdifferentiatedproducts,theyhavelesspricingoptions.
FALSE
15.Avaluechainisasequenceofactivitiesfortransforminginputsintooutputsthat
arevaluedbycustomers.
TRUE
16.AtAdam'sbicycleshop,theprimaryvaluechainactivityofproductionoccurs
eachtimeacustomer'sbicycleisrepaired.
TRUE
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17.Walmartpursuesalowcostoperatorpolicy.
TRUE
18.Thebuildingblocksofcompetitiveadvantageareefficiency,quality,innovation,
andprofitability.
FALSE
19.Employeeproductivityisacommonmeasureofefficiency.
TRUE
20.Imitatingacompany'scapabilitiestendstobemoredifficultthanimitatingits
tangibleandintangibleresources.
TRUE
21.Patentstypicallyprovidethegreatestbarriertoimitation.
FALSE
22.Absorptive capacity refers to the ability of an enterprise to identify, value,

assimilate,andusenewknowledge.
TRUE
23.Qualityasexcellenceandqualityasreliabilityareconceptsthatappliedtogoods
butnotservices.
FALSE
24.The importance of reliability in building competitive advantage has increased

dramaticallyoverthepastdecade.
TRUE
25.Takentogether,factorssuchasexistingstrategiccommitmentsandlowabsorptive
capacitylimittheabilityofestablishedcompetitorstoimitatethecompetitive
advantageofarival.
TRUE
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26.IBM's investment in mainframe computers is an example of a prior strategic

commitment.
TRUE
27.Brad has developed a new,improved irrigation procedure foruse in his apple

orchard.Bradiscreatingaproductinnovation.
FALSE
28.Benchmarkingisapracticeinwhichacompany'sperformanceiscompared
againstthatofcompetitorsandthehistoricperformanceofthecompanyitself.
TRUE
29.TheIcarusparadoxsuggeststhatthosefactorsthatledtoacompany'ssuccessmay
ultimatelyleadtotheirfailure.
TRUE
30.The most successful firms are those that constantly learn and upgrade their
distinctivecompetencies.
TRUE
31.Capabilitiesrefertoacompany's
A.tangibleresources.
B.intangibleresources.
C.skillsatcoordinatingitsresourcesandputtingthemtoproductiveuse.
D.strategyasexpressedinthefirm'sbusinessmodel.
E.policies.
32.Whichofthefollowingisnottrueregardingacompany'sdistinctive
competencies?
A.Theyrepresenttheuniquestrengthsofthecompany.
B.Theyrefertocompanystrengthsthatcompetitorscannoteasilymatchorimitate.
C.Theyformthebedrockofacompany'sstrategy.
D.Theycanbebasedinanyofthevaluecreationfunctionsofthecompany.
E.Theyaresharedbymanyfirmsinanindustry.
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33.Resources
A.arethetangibleassetsavailabletoacompany.B.
canbetangibleorintangible.
C.areharderforacompanytocopythancapabilitiesare.
D.aretheproductsofacompany'scontrolsystems.
E.refertoanorganization'sskills.
34.CompetitiveadvantageisbasedonA.
distinctivecompetencies.
B.economicforcesexternaltoacompany.
C. lack of government regulations controlling a firm's ability to make rapid
adjustmentsinresponsetoitschangingenvironment.
D.allofthesechoicesE.noneofthesechoices.
35.Competitiveadvantagetypicallyleadsto
A.aneffectivebusinessmodel.
B.averageprofitabilitywithinanindustry.
C.superiorprofitability.
D.makingproceduresroutine.
E.flexibilityinmanufacturing.
36.Factorsthathelpacompanytobuildandsustaincompetitiveadvantageinclude
whichofthefollowing?A.Superiorefficiency
B.ProductqualityC.Innovation
D.CustomerresponsivenessE.
Allofthesechoices
37.Theintellectualpropertyofanorganizationisa(n)
A.tangibleresource.
B.tangiblecompetence.
C.tangiblecapability.
D.intangiblecapability.
E.intangibleresource.
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38.Capabilitiesaredefinedasacompany'sA.physicalplantandequipment.
B.technologicalknowhow.
C.skillsatcoordinatingresourcesandputtingthemtoproductiveuse.D.reputation.
E.resources.
39.Donnacanmakeachairforabout$100,shechargescustomers$150tobuythe
chair,andcustomersperceivethatthechairisworth$225.Inthiscase,theconsumer
surplusis
A.$50.B.
$75.C.$100.D.$150.E.$225.
40.Donnacanmakeachairforabout$100,shechargescustomers$150tobuythe
chair,andcustomersperceivethatthechairisworth$225.Donna'sprofitmarginis
A.$50.B.$75.C.$100.D.$150.E.$225.
41.Whichprimaryactivityinthevaluechainisconcernedwiththedesignofproducts
andproductionprocesses?
A.ResearchanddevelopmentB.Marketingandsales
C.MaterialsmanagementD.Production
E.Companyinfrastructure
42.Using the value chain model, which of the following primary activities is
performedfirst,asinputsaretransformedintooutputs?
C.HumanresourcesD.Production
E.Aftersalesserviceandsupport
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43.Using the value chain model, which of the following primary activities is
performedlast,asinputsaretransformedintooutputs?
C.AftersalesserviceandsupportD.Production
E.Humanresources
44.FordMotorsdevelopedtheExplorersportsutilityvehicle,thenumber1selling
sportsutilityvehicleintheUnitedStates,basedonanextensivestudyofcustomer
preferences.WhichvaluechainactivityofFordconductedthosestudies?
A.ResearchanddevelopmentB.Humanresources
C.MaterialsmanagementD.
MarketingandsalesE.Companyinfrastructure
45.Mike works as a corporate trainer, teaching new employees how to perform

manufacturingtasks.Mikeworksinwhichvaluechainactivity?
A.ResearchanddevelopmentB.
Humanresources
C.MaterialsmanagementD.Production
46.A company's competitive advantage will not endure for long when that
competitiveadvantagecanbe
A.quicklyoreasilyduplicatedbyothercompanies.
B.protectedbypatents.
C.protectedbysignificantbarrierstoimitation.
D.sharedwithothercompaniesintheindustry.
E.shieldedbycopyrights.
47.Costaccountantsareresponsibleforgatheringandmonitoringdatausedfor
controllingtheorganization'scosts.Costaccountantsworkinwhichvaluechain
activity?
A.Researchanddevelopment
B.Humanresources
C.Materialsmanagement
D.Marketingandsales
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48.Which of the follow support activities in the value chain refers to the
companywidecontextwithinwhichalltheothervaluecreationactivitiestakeplace?
A.HumanresourcesB.Informationsystems
C.CompanyinfrastructureD.MaterialsmanagementE.Operations
49.Strongleadershipfromtopmanagementis
A.asupportactivity.
B.neededtoattaineconomiesofscale.
C.neededtobuildbrandloyalty.
D.partofthehumanresourcesvaluechainactivity.
E.aprimaryactivityinthevaluechain.
50.ResearchanddevelopmentactivitiesareconcernedwithA.productdesign.
B.productionprocesses.
C. service activities as well as manufacturing activities. D. intangible as well as
physicalproducts.
51.Atthemostbasiclevel,abusinessissimplyadeviceforA.
transforminginputs
intooutputs.
B. transporting products from one location to another. C. converting outputs into
inputs.
D.transferringtitletogoodsfromonepartytoanother.E.conservingoutputs.
52.ThefourbasicbuildingblocksofcompetitiveadvantageareA.lowcost,quality,
efficiency,andcustomerresponsiveness.
B.differentiation,quality,innovation,andcustomerresponsiveness.C.quality,
efficiency,differentiation,andcustomerresponsiveness.D.customerresponsiveness,
quality,efficiency,andhumanresources.E.quality,customerresponsiveness,
innovation,andefficiency.
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53.Efficiencyis
A.definedasthetimeittakestoproduceaproduct.
B.definedasthecostofinputsrequiredtoproduceagivenoutput.
C.pursuedonlybycostleaders.
D.measuredbylookingataproduct'sprice.
E.lowerwhentheoutputishighquality.
54.Whenafirmproducesproductsthatcustomersperceiveashavinghigherutility
thanthoseofitsrivals,thisfirm'ssourceofcompetitiveadvantageis
A.design.
B.lowinnovation.C.superiorquality.D.efficiency.
E.customerresponsiveness.
55.Oneofthemostwidelyusedmeasuresoffinancialperformanceis
A.returnoninvestedcapital.
B.netprofitmargin.
C.sharevalue.
D.netsales.
E.productivity.
56.HowprofitableacompanyisultimatelydependsonA.management'sevaluationof
theutilityofaproduct.B.productutilitycreatedthroughadvertising.
C.thevalueofthepatentsthecompanyholds.
D.theimageofthecompany'sproductsinthemarketplace.E.
thevaluecustomers
placeonthecompany'sproducts.
57.Thetermvaluechainreferstotheideathatacompanyis
A.oneofaseriesofcompaniesthatcompriseanindustrysegment.
B.theproducerofaseriesofproductsthatarelinkedtogether.
C.achainofactivitiesfortransforminginputsintooutputsthatcustomersvalue.
D.oneofaseriesofeconomicfunctions.
E.alloftheabove.
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58.Aproductcanbethoughtofasa(n)A.packageofpossibilities.
B.configurationofparts.C.onetimepurchase.D.packageofattributes.E.seriesof
alternatives.
59.Whichofthefollowingfactorsdoesnotdeterminethedurabilityofacompany's
competitiveadvantage?A.Barrierstoimitation
B.Acompany'spriorstrategiccommitmentsC.Capabilityofcompetitors
D.GenerallevelofdynamismintheindustryE.Therateofproductinnovationinan
industry
60.Whichofthefollowingdistinctivecompetenciestypicallyhasthelowestbarrierto
imitation?
A.Efficientscalemanufacturingfacilities
B.Technologicalknowhow
C.Marketingknowhow
D.Organizationalcapabilities
E.Brandname
61.Acompany'scompetitiveadvantageismoredurablewhen
A.barrierstoimitationarelowandtherearefewcapablecompetitors.
B.barrierstoimitationarehighandtherearemanycapablecompetitors.
C.barrierstoimitationarehigh.
D.theindustryisstableandtherearemanycapablecompetitors.
E.theindustryisstableandbarrierstoimitationarelow.
62.TheconceptofqualityappliestoA.
allproducts.
B.theproductsconsumersbelievetobehighqualityproducts.
C.productswithahighperunitcost.
D.custommadeproductsonly.
E.onlythoseproductsthathavebeenredesigned.
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63.Innovationreferstotheactof
A.seekingpatentprotectionfornewproducts.B.
creatingnewproductsandprocesses.
C.repackagingcurrentproductstomakethemmoreappealingtoconsumers.
D.alloftheabove.
E.noneoftheabove.
64.Customer responsiveness includes which of the following? A. Identifying and

satisfyingcustomerneeds
B.Improvingthequalityofacompany'sproducts
C.ThewillingnesstocustomizeproductsforcustomersD.Superiorproductdesign
E.Allofthesechoices
65.Companiesinthesameindustrymayhave
A.differentcompetitivecompetencies.
B.similardistinctivecompetencies.
C.easilyimitateddistinctivecompetencies.
D.hardtoimitatedistinctivecompetencies.
E.allofthesechoices
66.Industrydynamismrefersto
A.thegradualerosionofacompany'scustomerbaseovertime.
B.shiftsinproductprofitability.
C.arapidlychangingindustryenvironment.
D.increasingperunitcosts.
67.Acompanymayfinditdifficulttochangecapabilitiesbecauseof
A.embeddedpowerandinfluence.
B.turfbattles.
C.powerstrugglesandpoliticalresistance.
D.AandB.
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68.Acompany'sstrategiccommitments
A.allowittoimitateacompetitor'sadvantagerapidly.
B.areawaytoavoidfailure.
C.occurwhenanorganizationisprofitable.
D.reduceinertia.
E.allowittodevelopaparticularsetofresourcesandcapabilities.
69.Whencompaniesfindithardtochangetheirstrategiesandstructurestoadaptto
changingcompetitiveconditions,theysufferfrom
A.inertia.
B.priorstrategiccommitments.C.barrierstomobility.
D.lackofresources.E.lackofcapabilities.
70.Kim'sTshirtfactorywasexpertatprovidingunique,highquality,butcostlyto
makeshirts.Eventhoughthedesignswereveryniceandtheamountofdetail
increasedovertime,thehighpricemeantthatfewcustomersboughtshirtsfromher
andherfactorywentbankrupt.Kim'sfactoryfaileddueto
A.inertia.
B.priorstrategiccommitments.C.
theIcarusparadox.
D.lackofdistinctivecompetencies.E.lackofcapabilities.
71.Dale'shorseshoeingmethodssavetimeandmoneyforhisemployer,butwhen
Dalesuggeststhateveryoneusehismethod,hisbosssays,"No.That'snottheway
we'vealwaysdoneitaroundhere."Dale'semployerissufferingfrom
A.organizationalinertia.
B.priorstrategiccommitments.C.barrierstomobility.
D.lackofdistinctivecompetencies.E.theIcarusparadox.
72.Costofgoodssoldisdeterminedbyexaminingwhichofthefollowing?
A.Thebalancesheet
B.Sourcesandusesofthefinancialstatement
C.Thecashbudget
D.Theincomestatement
E.Theoverheadandadministrativeexpensestatement
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73.____canhelpanorganizationovercomeinertia.A.Powerstruggles
B.Capabilities
C.PriorstrategiccommitmentsD.
Acrisis
E.TheIcarusparadox
74.The Icarus paradox can be overcome if a company A. achieves superior

innovation.
B.balances its pursuit of distinctive competencies. C. develops its marketing
expertise.
D.pursuesagrowthstrategy.
E.achievessuperiorqualityatalowcost.
75.____isawaytoavoidfailure.A.
Benchmarking
B.Gainingaccesstoresources
C.IgnoringpriorstrategiccommitmentsD.AvoidingorganizationalcommitmentsE.
TheIcarusparadox
76.Which of the following isnota way that companies can avoid failure? A.
Benchmarking
B.Continuouslearning
C.DevelopingdistinctivecompetenciesD.Exploitingluck
E.Investinginspecializedassets
77.WhenRollie'scarwashbegantolosebusinesstorivals,Rolliereadpublications
forcarwashownerstolearnthebestpracticesintheindustry.Thensheimplemented
thebestpractices.Rollieisusing____toimprovehercarwash.
A.specializedassetsB.
benchmarking
C.strategiccommitmentsD.inertia
E.theIcarusparadox
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78.According to a number of scholars, what role does luck play in determining

competitivesuccessandfailure?
A.Noroleatall
B.Averysmallrole
C.Itproducessustainedexcellence.D.
Acriticalrole
E.Noneofthesechoices
79.Acompanymayfailforwhichofthefollowingreasons?
A.Thecompanylosesitscompetitiveadvantage.
B.Thecompany'sprofitabilitydeclines.
C.Thecompanyneglectstochangestrategiesandstructures.
D.Allofthesechoices
80.TheIcarusparadoxsuggeststhat
A.companiesshouldsticktoanarrowlydefinedlineofproducts.
B.betterthanaverageprofitabilityisanelusivegoal.
C.companiesmaybecomesodazzledbytheirearlysuccessthattheybelievemoreof
thesamekindofeffortwillassurefuturesuccess.
D.companiesoftenpursuetoomanystrategiesatonce.
E.companiesshouldchangestrategiesbeforestrategiesneedchanging.
81.Explainhowtangibleandintangibleresourcesandcapabilitiescanleadto
distinctivecompetencies.Givespecificexamples.
Afirm'suniqueresourcesandcapabilitiesthataredifficulttoimitatecanserveasa
sourceofstrengthinefficiency,quality,innovation,andresponsiveness.Whenafirm
hasastrengthinoneoftheseareasandthatstrengthisgreaterthanthatof
competitors',thenthefirmhasadistinctivecompetencyinthatarea.Thismeansthat
thefirmwillbeabletosellitsproductsforahigherpricethanitsrivals'products
(differentiation)orwillbeabletoreducecostsmorethanitsrivals(costleadership).If
thefirmcansustainthedifferentiationorcostleadershipovertime,ithasa
sustainablecompetitiveadvantageoverrivals.Togivejustoneexample,ExxonMobil
ownsmoreoftheworldwiderightstooilproducingpropertiesthananyotherfirm,
whichisatangibleresourcethatisfairlydifficulttoimitate.ThisallowsExxonMobil
toproduceoilmoreefficientlythanitsrivalsbecauseitseconomiesofscalearehigh.
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82.Giveoneexampleofafirmthathasachievedadistinctivecompetencyin
efficiencyanddescribethatcompetency.Thendothesameforafirmwitha
distinctivecompetencyinquality,innovation,andresponsivenesstocustomers.
Walmartisabletobuyitsproductsinhighvolumeandtonegotiatelowpricesfrom
itssuppliers,whichitcanthenpassontocustomersthroughlowpricing.Benand
Jerry'sIceCreamisabletodeveloptrendyflavorsthatcustomersdesire,givingthat
firmanadvantageinquality.3Mworkswithcustomerstodevelopnewproductsfor
specificcustomerneeds,whichisadistinctivecompetencyininnovation.Dell
Computersusesitswebsitetoofferconvenientandcheapaftersalessupportto
customers,satisfyingdemandsforcustomerresponsiveness.
83.Discusstherelationshipsamongdistinctivecompetitiveadvantage,distinctive
competencies,resources,andcapabilities.
Theprimaryobjectiveofstrategyistoachieveasustainedcompetitiveadvantage,and
allactivitiesmustbegearedtowardthatobjective.Distinctivecompetenciesarefirm
specificstrengthsthatallowacompanytodifferentiateitsproductsand/orachieve
lowercoststhanitsrivals.Distinctivecompetenciesformthebasisofacompany's
competitiveadvantage.
Distinctivecompetenciesarebuiltfromresourcesandcapabilities.Resourcescanbe
eithertangibleorintangible.Themorefirmspecificanddifficultaresourceisto
imitate,themorelikelyacompanyistohaveadistinctivecompetency.
Capabilitiesrefertoacompany'sskillsatcoordinatingitsresourcesandputtingthem
intoproductiveuse.Capabilitiesareintangibleandtheyresideinorganizationalrules,
routines,procedures,andinternalprocessesthatshapethewaypeopleinteract,
cooperate,andmakedecisions.
Thedistinctionbetweenresourcesandcapabilitiesisimportanttounderstandbecause,
eventhoughacompanymanyhavefirmspecificandvaluableresources,unlessithas
thecapabilitytousethemeffectively,itmaynotbeabletocreatedistinctive
competencies.Inaddition,evenifafirmdoesnotpossessfirmspecificandvaluable
resources,itmaybeabletodevelopdistinctivecompetenciesifithascapabilitiesthat
nooneelsehas.
Resourcesandcapabilitiesleadtodistinctivecompetencies.Distinctivecompetencies
shapethestrategiesthatleadtocompetitiveadvantage.
84.Commentonthisstatement:"Nocompetitiveadvantagelastsforever."
Studentswillacknowledgethatthisstatementistrue.IntheUnitedStates,thereare
companieswithdecadesofsuccessfuloperation,includingGeneralMotors,IBM,and
others.InpartsofEurope,inJapan,andinseveralothercountries,therearesuccessful
firmsthathavebeencompetitiveovercenturies.Forexample,theEnglishceramics
firmSpode,whichmanufacturesfinechina,hasbeeninbusinesssincebeforethe
AmericanRevolution,anditisstillhighlycompetitiveinitsindustry.However,even
themostsuccessfulfirmsarevulnerabletomistakesandinappropriatestrategiesover
time.IBM,forexample,wasstrugglingintheearly1980sandsomeobserverswere
predictingitsdemise(incorrectly,asitturnedout).Thereasonforthetransienceofall
competitiveadvantagesisthatalltheadvantagesarebuiltontheactionsofagroupof
individuals,andindividualsarefallible.
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85.Identifyanddiscussthefourbuildingblocksofcompetitiveadvantage.
Thefourbuildingblocksofcompetitiveadvantagearesuperiorefficiency,quality,
innovation,andcustomerresponsiveness.Thesebuildingblocksallowacompanyto
differentiateitsproductofferingtoprovidemoreutilitytocustomersand/orlowerits
coststructure.
Superiorefficiencyisviewedfromtheperspectiveoftheproducersinanindustry.It
ispowerfulbecauseitallowsacompanytoincreasetheproductivityofitsemployees
andcapitalandthusreduceitscoststructure.
Qualityisviewedfromtheperspectiveofcustomers.Qualityiscommonlyviewedin
termsofexcellence(productattributes)andreliability(consistentlydoesthejobitwas
intendedtodo).Highqualityincreasestheutilitytocustomers,whichallowsthefirm
somepricingflexibility.
Innovationreferstotheabilitytocreatenewproductsorprocesses.Product
innovationresultsinnewand/orimprovedproductsthatoffercustomersmoreutility.
Processinnovationresultsinlowerproductioncosts.
Responsivenesstocustomersallowsacompanytodoabetterjobthancompetitorsof
identifyingandsatisfyingcustomerneeds.Responsivenesstocustomersallowsa
companytocustomizeitsofferings,improveresponsetime,andprovidesuperiorpre
andpostsaleservice.
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Chapter4BuildingCompetitiveAdvantage
Through
FunctionalLevelStrategyKey
1.Functionalstrategies,becausetheyoccuratalowlevelinthefirm,playonlyasmall
roleinorganizationalsuccess.
FALSE
2.Distinctivecompetenciesshapethefunctionallevelstrategiesthatacompanycan
pursue.
TRUE
3.One ofOtis Elevator's strengths is the ability to continue to improve employee

productivity.
TRUE
4.Diseconomiesofscalearetheunitcostincreasesassociatedwithalargescaleof
output.
TRUE
5.Thelawofeconomiesofscalesuggeststhatunitcostscontinuetofallindefinitely
asoutputvolumeincreases.
FALSE
6.Learningeffectstendtobemoresignificantwhenatechnologicallycomplextaskis
performedonlyoccasionally.
FALSE
7.Nomatterhowcomplexthetaskis,learningeffectstypicallydieoutafteralimited
periodoftime.
TRUE
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8.HarvardBusinessSchoolfoundnodifferencesinlearningeffectsamonghospitals
performinganewcardiacprocedure.
FALSE
9.Allelsebeingequal,ifacompanymovesdowntheexperiencecurvefasterthanits
rivals,itshouldrealizealowercoststructure.
TRUE
10.Flexiblemanufacturingtechnologiesenablecompaniestoproducesmallbatches
ofhighqualitycustomizedproductsatacostthat,atonetime,couldbeachievedonly
throughmassproduction.
TRUE
11.Mass customization describes the ability of companies to use flexible

manufacturingtechnologytoreconcilethetwogoalsoflowcostanddifferentiation
throughproductcustomization.
TRUE
12.Thereisanegativerelationshipbetweenthelengthoftimethatacustomerstays
withacompanyandprofitpercustomer.
FALSE
13.A benefit oflongtimecustomer loyalty is the free advertising that customers

provideforacompanythroughreferrals.
TRUE
14.SixSigmaisaqualityandefficiencyprogramderivedfromtheconceptofTotal
QualityManagement,andwaswidelyusedinJapanbeforeacceptanceintheU.S.
TRUE
15.TheSixSigmanamereferstotheGreeklettermeaningstandarddeviationfromthe
mean.
TRUE
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16.Materials management encompasses the activities necessary to get inputs and

componentstoaproductionfacility,throughtheproductionprocess,andoutthrough
adistributionsystemtotheenduser.
TRUE
17.Thechallengeforacompany'shumanresourcefunctionistofindwaystolower
wageandbenefitscosts.
FALSE
18.WhileInformationSystems(IS)havegreatlyimprovedexternallyfocuseddecision
making,theyhavehadlittleimpactonloweringcosts.
FALSE
19.Topmanagementshouldtakeprimaryresponsibilityforestablishingmeasuresof
quality.
TRUE
20.Quantuminnovationreferstoanextensionofexistingtechnology.
FALSE
21.Poorcommercializationoccurswhenthereisdefinitecustomerdemandforanew
product,buttheproductisnotwelladaptedtocustomerneedsbecauseoffactorssuch
aspoordesignandpoorquality.
TRUE
22.Poorpositioningstrategyariseswhenacompanyintroducesapotentiallyattractive
new product but sales fail to materialize because it is poorly positioned in the
marketplace.
TRUE
23.Technologicalmyopiaoccurswhenafirmdevelopsanexcitingnewtechnology
butfailstodeterminewhetherthereiscustomerdemandfortheproduct.
TRUE
24.Animperativeofanyqualityimprovementprogramistocreateametricthatcan
beusedtomeasurequality.
TRUE
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25.Avitalsourceofinformationaboutthecausesofpoorqualityarethefirm'sown
employees.
TRUE
26.Although important, innovation plays a minor role in achieving competitive

advantage.
FALSE
27.Tight integration between research and development (R&D), production and

marketingcanhelpacompanyavoidinnovationfailures.
TRUE
28.Inthepartlyparalleldevelopmentprocess,developmentstagesoverlap.
TRUE
29.Strongbrandloyaltyleadstomoresalesandtheabilitytochargehigherprices.
TRUE
30.Dell Computer was one of the last computer companies to implement online
sellingofcomputers.
FALSE
31.Economiesofscalemaybefound
A.inseveralofacompany'sdepartments.
B.onlyinmanufacturingoperations.
C.principallyinresearchanddevelopmentactivities.
D.primarilyinadministrativeareasofacompany.
32.LearningeffectsarearesultofA.automation.
B.learningbydoing.
C.soundproductplanningtactics.
D.diseconomiesofscale.
E.productstandardization.
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33.TheexperiencecurvereferstotheA.learningbydoingtechnique.
B.company'soverallexperienceinaparticularindustry.
C.systematicloweringofthecoststructureandunitcostreductions.D.diseconomies
ofscalecausedbyinexperiencedworkers.
E.increasesinunitcostsexperiencedovertime.
34.Managersshouldnotbecomecomplacentaboutefficiencybasedcostadvantages
becauseA.neitherlearningeffectsnoreconomicsofscalegoonforever.
B.theexperiencecurveislikelytobottomoutatsomepoint.
C. cost advantages gained from experience effects can be made obsolete by the
developmentofnewtechnologies.
D.allofthesechoices.E.noneofthesechoices
35.Flexibleproductiontechnologyissometimesreferredtoas
A.justintimemanufacturing.
B.quicktechnology.
C.leanproduction.
D.stableproduction.
E.unscheduledmanufacturing.
36.Themarketingstrategythatacompanyadopts
A.haslittleimpactonacompany'sefficiencyandcoststructure.
B.hasaneffectonefficiencyandcoststructure,buttheextentofthiseffectcannotbe
determined.
C.should not take into account the impact the strategy has on efficiency or cost
structure.
D.canhaveamajorimpactonefficiencyandcoststructure.
37.Effectiveemployeetrainingwithinanorganization
A.resultsinmoreproductiveemployees.
B.increasesemployeeefficiency.
C.raisesemployeeskilllevels.
D.enablesemployeestoperformtasksfaster.
E.allofthesechoices
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38.Theuseofselfmanagingteams
A.islimitedtoonlyverylargeorganizations.
B.requiresmemberstocoordinatetheirownactivitiesandmakedecisions.
C.typicallyincreasestheneedforsupervisors.
D.allofthesechoices.
39.Selfmanagingworkteams
A.increaseperunitcostsofmanufactureditems.
B.performallworkplacetasksexceptthemakingofhiringdecisions.
C.increasethecycletimeofmanufacturingitems.
D.requiregreatertaskspecializationbymembersoftheteam.
E.tendtoincreaseproductivity.
40.PayforperformancetendstoA.increaseperunitcosts.
B.decreaseemployeeoutput.C.
increaseemployeeoutput.
D.havelittleeffectonemployeeoutput.
E.beusedonlyforindividualworkers,notforteams.
41.Acompany'sinfrastructureincludesthecompany'sA.
organizationstructure,
culture,andstyleofleadership.B.organizationstructureandmoralelevel.
C.cultureandproductivitylevels.D.overallprofitabilitylevels.
E.shortrunobjectives.
42.The resources and capabilities that lead to the formation of distinctive

competenciesaremostlycreatedatwhichleveloftheorganization?
A.BusinessB.FunctionalC.CorporateD.Global
E.Industry
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43.Economiesofscaleare
A.unitcostreductionsassociatedwithlearningeffects.
B.unitcostreductionsassociatedwithsuperiorcustomerresponsiveness.
C.realizedwhenoutputisaslargeaspossible.
D.realizedwhenthepointofmaximumefficientscaleisreached.
E.unitcostreductionsassociatedwithalargescaleoutput.
44.____ refers to unit cost increases associated with a large scale of output. A.
Economiesofscale
B.Learningeffects
C.DiseconomiesofscaleD.FlexiblemanufacturingE.Masscustomization
45.Learningeffects
A.resultinunitmanufacturingcostsdecliningbyacertainamounteachtimeoutputis
doubled.
B.result in unit manufacturing costs declining by a certain amount each time
accumulatedoutputisreduced.
C.aremoresignificantwhensimplestepsinanassemblyprocessarerepeated.
D.aremoresignificantwhenatechnologicallycomplextaskisrepeated.
E.leadtoeconomiesofscale.
46.Theexperiencecurveconcept
A.isaresultofacombinationoflearningeffectsandeconomiesofscale.
B.isaresultofacombinationoflearningeffectsandeconomiesofscaleandsuggests
thatunitmanufacturingcostsdeclinebyacertainamounteachtimeoutputisdoubled.
C.suggeststhatachievinglowcostsallowsafirmtochargeapremiumprice.
D.ismostimportantforspecializedorcustomizedproduction.
E.suggeststhatunitmanufacturingcostsdeclinebyacertainamounteachtimeoutput
isdoubled.
47.Whichofthefollowingisatacticalstepforgettingdowntheexperiencecurve
aheadofcompetitors?
A.Premiumpricingtocreateanimageofuniquenessinconsumers'minds
B.Pursuingadistinctivecompetenceinfocusedmarketing
C.Constructingamanufacturingplantoflessthanminimumefficientscale
D.Usingaggressivepricingandpromotionstoexpandsalesvolumeasrapidlyas
possible
E.Makingtheassemblyoftheproductascomplexaspossiblebecausethisresultsin
greaterlearningeffects
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48.TraditionalmanufacturingA.isnolongerused.
B.requiresatradeoffbetweenunitcostsandproductvariety.C.hashigherunitcosts
thandoesflexiblemanufacturing.D.producesavarietyofproductsinhighvolume.
E. has higher unit costs than does flexible manufacturing and requires a tradeoff
betweenunitcostsandproductvariety.
49.Flexiblemanufacturingtechnologiesallowcompaniesto
A.massproduceastandardizedoutputatalowdeliveredcost.
B.avoidplantleveldiseconomiesofscale.
C.producesmallbatchesofhighqualitycustomizedproductsatahighcost.
D.ridedowntheexperiencecurvemorerapidlythancompetitors.
E.producesmallbatchesofcustomizedproductsatarelativelylowcost.
50.Which of the following statements concerning customer defection rates

isincorrect?A.Defectionratesaredeterminedbycustomerloyalty.
B. The longer a company holds on to a customer, the greater is the volume
ofcustomergeneratedunitsalesandtheloweristheaveragecostofeachsale.
C. Lowering customer defection rates allows a company to achieve a lower cost
structure.
D.Researchanddevelopmentshouldaddresstheissueofcustomerloyaltyinproduct
development.
E.Thereisapositiverelationshipbetweenthelengthoftimethatacustomerstays
withthecompanyandprofitpercustomer.
51.Justintimeinventorysystems
A.areusedonlybymanufacturingfirms.
B.areimplementedprimarilybythemanufacturingfunction.
C.havecomponentsarriveatamanufacturingplantjustintimetoenterthe
productionprocess.
D.arevaluablewhenthereisalabordisputewithakeysupplier.
E.alwayskeepextrainventoryonhandforemergencies.
52.Whichofthefollowingisnotcorrectconcerningselfmanagedteams?
A.Increasedresponsibilityandempowermentareseenasmotivators.
B.Performance bonuses linked to team production and quality targets are seen as
motivators.
C.Costsavingsarisefromeliminatingsupervisors.
D.Aflatterorganizationalhierarchyiscreated.
E.Allofthesechoices.
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53.Whichofthefollowingisnotoneoftheprinciplescommonlyfoundincompanies
thathavesuccessfullyembracedtheTQMphilosophy?
A.BuildinganorganizationalcommitmenttoqualityB.Findingwaystomeasure
quality
C.AstrongcustomerfocusD.Closesupplierrelations
E.Creatingaseparatequalitydepartmentwithinthefirm
54.Formulatingaplantoclosethequalitygap
A.requiresastrongcustomerfocus.
B.istheexclusiveresponsibilityoftopmanagement.
C.isanexampleoffindingwaystomeasurequality.
D.istheresponsibilityofmanufacturing.
E.shouldbedonebyqualifiedTQMconsultants.
55.Research and development (R&D) can help a company improve quality

byA.
designingproductsthatareeasytomanufacture.
B.pursuingeconomiesofscale.C.developingnewproducts.
D.integratingR&Dwithmarketing.
E.integratingR&Dwithmaterialsmanagement.
56.Limitingthenumberofsuppliersfrommanytoamanageablenumber
A.istheresponsibilityoftopmanagement.
B.mayhelpafirmtoachievesuperiorquality.
C.mayhelpafirmtoachievesuperiorinnovation.
D.istheresponsibilityofresearchanddevelopment.
E.istheresponsibilityofmanufacturing.
57.Employeeproductivityis
A.afunctionofemployeesocialization.
B.oneofthekeydeterminantsofacompany'sefficiency,coststructure,and
profitability.
C.notsubjecttomeasurement.
D.typicallynotsustainableinthelongrun.
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58.Acompany'shiringstrategy
A.directlyaffectsemployeeproductivity.
B.haslittleeffectonemployeeproductivity.
C.doesnotrelatetoprofitability.
D.isnotpartofthecompany'soverallhumanresourcestrategy.
E.Noneofthesechoices.
59.QualitycanbestbethoughtofasA.productusefulness.
B.qualityasreliabilityandqualityasexcellence.C.productinnovation.
D.amatterforacompany'smanagerstodecideforthemselveswithoutexternalinput.
E.amatterforthemarketingfunctionofacompanytodecide.
60.ThephilosophyunderlyingTQMincludeswhichofthefollowing?
A.Improvedqualityresultsincostdecreases.
B.Betterqualityleadstohighermarketshare.
C.Betterqualityincreasesacompany'sprofitability.
D.Management should create an environment in which employees do not fear
expressingthemselves.
E.Allofthesechoices
61.The role played by infrastructure leadership in implementing reliability

methodologiesincludeswhichofthefollowing?
A.ProvidingleadershipandcommitmentqualityB.Findingwaystomanagequality
C.SettinggoalsandcreatingincentivesD.Solicitinginputfromemployees
E.Allofthesechoices
62.Qualityimprovementeffortsshouldfocusonthe
A.product.
B.externalenvironment.
C.customer.
D.materialcosts.
E.internaloperations.
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63.According to the TQM philosophy, who should be the primary evaluator of

productquality?A.Topmanagement
B.ManufacturingworkersC.Qualityconsultants
D.ThefederalgovernmentE.
Customers
64.QualitycirclesareavaluabletoolforTQMbecausethey
A.solicitemployeesuggestionsforimprovement.
B.identifyandreworkdefectiveproducts.
C.areusedbytopmanagerstocommunicatetheirintentionstoworkers.
D.designhighqualityproducts.
E.surveycustomerattitudesaboutquality.
65.WhenacompanysuccessfullyimplementsSixSigmaquality,howmanyunitswill
bedefective?A.17%(onesixthoftheunits)
B.6%C.0.6%
D.ThreepermillionE.Threeper10million
66.Poorcommercializationofnewproducts
A.istheresultofinefficientmanufacturingtechnology.
B.occurswhenacompanymarketsaproductforwhichthereisnotenoughdemand.
C.occurswhenaproductisnotwelladaptedtoacustomer'sneeds.
D.isduetopoorquality.
E.istheresultofuncertainty.
67.Ifaproductistobeproperlycommercialized,theremustbeintegration
betweenA.
researchanddevelopment(R&D)andmarketing.
B.R&Dandmaterialsmanagement.
C.marketingandmaterialsmanagement.
D.financeandmarketing.
E.marketingandaftersalessupport.
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68.Theconceptofthedevelopmentfunnelsuggeststhat
A.seniormanagersshoulddecidewhethertoacceptorrejectaprojectattheendof
theideagenerationphase.B.
seniormanagersshoulddecidewhethertoacceptor
rejectaprojectattheendoftheprojectrefinementphase.
C.crossfunctionalteamsshoulddecidewhethertoacceptorrejectaprojectattheend
oftheideagenerationphase.
D.crossfunctionalteamsshoulddecidewhethertoacceptorrejectaprojectattheend
oftheprojectrefinementphase.
E.projectproposalsshouldbeimplementedbythemarketingfunction.
69.Whichofthefollowingisoneoftheimportantskillsrequiredforeffectiveproject
management?A.Abilitytogenerateasmanygoodideasaspossible
B.Abilitytoselectamongcompetingprojectsatanearlystageofdevelopmentsothat
themostpromisingreceivefundingandpotentialcostlyfailuresarekilledoff
C.AbilitytominimizetimetomarketD.
Allofthesechoices
70.Whichofthefollowingisnotabenefitoftightcrossfunctionalintegrationamong
researchanddevelopment(R&D),production,andmarketing?
A.Newproductsaredesignedforeaseofmanufacture.B.Developmentcostsarekept
incheck.
C.Product development projects are driven by company innovations. D. Time to
marketisminimized.
E.Customerneedsareconsideredintheproductdevelopmentprocess.
71.A computer manufacturer allows scientists and engineers a certain amount of

companytimetoworkonindependentresearchprojects.Thiscompanyistryingto
A.achievesuperiorinnovation.B.achievesuperiorquality.
C.achievesuperiorefficiency.
D.achievesuperiorcustomerresponsiveness.E.minimizethetimetomarket.
72.Marina'snewpaintformulationbuildsonotherproductinnovationstocreatepaint
withfewertoxicfumes.Marina'snewpaintis
A.lowercost.
B.poorlycommercialized.C.efficient.
D.aquantuminnovation.
E.anincrementalinnovation.
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73.Whichofthefollowingisnotaproductattribute?
A.Form
B.Features
C.Style
D.Price
E.Reliability
74.ThefailurerateofinnovativeproductsisA.
high.
B.low.
C.consistentwithfailureratesinotherareasofacompany'soperations.D.moderate.
E.toodifficulttoassess.
75.Insteadofcompletingonetaskbeforestartinganother,Perry'steambeginseach
taskassoonaspossible,allowingtaskstooverlapwherepossible.Perry'steamis
using
A.aselfmanagingteam.B.asequentialprocess.C.TQM.
D.customization.
E.apartlyparallelprocess.
76.Whichofthefollowingrecommendationswouldnotbeappropriateforamanager
whowasstartingacrossfunctionalproductdevelopmentteam?
A.Lettheteammemberscomanagetheteam.
B.Locateteammembersinthesamephysicalspace.
C. Allow the team to develop its own communication and conflict resolution
processes.D.Composetheteamwithmembersfromeachofthekeyfunctionalareas.
E.Givetheteamthetaskofdevelopingoneprojectallthewayfrominitialideato
marketintroduction.
77.Whichofthefollowingstatementsaboutcustomerfocusisfalse?
A.Itmuststartatthetopoftheorganization.
B.ItisacentralpartofTQM.
C.Itcanbefacilitatedbysolicitingfeedbackfromthecustomer.
D.Itrequiresthatallemployeesseethecustomerasthefocusoftheiractivity.
E.Itcanbeachievedbymasscustomization.
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78.Whichofthefollowingtrends hasledtothefragmentationofmanyconsumer
markets?A.Selfmanagingteams
B.ProjectmanagementC.TQM
D.Customization
E.Increasedresponsetime
79.Customerdefectionratesare
A.areflectionofcustomerloyalty.
B.anindicationofacompany'sabilitytosatisfyitscustomers.
C.important to consider because of their potential impact on advertising and
marketingcosts.
D.animportantconsiderationbecauseoftheireffectonsalesvolumes.
E.alloftheabove.
80.Discusswhysuperiorefficiencyisimportantandthemanywaysthatdifferent
partsoftheorganizationcanhelpachieveit.
Superiorefficiencycanbeanimportantsourceofcompetitiveadvantagebecauseit
allowsacompanytoreducetheamountofinputsthatarerequiredtoproduceagiven
levelofoutput.Themoreefficientacompanyis,theloweritscoststructureshould
be.
Therearetenpossibleroutestosuperiorefficiency.First,efficienciescancomefrom
economiesofscale.Unitcostsdecreaseasoutputincreases.Second,efficienciescan
comefromlearningeffects.Whenacomplextaskisrepeated,companieslearnhowto
performitmoreefficiently.Third,efficienciesresultfromtheexperiencecurve.The
experiencecurvereferstothesystematicloweringofcostsoverthelifeofaproduct.
Economiesofscaleandlearningeffectsunderlietheexperiencecurveandthe
strategicsignificanceoftheexperiencecurveisclearincreasingacompany'sproduct
volumeandmarketsharewillloweritscoststructurerelativetoitsrivals.Afourth
pathtoefficiency,especiallyforcompaniesthatproduceahighdegreeofproduct
variety,isthroughflexiblemanufacturingtechnology.Flexiblemanufacturingallows
companiestoreducesetuptimes,improvescheduling,andimprovequalitycontrol.
Fifth,marketingcanalsoaffectefficiencyifproductsarepriced,promoted,and
advertisedaggressivelytohelpacompanygetfurtherdownthelearningcurve.Itcan
alsoimproveefficiencybyreducingcustomerdefectionrates.
Asixthareathatcanleadtoefficienciesismaterialsmanagement.Takingasupply
chainmanagementperspective,managerscanimprovetheflowofinputsand
componentsfromsuppliersintothecompany'sproductionprocessestominimize
inventoryholdingandmaximizeinventoryturnover.Seventh,researchand
development(R&D)cancontributetoefficiencybydesigningproductsthatare
efficienttomanufactureandprocessesthatrequirefewerinputs.Eighth,human
resourcescanplayaroleinefficiencythroughhiring,training,selfmanagedteams,
andpayforperformance.Ninth,informationtechnology(IT)canhelpleadto
efficienciesinnumerousactivitiesupanddownthevaluechain.Tenth,acompany's
infrastructurestructure,culture,strategicleadership,andcontrolsystemsalsoplays
animportantrolebecauseitprovidesthecontextinwhichalloftheotheractivities
takeplace.
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81.Explaintheprocessbywhichincreasedproductionvolumeleadstolowercosts.
Giveanexamplefromarealorhypotheticalfirm.Canthisprocessapplytoaservice
organizationaswellasamanufacturingone?Ifso,giveanexample.Ifnot,explain
whynot.
Studentsshoulddescribeeconomiesofscale,thecostsavingsthatresultfrom
spreadingfixedcostsoveralargeproductionvolumeandachievinggreater
specializationoflabor.Forexample,whenasawmillisoperatingathalfcapacity,the
fixedcostsofrent,utilities,administrativetasks,andsoon,arespreadoverfew
products,leadingtohighexpensesperunitproduced.Butwhenthatsamesawmill
operatesatfullcapacity,thecostsarespreadovermoreunits,loweringperunitcosts.
Anotherprocessthatleadstolowercostsislearningeffects,inwhichafirmthatis
beginningtouseanew,technologicallycomplexprocesscanlearntobemore
efficientbyperformingthetaskrepeatedly.Forexample,biotechnologyfirmsmight
spendfifteenyearsdevelopingtheirfirstcommerciallysuccessfulproduct.Butasthey
learnfromthatexperience,theycanreducedevelopmenttimeforsubsequentnew
products.
Theseprocessescanapplytoservicefirmsjustasreadilyastheydotomanufacturing
firms.Forexample,ahairstylingsaloncanspreadthefixedcostsofrent,utilities,and
administrationoveritscustomersinexactlythesamewaythatthesawmillcan.Also,
thesaloncanlearnfromexperiencehowtostylehairmoreefficiently,justasthe
biotechnologyfirmcanlearnfromexperience.
82.Identifythetwodimensionsofqualityanddescribehowcompaniescanachieve
them.
Qualitycanbethoughtofintermsofreliability(productsdothejobtheywere
designedtodo)andexcellence(superiorattributes).
SuperiorreliabilitycanresultfrominternalinitiativessuchasadoptingSixSigma
qualityimprovementmethodology.Thisrequiresatotalvaluechainfocus.Specific
thingsthatcompaniescandoincludebuildinganorganizationalcommitmentto
quality,creatingqualityleaders,focusingoncustomers,identifyingprocessesandthe
sourcesofdefects,developingqualitymetrics,settinggoalsandcreatingincentives,
solicitinginputfromemployees,improvingsupplierrelations,designingforeaseof
manufacture,andbreakingdownfunctionalbarriers.
Qualityasexcellenceincludesimprovingattributessuchasform,features,
performance,durability,andstylingofaproduct.Foraproduct'squalitytobeviewed
asexcellent,itmustbeperceivedasbeingsuperiortoitsrivals.Assuch,managers
mustcollectmarketingdatatodeterminewhichattributescustomersdesire.Next,
productsmustbedevelopedthatcontaintheseattributes.Then,theattributesmustbe
promotedsothatitisclearhowtheproductispositionedrelativetothoseof
competitors.Companiesmustbeawarethatcompetitorsengageinthisactivityas
well,sotheymustcontinuallymonitorcompetitors'productsandbepreparedtogo
throughthesestepsagainandagain.
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83.Pretendthatyouareaconsultant,offeringadvicetoalargemanufacturingfirm
aboutwaystoincreaseitsdistinctivecompetencyininnovation.Whatsuggestions
wouldyouoffer?Bespecificanddetailedinyouranswer.
Students'answersshouldpointoutthatinnovationispositivebecauseitallowsafirm
todevelopsomethinguniquethatcanbeasourceofcompetitiveadvantage.However,
innovationshouldbefocusedoncommerciallyviableproductsaswellasoncost
effectivemeansforinnovating.Studentsshouldrecommendquality
enhancingtechniquessuchasbuildingbasicskills,speedingtimetomarket,
improvingprojectmanagement,andutilizingcrossfunctionalproduct
developmentteams.
84.Pretendthatyouareaconsultant,offeringadvicetoalargemanufacturingfirm
aboutwaystoincreaseitsdistinctivecompetencyincustomerresponsiveness.What
suggestionswouldyouoffer?Bespecificanddetailedinyouranswer.
Inaddressingcustomerresponsivenessissues,studentsshouldhighlightthe
importanceoftheotherthreeareasfordistinctivecompetency.Thatis,oneofthebest
waystoimprovecustomerresponsivenessisthroughimprovementsinefficiency,
quality,andinnovation.Anotherimportantconsiderationisthatfirmsmustdevelop
mechanismsforgatheringfeedbackfromcustomersandthenincorporatingthat
feedbackintotheiroperationsthroughoutthefirm.Customizationisonetechniquefor
satisfyinguniquecustomerdemands.Finally,thestudentsshouldalsomentionthat
formanycustomers,quickresponseisdesirable.
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Chapter5BuildingCompetitiveAdvantage
Through
BusinessLevelStrategyKey
1.Afirm'sbusinessmodelshouldcontainthreecomponents:whatistobesatisfied,
whoistobesatisfied,andhowtheywillbesatisfied.
TRUE
2.Boththewayaproductisdifferentiatedfromotherproductsofitstypeandtheprice
oftheproductdeterminewhichproductacustomerchoosestosatisfyhisorherneeds.
TRUE
3.Companies with a differentiation advantage must charge a lower price for their
products.
FALSE
4.A company searching for a successful business model has to group customers
accordingtothesimilaritiesordifferencesintheirneedstodiscoverwhatkindsof
productstodevelopthatwillbestmeettheneedsofdifferentkindsofcustomers.
TRUE
5.Marketsegmentationaddressesthe"what"portionofafirm'sbusinessmodel.
FALSE
6.Maximizingtheprofitabilityofacompany'sbusinessmodelisaboutmakingthe
rightchoiceswithregardtovaluecreationthroughdifferentiation,costs,andpricing
givenboththedemandconditionsinthecompany'smarketandthecompetitive
conditionsinthecompany'sindustry.
TRUE
7.Companies that successfully pursue a cost leadership strategy generally have a

distinctivecompetencyinresearchanddevelopment.
FALSE
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8.Allfocusstrategiesentailservingaspecificmarketsegmentusingadifferentiation
approach.
FALSE
9.Acostleadermustrespondtothestrategicmovesofitsdifferentiatedcompetitors.
TRUE
10.Differentiationonthebasisofinnovationandtechnologicalcompetencydepends
ontheresearchanddevelopmentfunction.
TRUE
11.Amajorproblemwithadifferentiationstrategycentersonthelongtermabilityto
maintainaproduct'sperceiveddifferenceordistinctnessincustomers'eyes.
TRUE
12.Onceafocuseddifferentiatorgainscompetitiveadvantageinitsmarket,thethreat
ofcompetitiverivalryisgreatlyreduced.
FALSE
13.Differentiationleadstohighbrandloyalty,whichinturnreducesthethreatofnew
firmsenteringtheindustry.
TRUE
14.Marketsegmentationisanevolving,ongoingprocessthatpresentsconsiderable
opportunitiesforstrategicmanagerstoimprovetheircompany'sbusinessmodel.
TRUE
15.Focusers are vulnerable to shifting consumer tastes, which can eliminate their
marketniche.
TRUE
16.Ifconsumertasteschangeandafocuser'snichedisappears,thedangerforthe
focuseristhatitmighthavedifficultyshiftingresourcesfromitsnichetoanother
marketsegment.
TRUE
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17.Strategicgroupanalysisallowsmanagerstofocusonlyonwhatishappeningin
theirgroup.
FALSE
18.Topursueasuccessfulbusinessmodel,managersmustbecarefultoensurethatthe
setofbusinesslevelstrategiestheyhaveformulatedandimplementedareworkingin
harmonytosupporteachother.
TRUE
19.Thethreegenericbusinesslevelstrategiesarecostleadership,differentiation,and
massmarketing.
FALSE
20.Costleadersignorethemanydifferentmarketsegmentsinanindustryandposition
theirproductstoappealtotheaveragecustomer.
TRUE
21.Topursueacostleadershipstrategy,strategicmanagersneedtoincorporateallthe
latesttechnologyintotheirproducts.
FALSE
22.Adifferentiationbusinessmodelisbasedonpursuingasetofgenericstrategies
thatallowsacompanytoachieveacompetitiveadvantagebycreatingaproductthat
customersperceiveasdifferentordistinctinsomeimportantway.
TRUE
23.A product's appeal to customers' psychological desires is a source of

differentiation.
TRUE
24.Foranycompany,buildingnewcompetenciesinthefunctionsthatsustainits
differentiationmeansneglectingitscoststructure.
FALSE
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25.Theproblemfacingdifferentiators,suchasL.L.Bean,ishowtoprotectthe
distinctivenessoftheirproductsfromimitatorswhoareconstantlysearchingforways
tostealawaycustomersbyofferingsimilarproductsatlowerprices.
TRUE
26.E*Trade,theonlinebrokeragecompany,isanexampleofanewentranttoan
industry that has used the Internet to overcome barriers to entry and compete
successfullyagainstmarketleaders.
TRUE
27.Zara, the Spanishhighfashionhouse, was unsuccessful in using creative

informationsystemstoproducefashionableclothesatlowerpricesandsellthemin
theirownchainofclothingstores.
FALSE
28.Ryanair, based in Dublin, Ireland, used thecostleadershipbusiness model

pioneeredbySouthwestAirlinesintheUnitedStatestobecomealeadingplayerin
theEuropeanairtravelmarket.
TRUE
29.CrownePlaza,HamptonInn,andEmbassySuiteswerecreatedbyHolidayInnin
responsetocompetitioninthehotelmotelindustry.
TRUE
30.Tocreateasuccessfulbusinessmodel,managersmustchooseasetofbusiness
levelstrategiesthat
A.allowthecompanytobettercompetewithrivalswithinanindustry.
B.helpthemdecidewhatbusinessestoenterandexit.
C.helpbuildanorganizationalstructurethatcontainsmultiplebusinesses.
D.worktogethertogiveacompanyacompetitiveadvantageoveritsrivals.
E.helpittodiversifytobetterleveragedistinctivecompetencies.
31.Competitiveadvantagewithproductdifferentiationoccurswhenacompany
A.createscompetitiveadvantagebygroupingcustomers onthebasis ofimportant
differencesintheirneeds.
B.helpsfirmskeepcoststoaminimum.
C.creates,makes,andsellsaproductinawaythatbettersatisfiescustomerneedsthan
itsrivalsdo.
D.isfocusedoncorporatelevelstrategy.
E.allowsitsmanagerstoignorecosts.
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32.Whichofthefollowingisnotagenericcompetitivestrategy?A.Costleadership
B.Differentiation
C.FocusedcostleadershipD.FocuseddifferentiationE.Innovation
33.Which genericbusinesslevelstrategy is based on the intent to outperform

competitorsbydoingeverythingacompanycantoloweritscoststructure?
A.CostleadershipB.Differentiation
C.BroaddifferentiationD.FocuseddifferentiationE.Noneofthesechoices
34.A cost leader could reasonably be expected to reduce costs by developing

distinctivecompetenciesinall
but
A.manufacturing.
B.materialsmanagement.C.marketingandsales.
D.informationtechnology.
E.learningorganizationalstructure.
35.Themaindifferencebetweencompaniesfollowingacostleadershipstrategyand
thosefollowingafocusedcostleadershipstrategyis
A.standardizedmarketprice.B.industrylifecyclestage.
C.degreeofmarketsegmentation.D.ageofthemarket.
E.markettrajectory.
36.Companies are now able to pursue cost leadership and differentiation

simultaneouslybecause
A.oftheemergenceofflexiblemanufacturingtechnologiesandnewinformation
technologies.
B.marketshavebecomemorehomogeneous.
C.industrieshavebecomeconsolidated.
D.barrierstoentryhavefallen.
E.governmentregulationhasdiminished.
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37.MarketfragmentationhasoccurredinmanyindustriesbecauseoftheA.
emergence
offlexibletechnologies.
B.homogenizationofmarkets.
C. implementation ofjustintimeinventories. D. increased strength of large

competitors.
E.increasedinternationalizationofbusiness.
38.Aradiostationhasadistinctivecompetencyindevelopingnewproducts(shows)
andwantstoservetheupscalemarket.Whichofthefollowingisthemostappropriate
genericstrategyforthiscompany?
C.BothcostleadershipanddifferentiationD.Focusedlowcostapproach
E.Focuseddifferentiationapproach
39.Attheirsimplestlevel,customerneedscanbedefinedas
A.desires.
B.wants.
C.cravings.
40.AdifferentiatedproductisaproductthatA.looksdifferentfromrivalproducts.
B.bettersatisfiescustomerneedsthanrivalproductsdo.C.ispackagedinaunique
andeyeappealingmanner.D.alwayscostsmorethanrivalproducts.
E.alwayscostslessthanrivalproducts.
41.Alargecompanyproducesavarietyofclothingfordifferentcustomergroups.This
firmispursuingwhichofthefollowingstrategies?
A.CostleadershipB.
Differentiation
C.BothcostanddifferentiationD.Focus
E.Sharebuilding
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42.A producer of commodity steel should pursue which of the following generic
competitivestrategies?A.Growth
B.DifferentiationC.Focus
D.CostleadershipE.Profit
43.Whichfirmhasthegreatestprobabilityofachievingacompetitiveadvantageby
successfullymanagingitsstrategy?
A.Asteelmanufacturerthatcontinuestouselargeplantsinsteadofnewtechnology
toachieveeconomiesofscale
B.Aretailerthatsellsawiderangeofclothestothemassmarket
C.Apharmaceuticalfirmwithbrandloyaltythatdecreasesadministrativecostsbut
continuestoinvestinresearchanddevelopment
D.Alargedefensecontractorthatoffersanundifferentiatedproductonlytoafew
marketsegments
E.AjeansmanufacturerthatkeepsitsproductionwithintheUnitedStatesratherthan
movingtolessexpensive,overseasfactories
44.Themostexpensivecompetitivestrategytopursueis
A.differentiation.
B.costleadership.
C.focus.
D.growth.
E.hypercompetition.
45.Whenacompanyproducesawiderangeofproductsfordifferentcustomergroups,
itisfollowingastrategy
of
A.costleadership.B.differentiation.C.focus.
D.marketconcentration.E.sharebuilding.
46.Whentechnologicalchangeislowandcustomerneedsarewellestablishedand
standardized,themostappropriategenericstrategytopursueis
A.marketconcentration.B.differentiation.
C.focus.
D.assetreduction.E.
costleadership.
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47.Costleadershipismostappropriatewhen
A.thepowerofbuyersislowandbarrierstoentryarehigh.
B.economiesofscalearerelativelyunimportantinmanufacturingproducts.
C.customershaveverydifferentneedsandusesfortheindustry'sproducts.
D.productinnovationisthekeycompetitivefactor.
E.industryrivalryishighandcustomersareverysensitivetoprices.
48.Inwhichofthefollowingsituationsdoesadifferentiationstrategymakethemost
sense?
A.Theindustryisfragmentedintodifferentcustomergroups,eachofwhichhas
differentneeds.
B.Customerneedsareprimarilysatisfiedbythepriceoftheproduct.
C.Thereisalotoftechnologicalchange.
D.Therearelowbarrierstoentryandexit.
E.Theindustryisinthematuritystageofthelifecycle.
49.When a company services the broad market and has a low degree of product
differentiation,itismostlikelyA.
pursuingacostleadershipstrategy.
B.pursuingadifferentiationstrategy.C.pursuingafocusstrategy.
D.stuckinthemiddle.
E.pursuingbothcostleadershipanddifferentiation.
50.Comparedtoadifferentiator,thecostleaderhastheadvantageoveritsrivalsof
A.makinghigherprofitmargins.
B.beingbetterabletowithstandthenegativeinfluenceofpowerfulsuppliersand
buyers.
C.havinginimitableproductionmethods.
D.enjoyinghigherbrandloyalty.
E.beingpreferredbyinvestors.
51.AdisadvantageofpursuingacostleadershipstrategyisthatA.
technological
changecanmakeproductionmethodsobsolete.
B.pricewarsmakeithardtocompetewithdifferentiators.
C.itcostsmorethanadifferentiationstrategybecauseofthenecessityofhighcapital
investments.
D.powerfulbuyersareamajorthreat.
E.noqualitycontrolexists.
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52.Adifferentiationstrategyisbasedoncreatingaproductthatcustomersperceiveas
beingA.aboutthesameasotheravailableproducts.
B.distinct.
C.theleastcostlyproductintheindustry.D.themostcostlyproductintheindustry.
E.somewhatfaddishinnature.
53.MercedesBenzautomobilesareagoodexampleof
A.moderatelypricedproducts.
B.imitativeproducts.
C.differentiatedproducts.
D.productsthatarestrugglingtodifferentiate.
E.highlycompetitiveproducts.
54.DifferentiationisleasteffectivewhenitisbasedonA.
physicalfeatures.
B.servicequality.
C.anappealtothecustomer'spsychologicalneeds.D.reliability.
E.productquality.
55.Afirmmakescomplextelecommunicationsproducts,suchascellulartelephones.
Becausethiscompanyhasadistinctivecompetencyinresearchanddevelopment,it
shouldtrytodifferentiateitsproductthrough
A.reliability.B.
innovation.C.advertising.D.service.
E.lowprice.
56.Afocuseddifferentiatorhastheadvantageof
A.chargingapremiumpricebecauseofitslowcosts.
B.pursuingdifferentiationandlowcoststrategiessimultaneously.
C.beingclosetothecustomer.
D.superiormaterialsmanagement.
E.protectionagainstpricewars.
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57.Ashrinkingmarketsegmentposesthegreatestthreattoacompanypursuingwhich
ofthefollowingstrategies?
C.FocuseddifferentiationD.Growth
E.Bothcostleadershipanddifferentiationsimultaneously
58.Differentiatedproductsshouldbetargetedatmultiplemarketsegments(insteadof
aparticularsegment)ifacompanyhasadistinctivecompetencyin
A.marketing.
B.researchanddevelopment.C.accounting.
D.materialsmanagement.E.humanresources.
59.The principal dangers of a cost leadership approach include all of the

followingexcept
A.powerfulbuyers.
B.technologicalchange.
C.imitationofproductiontechniques.
D.changesinconsumertastes.
E.rivalsloweringtheircosts.
60.Differentiators have higher costs than cost leaders do for all of the following
reasonsexceptthattheyA.investmoreinresearchanddevelopment.
B.investinmaterialsmanagementtechniques.C.provideawiderrangeofproducts.
D.servemoremarketsegments.
E.havelargermarketingdepartments.
61.Jordan'sicecreamstandoffersdifferentcombinationsofpremiumflavors,cones,
andtoppingstocreatehundredsofextravagant,customizedproducts.Whichgeneric
strategyisJordanfollowingintherestaurantindustry?
C.FocusedcostleadershipD.
Focuseddifferentiation
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62.DeltaAirlinesusedtoadvertiseitshighqualityairtravelservicebysayingitflew
"anywhere,anytime."Whatgenericstrategyisrepresentedbythisadvertisement?
A.CostleadershipB.
Differentiation
C.Stuckinthemiddle
D.Focuseddifferentiation
63.Nick is often asked to perform his clown act for birthday parties and school
groups,butheoffershismostinexpensiveservicesonlytochildren'shospitals.Nick
ispursuingwhichgenericbusinessstrategy?
C.FocusedcostleadershipD.FocuseddifferentiationE.Stuckinthemiddle
64.Amarketsegmentconsistsofagroupof
A.similarproducts.
B.customerswhohavesimilarneeds.
C.companieswhoproducesimilarproducts.
D.diverseproductsproducedbyonemanufacturer.
E.customerswhohavediverseneeds.
65.Marketsegmentationisbestdescribedaswhattypeofprocess?A.Static
B.RegressiveC.
EvolvingD.NormativeE.Revolving
66.Companiesthatsuccessfullydifferentiateaproductoftencharge____pricesfor
them.A.
premium
B.exorbitantC.belowcostD.average
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67.Which of the following automobile manufacturers have found it difficult to

differentiatetheircars?A.Lincoln
B.AudiC.Acura
D.AllofthesechoicesE.Noneofthesechoices
68.Whichofthefollowingisnotamainapproachtomarketsegmentation?
A.Marketingaproducttargetedtowardaverageortypicalcustomers
B.Marketingaproducttargetedtowardmostorallofthedifferentmarketsegments
C.Makingcustomizedproductstomeetthespecificneedsofcustomers
D.Makingproductstomeetthespecificneedsofanarrowgroupofcustomers
E.Makingoneproductaimedtowardageneralratherthanaspecificsubsetof
customers
69.ProductdifferentiationisoftenA.inexpensive.
B.expensive.
C. cheaper than producing a single undifferentiated product. D. not likely to be
successful.
E.unnecessarybecausecustomerneedsandwantsareessentiallyalike.
70.Whichofthefollowingstatementsistrue?
A.Differentiationandcoststructuredecisionsaffectoneanother.
B.Differentiationandcoststructuredecisionsdonotaffectoneanother.
C.Differentiation and cost structure decisions have little effect on a company's
profitability.
D.Differentiationdecisionsdonotaffectacompany'sprofitability.
E.Coststructuredecisionsdonotaffectacompany'sprofitability.
71.Generallyspeaking,adifferentiatorchoosestodivideitsmarketinto
A.onegenericmarket.
B.twoorthreemajorsegments.
C.nichesandsegmentsinwhichcustomerswillpaypremiumprices.
D.asfewsegmentsaspossible.
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72.AcompanypursuingafocusstrategyA.attemptstoserveallmarketsegments.
B.concentratesonbuildingmarketshareinonemarketsegment.
C.typicallyhasmoreresourcesatitsdisposalthanadifferentiatordoes.
D. need not be concerned that a differentiator will try to imitate the company's
productsorservices.E.noneofthesechoices.
73.Acompanypursuingacostleadershipstrategydoeswhichofthefollowing?
A.Includessubstandardcomponentsintheproducttokeepcostslow
B.Choosesstrategiesthatkeepcostsaslowasfeasibleandareeffective
C.Keepsadvertisingexpensesatamaximum
D.Reliesonpatentprotectionstokeepcostslow
74.Foracostleadinmanufacturing,____functionsarethecenterofattention.A.
researchanddevelopment
B.costaccountingC.salesmanagement
D.materialsmanagementE.advertising
75.Acompanypursuingafocuseddifferentiationbusinessmodel
A.manufacturesproductsforagenericconsumermarket.
B.typicallyhaslittlecompetition.
C.specializesinmakingproductsforoneortwomarketsegments.
D.islikelytoenjoymonopolylikestatusinitsindustry.
E.basesitsstrategyonlowcosts.
76.Ifacompanyusesafocusedcostleadershipstrategy,itcompetesinthemarket
segmentswhereA.
itcanoperateatnocostdisadvantage.
B.wherecostisnotahighconcern.
C.itcanoperateataminimalcostdisadvantage.
D.thereisfrequentlylittleornocompetition.
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77.Abusinessmodelbasedondifferentiationrequiresacompanyto
A.makestrategicchoicesthatreinforceeachotherandincreasethevalueofagoodor
serviceintheeyesofcustomers.
B.serve several market segments simultaneously to take full advantage of
differentiation.
C.systematicallyraiseitspricesatstipulatedtimes.
D.developafunctionalorganizationstructure.
78.A competitor's ability to ____ a cost leader's methods is a threat to acost

leadershipstrategy.A.negate
B.subvertC.controlD.repudiateE.imitate
79.Astrategicgroupisagroupofcompanieswithinaparticularindustry
A.withthesameoverheadcosts.
B.withthesamecoststructure.
C.thatarepursuingasimilarbusinessmodel.
D.thatareusingthesamesuppliers.
80.Whatdoesthebroaddifferentiationbusinessmodellooklikeandhowcanthis
modelbenefitcompaniesthatemployit?
Broaddifferentiationisabusinessmodelthatseekstoimproveacompany's
differentiationandcoststructuresimultaneously.Companiesfollowingthismodel
havepursuedadifferentiationapproach,buttheyhavedonesoinawaythatallows
themtolowertheircoststructure.Broaddifferentiatorsmayhaveacoststructurethat
ishigherthanthecostleadersandalevelofproductdifferentiationthatislessthan
themostdifferentiatedproductinthemarket.However,theymaybeabletoprovide
morevaluetocustomersiftheycanbalancethetradeoffbetweendifferentiationand
cost.
Thebroaddifferentiationmodelallowsacompanytorealizethebenefitsofbeingin
themiddlebetweendifferentiatorsandcostleaders,butthissituationcanbedesirable
iftheycanstillofferasomewhatdifferentiatedproductatapremiumprice(compared
tocostleaders).Overtime,successfulbroaddifferentiatorscangrowtheirprofits,
whichgivesthemmorecapitaltoreinvestintheirbusinessandcontinuallyimprove
theirbusinessmodel,andinturncontinuetoincreasebothdifferentiationandlower
theircoststructure.Overtime,differentiatorsandcostleadersmayfindthatbroad
differentiatorshavecompletelytakenawaytheircompetitiveadvantage.
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81.Whatismeantbythetermstrategicgroupandwhyisitimportantformanagersto
understandthistermtopositiontheircompaniesinacompetitivemarketplace?
Acompany'sbusinessmodeldetermineshowitwillcompeteforcustomersina
particularmarket,andtypicallyseveralcompaniesarecompetingforthesamesetof
customers.Thismeansthatthestrategiesofcompaniesaffectthestrategiespursued
bytheothers.Astrategicgroupreferstoagroupoffirmswithinanindustrythatare
competingforthesamecustomersandusingthesamebusinessmodel.Costleaders
compriseonestrategicgroup;differentiatorscompriseanother;andbroad
differentiators,focuscostleaders,andfocusdifferentiatorscomprisestillothers.
Strategicgroupanalysishelpsmanagerstounderstandthesetsofstrategiesthattheir
rivalsareusing.Oncetheyunderstandthis,theycanthenpositionthemselvestobetter
appealtocustomersbyidentifyingwhichcompetenciesandresourcestheyshouldbe
tryingtodevelop.Anotherbenefitofstrategicgroupanalysisisthatitcanhelp
managersbetterunderstandthewaychangestakingplaceinanindustryareaffecting
itsrelativestandingconcerningdifferentiationandcoststructure.Relativestandingon
thesedimensionsdeterminesafirm'sprofitpotential.Finally,becausestrategicgroup
analysisforcesmanagerstofocusontheactivitiesofcompaniesintheotherstrategic
groups,theyareinabetterpositiontoidentifyemergingthreatsfromcompanies
outsidetheirstrategicgroup.Thisalsohelpsthemunderstandopportunitiesand
threatsthatmayariseduetochangesintheenvironment.
82.Foreachofthegenericstrategiescostleadership,differentiation,and
focusdescribeoneadvantageandonedisadvantage.
Studentsshouldmentionitemsfromthefollowinglists.Costleadershipprovides
protectionagainstrivalryandpricewars,protectionagainstpricepressurefrom
suppliersandbuyers,competitivepricingcomparedtothepriceofsubstitutes,andthe
creationofhighentrybarriers.Disadvantagesincludeavulnerabilitytoimitationand
theriskoflosingsightofcustomerneedsortechnologicaladvances.Differentiation
provideslessenedrivalryduetobrandloyalty,protectionfrompricepressurefrom
suppliers,lowcustomerdefectionrates,protectionfromsubstitutes,andhighbarriers
toentry.Disadvantagesincludetheriskoflosingtheirsourceofuniqueness,riskfrom
changingcustomerpreferences,andpricecompetition.
Focusprovidesanichestrategythatprotectsagainstrivalsandnewentrants,power
overbuyers,andlowerriskfromsubstitutes.Disadvantagesincludetherisksfrom
powerfulsuppliers,highcosts,disappearanceoftheniche,andvulnerabilityto
competitionfromlargerfirms.
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83.Empiricalevidenceshowsthatfirmsthatpursuecostleadershipordifferentiation
achieve returns that are about equivalent, firms that pursue both cost
leadershipanddifferentiationhavethehighestreturns,andfirmsthatarestuckinthe
middlehavethelowestreturns.Usingconceptsfromthischapter,explainwhythisis
so.
Firmsthatpursuecostleadershipbenefitfromlowexpenses.Eventhoughtheirprices
are typically low relative to competitors', their profit margins are adequate. Their
profitability stems from their ability to sell products in high volumes so that the
modestprofitmarginismultipliedbymanysales,thuscreatinglargerevenues.
Differentiators,ontheotherhand,havehigherexpenses.Theytypicallyhavehigher
pricessothattheirprofitmarginsarehigh.Theysellfewerofeachproduct,buttheir
higherprofitmarginsstillallowthefirmtorealizelargerevenues.However,firms
thatareabletobothlowerexpensesandincreasepricebypursuingbothstrategies
simultaneouslywillhavethelargestprofitmarginsandthehighestsales,leadingto
thegreatestprofitability.Finally,firmsthatarestuckinthemiddlehavemoderate,not
low,costs;theyarenotabletocommandpremiumprices;andtheirsalesvolumeis
moderate,nothigh.Therefore,theyhavethelowestprofitabilityofall.
84.Whatfactorsmayaccountforacompany'sfailuretoachieveeffectivecompetitive
positioning?Whatactionsshouldacompanytaketoavoidsuchfailures?
Amongthefactorsthataccountforacompany'sfailuretoachieveeffective
competitivepositionsarethefollowing:failuretoachieveproperfitbetween
strategiesandbusinessmodel,lackofharmonybetweenbusinesslevelstrategies,
failuretoperformstrategicgroupanalysis,failuretoidentifyandrespondtochanging
businessopportunitiesandthreatsintheindustryenvironment,lossofcompetitive
advantage,lossofcontrolofthebusinessmodel,increaseincompanysizeand
complexity,changesintheexternalenvironment,andattacksfrommorespecialized
orlowcostcompetitors.
Toavoidfailuresincompetitivepositioningacompanyneedstostayintouchwith
itself,itsexternalenvironment,anditscompetitors.Morespecifically,acompany
mustalwaysassurethatitsbusinesslevelmodelanditsstrategiesarecompatible.
Moreover,allbusinesslevelstrategiesmustbeinternallyharmonious.Conflict
betweenstrategiesatthislevelwillresultinseriousproblems.Companiesmust
examinethestrategicgrouporgroupstowhichtheybelongortowhichtheycompare
themselvestobeassuredthattheyarestillcomparingtothecorrectgroup(s).
Continuousenvironmentalscanningisalsonecessarytodiscernchangesinindustry
opportunitiesandthreats.Growthincompanysizeandcomplexitycanalsocause
problemsinthattheymaynecessitatechangesincompetitivepositioning.Changesin
theoverallexternalenvironmentmayaffectcompetitivepositioning.Theexternal
environmentmustalwaysbemonitoredforpotentialinternalchangesitmayrequirea
companytomake.Attacksfrommorespecializedorlowcostcompetitorsmay
requireadjustingacompany'sbusinessmodeloritscompetitivepositioning.Different
approachesmayberequiredinthefaceofattacks.Insummary,acompanyshould
alwaysbealertforchangesthatoccurwithinitself,itsenvironments,andits
competitiveposition.Whatworksinoneinstancewillnotalwaysworkinanother
instance.
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Chapter8StrategyintheGlobal
EnvironmentKey
1.Oneofthegreatgrowthindustriesofthepastfewdecadeshasbeenthewireless
phoneindustry.
TRUE
2.NokiaandIKEAarebothGermancompanies.
FALSE
3.Theglobalizationofproductionhasbeenincreasingascompaniestakeadvantageof
lowerbarrierstointernationaltradeandlocationeconomies.
TRUE
4.Manyexpertsbelievethattheworld'seconomicsystemismovingtowardasystem
inwhichnationalmarketsaremergingintoonehugeglobalmarketplace.
TRUE
5.RelativetotheUnitedStates,Mexicohasmoreadvancedfactorsofproduction.
FALSE
6.Factorendowmentsthecost and quality of factors ofproductionarea prime

determinant of the competitive advantage that certain countries have in certain
industries.
TRUE
7.Acompanycanincreaseitsgrowthratebytakinggoodsorservicesdevelopedat
homeandsellingtheminternationally.
TRUE
8.Locationeconomiesrefertotheeconomicbenefits thatarisefromperforminga
valuecreationactivityatcentralheadquarters.
FALSE
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9.Acompanymaycreatevalueifitcanleveragetheskillscreatedwithinsubsidiaries
andapplythemtootheroperationswithinthefirm'sglobalnetwork.
TRUE
10.Byofferingastandardizedproducttotheglobalmarketplaceandmanufacturing
thatproductineachnationinwhichitdoesbusiness,amultinationalcompanycan
realizesubstantialscaleeconomies.
FALSE
11.Walmart'sbasicapproachtooverseasexpansionhasbeentoopenretailoutletsin
eachofthecountriestowhichitexports.
FALSE
12.Pressureforcostreductionsencouragesafirmtopursueacostleadershipstrategy,
whilepressureforlocalresponsivenessencouragesafirmtopursuedifferentiation.
TRUE
13.Localresponsivenessmaybedrivenbyeconomicandpoliticaldemandsplacedon
companiesbyhostcountrygovernments.
TRUE
14.Atransnationalstrategymakesthemostsensewhentherearestrongpressuresfor
costreductionsandwhendemandforlocalresponsivenessisminimal.
FALSE
15.Alocalizationstrategyismostappropriatewhentherearesubstantialdifferences
acrossnationswithregardtoconsumertastesandpreferencesandwhencostpressures
arenottoointense.
TRUE
16.Companiesthatpursueaglobalstandardizationstrategyaretryingtodevelopa
businessmodelthatsimultaneouslyachieveslowcostsanddifferentiatestheproduct
offeringacrossgeographicmarkets.
FALSE
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17.Smallscaleentryintoforeignmarketsmaymakeitmoredifficultforthesmall
scaleentranttobuildmarketshareandcapturefirstmoveradvantages.
TRUE
18.Mostmanufacturingcompaniesbegintheirglobalexpansionbyexporting.
TRUE
19.An international strategy may not be viable in the long term and to survive,
companiesthatcanpursueitneedtoshifttowardaglobalstandardizationstrategy.
TRUE
20.International licensing is an arrangement whereby a foreign licensee buys the

rightstoproduceacompany'sproductinthelicensee'scountryforanegotiatedfee.
TRUE
21.Whenacompanylicensesitstechnologyitcanquicklylosecontroloverit.
TRUE
22.One advantage of a joint venture is that a company may benefit from a local
partner'sknowledgeofthemanydimensionsofahostcountry.
TRUE
23.Anearlymoverenteringaforeigncountrywillexperiencemanyadvantagesbut
fewornodisadvantages.
FALSE
24.Smallscaleentryintoforeignmarketscanbeadvantageousbecauseitallowsa
companytolearnaboutaforeignmarketwhilesimultaneouslylimitingthecompany's
exposuretothatmarket.
TRUE
25.If a company's competitive advantage derives from its control of proprietary

technologicalknowhow,itshouldeitherlicenseitstechnologytoothersorpursuea
jointventure.
FALSE
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26.Carefulselectionoftherightpartnerisonekeytothesuccessofglobalstrategic
alliances.
TRUE
27.Animportantingredientofsuccessinastrategicallianceappearstobecultural
sensitivity.
TRUE
28.ThemostrapidgrowthrateforhouseholdTVownershipisintheUnitedStates.
FALSE
29.ThemajorityofprogrammingforMTVnetworksnowtakesplaceoverseas.
FALSE
30.Which of the following has occurred in international trade over the pasthalf
century?A.Therehasbeenadramaticloweringofbarrierstointernationaltrade.
B.Tariffratesonmanufacturedgoodstradedbyadvancednationshavefallen.
C.Regulationsprohibitingforeigncompaniesfromenteringdomesticmarketsand
establishingproductionfacilitieshavebeenremoved.
D.Thevolumeofworldtradehasincreaseddramatically.E.
Allofthesechoices.
31.Theglobalizationofproductionhasallowedfirmsto
A.increasetheirmarketshare.
B.lowertheircoststructure.
C.respondtoindividualmarketsegments.
D.avoidinternationalcompetition.
32.Whenacompanyincreasesitsgrowthratebytakinggoodsorservicesdeveloped
athomeandsellingtheminternationally,itis
A.leveragingitsexistingproducts.
B.takingthepathofleastresistance.
C.engaginginproductpositioning.
D.realizingcosteconomiesfromglobalexpansion.
E.realizinglocationeconomies.
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33.Whenacompanyexpandsitssalesvolumethroughinternationalexpansion,itcan
realizecostsavingsfromeconomiesofscalethroughallofthefollowingexcept
A.spreadingfixedcostsoveritsglobalsalesvolume.B.utilizingitsproduction
facilitiesmoreintensely.C.increasedbargainingpowerwithitssuppliers.
D.learningeffectsassociatedwithhighervolume.E.
improvedresponsiveness.
34.Whenacompanyperformsavaluecreationactivityintheoptimallocationforthat
activity,whereverintheworldthatmightbe,itistryingtocapitalizeon
A.economiesofscale.B.economiesofscope.
C.thetransnationalstrategy.D.
locationeconomies.
E.itslocalizationstrategy.
35.Which of the following isnota necessity for leveraging the skills of global
subsidiaries?
A.Thefirmmusthaveincentivesforlocalmanagerstoshareknowledgeandideas.
B.Thefirm'smanagersmustbeawarethatcompetenciescandevelopanywhere.
C.Thefirmmustbepursuingastrategyofdifferentiation.
D.Thefirm'smanagersmusthelptotransfercompetenciesaroundthecompany.
E.Thefirmmustofferincentivesthatencourageemployeestotakenecessaryrisks.
36.Globalexpansion
A.isfeasibleonlyforlargecompanies.
B.canenablecompaniestoincreasetheirprofitabilityandgrowtheirprofitsmore
rapidly.
C.allowsdomesticcompaniesinthematurestageoftheindustrylifecycletomaintain
profitsbutnottoincreasethem.
D.requireslocatingfacilitiesinforeigncountries.
E.makessenseformanufacturingfirmsbutnotforservicefirms.
37.Theabilitytorealizecosteconomiesfromglobalvolumeisgreatestinthecaseof
A.productsthatneedtobecustomizedtolocalrequirements.
B.commoditytypeproductsthatserveuniversalneeds.
C.lowweight,highvalueproductsthatcanbedifferentiatedbyglobalcompanies.
D.productsthatcanbeeconomicallymanufacturedinsmallbatches.
E.companiescompetinginindustrieswheretheyfacealargenumberofmultinational
competitors.
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38.In1952,theIranianoilindustrywasnationalizedsothatforeignownershipofoil
producinglandandequipmentwasmadeillegalandtheassetswereconfiscated.
Whichofthefollowingdisadvantagesofglobalexpansionisshowninthisexample?
A.PoliticalriskB.Increasedtariffs
C.Lowercostsforlaborandrawmaterials
D.Commodityproductsthatcommandlowprofits
E.Productsthatneedtobecustomizedtolocalrequirements
39.DellisexpandingitsmarketshareinEuropeancountriesbecauseitsdirect
salesmodelismoreeffectivethanthebusinessmodelusedbyitsEuropeanrivals.
WhichofthefollowingbenefitsofglobalexpansionisDellexperiencing,relativeto
itscompetitors?
A.Lowercostsforlaborandrawmaterials
B.Further exploitation of distinctive competencies C. Decreased political and
economicrisk
D.Betterrealizationoflocationeconomies
E.Moreincentiveforlocalsubsidiariestodevelopcompetencies
40.Whichofthefollowingfactorsincreasespressuresforcostreductions?
A.Differencesindistributionchannels
B.Increasingnationalwealth
C.Greattransportationneeds
D.Highswitchingcosts
E.Priceasthemaincompetitiveweaponinamarket
41.Whichofthefollowingfactorsincreasespressuresforlocalresponsiveness?A.
Powerfulbuyers
B.PersistentexcesscapacityC.Lowcostcompetitors
D.DifferencesincustomertastesandpreferencesE.Tradebarriers
42.WhentoymakerMattelsellsBarbiedollsintheMiddleEast,itchangesthedoll's
shapetoonethatisamoreaccurateportrayalofafemalebody.Matteldoesthisto
A.createacommoditytypeproduct.B.transfertechnologicalknowhow.C.increase
productstandardization.D.realizeexperiencecurveeffects.
E.respondtodifferencesinlocaltastes.
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43.DifferencesintastesandpreferencesA.increasepressuresforcostreductions.B.
reduceprofitpotential.
C.increase pressures for local responsiveness. D. reduce pressures from the host
government.
E.preventacompanyfrompursuingalicensingstrategy.
44.Hostgovernmentdemandsgenerally
A.increasepressuresforlocalresponsiveness.
B.increasepressuresforcostreductions.
C.discourageforeigncompaniesfromoperatinginthehomecountry.
D.impedeacompany'sabilitytominimizeitstransactioncosts.
E.impede a company's ability to differentiate its product offering across national
borders.
45.Alocalizationstrategyisbasedonwhichofthefollowingideas?
A.Thereisaconvergenceinthetastesofconsumersindifferentnationsoftheworld.
B.Therearesubstantialeconomiesofscaletoberealizedfromcentralizingglobal
production.
C.Consumertastesandpreferencesdifferamongnationalmarkets.
D.Therearecostadvantagesassociatedwithmanufacturingastandardproductfor
globalconsumption.
E.Competitivestrategyshouldbecentralizedattheworldheadoffice.
46.Clear Vision's decision to own a manufacturing facility overseas

wasnotinfluencedbywhichofthefollowingfactors?
A.Lowlaborcosts
B.AvailabilityofaskilledworkforceC.
GeographicalproximitytoIndia
D.TaxbreaksgivenbytheHongKonggovernmentE.AbilitytofindaChinese
partner
47.Costreductionpressurescanbeparticularlyintenseinindustriesproducing
A.commoditytypeproducts.
B.highlydifferentialproducts.
C.goodsthatdonotcompeteonthebasisofprice.
D.goodsservicingnarrowlydefinedmarkets.
E.highlyadvertisedgoods.
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48.Strong pressures for local responsiveness emerge when customer tastes and
preferencesA.
differsignificantlybetweencountries.
B.differslightlybetweencountries.C.areuniversallyalike.
D.arecyclicalinnature.E.noneofthesechoices.
49.When entering an overseas market, which of the following factors should be

considered?A.Sizeofthemarket
B.Purchasingpower
C.Consumerdemandforthecompany'sproductD.Economicrisks
E.Allofthesechoices
50.Inwhichofthefollowingcircumstances does aglobalstandardizationstrategy

makethemostsense?
A.Global market standardization is not possible, and there are no significant
economiesofscaletoberealizedfromcentralizingglobalmanufacturing.
B.Globalmarketstandardizationispossible,buttherearenosignificanteconomiesof
scaletoberealizedfromcentralizingglobalmanufacturing.
C.Globalmarketstandardizationisnotpossible,buttherearesignificanteconomiesof
D.Consumertastesandpreferencesdifferamongnationalmarkets,andeconomiesof
scaleareinsubstantial.
E.Globalmarketstandardizationispossible,andtherearesignificanteconomiesof
51.Inwhichofthefollowingcircumstancesdoesalocalizationstrategymakethe
mostsense?
A.Globalmarketstandardizationisnotpossible,andtherearenosignificant
economiesofscaletoberealizedfromcentralizingglobalmanufacturing.
B.Globalmarketstandardizationispossible,buttherearenosignificanteconomiesof
C.Globalmarketstandardizationisnotpossible,buttherearesignificanteconomiesof
D.Globalmarketstandardizationispossible,andtherearesignificanteconomiesof
E.Consumertastesandpreferencesdifferamongnationalmarkets,andeconomiesof
scalearesubstantial.
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52.Whichofthefollowingcompaniesincreasedcompanygrowthratesbydeveloping
productsathomeandthenexpandingsalesoftheseproductsininternationalmarkets?
A.Procter&GambleB.Ford
C.Toyota
53.Procter&Gamblegrewrapidlyininternationalmarketsbecauseofits
A.skillsinmassmarketing.
B.patentsonessentialproducts.
C.financialstamina.
D.workforcediversity.
E.concentricdiversification.
54.Managersofamultinationalenterprisemustrecognizethatskills
A.needtobetransferredfromheadquarterstothefirm'soverseasoperations.B.
may
arisefromanywherewithinthefirm'sglobalnetwork.
C.developedoverseasusuallydonotrisetothelevelofdomesticskills.
D.shouldnotdeviatefromtheirdomesticlevel.
E.mustbetightlycontrolledtoassumeglobalsimilarity.
55.TheAchillesheelofinternationalstrategyisthatA.marketdemandinevitably
driesup.
B.costscannotbesufficientlycontrolledoverlongperiodsoftime.C.
competitors
inevitablyemerge.
D.priceseventuallytumbledrastically.E.allofthesechoices.
56.Disadvantagesofaglobalstrategyinclude
A.lackoflocalresponsiveness.
B.inabilitytoengageinglobalstrategiccoordination.
C.failuretoexploitexperiencecurveeffects.
D.lackofcontroloverquality.
E.inabilitytorealizelocationeconomies.
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57.Whichofthefollowingisnotanobjectiveofatransnationalcompany?A.Local
responsiveness
B.RealizationofexperiencebasedeconomiesC.
Lowcrossnationalintegration
D.Globallearning
E.Realizationoflocationeconomies
58.Acompanywithabusinesslevelstrategyofcostleadershipshouldpursuewhich
ofthefollowingglobalexpansionstrategies?
A.LocalizationB.Simple
C.InternationalD.Transnational
E.Globalstandardization
59.Atelecommunicationsfirmdevelopsnewwirelesscellularphones,atechnologyin
whichforeigncompetitionislowandtheneedforlocalresponsivenessishigh.What
isthemostappropriateshorttermstrategyforthisfirm?
A.GlobalstandardizationB.
International
C.LocalizationD.TransnationalE.Jointventure
60.Foreignsubsidiariesplayamajorroleinshapingthefuturedirectionofacompany
pursuinga(n)
A.transnationalstrategy.
B.internationalstrategy.
C.localizationstrategy.
D.jointventure.
E.globalstandardizationstrategy.
61.Firmsshouldchooselikelycountriesforaninternationalexpansioneffortbased
onallofthefollowingexceptthe
A.sizeofthemarket.
B.existingwealthofconsumersinthatmarket.
C.likelyfuturewealthofconsumersinthatmarket.
D.politicalstabilityofthatmarket.
E.ageofthecountry.
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62.Alocalizationstrategyismostappropriatewhen
A.therearerelativelyfewdifferencesfromonelocationtoanother.
B.consumertastesandpreferencesareuniversallysimilar.
C.consumertastesandpreferencesdiffersubstantiallyacrossnations.
D.thereisnoneedtocustomizeproducts.
E.localdemandandnationaldemandareequal.
63.Acompanythatentersaforeignmarketbyenteringintoalicensingagreement
withalocalcompanyA.canrealizelocationeconomies.
B.canengageinglobalstrategiccoordination.C.canrealizeexperiencecurveeffects.
D.riskslosingcontroloveritstechnologytotheventurepartner.
E.canengageinglobalstrategiccoordinationandrealizeexperiencecurveeffects.
64.For a hotel company whose competitive advantage is based on highbrand

namerecognition,whichofthefollowingwaysofservinganoverseasmarketmakes
themostsense?
A.FranchisingB.LicensingC.Exporting
D.EnteringintoajointventurewithaforeigncompanyE.Settingupawhollyowned
subsidiary
65.Which entry mode gives a multinational the tightest control over foreign
operations?
A.Exporting from the home country and letting a foreign agent organize local
marketing
B.Licensing
C.Franchising
D.Enteringintoajointventurewithaforeigncompanytosetupoverseasoperations
E.Settingupawhollyownedsubsidiary
66.Whichofthefollowingcompaniesexemplifiesthetrendtowardnationalmarkets
mergingintoonelargeglobalmarketplace?
A.McDonald's
B.Starbucks
C.CocaCola
D.Nokia
E.Allofthesechoices
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67.Which of the following isnotan attribute of a national orcountry

specificenvironment that has an impact on global competitiveness of companies
locatedinthatnation?
A.FactoryproductionendowmentsB.Localdemandconditions
C.Relatedandsupportingindustries
D.Strategy,structure,andrivalryoffirmswithinthenationE.
Advertisingexpenses
68.Anation'scompaniesgaincompetitiveadvantageiftheirdomesticcustomersare
A.nondemandingpurchasers.
B.abletoobtainproductsorservicesinothercountries.
C.sophisticatedanddemanding.
D.willingtospendmoneyonnovelties.
E.notwillingtoacceptlowpricedproducts.
69.GlobaleconomiesofscalecanberealizedbyA.expansionofoverseassales.
B.betterutilizationofproductionfacilities.C.boostingbargainingpowerwith
suppliers.
D.increasingcostsavingsthroughlearningeffects.E.
allofthesechoices.
70.Factorsofproductionincludeallbutwhichofthefollowing?A.Land
B.Labor
C.RawmaterialsD.
Ethnicdiversity
E.Managerialsophistication
71.Which of the following entry modes allow(s) a company to engage in global

strategiccoordination?A.Exporting
B.Licensing
C.Jointventures
D.Whollyownedsubsidiaries
E.Jointventuresandwhollyownedsubsidiaries
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72.AkeytomakingastrategicallianceworkisA.havingonepartnerhandledaily
operations.B.
selectingtherightpartner.
C.sharingallknowledge.
D.enforcingonecultureforbothpartners.
E.reducinginvestmentinthealliancetoaminimum.
73.AttainingacrediblecommitmentfromapotentialpartnerA.isastepinpartner
selection.
B.requirestheabilitytoshareskillswithpartners.C.requirestheabilitytolearnfrom
alliancepartners.D.
isawaytominimizeopportunism.
E.requirestheabilitytoshareskillswithandlearnfromalliancepartners.
74.CompaniesthatpursueatransnationalstrategyaretryingtodevelopA.abusiness
modelthatachieveslowcosts.
B.adifferentiationstrategyacrossgeographicalmarkets.
C.aflowofskillsbetweendifferentsubsidiariesintheglobalnetwork.D.
allofthese
choices.
75.Mostmanufacturingcompaniesbegintheirglobalexpansionby
A.licensing.
B.franchising.
C.exporting.
D.formingajointventure.
E.settingupawhollyownedsubsidiaryinthehostcountry.
76.Whichofthefollowingisnotariskofexporting?
A.Tariffbarriers
B.Transportationcosts
C.Locationdiseconomies
D.Primeinterestrates
E.Delegationofmarketingactivitiestoalocalagent
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77.Whataretherisksassociatedwithlicensingasameansofenteringoverseas
markets?A.Licensinglimitsacompany'sabilitytocoordinatestrategicmovesacross
countries.B.Acompanymaylosecontrolofitstechnology.
C. A company may lose control over its manufacturing, marketing, and strategic
functions.D.
Allofthesechoices.
78.What is meant by the termnational competitive advantage, and what are the
attributes of a nation that affect the global competitiveness of companies located
withinthatnation?
Nationalcompetitiveadvantagereferstothefactthatthenationwithinwhicha
companyisbasedmayhaveanimportantbearingonthecompetitivepositionofthat
companyintheglobalmarketplace.Therearefourattributesofacountry
specificenvironmentthathaveanimportantimpactontheglobalcompetitivenessof
companiesbasedwithinthatcountry.Factorendowmentsencompassanation's
positioninfactorsofproductionandincludefactorssuchasskilledlaborandthe
infrastructurenecessarytocompeteinagivenindustry.Demandconditionsreferto
thenatureofdemandforaproductorserviceinthehomecountry.Relatingand
supportingindustriesrefertothepresenceorabsenceofsupplierindustriesand
relatedindustriesthatareinternationallycompetitive.Finally,firmstrategy,structure,
andrivalryreferstotheconditionsinthenationgoverninghowcompaniesare
created,organized,andmanagedandthenatureofdomesticrivalry.
79.Identifyanddiscussthegeneralwaysinwhichcompaniescanincreasetheir
profitabilityandprofitgrowththroughglobalexpansion.
Companiescanincreasetheirprofitabilityandprofitgrowthfromglobalexpansionin
severalways.First,companiescantakegoodsorservicesdevelopedathomeandsell
theminternationally.Insodoing,acompanyinstantlyexpandsitsmarket,oftenby
usingthesamebusinessmodel.Itshouldbenotedthatbenefitsmaycomefromthe
factthatproductsaresuperior,butitisalsoimportantthatcompaniesuseexisting
competenciesinforeignmarketsaswell.Second,companiesthatexpandtheirsales
volumethroughinternationalexpansioncanexpecttorealizesavingsfromeconomies
ofscale,therebyincreasingprofitabilitythroughtheabilitytolowertheircost
structure.Third,companiescanrealizelocationeconomiesbyperformingvalue
creationactivitiesintheoptimallocationforthatactivity,whereverintheworldthat
maybe.Differentcountiesofferopportunitiestobothlowercostsandincrease
differentiation.Finally,acompanycanleveragetheskillsofglobalsubsidiariesby
applyingbestpracticesandgoodideasthatmaycomefromanywhereinthe
organization.
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80.Considerthecaseofafamilyownedfurnituremakingbusiness,headquarteredin
theUnitedStates,withfewerthanfiftyemployees,thatiscontemplatingexportingits
productsforthefirsttime.Whatmarketdoyourecommenditenter,andwhenand
howshoulditenter?Explainyouranswers.
Afurnituremakermustfindacountrythathasahighcurrentandfuturestandardof
livingsothatbuyerscanaffordtopayforaluxuryitemsuchasfurniture.Themarket
maybelargeorsmallbecauseasmallfirmdoesnotneedtoenteranewmarketona
largescale.Inaddition,themarketshouldbeclosetotheUnitedStatestominimize
transportationcosts,whichwouldbehighforheavy,bulkyfurnitureitems.Finally,
themarketshouldhavelowtradebarrierswiththeUnitedStates.Mexico,Canada,
andWesternEuropeancountrieswouldallseemtomeetthesecriteria.
Eachofthemarketsrecommendedabovehaveestablishedfirmsinthefurniture
industrythatwillmakeformidablerivals.Thefirmshouldtakeactiontoensureits
advantages,suchasestablishingabrandname,pricingtobuildsalesvolume,andso
on.Thescaleofentrywillbesmallbecauseofbothnecessityandcaution.Withtime,
ifthestrategyprovessuccessful,theventurecanbeexpanded.
81.Whirlpool,aleadingU.S.makerofhouseholdappliances,hasawhollyowned
subsidiarythatisresponsibleforresearchanddevelopment(R&D),manufacturing,
andsalesinovertwodozenEuropeancountries,fromNorwaytoGreece.Whatare
someofthepotentialadvantagesthatWhirlpoolmaygainfromitsuseofawholly
ownedsubsidiaryforglobalexpansion?Whataresomeofthepotential
disadvantages?
Whirlpoolstandstomakehighprofitsfromitswhollyownedsubsidiarybecauseit
doesn'thavetoshareprofitswithapartner,franchisee,orlicensee.Also,thefirm
maintainscontroloverproprietarytechnologyandknowhow.Tightqualitycontrolis
alsopossible,whichcanprotectthefirm'sbrandnamereputation.Inaddition,
Whirlpoolwilllikelyrealizeeconomiesofscaleandwillbeabletouseprofitsfrom
U.S.operationstofundfurtherexpansionintoEurope.Finally,thecompanywill
benefitfromlearningthattakesplaceatitssubsidiary.
Onthedownside,Whirlpoolhasinvesteditsowncapitalinthesubsidiaryand
thereforefacesalargeriskoffinancialloss.
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82.Whatarethepotentialbenefitsandrisksofglobalstrategicalliances?What
actionscanafirmtaketominimizetherisksandmaximizethebenefits?
Globalstrategicalliancessharetheriskofglobalexpansion,bringtogether
complementaryskills,facilitateentryintoanewmarket,andcansettechnological
standards.However,thepartnersrisklossofcontroloverproprietaryknowhow,they
mustlearntoworktogetherinacooperativefashion,andtheymustshareanyprofits
theyearn.
Tomaximizethebenefitsandminimizetherisks,firmsshouldchooseapartner
wisely,ensuringthatthepartneristrustworthy,hasacommonvision,andhas
complementaryskills.Toreducethepotentialforlossofcontrol,thecompanyshould
considerwallingoffthetechnology,writingcontractualsafeguards,usecross
licensingagreementstoexchangeskills,andaskforacrediblecommitmentin
advance.Finally,bringingthetwofirmstogetherisasignificantchallengeandcanbe
easedifmanagersaresensitivetoculturaldifferences,iftheybuildinterpersonal
relationshipsacrosscompanyboundaries,andiftheylookforopportunitiesformutual
learningandbenefit.
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Chapter9CorporateLevelStrategy:Horizontal
Integration,VerticalIntegration,andStrategic
OutsourcingKey
1.A company should first choose acorporatelevelstrategy and then look at how
changeswillaffectacompany'scurrentbusinessmodelandstrategies.
FALSE
2.Managers usecorporatelevelstrategy to identify which industries a company

shouldcompeteintomaximizelongrunprofitability.
TRUE
3.Bauxiteore,therawmaterialusedtoproducealuminum,varies considerablyin
content;thus,arefinerymustbedesignedfortheparticulartypeoforethatitrefines.
TRUE
4.Anadvantageofhorizontalintegrationisthatbystayinginoneindustry,afirmcan
focusitsresourcesandcapabilitiesoncompetingsuccessfullyinjustonearea.
TRUE
5.Whenacompanystaysinsideoneindustry,theproblemsofsustainingasuccessful
business model and strategies over time can be difficult because of changing
conditionsintheenvironment.
TRUE
6.Horizontalintegrationmaybeaccomplishedbyacquisitionsormergers.
TRUE
7.OracleCorp.,basedinReno,Nevada,hasbecometheworld'slargestmakerof
databasesoftwarelargelythroughastrategyofacquisition.
FALSE
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8.At the time of the merger of Hewlett Packard and Compaq, Dell Computer's
competitive advantage over Hewlett Packard was based on Dell'scost
leadershipbusinessmodel.
TRUE
9.Horizontalintegrationcanhelplowercostswhenitallowsacompanytoreducethe
duplicationofresources.
TRUE
10.Product bundling occurs when a firm offers a range of products that are sold
togetheratasingleprice.
TRUE
11.WhenCitibankoffershomemortgagesandcreditcardstoitscheckingaccount
customers,itisusing
crossselling.
TRUE
12.Horizontalintegrationcanleadtolowcostadvantagesbutrarelytodifferentiation
advantages.
FALSE
13.Horizontalintegrationalmostalwaysincreasesrivalryinanindustry.
FALSE
14.Oneoutcomeofhorizontalintegrationisindustryconsolidation,leadingtomore
bargainingpoweroverbuyersandsuppliers.
TRUE
15.Vertical integration is undertaken to support the competitive position of a

company'scorebusiness.
TRUE
16.Acompanyachievesfullintegrationwhenitproduces allofaparticularinput
neededforitsprocessesordisposesofallofitscompletedproductsthroughitsown
operations.
TRUE
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17.Companyspecificknowhowacquiredthroughtrainingisaspecializedasset.
TRUE
18.Competitivebiddingmakessuppliersreluctanttomakeinvestmentsthattiethem
closelytotheirtradingpartners.
TRUE
19.Astrategicallianceisasubstituteforhorizontalintegration.
FALSE
20.Even though companies may invest in specialized assets to build competitive

advantage,itisseldomnecessarythatsuppliersdoso.
FALSE
21.Verticalintegrationcanstrengthenacompany'sdifferentiationadvantage.
TRUE
22.Verticalintegrationcanraisecostsif,overtime,acompanycontinuestopurchase
inputs fromcompanyownedsuppliers when independent suppliers can supply the
sameinputsatlowercost.
TRUE
23.The termbureaucratic costsrefers to costs associated with the creation and

maintenanceoftheadministrativefunctioninacompany.
FALSE
24.Verticalintegrationcanberiskywhendemandisunpredictablebecauseitishard
tomanagethevolumeorflowofproductsalongthevalueaddedchain.
TRUE
25.A company seeking to form alongtermstrategic alliance needs to enter the

agreementwithtotaltrustinitspartnertoliveuptoitsendoftheagreement.
FALSE
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26.Strategicoutsourcingisthedecisiontoallowoneormoreofacompany'svalue
chainactivitiesorfunctionstobeperformedbyindependentcompanies.
TRUE
27.Companiesthatoutsourcemostoralloftheirvaluecreationactivitiesareoften
referredtoasvirtualcorporations.
TRUE
28.Acompanymaybeabletodifferentiateitsfinalproductsbetterbyoutsourcing
certainnoncoreactivitiestospecialists.
TRUE
29.Thefinalpartofthestrategyformulationprocessis
A.formulationofbusinesslevelstrategies.
B.formulationoffunctionallevelstrategies.
C.formulationofcorporatelevelstrategies.
D.developmentoffunctionallevelgoals.
E.developmentofbusinesslevelgoals.
30.Whenacompanydecidestoexpandintonewindustries,itmustA.
constructits
businessmodelsattwolevels.
B.securegovernmentapprovalfromtheSecuritiesandExchangeCommission(SEC).
C.selectanewCEO.
D.allofthesechoices.E.noneofthesechoices.
31.Aspecializedassetisonethatisdesignedto
A.performamultitudeofgenerictasks.
B.performaspecifiedsequenceoftasks.
C.performseveralnonsequentialtasks.
D.performaspecifictask.
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32.CompaniesinvestinspecializedassetsbecausetheseassetsallowthemtoA.lower
theircoststructure.
B.chargeexcessivepricesfortheirproducts.C.betterdifferentiatetheirproducts.
D.AandB.E.
AandC.
33.Manyindustrieshaveexperiencedincreasedconsolidationoverthelastdecadedue
toanincreaseinA.strategicalliances.
B.verticalintegration.C.
horizontalintegration.D.franchising.
E.diversification.
34.Whichofthefollowingisabenefitthatfirmsshouldexpecttogainfromtheuseof
horizontalintegration?A.Expandedcontroloverstagesofthesupplychain
B.BetterrealizationofeconomiesofscaleC.Sharedriskwithanotherfirm
D.Reducedriskofholdup
E.Reducedinvestmentsinnoncoreactivities
35.Horizontalintegrationmaybethoughtofas
A.movingintoanewunrelatedindustry.
B.givingcontroltosuppliers.
C.gainingcontrolofdistributors.
D.stayinginsidetheindustryinwhichthecompanycurrentlyoperates.
E.combiningfunctionalunitswithinthecompany.
36.Intoday'sbusinessenvironment,mergersandacquisitionsare
A.rare.
B.tooexpensivetoundertake.
C.occurringinmanyindustries.
D.aninappropriatetechniqueforexpandingacompany.
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37.HorizontalintegrationinanindustrytendstoA.increaserivalryamongfirms.
B.reducerivalryamongfirms.
C.havelittleeffectonrivalryamongfirms.
D.reducethenumberofconsumersbuyingtheproducts.E.noneofthesechoices.
38.Adam's boss tells him that their company is pursuing a strategy of horizontal
integration,whichmeansthatthecompanywill
A.acquireoneofitssuppliers.B.
buyoneofitsrivals.
C.begintodistributeitsownproducts.D.reorganizeintofewerbusinessunits.E.
centralizeallofitssupportfunctions.
39.ObservingthepatternofconsolidationinU.S.industriesovertime,onewillnotice
that
A.horizontalintegrationhasneverbeenaverypopularstrategy.
B.firmsthathorizontallyintegratetendtodivestlater.
C.horizontalintegrationhasbeenverypopularinthelastdecade.
D.whileafewindustrieshaveconsolidatedsince1970,mostremainfragmented.
E.mergerswereverycommonandacquisitionswererarefrom1900to1999.
40.HewlettPackardandCompaqrecentlycompletedamerger.Thecombinedfirmis
larger and therefore can negotiate lower prices from suppliers. This benefit of
horizontalintegrationiscalled
A.economiesofscale.
B.reductionofexcesscapacity.C.crossselling.
D.productbundling.E.
marketpower.
41.Antitrustregulation
A.favorslargecompanies.
B.reducesindustrycompetition.
C.isconcernedwithcompanies'abuseoftheirmarketpowertoraisepricesfor
consumersabovethelevelthatwouldexistinmorecompetitivesituations.
D.tendstoraisepricesforconsumers.
E.enablestheachievementofmarketpower.
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42.Whenanintermediatemanufacturermovesintofinalassembly,itispursuingA.
backwardintegration.
B.forwardintegration.C.taperintegration.
D.relateddiversification.E.unrelateddiversification.
43.Whichofthefollowingisnotabenefitofverticalintegration?
A.Facilitatinginvestmentsinspecializedassets
B.Enhancingproductquality
C.Improvedscheduling
D.Increasingcoststructure
44.Verticalintegrationcanbedisadvantageous whenA.competitorsarevertically
integrated.
B.demandisstable.
C.industrytechnologyischangingrapidly.D.technologyischangingslowly.
E.competitorsareverticallyintegratedandindustrytechnologychangesrapidly.
45.Taperintegration
A.hashigherbureaucraticcoststhandoesfullintegration.
B.haslowerbureaucraticcoststhandoeslongtermcontracts.
C.canincreasetheincentiveforinhousesupplierstoreducecosts.
D.ispreferabletofullintegrationwhendemandconditionsarestable.
E.eliminatesthedisadvantageofpotentialtechnologicalobsolescence.
46.Whichofthefollowingisabenefitofhorizontalintegration?
A.Lowercoststructure
B.Increasedproductdifferentiation
C.Replicatedbusinessmodel
D.Increasedbargainingpoweroversuppliers
E.Allofthesechoices
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47.AwealthofdatasuggeststhatmostmergersandacquisitionsA.createextensive
valueforthecompaniesinvolved.
B.donotcreate,andmayactuallyreduce,valuefortheentitiesinvolved.C.create
andsustainlargeandimmediateincreasesinvalue.
D.havelittlefinancialimpactonthefirmsinvolved.E.noneofthesechoices.
48.AcompanypursuingastrategyofverticalintegrationmayexpanditsoperationsA.
backwardintoanindustrythatproducesinputsforthecompany'sproducts.
B.forwardintoanindustrythatuses,distributes,orsellsthecompany'sproducts.C.
laterallyintoanindustrythatcompeteswiththecompany'sproducts.
D.AandB.E.AandC.
49.Underwhichofthefollowingcircumstancesisverticalintegrationhazardous?
A.Whenthetechnologyinvolvedindifferentstagesofproductionischangingrapidly
B.Whenverticalintegrationinvolvesmovingdownstreamintoretailing
C.Whenthevalueaddedbysuccessivestagesofproductionisdeclining
D.Whentheindustriesinvolvedareundergoingrapidexpansion
E.When the company's competitors are also following a strategy of vertical
integration
50.Underwhichofthefollowingcircumstancesisverticalintegrationmostlikelyto
helpacompanyestablishitselfasadifferentiatedplayerinitscorebusiness?
A. When backward vertical integration involves circumventing suppliers with the
powertochargehighpricesB.Whenverticalintegrationisbasedonadesiretoavoid
payingmarketmiddlemen
C.Whenverticalintegrationallowsthecompanytoestablishforitselfastablesupply
ofhighqualityinputsD.Whenverticalintegrationfacilitatesclosecoordination
amongadjacentstagesofproduction,eliminatingtheneedtoholdexcessive
inventories
E.Whenverticalintegrationprohibitstechnologicallycomplementaryprocessesbeing
carriedoutinquicksuccession
51.Whichofthefollowingstatementsconcerningverticalintegrationisnotcorrect?
A.Verticalintegrationcanreduceacompany'soverallcostofproduction.
B.Verticalintegrationallowsacompanytocircumventpowerfulbuyersandsuppliers.
C.Verticalintegrationcanbeusedtoprotectacompany'sinvestmentsinproprietary
technology.
D.Vertical integration is a means of implementingjustintimeinventory systems
whensuppliersareunreliable.
E.Verticalintegrationfacilitatestheattainmentofeconomiesofscope.
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52.Which of the following strategies facilitates the implementation of ajustin

timeinventorysystem?A.Shorttermcontracts
B.Verticalintegration
C.Unrelateddiversification
D.DiversificationbasedontransferringcompetenciesE.Diversificationbasedon
realizingeconomiesofscope
53.Companiescanmaintainmarketdisciplineoversuppliersby
A.outsourcing.
B.demandinghostages.
C.attainingacrediblecommitment.
D.parallelsourcing.
E.fullintegration.
54.Whichofthefollowingisnotacharacteristicofstrategicalliancesenteredintoto
supportrelateddiversification?
A.Itisawayforcompaniestorealizesomeofthebenefitsofdiversificationata
lowerlevelofbureaucraticcosts.
B.Itrequireseachcompanytotakeanequitystakeinthenewventure.
C.Adisadvantageistheriskoflosingproprietaryknowhowtoacompetitor.
D.Itentailsinvestinginanewbusinessorproduct(includingupgrades)insteadofan
existingone.E.Itallowsacompanytoswapcomplementaryskills.
55.Crediblecommitments
A.arebelievablepromisesorpledgestosupportthedevelopmentofalong
termrelationshipbetweencompanies.
B.facilitatediversificationbasedonacquisitionsandrestructuring.
C.facilitatecompetitivebidding.
D.facilitateverticalintegration.
E.reducetheriskoflosingproprietarytechnologytoaventurepartnerandfacilitate
verticalintegration.
56.Anothernameforlongtermcooperativerelationshipsbetweentwoormore
companieswhoagreetocommitresourcestodevelopnewproductsis
A.horizontalintegration.
B.outsourcing.
C.strategicalliance.
D.jointventure.
E.verticalintegration.
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57.Ahospitalsupplycompanyinvestsintrainingforateamofsalesassociatesto
learn the details of each hospital chain's operations. In return, the hospital chain
investsinacomputersystemthatsupportssupplyordering.Thesupplycompanyand
thehospitalchainareworkingtoensurethesuccessoftheirlongtermrelationshipby
A. reducing the risk of losing proprietary technology.B.
making a credible
commitment.
C.encouragingcompetitivebidding.D.facilitatingverticalintegration.E.using
parallelsourcing.
58.Verticalintegrationisbasedonacompanyenteringindustriesthatadd____toits
coreproducts.
A.costs
B.littleornothing
C.incrementalelements
D.shippingexpenses
E.value
59.ForwardintegrationmeansthatacompanyismovingintoA.sales.
B.retail.
C.distribution.
60.OwnershipofretailoutletsmaybeimportantforamanufacturerifA.theproducts
producedbythemanufacturerarenotcomplex.
B.aftersalesserviceisrequiredforcomplexproducts.C.productsareexpendedin
consumption.
D.productsareintendedforonetimeuse.E.productsareinexpensive.
61.Whichofthefollowingproblemsis(are)associatedwithastrategyofvertical
integration?A.Anincreasingcoststructure
B.ManufacturingdisadvantagesthatarisebecauseofrapidlychangingtechnologyC.
Marketingdisadvantagesthatarisewhendemandisunpredictable
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62.Tobuildtrustinacooperativerelationship,bothfirmscanA.relyoncompetitive
bidding.
B.makemutualinvestmentsinspecializedassets.
C. writeshorttermcontracts that must be renewed frequently. D. increase their
verticalintegration.
E.useoutsourcingofnoncoreactivities.
63.John's surfboard shop has alongtermrelationship with two surfboard makers.

JohnisusingA.
parallelsourcing.
B.crossselling.
C.productbundling.D.verticalintegration.
E.horizontalintegration.
64.Whenthereisaminimalneedforcloselongtermcooperationbetweenacompany
anditssuppliers,whichofthefollowingstrategiesisthemostappropriate?
A.FullintegrationB.Taperintegration
C.CompetitivebiddingD.Longtermcontracting
E.Diversificationbasedoneconomiesofscope
65.Longtermcontracts
A.arepreferabletoshorttermcontractswhenthereisaminimalneedforcooperation.
B.arepreferabletoverticalintegrationwhenitisnotfeasibletoexchangehostages.
C.generallyresultinlowerpricesthandoescompetitivebidding.
D.achieveexactlythesameoutcomesasverticalintegration,buttheyincurhigher
bureaucraticcosts.
E.arealowcostalternativetoverticalintegrationwhenitispossibletobuild
cooperativerelationshipswithsuppliers.
66.Outsourcingoccurswhenafirm
A.buysoneofitsrivals.
B.mergeswithoneofitssuppliers.
C.entersintoajointventurewitharival.
D.hiresanotherfirmtoperformvaluecreationactivities.
E.entersintocontractswithtwosupplierssimultaneously.
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67.Which of the following activities shouldnotbe outsourced by a virtual

corporation?A.Manufacturing
B.Researchanddevelopment(R&D)C.Materialsmanagement
D.ContractmanagementE.Marketing
68.Whichofthefollowingisnotanaccuratestatementaboutoutsourcing?
A.Outsourcing should be done for an entire functionfor example, all of human
resources.
B.Outsourcingrequiresthatsomevaluecreationactivitiesbeperformedoutsidean
organization.
C.Ariskofoutsourcingisthedecreasedcontrolthatorganizationshaveoverhowthe
functionsareperformed.
D.Outsourcingmeansthatactivitiescanbeperformedbycompaniesthatspecializein
thatactivity.
E.Outsourcingisastrategythatisprimarilyusedbysmallfirmswhocannotafford
skilledpersonnelineveryspecialty.
69.Inwhichofthefollowingisafirmmostlikelytolosedirectcontrolovervalue
creationactivities?A.Merger
B.Acquisition
C.VerticalintegrationD.StrategicallianceE.
Outsourcing
70.Outsourcing
A.eliminatestheneedforavaluechain.
B.reducesthefirm'sdependenceonitsvaluechain.
C.reordersthestepsinafirm'svaluechain.
D.movessomevaluechainactivitiesoutsidethefirm.
E.strengthensthefirm'scapabilitiesineachvaluechainfunction.
71.Toensuretheeasytransferofimportantcompetitiveinformationbetweenafirm
anditsoutsourcingcontractors,thefirmshould
A.exchangehostages.
B.useparallelsourcing.
C.lengthenthesupplychain.
D.developtrust.
E.becomeavirtualcorporation.
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72.When technology in an industry is changing rapidly, a company pursuing a

strategyofverticalintegrationmayfinditself
A.lockedintoanold,inefficienttechnology.
B.abletosellitsproductsatcontinuallylowerprices.C.increasingreturnsonits
assets.
73.Astrategyofverticalintegrationmaybeariskystrategyforacompanytopursue
whendemandis
A.predictable.
B.stable.
C.unpredictable.
D.steadilyincreasing.
E.rapidlyincreasing.
74.Strategicalliancesare
A.shorttermagreementsbetweentwocompaniestojointlydevelopnewproducts.
B.shorttermagreementsbetweentwocompaniestojointlymarketnewproducts.
C.shorttermpartnershipsbetweentwocompanies.
D.longtermcommitmentsbetweentwocompaniestoshareresearchanddevelopment
activities.
E.longtermagreementsbetweentwoormorecompaniestojointlydevelopproducts
thatbenefitallcompaniesinvolvedinthealliance.
75.Underacompetitivebiddingstrategy,independentcomponentsupplierscompete
witheachothertobethecompanythatwillbechosentosupply
A.aparticularpartforaparticularmanufacturer.B.allofthepartsforaparticular
manufacturer.
C. a particular part for all manufacturers in the industry. D. all parts for all
manufacturersintheindustry.
76.Acrediblecommitmentonthepartoftwocompaniesisanexampleofa
A.shorttermagreement.
B.commitmentthatmaybeterminatedbyeithercompanyatanytime.
C.believablepromiseorpledgetosupportthedevelopmentofalong
termrelationshipbetweencompanies.
D.publicrelationsgestureundertakentostimulatesales.
E.marketingstrategy.
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77.Strategic outsourcing is best described as a A. means of getting rid of excess

activities.
B.wayofgettingothercompaniestodowhattheoutsourcingcompanynolonger
wantstodo.C.methodofstreamliningthemarketingactivitiesofacompany.
D.decision to allow one or more of a company's value chain activities to be
performedbyothercompanies.E.noneofthesechoices.
78.What is the relationship between a company'scorporatelevelstrategy and its

businessmodel?
Corporatelevelstrategiesdriveacompany'sbusinessmodelovertimeandultimately
helpdeterminethekindsofbusinessandfunctionallevelstrategiesthatitusesto
maximizelongrunprofitability.Thelinkbetweencorporatestrategyandprofitability
shouldbeunderscored.
Toincreaseprofitability,acorporatestrategyshouldenableacompany,oroneor
moreofitsbusinessdivisions,orunits,toperformoneormorevaluechainactivities
orfunctionsateitheralowercostorinawaythatallowsfordifferentiation.In
addition,corporatestrategymayhaveapositiveimpactonprofitabilityifithelpsa
companyachieveabettercompetitivepositioninthemarketplace.
Thus,acompany'scorporatelevelstrategiesshouldbechosentopromotethesuccess
ofacompany'sbusinessmodelandtohelpachievesustainablecompetitiveadvantage
atthebusinesslevel.
79.Comparethebenefitsandrisksassociatedwithhorizontalandverticalintegration.
Underwhatcircumstanceswouldafirmpreferoneovertheother?
Horizontalintegrationhasmanyofthesamebenefitsandrisksasverticalintegration.
Forexample,bothrisktheinabilitytoblendtwodifferentorganizationalcultures,
bothcanleadtolowercosts,andsoon.Oneareaofdifferenceisthathorizontal
integrationisalwayswithrivals,whileverticalintegrationiswithbuyerorsupplier
firms.Therefore,thenatureoftheintegration,implementation,andanticipatedcost
savingsisdifferent.Anotherdifferenceisthatverticallyintegratedfirmsfacetherisk
ofhighoperatingcostsrelativetooutsidesuppliersorbuyersduetolackof
competitivepressure.Athirddifferenceisthatthebureaucraticcostsofvertical
integrationarelikelytobehigherbecauseoftheneedforclosecoordinationbetween
businessunitsthatareconnectedinthesamesupplychain,whichisnotaconcernfor
ahorizontallyintegratedfirm.
Mergersaremorecommonthanacquisitionswhenthetwofirmsareofapproximately
equalsize,althoughtherehavebeenacquisitionsbetweenequals,andsmallerfirms
haveevenacquiredlargerones.Anacquisitionrequirescashorsomeotherformof
paymenttomeetthepurchaseprice,whileamergerisamereblendingofassetsand
somaybepreferableforcashpoorcompanies.Also,amergerisalwaysfriendly,
whileanacquisitionmaybeeitherfriendlyorhostile.Whenonepartyisreluctantto
enterintothedeal,acquisitionwouldbethepreferredmethod.
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80.Howcanstrategicoutsourcingstrengthenacompany'sbusinessmodeland
increaseitsprofitability?
Strategicoutsourcingisthedecisiontoallowoneormoreofacompany'svaluechain
activitiesorfunctionstobeperformedbyindependentcompaniesthatarespecialists
inthoseactivities.Companiesgenerallyoutsourcenoncoreactivities.
Strategicoutsourcingcanhelpstrengthenacompany'sbusinessmodelandincreaseits
profitabilityinseveralways.First,outsourcingcanhelpreduceacompany'scost
structure.Outsourcingreducescostswhenthepricethatitpaystoanindependent
companytoperformoneormoreofitsvaluechainactivitiesislowerthanthecostof
performingtheactivitiesitself.Second,outsourcingcanhelpacompanyenhanceits
differentiation.Thisoccurswhentheindependentfirmperformsanactivityata
higherlevelofqualitythanthecompanyperformstheactivity.Finally,outsourcing
allowscompaniestofocustheirenergiesandcompanyresourcesonperformingthose
coreactivitiesthathavethemostpotentialtocreatevalueandcompetitiveadvantage.
81.Considerthecaseofamanufacturingfirmthatpurchasessubassembliesfroma
supplier,createsafinishedproduct,andthensellsthatproducttoawholesale
distributor.Whatadvantagesmightthisfirmgainfromforwardintegration?From
backwardintegration?Whatpotentialpitfallsofverticalintegrationmightthefirm
face?
Forwardintegrationwouldallowthemanufacturingfirmtoownitsdistributors,
whichcouldenableittorealizehigherprofitsbecauseitwillbeabletocapturethe
profitsthatwerepreviouslygoingtothedistributor.Also,theverticallyintegrated
firmwillbelargerandthereforecanmoreeasilybuildbarrierstoentry,limit
competition,andchargehigherprices.Thefirmmayalsofindthatitcaninvestmore
readilyinspecializedassets,whichprotectproductquality,enablingdifferentiation
andhigherprices.Afinalbenefitwouldbetheincreasedeaseofschedulingand
coordination,andtheincreasedopportunitiesfororganizationallearning.
Backwardintegrationwouldrequirethefirmtobuilditsownsubassemblies.The
benefitsofbackwardintegrationarethesameasthosefoundinforwardintegration.
However,whetherthefirmchoosesforwardorbackwardintegration,itmustconsider
somepotentialpitfalls.First,byowningmorevaluecreationactivities,thefirm's
complexityisincreasing,whichwillincreasebureaucraticcosts.Second,thebuyeror
supplierbusinessunitsmaybelessmotivatedtokeepexpenseslowbecausetheyhave
aguaranteedsellerorbuyerfortheiroutput.Third,ownershipoftheadditionalsteps
intheprocesslocksthefirmintotechnology,capacity,cost,andotherchoices,
whereasthenonintegratedfirmisfreetochooseothersuppliers,othertechnology,
otherquantities,andsoon,throughpurchasingagreements.
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82.Strategicalliancesandoutsourcingaretwoalternativestoverticalintegration.
Whataretheadvantagesanddisadvantagesofeachcomparedtoverticalintegration?
Whatcanmanagersdotoeliminateorreducetherisks?
Comparedtoverticalintegration,strategicalliancesallowthefirmtoreduceits
bureaucraticcostsbecausethefirmnolongerhastomanagetheentiresetofcomplex
activities.Also,strategicalliancesenablethefirmtoremainflexibleforexample,by
renegotiatingthecontractterms.Thismeansthefirmisnotlockedintochoicesabout
technology,capacity,andsoon.Thus,strategicalliancesprovidetheadvantagesof
verticalintegrationclosercoordination,investmentinspecializedassets,andso
onbutwithlowercostsandincreasedflexibility.Themajordisadvantagesof
strategicalliancesarethepotentiallyhighercostsofallowingthepartnertoprofitand
thepossibilityoflosingcontroloverscheduling,proprietaryknowhow,andother
items.
Outsourcingwillreducecostswhenthepricepaidtoaspecialistcompanyislessthan
performingthefunctioninternally.Specialistscancontroltheircoststructure(and
thereforeoffertheirservicesatattractiveprices)becauseofeconomiesofscale,
learningeffects,locationscale,andotherefficienciesnotavailabletotheclient
company.Secondly,outsourcingwillaffordtheclientcompanygreaterabilityto
differentiateitsfinalproductsifthequalityoftheactivityisgreaterthanthequality
thatcouldbeachievedinternally.Higherqualityproductswithlowerdefectrates,for
example,translateintoreliability,akeyfactorindifferentiation.Thirdly,outsourcing
allowsmanagerstofocustheirenergiesandthecompany'sresourcesoncore
activities.Thepitfallstooutsourcingincludetheriskofoverdependenceonthe
specialist(sometimesleadingtoholdup,anextremeeffectofbargainingpower),and
thelossofcriticalinformation(suchascustomercomplaints).Comparedtovertical
integration,outsourcingrequiresmuchlessoutlayofresources,affordsgreater
flexibilityandlesscomplexity,andkeepsanorganizationontrackwithitscore
business.
Toreduceoreliminaterisks,managersconsideringtheuseofstrategicalliancesor
outsourcingcantakeactionsthataligntheinterestsofthepartiesmoreclosely.For
example,thepartiescanexchangehostagesbytheuseofmutualinvestmentsin
specializedassets,alsocalledcrediblecommitments.Thiswillensurethateachparty
caninflictsomecostsontheother,lesseningthechancethateitherwilldoso.Market
discipline,intheformofawillingnesstorenegotiatecontractualagreementsorswitch
toadifferentpartneraltogether,alsoreducesthechancesofonefirmtakingadvantage
oftheother.Anotherwaytoaccomplishmarketdisciplineisthroughtheuseof
parallelsourcingsothatthefirmusestwoormorepartners,signalingits
independencefromboth.Finally,anyactionthatservestobuildtrust,encourage
cooperation,improvecommunication,supportpersonalfriendships,andsoon,will
increasethechancesthatthefirmswillactinawaythatenhancesthebenefitsfor
both.
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Chapter10CorporateLevelStrategy:Related
andUnrelated
DiversificationKey
1.Companiesthatconcentrateonjustoneindustrymaymissoutonopportunitiesto
increasetheirprofitabilitybyleveragingtheirdistinctivecompetenciestomakeand
sellproductsinnewindustries.
TRUE
2.Diversificationistheprocessofacompanyenteringnewindustriesdistinctfromits
coreindustry,usingamultibusinessmodel.
TRUE
3.Freecashflowreferstoadditionalfundsfromagovernmentstimulusprogram.
FALSE
4.If a company generates free cash flow, that money technically belongs to
shareholders.
TRUE
5.Transferring competencies across industries involves taking a distinctive

competencydevelopedinoneindustryandimplantingitinanexistingbusinessunit
inanotherindustry.
TRUE
6.A100yearoldindustrialgiant,3Mservesasanexampleofhowacompanycan
leveragetechnologytocreatesuccessfulnewbusiness.
TRUE
7.Ifacompany'scoreskillsarehighlyspecializedandhavefewapplicationsoutside
thecorebusiness,thenacompanyshouldpursuearelateddiversificationstrategy.
FALSE
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8.Intelisanexampleofacompanythatmovedfromarelateddiversificationstrategy
toaconcentrationstrategy.
FALSE
9.Acompanyshouldpursuerelateddiversificationonlytoenhancethecompetitive
positionofitscorebusiness.
TRUE
10.Economiesofscopearisewhenoneormoreofadiversifiedcompany'sbusiness
unitsareabletorealizecostsavingordifferentiationadvantagesbecausetheycan
moreeffectivelypool,share,andutilizeresourcesorcapabilities.
TRUE
11.Multipoint competition occurs when companies compete against each other in

differentindustries.
TRUE
12.Firmswithsuperiorstrategiccapabilitiescancreateprofitablenewbusinessunits
atamuchhigherratethanmostothercompaniescan.
FALSE
13.Fordiversificationtoincreaseprofitability,acompany'stopmanagersmusthave
superiorentrepreneurialcapabilities.
FALSE
14.One way a diversified company can increase its profitability is by acquiring

inefficientorpoorlymanagedcompaniesandthenrestructuringthemtoimprovetheir
performance.
TRUE
15.Anadvantageofrelateddiversificationisthatitallowsacompanytoquicklygain
entryintoanewindustrywherebarriersarehigh.
TRUE
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16.Anadvantageofunrelateddiversificationisthatcompetenciescanbesharedand
leveragedthroughoutthevaluechainactivities.
FALSE
17.An appropriate reason to diversify is to pool the risk from several business
venturesinordertocreateamorestableincomestream.
FALSE
18.Companieswithastrongtrackrecordofinternalnewventuringgenerallyexcelat
researchanddevelopment.
TRUE
19.A company can increase the probability of success of an internal venture by

constructingefficientscalemanufacturingfacilitiesaheadofdemand.
TRUE
20.Internal new ventures can generally be executed far more quickly than
acquisitions.
FALSE
21.The higher the number of business units in a company's portfolio, the more
difficultitisforcorporatemanagerstoremaininformedaboutthecomplexitiesof
eachbusiness.
TRUE
22.Thecoordinationrequiredtorealizevaluefromadiversificationstrategybasedon
transferring,sharing,orleveragingcompetenciesisamajorsourceofbureaucratic
costs.
TRUE
23.Researchevidencesuggeststhatsmallscaleentryintoanewbusinessisthebest
wayforaninternalventuretosucceed.
FALSE
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24.Researchsuggeststhatcompaniesthatacquiremanybusinessesovertimebecome
expertinthisprocessandsocangeneratesignificantvaluefromtheiracquisitions.
TRUE
25.Ajointventureallows acompanytosharetherisksandcosts associatedwith

establishinganewbusinessunitwithanothercompany.
TRUE
26.Alaundromatandapoolhalltogetherinvestinanewstore,wherecustomerscan
washtheirclothesandplaypoolwhilewaiting.Thisisanexampleofaninternalnew
venture.
FALSE
27.Much of Tyco's growth in earnings in the early 1990s was driven by joint
venturing.
FALSE
28.Critics ofTyco's financial performanceinthelate1990s arguedthatcompany

officialswereinflatingtheprofitabilityofTyco'soperatingunits.
TRUE
29.Thethreemaintypesofdiversificationstrategiesare
A.Acquisitions,jointventures,anddivestments.
B.Acquisitions,mergers,andbuyouts.
C.Acquisitions,internalnewventures,andjointventures.
D.Relatedacquisitions,unrelatedacquisitions,andmergers.
E.Jointventures,strategicalliances,andlongtermcontracts.
30.Freecashflowisdefinedas
A.moneyinacompany'sbankaccount.
B.government funds given to a company for meeting Environmental Protection
Agency(EPA)regulations.
C.additionalfundsdonatedbystockholders.
D.cashinexcessofthatrequiredtofundinvestmentsinthecompany'sindustryand
tomeetanydebtcommitments.
E.moneyborrowedbythecompanythatrequiresnointerestpayments.
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31.The role of managers with respect tocorporatelevelstrategy is to A. identify

whichresourcesprovidedistinctivecapabilities.
B.identify which industries a company should compete in to maximizelong
runprofit.
C.identifywhichofthecompany'sbusinesseshasasustainablesourceofcompetitive
advantage.D.positionthefirmwithinitsindustry.
E.strengthenacompany'scorecompetitivecompetencies.
32.A focus on using or recombining existing competencies or building new

competencies to enter new markets helps managers think strategically about how
industryboundaries
A.tendtoremainstaticovertime.B.
mightchangeovertime.
C.completelydisappearoverfiveyearspans.D.arenotimportant.
33.Companies that base their diversification strategy on transferring competencies

tendtoacquirenewbusinessesthatare____totheirexistingbusinessactivities.
A.unrelated
B.notcomparableC.opposed
D.relatedE.identical
34.Leveragingcompetenciesinvolvestakingadistinctivecompetencydevelopedbya
businessunitinoneindustrytocreate
A.anewbusinessunitinthesameindustry.B.
anewbusinessunitinadifferent
industry.C.anewindustry.
D.anewmarketsegment.
E.newcustomersinthesameindustry.
35.Productbundlingrefersto
A.preparationofproductsforshipment.
B.acompletepackageofrelatedproducts.
C.amethodofstockingproductsefficiently.
D.aninventoryprocedureforensuringeffectivecountingofproducts.
E.apackageofunrelatedproducts.
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36.General organizational competencies refer to competencies A. existing in

individualbusinessunits.
B.existinginindividualfunctionalunits.
C.existingintheindustryinwhichacompanyoperates.D.thatcanbeprocuredin
themarketplace.
E.thattranscendindividualfunctionsorbusinessunits.
37.Whatistheprocessoftransferringresourcestoandcreatinganewbusinessunitin
anewindustrycalled?A.Externalnewventuring
B.ExportationofresourcesC.Intrapreneuring
D.Riskavoidance
E.Internalnewventuring
38.When a company has cash in excess of the amount needed to maintain a

competitiveadvantageinitscorebusiness,itwillmostlikelypursue
A.taperintegration.B.fullintegration.C.
diversification.
D.longtermcontracts.E.strategicalliances.
39.Whichdiversificationstrategyisbasedontheideathatthecompanycreatesvalue
by applying the distinctive competencies it developed in one line of business to
anotherbusinessactivity?
A.AtechnologyacquisitionstrategyB.
Relateddiversification
C.ArestructuringstrategyD.Totaldiversification
E.Ataperdiversificationstrategy
40.Whichofthefollowingstatementsisnotgenerallytrueofadiversificationstrategy
basedontherealizationofeconomiesofscope?
A.Theheadofficeevaluateseachbusinessunitasastandaloneoperation.
B. The strategy allows a company to realize cost economies from sharing
manufacturingfacilities,distributionchannels,advertisingcampaigns,andresearch
anddevelopmentcostsamongbusinessunits.
C. The strategy may allow a company to use shared resources more intensively,
therebyrealizingeconomiesofscale.
D.Managersmustbeawareofthecostsofcoordination.
E.Thestrategyrequiresclosecoordinationamongdifferentbusinessunits.
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41.Whichofthefollowingmaybetrueforacompanypursuingastrategyofunrelated
diversificationratherthanastrategyofrelateddiversification?
A.Thecompanydoesnothavetoachievecoordinationbetweenbusinessunits.B.
Thecompanyhasbroadorganizationalcompetenciesthatcanbetransferred.C.The
companyhassuperiorstrategicmanagementandorganizationaldesign.D.
Allofthese
choices.
42.Acompanypursuingamultibusinessmodelbasedondiversificationmayjustify
thisstrategyforwhatreason(s)?
A.TransfercompetenciesB.ReservecompetenciesC.Resourcesharing
D.ProductbundlingE.
Allofthesechoices
43.Adiversificationstrategybasedonresourcesharing
A.entails a company creating value by applying the distinctive competencies it
developedinonelineofbusinesstoanotherlineofbusiness.
B.requiresthedevelopmentofnewbusinesslevelstrategies.
C.canhelpacompanytorealizeeconomiesofscope.
D.isavalidwayofsupportingthegenericbusinesslevelstrategyofdifferentiation.
E.increasestheaccountabilityofunits.
44.Generalorganizationalcompetenciesarefound
A.intheskillsofacompany'stopmanagersandfunctionalexperts.
B.atlowlevelsintheorganization.
C.amongtechnologyprofessionals.
D.withinacompany'sstrategiccore.
E.inanorganization'stangibleresources.
45.Whichofthefollowingisnotageneralorganizationalcompetency?
A.Entrepreneurialcapabilities
B.Capabilitiesinorganizationaldesign
C.Superiorstrategiccapabilities
D.Productbundling
E.Allofthesechoices
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46.A company should pursue related diversification instead of unrelated

diversificationwhenthecompany'sA.
coreskillsareapplicabletoawidevarietyof
industrialandcommercialsituations.
B. core skills are highly specialized and have few applications outside the core
business. C. top managers are skilled at acquiring and turning around poorly run
enterprises.
D.mainobjectiveistomaximizegrowth.
E.freecashflowishighenoughthatithasfundsavailableforinvestment.
47.A company should pursue unrelated diversification instead of related

diversificationwhen
A.itscoreskillsarehighlyspecializedandhavefewapplicationsoutsideitscore
business.
B.thecompany'stopmanagersareskilledatacquiringandturningaroundpoorlyrun
enterprises.
C.its core technological skills are applicable to a wide variety of industrial and
commercialsituations.
D.itwantstomaximizegrowth.
E.thebureaucraticcostsofimplementationdonotexceedthevaluethatcanbecreated
byrealizingeconomiesofscope.
48.Whenoneormorecomponentsofacompany'svaluechainareapplicabletoa
widevarietyofindustrialandcommercialsituations,whichofthefollowingstrategies
shouldacompanypursue?
A.UnrelateddiversificationB.
RelateddiversificationC.Afocusstrategy
D.Taperintegration
E.Backwardintegration
49.Astrategybasedondiversificationmayfailtoaddvaluebecausecompanies
A.seektoachievedifferentiationinsteadoflowcost.
B.diversifyintoareasinwhichtheyhavesomeknowledgeandmissoutonprofitable
opportunitiesinotherareas.
C.makeacquisitionsratherthandevelopnewtechnologiesontheirown.
D.incurbureaucraticcoststhatexceedthevaluecreatedbythestrategy.
E.seektoachievecostleadershipinsteadofdifferentiation.
50.DiversificationmaydissipatevalueifitiswronglybasedonA.realizing
economiesofscope.
B.poolingrisks.
C.transferringcompetencies.
D.acquisitionsandrestructuring.
E.leveragingexistingcompetencies.
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51.Inwhichofthefollowingcasesarebureaucraticcostslikelytobelowest?
A.Averticallyintegratedcompanywithfivedivisionsthatpursuesfullintegration
B.A company with five divisions that pursues related diversification based on
economiesofscope
C.A company with five divisions that pursues related diversification based on
transferringcompetencies
D.Acompanywithfivedivisionsthatpursuesunrelateddiversificationbasedon
acquisitionsandrestructuringE.Acompanywithtwentydivisionsthatpursuestaper
integration
52.NewventuresarelikelytobepreferredcomparedtoacquisitionswhenA.entry
barriersarehigh.
B.exitbarriersarehigh.
C.acompany'sbusinessmodelisbasedonusingitstechnologytoinnovatenewkinds
ofproductsforrelatedmarkets.
D.thecompanyneedsmoremegaopportunities.
E.theindustryisinthematurestageoftheindustrylifecycle.
53.Newventures
A.shouldbekillediftheydon'tmakeaprofitwithinthreeyears.
B.areoftenpreferredbytechnologybasedcompanies.
C.arepreferredcomparedtoacquisitionswhenentrybarriersarehigh.
D.arelessriskythanacquisitions.
E.arebestwhenthecompanyisenteringtheindustryonasmallscale.
54.Which of the following statements concerning research and development is

correct?A.Exploratoryresearchismoreimportantthandevelopmentresearch.
B.Developmentresearchismoreimportantthanexploratoryresearch.
C.Exploratoryresearchisdirectedtowardcommercializationofanewtechnology.D.
Developmentresearchadvancesbasicscience.
E.Companieswithastrongrecordofinternalnewventuringexcelatbothtypesof
research.
55.Inwhichofthefollowingindustryenvironmentsarenewventuresmostlikelyto
befavoredoveracquisitionsasameansofenteringanewbusinessarea?
A.Anembryonicindustry
B.Anindustryinitslaterstagesofgrowth
C.AnindustrypassingthroughtheshakeoutstageD.Amatureindustry
E.Adecliningindustry
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56.Tobecommerciallysuccessful,newproductsmustbedevelopedwith____utmost
inmindA.manufacturingrequirements
B.engineeringtechnologyC.
customerrequirementsD.salestechniques
E.technicalrequirements
57.Ifacompanyistoincreasetheprobabilityofanewproduct'scommercialsuccess,
thecompanymustfostercloselinksbetween
A.marketingandsales.
B.engineeringandadvertising.
C.qualityassuranceandinventorymanagement.
D.research and development (R&D) and marketing. E. accounting and industrial
engineering.
58.Which of the following seems to be a major determinant of a new venture's

success?
A.Largescaleentryintothetargetindustrydesignedtobuildmarketshare,even
whensuchentryinvolvessignificantshorttermlosses
B.Cautioussmallscaleentryintothetargetindustrysothatthecompanycanassess
theprobableoutcomeoftheventurewithoutlosingtoomuchmoney
C.Alowlevelofintegrationbetweenthemarketingandtheresearchanddevelopment
functionsoftheventuringcompany
D.Supportingmanynewventureprojectsinthehopethatonewillsucceed
E.Killingthenewventureifitdoesnotshowaprofitaftertheendofthethirdyear
59.An internal new venture is the most appropriate strategic choice when A. an
industryismature.
B.thefirmwillenteronasmallscale.
C.thefirmhascompetenciesthatcanbeleveraged.D.speedofentryisthemost
importantconsideration.E.thereisstrongpressureforquickprofitability.
60.Whichofthefollowingentrystrategiesshouldbeusedwhenspeedisanimportant
consideration?A.Internalnewventure
B.AcquisitionC.Jointventure
D.UnrelateddiversificationE.Relateddiversification
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61.Acompanyconsideringenteringanindustrythatisinthematurestageofitslife
cyclewouldgenerallypreferwhichofthefollowingentrystrategies?
A.JointventuresB.NewventuresC.
Acquisitions
D.LongtermcontractingE.Taperintegration
62.Acquisitionsoftenfailbecauseof
A.poorcommercialization.
B.too much preacquisition screening, which increases the time it takes to enter a
market.
C.largescaleentry.
D.differencesincorporateculture.
E.slownessinestablishingsignificantmarketpresence.
63.Whichofthefollowingisnotareasonforthefailureofanacquisitiontogenerate
thegainsoriginallyexpectedofit?
A.Poorpostacquisitionintegration
B.OverestimationofthepotentialgainstobederivedfromsynergyC.Thehighcost
ofmakingacquisitions
D.Lackofpreacquisitionscreening
E.Overestimationofthepotentialcostsofrealizingsynergies
64.Whichofthe followingis (are) theprobableconsequence(s)ofaninabilityto

integratetwodivergentcorporateculturesafteranacquisition?
A.Highmanagementturnover
B. Damaging political tensions between the management of the acquired and
acquiringcompaniesC.Aninabilitytorealizepotentialgainsfromsynergies
65.What accounts for the high failure rate of all new products that reach the
marketplace?
A.Marketentryontoosmallascale
B.Poorcommercializationofthenewventureproduct
C.Poorcorporatemanagementofthenewventureunit
D.Allofthesechoices
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66.Whichofthefollowingisnotaguidelineforasuccessfulacquisition?A.Good
biddingstrategy
B.AclearstrategicrationaleformakingtheacquisitionC.
Completingtheacquisition
quickly
D.Thoroughpreacquisitionscreening
E.Postacquisitionaudittoreviewtheprocessanddiscusswaystoimproveit
67.Jointventures
A.areanalternativetonewventures.
B.areattractivewhenspeedisimportant.
C.areattractivewhenentrybarriersarehigh.
D.shouldbedoneonasmallscale.
E.reducetheriskoflossofproprietaryknowledge.
68.Whichofthefollowingstatementsisfalse?
A.Acquisitionsarepreferabletojointventureswhenthenewbusinessisunrelatedto
theexistingbusiness.
B.Acquisitionsarepreferabletonewventureswhenspeedisimportant.
C.Jointventuresaregenerallypreferabletoacquisitionswhenentrybarriersarehigh.
D.Acquisitionscanbebothareasonforcorporatedeclineandpartofaturnaround
strategy.
E.Newventuresarepreferabletoacquisitionsintheembryonicstageoftheindustry
lifecycle.
69.Stanley'sservicesfirmwantstoenteranembryonicmarket,butitdoesn'thave
enoughcashtopurchasetherequiredassets.Whichofthefollowingstrategieswould
yourecommendtoStanley?
A.DiversifythroughacquisitionB.Donotdiversifyatall
C.DiversifywithaninternalnewventureD.
Diversifywithajointventure
E.Diversifythroughverticalintegration
70.InthejointventurebetweenStephanie'sdressmakingshopandKevin'sfabric
factory,thepartnersargueconstantlyabouthowtoscheduletasksandreward
workers.WhichofthefollowingdisadvantagesisStephanieandKevin'sjointventure
experiencing?
A.Jointventuresriskthelossofproprietaryinformationtoapartner.B.Jointventure
partnersmustsplittheprofitsofthebusiness.
C.Joint venture partners must share control anddecisionmakingpower. D. Joint
venturesareslowertoreachprofitabilitythanareacquisitions.
E.Jointventuresrequirelessupfrontinvestmentthandointernalnewventures.
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71.EconomiesofscopetypicallyinvolveA.
sharingresourcesbybusinessunits.
B.acquiringresourcesfromoutsideacompany.
C.limitedutilizationofresourcesbyspecificbusinessunits.D.allofthesechoices.
72.Thegreaterthenumberofbusinessunitsinacompany'sportfolio,the____itisfor
corporatemanagerstoremaininformedaboutthecomplexitiesofeachbusiness.
A.easier
B.moredifficultC.lessimportantD.lessexpensiveE.moresimplistic
73.Whatisperhapsthemostimportantreasonwhyacquisitionsmadebyacompany
fail?
A.Theexpenseoftheacquisition
B.Thetimingoftheacquisition
C.Management'sunwillingnesstoexpendthenecessaryefforttomaketheacquisition
workeffectively
D.Incompetenceonthepartofworkersintheacquiredfirm
E.Difficultiesincoordinatingmanufacturingactivities
74.Which of the following reasons can make a diversification strategy an unwise

courseofactionforacompanytopursue?
A.Changingindustryconditions
B.ChangingfirmspecificconditionsC.Diversificationforthewrongreasons
D.IncreasingbureaucraticcostsofdiversificationE.
Allofthesechoices
75.Diversificationissometimespursuedbyacompanyforthewrongreasons.Which
ofthefollowingisafaultyjustificationfordiversification?
A.Riskpooling
B.RescuingthecorebusinessfromdifficultyC.Growthforgrowth'ssake
D.Alloftheabove
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76.Atitssimplestlevel,ajointventuremaybethoughtofasa(n)A.mergeroftwo
companies.
B. acquisition of a smaller company by a larger company. C. form of strategic
outsourcing.
D.signofweaknessonthepartofoneofthecompanies.E.
corporatepartnership.
77.Identify anddiscuss the profitability justifications forpursuing amultibusiness

modelbasedondiversification.
Diversificationistheprocessofenteringnewindustries,distinctfromacompany's
coreindustry,usingamultibusinessmodelbasedonfindingwaystousethe
company'sdistinctivecompetenciestoincreasethevalueofproductsinthose
industriestocustomers,andthusacompany'slongrunprofitability.
Diversificationcanincreaseprofitabilitywhenmanagerstransfercompetencies
betweenbusinessunitsindifferentindustries.Thisisusuallydonebycompaniesthat
acquireothersthatsharesomesortofcommonality.
Diversificationcanincreaseprofitabilitywhenmanagersleveragecompetenciesto
createbusinessunitsinnewindustries.Thisisbasedontheideathatasourceof
competitiveadvantageinoneindustrymaybeasourceofcompetitiveadvantagein
anotherindustry.
Diversificationcanincreaseprofitabilitywhenmanagersshareresourcesbetween
businessunitstorealizeeconomiesofscope.Sharingresourcesallowsacompanyto
realizecostsavingordifferentiationadvantages.
Diversificationcanincreaseprofitabilitywhenmanagersutilizeproductbundling.
Productbundlingallowsacompanytoexpanditsproductlineandoffercustomersa
packageofrelatedproducts.
Diversificationcanincreaseprofitabilitywhenmanagersuseittoreducerivalryin
oneormoreindustries.Thismayoccurifentryintoanindustrykeepsacompetitorin
check.
Diversificationcanincreaseprofitabilitywhenmanagersutilizegeneralorganizational
competenciesthatincreasetheperformanceofallofacompany'sbusinessunits.
Thesecompetenciesarefoundintopmanagementandtranscendbusinesses;theymay
includefactorssuchasentrepreneurialskills,capabilitiesinorganizationaldesign,and
strategiccapabilities.
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78.Underwhatconditionsshouldafirmthatisfacingtheneedtodiversifyconsider
theuseofaninternalnewventurestrategy,anacquisitionstrategy,orajointventure
strategy?
Internalnewventuresarepreferablewhen:
thecompanyhasvaluableskillsthatcouldbeleveragedfurther.
theskillsneededforthenewbusinessareproprietaryandarescienceortechnologybased.
anindustryissonewthatappropriateacquisitiontargetsandjointventurepartnershavenotyetemerged.
thefirmisnotunderstrongpressuretoenterquicklyorreachprofitabilityquickly.
thecompanylacksimportantcompetenciesandexistingfirmshavethosecompetencies.
thecompanywantstoenterquicklyorreachprofitabilityquickly.
thecompanyprefersmorecertaintythancanbeobtainedwithaninternalventureorjointventure.
anindustryismature,withstrongestablishedcompetitorsandhighentrybarriers.
anindustryisnewlyemergingandthecompanywantstosharetherisksassociatedwithuncertainty.
thecompanypossessessomebutnotallofthecriticalskills.
thecompanylackstheresourcestoenteranindustryonitsown.
79.Giveanexampleofafirmthathasdiversifiedwithaninternalnewventure.Was
thestrategysuccessful?Whyorwhynot?Nowanswerthesechoicesquestionsfora
firmthathasdiversifiedthroughacquisitionsandthroughajointventure.
CocaColaintroducedDasanibrandwaterin1999astheresultofaninternalnew
venture.Theproducthasbeenverysuccessful,probablybecausethebottledwater
businessleveragedCoke'scompetenciesinbottling,distribution,andmarketing.In
1977,PepsiCoacquiredPizzaHutinanattempttoleverageitscompetencyin
beveragesintothefoodserviceindustry,buttheacquiredbusinessneverreachedits
targetprofitability.Thelackofprofitabilitywasprobablyduetotheheavyinterest
expensethefirmhadtopayforservicingthedebtittookontocompletethe
acquisition.PizzaHutandotherinvestmentsweresubsequentlyspunoffintoa
separatefirm.Lucent,amakerofproductsforcommunicationsserviceproviders,
enteredintoajointventurewithfiberopticsmakerDiConin2000.Thejointventure
wasanattempttocombinetheskillsandassetsofthetwofirms,andthepressrelease
stated:"ThejointventurecombinesLucent'sproventrackrecordinautomatedoptical
packagingandtestingwithDiCon'sexpertiseinpassiveopticalcomponents...."The
jointventurehasnotyetreacheditsfullpotential,butthetwofirmsaresatisfiedwith
itsprogressinresearchanddevelopment(R&D)todateandplantocontinuethe
alliance.
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80.Whatarethetwogeneraltypesofdiversificationandwhenwouldonebe
preferredovertheother?
Diversificationcantakeoneoftwoforms:relatedorunrelated.Relateddiversification
referstoestablishingabusinessunitinanewindustrythatisrelatedtoacompany's
existingbusinessunitsbysomekindoflinkageorcommonalitybetweenoneormore
componentsofeachbusinessunit'svaluechain.Unrelateddiversificationreferstothe
movementintonewindustriestocapturetheprofitenhancingadvantagesof
implantinggeneralorganizationalcompetenciesinnewbusinessunitsandperhapsto
capturethebenefitsofmultipointcompetition.
Acompanywouldpursuerelateddiversificationifthecompany'scompetenciescan
beappliedacrossagreaternumberofindustriesandthecompanyhassuperior
strategiccapabilitiesthatallowittokeepbureaucraticcostsundercontrol.Acompany
wouldpursueunrelateddiversificationwheneachbusinessunit'sfunctional
competencieshavefewusefulapplicationsacrossindustriesbutitstopmanagement
hassuperiorstrategiccapabilitiesandgoodorganizationaldesignskillstobuild
distinctivecompetenciesandkeepbureaucraticcostsundercontrol.
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Chapter12ImplementingStrategyinCompanies
ThatCompeteinaSingleIndustryKey
1.The purpose of organizational structure is to provide managers with specific
feedbackonhowwellanorganizationanditsmembersareperformingandbuilding
competitiveadvantage.
FALSE
2.Animportantpurposeofcontrolsystemsistomotivateemployeestoworktoward
increasingefficiency,quality,innovation,andresponsivenesstocustomers.
TRUE
3.Effectiveorganizationaldesigncansimultaneouslyallowacompanytoobtaina
competitiveadvantageandachieveaboveaverageprofitability.
TRUE
4.Adivisionisawayofgroupingfunctionstoallowanorganizationtobetterproduce
anddisposeofitsgoodsandservices.
TRUE
5.Spanofcontrolreferstothenumberofsubordinateswhoreportdirectlytoone
supervisor.
TRUE
6.Flatstructurescanleadtoinformationdistortionwhendataarebeingsenteitherup
ordownthehierarchy.
FALSE
7.In1995,DellComputerchangeditsorganizationstructurefromamarketstructure
toafunctionalstructureandcreatedseparatedivisionstobetterserveitsdifferent
groupsofcustomers.
FALSE
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8.Whencompaniesbecometootallandthechainofcommandtoolong,strategic
managerstendtolosecontroloverthehierarchyand,subsequently,theirstrategies.
TRUE
9.Centralizationofauthorityisadvantageousinatimeofcrisis.
TRUE
10.The need for integrating mechanisms is greater whena company's structure is

morecomplex.
TRUE
11.Controlsystemscanhelpmanagersevaluatehowefficientlytheyareproducing
goodsandservices.
TRUE
12.Controlsateachlevelshouldprovidethebasisonwhichmanagersatthelevels
belowdesigntheircontrolsystems.
TRUE
13.Informationtechnologyisplayinganincreasingroleinstrategyimplementationat
allorganizationallevels.
TRUE
14.Therewardsystemaffectsthetypeoforganizationalculturethatdevelopsina
company.
TRUE
15.Controlthroughcultureissopowerfulbecauseoncevalueshavebeeninternalized,
individualsfollowthemwithoutthinkingaboutthem.
TRUE
16.Organizationaldesignhaslittleeffectonorganizationalculture.
FALSE
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17.Organizationalstructurecontributestotheimplementationprocessbyproviding
theframeworkoftasksandrolesthatreducestransactiondifficultiesandallows
employeestothinkandbehaveinwaysthatallowacompanytoachievesuperior
performance.
TRUE
18.Buildingcapabilitiesinorganizationaldesignthatallowacompanytodevelopa
competitiveadvantagestartsatthefunctionallevel.
TRUE
19.Effectivestrategyimplementationisveryimportantforcostleaders,butitisof
lessimportancetodifferentiators.
FALSE
20.Foreachfunction,acostleaderadoptsoutputcontrolsthatallowittomonitorand
evaluatefunctionalperformanceclosely.
TRUE
21.Aproductstructurerequiresthatsupportactivitiesfromacompany'svaluechain
bedecentralizedsothatindependentspecialistsinsupportactivitiesexistwithineach
productgroup.
FALSE
22.Cypress Semiconductor utilizes acomputerbasedinformation system through

which the CEO can manage what every employee and team is doing in the
decentralizedorganization.
TRUE
23.UnionPacific,oneofthelargestfreightcarriersintheUnitedStates,experienced
costlyproblemsduetothecompany'scentralizedorganizationstructure.
TRUE
24.Inmanufacturing,functionalstrategyusuallycentersonimprovingefficiencyand
quality.
TRUE
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25.Wheneverdifferentfunctionsworktogether,bureaucraticcostsinevitablyarise.
TRUE
26.Johnson & Johnson is organized into Consumer, Medical, and Pharmaceutical

unitstoservetheneedsofitsdifferentcustomergroups.Johnson&Johnsonisusinga
marketstructure.
TRUE
27.One of the main differences between a product team and a team in a matrix
structureisthataproductteamismorepermanentthanateaminamatrixstructure.
TRUE
28.Restructuring always involves flattening the organizational hierarchy and

downsizingtheworkforce.
TRUE
29.Controlsystems
A.enableacompanytoevaluateitsperformance.
B.helpmanagersdeterminewhichgenericstrategytopursue.
C.areusedonlyatthebusinesslevel.
D.allowfirmstocontroltheexternalenvironment.
E.aremosteffectiveforfirmspursuingcostleadership.
30.Withinafirm,afunctionismadeupofworkerswho
A.performthesametypesoftasksorholdsimilarpositions.
B.arepaidthesameamountofcompensation.
C.workatthesamehierarchicallevel(forexample,allmiddlemanagers).
D.havethesamebackgroundandeducation.
E.havethesamejobtitle(forexample,allarevicepresidents).
31.Flatorganizationalstructuresarecharacterizedby
A.fewlevelsofmanagementandarelativelynarrowspanofcontrol.B.
fewlevelsof
managementandarelativelywidespanofcontrol.
C.manylevelsofmanagementandarelativelynarrowspanofcontrol.
D.manylevelsofmanagementandarelativelywidespanofcontrol.
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32.Whendecisionmakingresponsibilitiesaredecentralized,benefitsincludeallofthe
followingexceptA.increasedmotivationandaccountability.
B. lower bureaucratic costs from flattened hierarchy. C. reduced information
overload.
D.easiercoordination.
E.allofthesechoicesarebenefitsofdecentralization.
33.Whichofthefollowingintegratingmechanismsconsistsofonemanagerfromeach
relevantfunctionordivisionassignedtoateamthatmeetstosolveaspecificmutual
problem?
A.DirectcontactB.LiaisonrolesC.
Teams
D.Integratingroles
E.Thematrixstructure
34.Whichofthefollowingisnotoneofthecompanylevelswherestrategiccontrol
systemsmeasureperformance?
A.BoardofdirectorsB.Corporate
C.DivisionalD.FunctionalE.Individual
35.Usingoutputcontrolsattheindividuallevelisleastappropriatewhenthework
forceconsistsprimarilyofA.salespeople.
B.productionworkers.
C.researchanddevelopmentscientists.D.taxaccountants.
E.dataentryclerks.
36.Standardizationisaformof
A.outputcontrol.
B.financialcontrol.
C.organizationalinertia.
D.organizationalculture.
E.behaviorcontrol.
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37.TheorganizationalstructureandorganizationalcultureofacompanycanhaveA.
littleeffectonoverallcompanyperformance.
B.adirectbearingonacompany'sprofits.C.atangentialeffectonemployeemorale.
D.noimpactonemployeemorale.
38.Standardization is employed to squeeze out costs in manufacturing.

Standardizationmaybeachievedthroughstandardizationof
A.inputs.
B.workprocesses.C.outputs.
D.workprocessesandoutputs.
E.inputs,workprocesses,andoutputs.
39.Information technology (IT) would beleasthelpful to managers who are

addressingissuesof
A.behaviorcontrol.
B.outputcontrol.
C.integration.
D.organizationalculture.
E.standardization.
40.ControlthroughorganizationalcultureissopowerfulbecauseA.itreducesthe
costsoforganizationalcontrolinalargecompany.
B.selfcontroldevelops through the establishment of an internal system of
organizationalvalues.C.itresultsinmaximumdecentralizationandtheelimination
ofbureaucracy.
D.itachievesincreasedperformancethroughthealignmentoforganizationalgoals
with societal expectations. E. it achieves external control through motivated
coworkers.
41.Controlthroughorganizationalculture
A.islessexpensivethanoutputcontrol.
B.reducesmutualadjustment.
C.involvesemployeesinternalizingthenormsandvaluesoftheorganization.
D.includessettingindividualgoals.
E.reducesmutualadjustmentandincludessettingindividualgoals.
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42.Whichformofcontrolwouldyoubemostlikelytofindinavoluntaryorcharity
organization?A.Bureaucraticcontrolthroughrulesandprocedures
B.Controlthroughnormsandvalues
C.FinancialcontrolthroughaccuratefinancialstatementsD.Outputcontrol
E.Incentivesystems
43.Companiesthatareinnovativeandabletodealwithenvironmentalchangewith
newstrategiesandstructuresprobablyhave
A.weakcultures.
B.strongfunctionalcultures.C.
adaptivecultures.
D.prescriptivecultures.E.matrixstructures.
44.Asnew,smallfirmsgrowandmature,whichstructurearetheylikelytochoose?
A.Simple
B.Geographic
C.Functional
D.Matrix
E.Product
45.Whichcharacteristicissharedbyallthreeoftheproduct,market,andgeographic
structures?A.
Allthreeutilizepermanentorganizationalgroups.
B.Allthreearebasedontheuseofcrossfunctionalteams.C.Allthreerequirethat
supportfunctionsbedecentralized.
D.Allthreeorganizeworkersintopermanentgroups,arebasedontheuseofcross
functionalteams,andrequirethatsupportfunctionsbecentralized.
E.Thereisnocommoncharacteristicforallthreestructures.
46.The process of deciding how a company should create, use, and combine
organizational structure, control systems, and culture to pursue a business model
successfullyisreferredtoas
A.organizationalstructuring.B.corporatesystemsdesign.C.organizationaldesign.
D.departmentalization.E.structurallandscaping.
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47.As a general principle, a company should always choose the hierarchal

organizationstructurethathastheA.mostlevelsofauthority.
B.fewestlevelsofauthority.C.greatestnumberofpeople.D.leastnumberofpeople.
48.A stereo manufacturer sells onlyleadingedgestereos to the upscale segment.

Whichofthefollowingstructuresisthemostappropriateforthisfirm?
A.Matrix
B.MultidivisionalC.Geographic
D.FunctionalE.Simple
49.Adrawbackofthefunctionalstructureis
A.thateachworkermustreporttomorethanonesuperior.
B.thedifficultyincommunicatingandcoordinatingacrossfunctions.
C.toomuchdecentralizationofdecisionmakingauthority.
D.itslackofflexibility.
E.theneedtodownsizebeforeimplementingthisstructure.
50.Ifafirmfindsthatitsfunctionalstructureisbecomingtooawkwardasthefirm
growsinsizeandcomplexity,thefirmcanturnto
A.asimplestructure.B.downsizing.
C.reengineering.D.restructuring.E.
outsourcing.
51.Acostleadershipstrategywouldbemosteffectivewith
A.outputcontrols.
B.personalcontrols.
C.behavioralcontrols.
D.culturalcontrols.
E.nocontrols.
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52.Whichofthefollowingstructuresrequirescentralizationofvaluechainsupport
activities?A.
Theproductstructure
B.TheproductteamstructureC.Thematrixstructure
D.TheproductandproductteamstructuresE.Thematrixandproductteamstructures
53.Whichofthefollowingisnotoneoftheadvantagesofageographicstructure?
A.Costinefficienciesfromissuesofscope
B.Responsivenesstotheneedsofregionalcustomers
C.Lowertransportationcosts
D.Morecoordinationandcontrolthanafunctionalstructure
E.Centralizationofkeyactivities andfunctionsthatallow leveragingskills across
regions
54.Whichofthefollowingstructuresistheflattest?A.Functional
B.GeographicC.Market
D.MatrixE.Product
55.Matrixstructures
A.havemanyhierarchicallevels.
B.areappropriateforcompanieswithmanylowskilledworkers.
C.groupactivitiesverticallybyfunctionandhorizontallybyproductorproject.
D.areappropriateforafirmpursuingalowcoststrategy.
E.havemanyhierarchicallevelsandtwoformsofhorizontaldifferentiation.
56.Amatrixstructurewouldbethemostappropriateforwhichofthefollowing
firms?
A.Alargemultinationalcompanywithadistinctivecompetenceinmarketing
B.Acompanyoperatinginthematuritystageoftheindustrylifecycle
C.Amediumsizedtechnologicalfirmwithanobjectiveoffastproductdevelopment
time
D.Acompanywithahighlevelofverticaldifferentiation
E.Acompanypursuingacostleadershipstrategy
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57.Toalargedegree,anyorganization'stasksareafunctionofitsA.marketarea.
B.laborsupply.C.supervisors.D.
strategy.
E.compensationplan.
58.Essentially,centralizationordecentralizationareconceptsthatrefertotheA.
levels
wheredecisionsaremadeinanorganization.
B.numberofhierarchicallevelsexistinginanorganization.C.numbersofmanagers
inanorganization.
D.numberofemployeesinanorganization.E.noneofthesechoices.
59.Thedegreetowhichacompanyspecifieshowdecisionsaretobemadesothat
employees'behaviorbecomespredictableisreferredtoas
A.uniformityofoutput.B.conformityofbehavior.C.
standardization.
D.maximizationofeffort.E.behavioralcontrol.
60.The most appropriate structure for a company pursuinglowcostand

differentiationstrategiessimultaneouslyis
A.functional.B.geographic.C.matrix.
D.productteam.E.simple.
61.Whichofthefollowingisrequiredbyarestructuring?
A.Eliminatingbusinessunits
B.Rethinkingbusinessprocesses
C.Creatingmorebusinessunits
D.Flatteningtheorganizationalhierarchy
E.Broadeningthespanofcontrol
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62.Whichofthefollowingactions wouldyouexpecttoseeinacompanythatis
undergoingareengineering?A.Hiringmoremanagers
B.Hiringmoreworkers
C.Examiningactivitiesfromacustomer'spointofview
D. Investing more in product research and development (R&D) E.
Centralizingdecisionmakingauthority
63.Restructuringis
A.arethinkingandredesignofafirm'sbusinessprocesses.
B.aradicalreadjustmentoftheorganization'sstaffingandhierarchy.
C.aphilosophythatstatesthatmistakes,defects,andpoorqualitymaterialsarenot
acceptableandshouldbeeliminated.
D.theshiftthatfirmsmakefromafunctionaltoamorecomplexstructureasthefirm
growsincomplexityandsize.
E.employedwhenafirmneedshelpinimprovingitsfunctionalstrategies.
64.A hospital examines its processes closely and then changes them radically to
becomemorepatientcentered.Amongthechangesarenewwaysofdoingtasksand
newgroupingsofworkers.Thisisanexampleof
A.restructuring.B.reengineering.
C.totalqualitymanagement(TQM).D.benchmarking.
E.downsizing.
65.Inasuccessfulcompany,thepurposeofacontrolsystemisto
A.providemanagerswithasetofincentivestomotivateemployeestoworktoward
companygoals.
B.provide managers with specific feedback on how well the organization and its
membersareperforming.
C.provide managers with information that can be used to criticize employee
performanceobjectively.
D.AandB.
E.BandC.
66.Inanyorganization,forprofitornotforprofit,spanofcontrolreferstothe
A.numberofmanagersatthehighestlevelsintheorganization.
B.theCEOandhisorhermanagementteam.
C.thenumberofsubordinateswhoreportdirectlytoonemanager.
D.thenumberofsupervisorsinaspecificsegmentofamanufacturingactivity.
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67.Thebasicbuildingblocksofcompetitiveadvantageincludecontrolandwhichof
thefollowingfactors?A.Efficiency
B.QualityC.Innovation
D.ResponsivenesstocustomersE.
Allofthesechoices
68.Strategiccontrolsystemsutilizedtoensurelongrunprofitabilityinclude
A.personalcontrol.
B.outputcontrol.
C.behaviorcontrol.
69.Thespecificcollectionofvalues,norms,beliefs,andattitudessharedbypeople
andgroupsinacompanyiscommonlyreferredtoas
A.organizationalfit.
B.organizationalculture.
C.organizationaldevelopment.D.organizationalpositioning.E.allofthesechoices.
70.Thetermusedtodescribehowpeoplelearnanorganization'scultureandwayof
behavingintheorganizationis
A.organizationalstructure.
B.organizationaldevelopment.C.organizationaldesign.
D.organizationalbehavior.
E.organizationalsocialization.
71.Anorganizationthathasanadaptivecultureisanorganizationthatis
A.innovative.
B.resistanttomajorchanges.
C.supportiveofmanagerswhotaketheinitiativeandmakechangesontheirown.
D.AandC.
E.BandC.
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72.A functionalorganizational structure offers acompany which ofthefollowing

advantages?A.Specializationofactivitiesleadingtogreaterproductivity
B.Moreefficientproductionactivities
C.GreatercontrolofactivitiesbymanagersD.
Allofthesechoices
73.Organizationsstrivetocontrolemployees'behaviorbylinking____systemsto
theircontrolsystems.A.computer
B.disincentiveC.reporting
D.administrativeE.reward
74.The organization structure that organizations most commonly adopt to solve

control problems that result from producing many different kinds of products for
manydifferentmarketsegmentsisthe
A.functionalstructure.B.processstructure.C.matrixstructure.
D.productstructure.
E.differentiatedstructure.
75.Asacompanybeginsproducingorsellinginmanydifferentregionalareas,itmay
encounterproblemsassociatedwith
A.locationfactors.
B.employeeselectionfactors.C.productionfactors.
D.researchanddevelopment(R&D)factors.E.engineeringfactors.
76.Effectiveorganizationaldesignmayincreaseacompany'sprofitabilitybecauseit
A.improvesthewaypeopleandgroupsworktogether.
B.leadstothecreationofgreatervalueforcustomers.
C.reducesbureaucraticcosts.
D.solvesmeasurementandcommunicationproblems.
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77.AtypicalmatrixorganizationalstructureisA.
flatanddecentralized.
B.flatandcentralized.C.tallanddecentralized.D.tallandcentralized.E.noneof
thesechoices.
78.Whenacompanyengagesinrestructuring,itmaybenecessarytoA.increasethe
sizeoftheworkforce.
B.increasethenumberoforganizationallevels.C.
layoffemployees.
D.addtotheoperatingcosts.E.noneofthesechoices.
79.Identifyanddiscussthethreebuildingblocksoforganizationalstructure.
Organizationalstructureassignsemployeestospecificvaluecreationtasksandroles
andspecifieshowthesetasksandrolesaretobelinkedtogetherinawaythat
increasesefficiency,quality,innovation,andresponsivenesstocustomersdistinctive
competenciesthatbuildcompetitiveadvantage.
Thefirstbuildingblockofstructureisgroupingtasks,functions,anddivisions.As
companiesgrow,theymayneedtorevisitstructuresothatthesegroupingsaredoneto
helpcreatedistinctivecompetencies.
Thesecondbuildingblockisallocatingauthorityandresponsibility.Ascompanies
addressauthorityandresponsibility,thedaytodaystructuretakesshape.Decisions
mustaddressthehierarchyofauthority,spanofcontrol,tallorflatstructure,chainof
command,anddegreeofcentralizationordecentralization.
Thefinalbuildingblockofstructureisintegrationandintegratingmechanisms.The
greaterthecomplexityofanorganization'sstructure,thegreateristheneedfor
coordinationamongthepeople,functions,anddivisionstomaketheorganizational
structureworkefficiently.Toolsofintegrationincludedirectcontact,liaisonroles,
andteams.
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80.Describetherolesthatorganizationalstructure,strategiccontrolsystems,and
organizationalcultureplayinstrategyimplementation.
Structurehelpsorganizationsimplementtheirstrategiesbecausestructuredetermines
theprocessesbywhichinformationiscommunicatedwithintheorganizationandby
whichdecisionsaremade.Structurealsohasimportantimplicationsfor
organizationalflexibilityandlearning,andanimportanteffectontheorganization's
abilitytoachievelowcostsordifferentiation.Finally,structureistheprimary
mechanismforintegration,whichiscrucialforstrategyimplementation,particularly
inlargerorganizations.Strategiccontrolsystemsenableorganizationstomonitor
achievementofstrategicgoals,toevaluateperformance,andtotakecorrectiveactions
ifneeded.Inaddition,strategiccontrolsystemscanfocusonthefuture,workingto
ensurethatthefirmiswellpositionedtoachieveitsfuturestrategicgoalsaswellas
today'sgoals.
Organizationalcultureisanotherverystrongdeterminantofthebehaviorof
employeesandthushelpstodeterminetheorganization'sperformance.Culture
providesguidelinesforbehaviorsthatareinternalizedandthuscanbeverypowerful
motivators.
81.Givearealorahypotheticalorganizationalexampleofhowstructure,strategic
controlsystems,andcultureinteractwitheachother.
Students'answerswillvarydependingontheexampletheychoose.Hereisasample
answer.TheaccountingfirmKPMGisanaccountingandconsultingpartnershipwith
amarketstructurethatfocusesoncustomergroupssuchasretailing,banking,
andhightechfirms.AtKPMG,strategiccontrolsystemsincludesettingstandardsfor
performance,suchasaspecificdollaramountofconsultingworktobeaccomplished
duringaperiod,oratargetforthenumberofnewauditclientsthataredesired.
Managers'performanceismeasuredagainsttargets,withrewardsgivenforexceeding
targetsandnegativeconsequencesgivenforfailuretomeettargets.Intheirstrategic
controls,thefirmallowseachmarketbaseddivisiontosetitsowntargetsbasedon
industryconditions.TheorganizationalcultureofKPMGisprofessional,
participative,anddecentralized,withdecisionmakingauthoritygiventomanagersat
eachlocationanddivision.Thisallowseachmanagertomakedecisionsthatarebest
fortheuniqueneedsofclientsateachlocationandineachindustry.Also,the
managersaregiventheauthoritytosettargetsandtodeterminetheconsequences
relativetooutcomes.Thus,thethreeelementsworkinharmony,witheachreinforcing
theother.
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82.Considerthecaseofafamilyrunbusinessthatoperatesonesmalllocalretailshop
anditssubsequentexpansionintomorelocationsandmorestores.Describethe
changesthatarelikelytotakeplaceinthatbusiness'sorganizationalstructureasit
growsinsize,geographicdispersion,andcomplexity.Tellwhythechangesare
beneficialforthebusiness.
Thestoreprobablyfollowedthiscommonpattern.Itbeganwithasimplestructure
becausetheownermanagercoulddoalltheworkforhimorherselforwiththehelp
ofjustafewemployees.Eachemployeecouldbesuperviseddirectlybytheowner,
andthestore'sperformancecouldbemonitoreddirectlybytheowner.However,as
thebusinessgrewandasecondstorewasadded,itnolongerwaspossibleforthe
ownertodoitall.Moreemployeeswerehired,includinganothersupervisor.
Supervisionandmonitoringbecamemoredifficult,too.Asthenumberofstores
continuedtogrow,theyalsobecamemoregeographicallywidespread.Boththesize
andthedispersionofstorescreatedaneedformanynewemployeesandsupervisors.
Also,theincreasedsizeandcomplexitynecessitatedspecializationtobemost
efficient.Therefore,someemployeesbegantospecializeintaskssuchaspayroll,
training,storedesign,purchasing,marketing,andsoon.Afunctionalstructurewas
adoptedtohelpthefirmbettercopewiththesechanges.
83.Describewhatismeantbythetermsrestructuringandreengineering,anddiscuss
whenandwhytheywouldbeused.
Whilebothcanleadtoimprovedperformance,thereareimportantdifferences
betweenthesetwoapproaches.Restructuringreferstotheprocessofdownsizingand
isusuallyperformedintwosteps:(1)streamliningthemanagementhierarchyby
reducingthenumberoflevels,and(2)downsizingtheworkforce.Restructuringis
oftenpainfulbutitmaybenecessaryforanynumberofreasons,includingachangein
thebusinessenvironment,conditionsthatresultinexcesscapacity,inefficientcost
structuresthatmustbeaddressed,orafailuretomonitorandcontroloperationsover
timesothatadrasticmove(asopposedtoincrementaladjustments)mustbemade.
Restructuringisoftenviewedasabroadstroketowipetheslate(somewhat)cleanand
startanew.
Reengineeringisanattempttoaddresspoorperformancebyfundamentallyrethinking
howacompanydoesthings.Ratherthanfocusonfunctions,companiesthatengagein
reengineeringdosobyfocusingondifferentprocessesandfindingwaystoperform
theseprocessesmoreefficiently.Inmanycases,whencompaniesfocusonprocesses
andmakethembetter,theoutputimprovesaswell.Reengineeringoftenresultsin
companiesreorganizingtheirvaluedeliverysystems.Theconceptiscloselyaligned
withtotalqualitymanagement(TQM).
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Chapter13ImplementingStrategyinCompanies
ThatCompeteAcrossIndustriesand
CountriesKey
1.Inthemultidivisionalstructure,eachdivisiontypicallycontainsonlyapartialsetof
valuechainactivities.
TRUE
2.Inafirmwithamultidivisionalstructure,corporatemanagersoverseetheactionsof
divisionalmanagers.
TRUE
3.The organizational hierarchy is flatter in a multidivisional structure than in a

productorfunctionalstructure.
FALSE
4.Itisimportantforcorporatemanagerstobeabletoidentifyhighperformingand
underperformingdivisionsandtotakecorrectiveactionasnecessary.
TRUE
5.Differentdivisionsinafirmwithamultidivisionalstructurearenotgivenauthority
toadopttheirownorganizationalstructures.
FALSE
6.Inamultidivisionalstructure,corporatemanagerscancomparetheperformanceof
onedivisionagainstanotherintermsofitscoststructureortheprofititgenerates.
TRUE
7.InSeptember2006,FordMotorCompanyannouncedaplantosellbothitsU.S.and
globaloperations.
FALSE
8.Competitionforresourcesisoneofthedrawbacksofthemultidivisionalstructure.
TRUE
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9.Divisionalbattlesmayleadtobattlesovertransferpricing.
TRUE
10.Themoreinterdependentthedivisionsinamultidivisionalstructure,thegreater
are the bureaucratic costs associated with obtaining the potential benefits from a
particularstrategy.
TRUE
11.In an unrelated multidivisional structure, the idea of corporate culture is

meaningless.
TRUE
12.Vertical integration is a less expensive strategy to manage than is unrelated

diversification.
FALSE
13.Firmspursuingrelateddiversificationtypicallyrelymoreonoutputcontrolthanon
culturecontrol.
FALSE
14.SAPistheworld'sleadingsupplierofsoftwareforthevideogameindustry.
FALSE
15.Oracleexperienceddifficultyinunderstandingitscustomers'needsandproblems
becauseOraclewasnotusingtheverysoftwareitsoldtoothercompanies.
TRUE
16.Companies pursue a localization strategy when they want to maximize

responsivenesstotheuniqueneedsofcustomersineachcountry.
TRUE
17.When implementing an international strategy, many companies create global

divisionsthattheyaddtotheirexistingdivisionalstructures.
TRUE
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18.Companiespursueaglobalstandardizationstrategywhentheywanttominimize
costs.
TRUE
19.Few integrating mechanisms are needed when a company uses aglobal

areastructure.
TRUE
20.A firm that is pursuing a localization strategy will typically use aglobal
areastructure.
TRUE
21.Whenafirmimplementsaglobalstrategywithaglobalproductgroupstructure;it
willbemoreresponsivetotheuniqueneedsofeachlocalcountry.
FALSE
22.Anapproachtointernalnewventuringthathasbeenchampionedbythosewho
believethatthebestwaytoencouragenewproductdevelopmentistointegratethis
effortintotherestoftheorganizationisthecreationofanewventuredivision.
FALSE
23.Ajointventureoccurswhentwoequalsizedfirmsagreetoblendtheiroperations,
creatingonelargerfirm.
FALSE
24.Ajointventurecanbedangeroustoacompanyifitspartnerisacquiredbya
competitor.
TRUE
25.Oneproblemwithamishandledmergeristhatskilledmanagerswhofeelthey
havebeendemotedwillworktogethertosabotagetheorganization.
FALSE
26.Implementationproblemscanariseinunrelatedacquisitionswhenmanagersfrom
theacquiringcompanyapplyinappropriatestructureandcontrolstomanagethenew
business.
TRUE
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27.Oftenglobalcompaniesusetheservicesofforeignintermediariesorbrokers,such
asLi&Fung,tofindsuppliersthatbestfittheirinputrequirements.
TRUE
28.To foster the development of thematrixinthemindconcept and promote

cooperation,companiesareincreasinglymakinguseoftheintegratingcapabilitiesof
informationtechnology(IT).
TRUE
29.Amajorimpactofinformationtechnology(IT)onstrategicimplementationhas
beenitseffectsonacompany'sabilitytopursuestrategicoutsourcingtostrengthenits
businessmodel.
TRUE
30.Nestl,theworld'sbiggestfoodcompany,hasbeenpursuinganambitiousprogram
ofglobalexpansion,acquiringcompaniessuchasPerrierandRowntree.
TRUE
31.Acameramanufacturerthathasseparatedivisionsformakingpersonalcameras,
moviecameras,andfilmacquiredasmallfilmdeveloperandacarbatterysupplier.
Whichofthefollowingstructuresismostappropriateforthisfirm?
A.FunctionalB.Matrix
C.Geographic
D.MultidivisionalE.Productteam
32.The two main innovations in a multidivisional structure (over a functional or

productstructure)are
A.amatrixstructureatthedivisionallevelandaflatstructureatthecorporatelevel.
B.aproductstructureatthedivisionallevelandafunctionalstructureatthecorporate
level.
C.theorganizationofbusinessunitsorcompaniesineachindustryinwhichit
competesintooneormoredivisionsandthecreationofcorporatelevelpositionsto
overseetheactivitiesofdivisionalmanagers.
D.selfcontaineddivisions with operating responsibility and a group of divisional
managerswithcollectivestrategicresponsibility.
E.amatrixstructureatthedivisionallevelandafunctionalstructureatthecorporate
level.
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33.Inamultidivisionalstructure
A.supportfunctions,suchasaccounting,arecentralizedatthetopoftheorganization.
B.corporateheadquartersstaffhaveoperatingresponsibility.
C.divisionalmanagershaveoverallcorporatestrategicresponsibility.
D.corporateheadquartersisresponsibleforoverseeingthecompany'slong
termmultibusinessmodelandforprovidingguidanceforinterdivisionalprojects.
E.financialcontrolsarenecessarilyweak.
34.Which structure has been adopted by most large, complex U.S. companies?
A.Multidivisional
B.Product
C.ProductteamD.Market
E.Functional
35.Whichofthefollowingstructuresresultsinthecreationofanofficeofcorporate
headquartersstaff?A.Functional
B.ProductteamC.GeographicD.Matrix
E.Multidivisional
36.Inamultidivisionalstructure,whichformofcontrolisusedtocomparetherelative
performancesofdifferentdivisions?
A.OutputcontrolB.
Financialcontrol
C.ControlthroughcultureD.BureaucraticcontrolE.Adaptivecontrol
37.Thewastefulduplicationoffunctionalresourcesismostlikelytoarisewitha
A.functionalstructure.
B.productteamstructure.
C.matrixstructure.
D.multidivisionalstructure.
E.geographicstructure.
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38.TransferpricingisusedmostcommonlyinaA.functionalstructure.
B.productteamstructure.C.
multidivisionalstructure.D.matrixstructure.
E.geographicstructure.
39.Acompanypursuingunrelateddiversification
A.reliesmoreonoutputcontrolsthanonbureaucraticcontrols.
B.needstocreateaninternaltransferpricingscheme.
C.hasalowneedforintegrationamongdivisions.
D.shouldhaveaproductteamstructure.
E.shoulduseacentralizeddecisionmakingprocess.
40.Which of the following strategies results in the highest bureaucratic costs? A.

Localization
B.International
C.GlobalstandardizationD.
Transnational
E.Unrelateddiversification
41.Toexpanditsglobalsales,theU.S.basedfoodsmakerConAgrapurchasedafirm
thatprocessesgrainsintheUnitedKingdom.ConAgraplanstomanagethenew
businessbyallowingittocontinueasbefore,withlittleintegrationintotherestofthe
firm.Basedonthisinformation,whichstrategyisConAgrapursuing?
A.StuckinthemiddleB.Transnational
C.International
D.GlobalstandardizationE.
Localization
42.Themultidivisionalorganizationstructureoffersseveraladvantages,including
A.enhancedcorporatefinancialcontrol.
B.enhancedstrategiccontrol.
C.enhancedgrowth.
D.strongerpursuitofinternalefficiency.
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43.Thecontrolissueinmanagingthemultidivisionalstructureis
A.howmuchauthorityshouldbecentralizedatcorporateheadquarters.
B.howmuchauthorityshouldbedecentralizedtothedivisions.
C.howmuchauthorityshouldbegiventoeachfunctionalunit.
D.howmuchauthorityshouldbecentralizedatcorporateheadquartersand
decentralizedtothedivisions.E.howmuchauthorityshouldbegiventocorporate
divisionheads.
44.Problems in effectively managing the multidivisional structure include A.

distortionofinformation.
B.competitionforresources.C.transferpricing.
45.InitsAfricanoperations,SonyCorporationperformsmostfunctionsatits
Japaneseheadquartersbutmarketsthroughcooperativerelationshipswithlocal
distributors.IntheUnitedStates,Sonyhasdecentralizedalmostallofitstaskstoan
independentfirmthatitowns.Basedonthisinformation,whichstrategyisSony
pursuing?
A.LocalizationB.
TransnationalC.International
D.GlobalstandardizationE.Stuckinthemiddle
46.TheU.S.firmIntel,amakerofsemiconductorchips,builttwelveworldwide
manufacturingfacilitiesinseveraldifferentcountries,butitsresearchand
development(R&D)andmarketingarecentralizedintheUnitedStates.Basedonthis
information,whichstrategyisIntelpursuing?
A.LocalizationB.TransnationalC.
International
D.GlobalstandardizationE.Stuckinthemiddle
47.Alocalizationstrategy
A.involvesanappropriatemixofcentralizationanddecentralization.
B.centralizesallfunctions.
C.centralizesonlytheresearchanddevelopment(R&D)andmarketingfunctions.
D.isthemostcomplexstrategy.
E.isorientedtowardlocalresponsiveness.
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48.Aninternationalstrategy
A.centralizesonlytheresearchanddevelopment(R&D)andmarketingfunctions.
B.centralizesallfunctions.
C.involvesanappropriatemixofcentralizationanddecentralization.
E.maximizeslocalresponsiveness.
49.Aglobalstrategy
A.involvesanappropriatemixofcentralizationanddecentralization.B.
centralizes
allfunctionsattheoptimalgloballocations.
C.centralizesonlytheresearchanddevelopment(R&D)andmarketingfunctions.
E.maximizeslocalresponsiveness.
50.Whichofthefollowingfactorsmustbeconsideredinchoosingthestructureand
controlsystemsformanagingaglobalbusiness?
A.Howtodistributeandallocateresponsibilityandauthoritybetweenmanagersat
homeandabroadB.Theselectionoftheorganizationalstructurethatgroupsdivisions
bothathomeandabroad
C.TheselectionoftherightkindsofintegrationandcontrolmechanismsD.The
selectionoftherightkindsoforganizationalculture
E.Allofthesechoices
51.Whichofthefollowingstrategiesismostlikelytofacilitatethetransmissionofa
company's norms and values and, hence, the development of a global corporate
culture?
A.Focus
B.LocalizationC.International
D.GlobalstandardizationE.
Transnational
52.Whichstructureisthebestforsharinginformationandlearningacrosscountries?
A.Globalarea
B.Internationaldivision
C.Globalproductgroup
D.Globalmatrix
E.Simple
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53.Theeasiestandcheapesttypeofdiversificationstrategyforacompanytomanage
isA.relateddiversification.
B.unrelateddiversification.C.verticalintegration.
D.horizontaldiversification.E.noneofthesechoices.
54.Reasons why a firm might benefit from the creation of a separatenew

venturedivisionincludeallofthefollowingexcept
A.betterprotectionofthedivision'sautonomy.B.lessscrutinyfromtopmanagers.
C.removalfromdaytodaypressuresofthefirm.
D.easeindevelopingaculturethatfostersinnovation.E.
developmentofascience
basedbusinessmodel.
55.ForitsSouthAmericanoperations,CaterpillarperformsmostfunctionsatitsU.S.
headquartersbutmarketsthroughcooperativerelationshipswithlocaldistributors.
Basedonthisinformation,whichentrymodeisCaterpillarusinginSouthAmerica?
A.InternalnewventureB.
Jointventure
C.Merger
D.Acquisition
E.Intrapreneurship
56.InitsU.S.operations,JapanesebasedSonyhasdecentralizedalmostallofitstasks
toanindependentfirmthatitcreatedandwhichitowns.Basedonthisinformation,
whichentrymodeisSonyusingintheUnitedStates?
A.InternalnewventureB.Acquisition
C.JointventureD.DivestitureE.Merger
57.Toexpanditsglobalsales,U.S.basedMillerBrewingCompanypurchasedafirm
thatprocessesgrainsinBrazil.Millerplanstomanagethenewbusinessbyallowingit
tocontinueasbefore,withlittleintegrationintotherestofthefirm.Basedonthis
information,whichentrymodeisMillerusinginBrazil?
A.Acquisition
B.InternalnewventureC.Jointventure
D.DivestitureE.Merger
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58.TheU.S.firmHewlettPackard(HP)builttwelveworldwidemanufacturing
facilitiesinseveraldifferentcountries,butitsresearchanddevelopment(R&D)and
marketingarecentralizedintheUnitedStates.Basedonthisinformation,whichentry
modeisHPusinginitsvariouslocations?
A.Acquisition
B.InternalnewventureC.Jointventure
59.Whenafirm'smanagersareveryconcernedaboutthepossibilityoflosingcontrol
ofproprietaryknowhow,whichentrymodeshouldthefirmavoid?
A.Acquisition
B.InternalnewventureC.
Jointventure
60.AmericaOnlineblendeditsoperationswiththoseofTimeWarnertocreateAOL
Time Warner. America Online is using which entry mode to enter the broadcast
industry?
A.Acquisition
B.InternalnewventureC.
Merger
D.DivestitureE.Jointventure
61.PepsiCoboughtmanyofitsbottlers.WhichentrymodeisPepsiCousingtoenter
thebottlingindustry?
A.Jointventure
B.Internalnewventure
C.Acquisition
D.Divestiture
E.Merger
62.Whichofthefollowingstrategiescancompaniesuseastheybegintomarkettheir
productsandestablishproductionfacilitiesoverseas?
A.Localization
B.International
C.Global
D.Transnational
E.Allofthesechoices
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63.In general, the choice of structure and control systems for managing a global
businessisafunctionofwhichofthefollowingfactors?
A.Thedecisionofhowtodistributeandallocateresponsibilitybetweenmanagersat
homeandmanagersabroad
B.Theselectionoftheorganizationalstructurethatgroupsdivisionsbothathomeand
abroadandthatallowsforthebestuseofresources
C.TheselectionoftherightkindsofintegrationandcontrolmechanismsD.
Allof
thesechoices
64.Acompanythatmakesandsellsthesameproductinmanydifferentcountries
oftengroupsitsoverseasdivisionsinto____tosimplifythecoordinationofproducts
acrosscountries.
A.worldregionsB.horizontalareasC.sixareas
D.localregions
65.Theglobalproductstrategyisweakwhenitcomesto
A.manufacturingofproducts.
B.distributionofproducts.
C.responsivenesstocustomers.
66.Implementation of a global matrix provides a company with which of the

followingadvantages?A.Decentralizescontroltooverseasmanagers
B.Providesoverseasmanagerswithconsiderableflexibility
C.AllowsoverseasmanagerstheflexibilitytomanagelocalissuesD.Allows
corporateexecutivestoexercisecontrolwhenneededE.
Allofthesechoices
67.WhenToyotafirstdecidedtomanufactureandmarketcarsintheUnitedStates,it
enteredintoa____withGeneralMotors.
A.strategicallianceB.
jointventure
C.globalpartnershipD.tradeagreementE.contingencyplan
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68.In joint venturing, twoor more companies typically agree to A. merge within
twelvemonths.
B.dividetheirlistsofcustomers.
C.poolspecificresourcesandcapabilities.
D. divide a specific market between the two companies. E. pool the results of
entrepreneurshipateachcompany.
69.Whichofthefollowingisnotaconsequenceoftheincreasedabilityofmanagers
touseinformationtechnologyastheyimplementstrategies?
A.FlatterhierarchiesB.Greatercentralization
C.Moretimelyinformation
D.Increaseduseofoutsourcing
E.Enhancedinnovationcapabilities
70.Businesstobusiness(B2B)networkslinkfirmsto
A.buyers.
B.suppliers.
C.regulators.
D.competitors.
E.buyersandsuppliers.
71.When a company uses a network structure to implement outsourcing,A.

many
firmsalongthevaluechaincaneasilycooperate.
B.bureaucraticcostsareincreased.
C.thecostoftheoutsourcedfunctionsincreases.
D.organizationalcultureisanimportantcontrolmechanism.
E.manyfirmsalongthevaluechaincaneasilycooperateandbureaucraticcostsare
increased.
72.Whichofthefollowingcompanies is thebestexampleofanorganizationthat
formallyencouragesandsupportsentrepreneurship?
A.Toyota
B.Smith&WessonC.GeneralMotors
D.3ME.Nestl
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73.JointventuresarebestsuitedforprojectsthatA.aresmallinsize.
B.eachcompanycouldundertakebyitself.C.areroutineinnature.
D.neithercompanycoulddoonitsown.E.noneofthesechoices.
74.ThepurposeofajointventurebetweentwoormorecompaniesisoftentoA.share
anddeveloptechnology.
B.distributeandmarketbrandsandproducts.C.shareaccesstocustomers.
75.Ownershipofthecompanycreatedbyajointventure
A.issplit50/50betweenthetwojointventuringcompanies.
B.isusuallyamattertobenegotiatedbetweenthecompaniesengagedintheventure.
C.automaticallygoestothelargestcompanyengagedintheventure.
D.automaticallygoestothesmallestcompanyengagedintheventure.
76.Themostwidelyusedvehiclesthatcompaniescanusetoenternewindustriesor
countriesareA.
mergersandacquisitions.
B.jointventuresandstrategicalliances.C.mergersandjointventures.
D.acquisitionsandstrategicalliances.
E.productdevelopmentandmarketpenetration.
77.Informationtechnologyfacilitates
A.outputcontrol.
B.behaviorcontrol.
C.integrationbetweendivisions.
D.integrationbetweendivisionsandcorporateheadquarters.
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78.At the level of organizational structure, control, and culture, ____ has given
strategicmanagersmanynewoptionsinimplementingstrategies.
A.researchanddevelopmentB.marketingresearch
C.outsourcingD.benchmarking
E.informationtechnology
79.The set of strategic alliances that an organization creates with suppliers,

manufacturers,anddistributorstoproduceandmarketaproductiscalleda(n)
A.networkstructure.B.outsourcingnetwork.C.structurealliance.D.oligopoly.
E.suppliers'network.
80.Explain the benefits of the multidivisional structure for managing a firm that
competesinseveralindustries.
Themultidivisionalstructurehasthefollowingadvantages:
Eachdivisionofthefirmoperatesseparatelyandcandevelopitsownresources,strategies,andstructure.
Separationalsomakescontroleasierbecauseeachdivision'scontributiontocorporateprofitsisclear.
Divisionalmanagerscanfocussinglemindedlyontheperformanceoftheirdivision,andcorporatestaffarefreedtofocus
ontheperformanceofthecorporationasawhole.
Separatedivisionsalsomotivatedivisionalmanagers,whorealizethatcorporatemanagerscaneffectivelyoversee
theirperformance.
Thestructureenableslearningandsharingacrossdivisions,anditallowsthefirmtoovercometheinformationand
efficiencydrawbacksassociatedwithlargesize.
81.Whenthedecisionhasbeenmadetoenteranewindustry,whichentrymodeis
mostcommonlyusedandwhatissuesmustmanagersaddresswiththismodeof
entry?
The most common mode of entry into a new industry is through mergers and
acquisitions.Themainbenefitisthatcompaniesemployingthisentrymodecanmove
quickly,andasindustryboundariescontinuetoblurandchangesintheenvironment
arehappeningatarapidpace,companiesoftendonothavetheluxuryoftimeontheir
side.
Inimplementingthisstrategymanagersneedtoaddressissuesofstructureandhowto
establishnewlinesofauthorityandresponsibilitythatwillallowthemtomakethe
bestuseofbothcompanies'competencies.Inaddition,managersneedtodecidehow
tocoordinateandintegratethemergedcompaniessothatcostsarereducedand
competenciesareleveragedacrossbusinesses.Controlissuesmustalsoberesolvedso
thatactivitiescanbemonitoredandmeasured.Ascompaniesarebroughttogetherthe
businessprocessesofeachneedtobeaddressed.
Organizationalcultureissuesmustalsobetakenintoconsideration.Theblendingof
cultureswillmostlikelybeverydifficultbutitisabsolutelyessentialthatstepsbe
takentomakethishappen.
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82.MohawkIndustriesInc.isthelargestdesigner,maker,andsellerofcarpetsinthe
UnitedStates.Inaseparatedivision,thefirm'sproductlinealsoincludesfloortile,
pillows,andbedlinens.Mohawkhasastrongemphasisoncostreduction.Ifthefirm
wishestosellmoreproductsoverseas,whatstrategywouldyourecommend,and
why?
MohawkIndustriesInc.isthelargestdesigner,maker,andsellerofcarpetsinthe
UnitedStates.Inaseparatedivision,thefirm'sproductlinealsoincludesfloortile,
pillows,andbedlinens.Mohawkhasastrongemphasisoncostreduction.Ifthefirm
wishestosellmoreproductsoverseas,whatstrategywouldyourecommend,and
why?Basedonyourresponse,recommendanorganizationalstructureforMohawkto
useasitglobalizes.Explainwhythestructureyourecommendisthemostappropriate
oneforMohawk.
Mohawkshouldconsideruseoftheglobalstandardizationstrategyforits
internationalefforts.Theglobalstandardizationstrategysupportscostleadership,
whichisanimportantgoalofthefirm.Inaddition,thefirm'slargesizesupportsthe
globalstandardizationstrategy.Finally,althoughtheremayberelativelyminordesign
changes,productssuchascarpetsandfloortilewillbeverysimilarwherevertheyare
sold,andtheywillrequirelittlecustomization.Therefore,theglobalstandardization
strategyisappropriatebecauseitreducescoststhroughtheuseofstandardizationand
centralization.
Companiesthatpursuetheglobalstandardizationstrategyshouldimplementthat
strategythroughtheuseofaglobalproductdivisionstructure,whichcoordinates
domesticandinternationalactivitiesforeachproductdivision.Thus,Mohawkshould
organizeintotwounits:onewillcontroldomesticandinternationalcarpetoperations,
whiletheotherwillcontroldomesticandinternationaloperationsforotherproducts.
Thisistheleastcomplexandleastexpensivestructurethatwillprovideeffective
supportforafirmpursuingtheglobalstandardizationstrategy.Thisstructurerequires
thateachvaluecreationactivitybeperformedatjustonegloballocationtoreduce
costs.
83.ConsidertheinformationgiveninQuestion83andyouranswertothatquestion,
andthenrecommendanorganizationalstructureforMohawktouseasitglobalizes.
ExplainwhythestructureyourecommendisthemostappropriateoneforMohawk.
Mohawkshouldconsideruseoftheglobalstandardizationstrategyforits
internationalefforts.Theglobalstandardizationstrategysupportscostleadership,
whichisanimportantgoalofthefirm.Inaddition,thefirm'slargesizesupportsthe
globalstandardizationstrategy.Finally,althoughtheremayberelativelyminordesign
changes,productssuchascarpetsandfloortilewillbeverysimilarwherevertheyare
sold,andtheywillrequirelittlecustomization.Therefore,theglobalstandardization
strategyisappropriatebecauseitreducescoststhroughtheuseofstandardizationand
centralization.
Companiesthatpursuetheglobalstandardizationstrategyshouldimplementthat
strategythroughtheuseofaglobalproductdivisionstructure,whichcoordinates
domesticandinternationalactivitiesforeachproductdivision.Thus,Mohawkshould
organizeintotwounits:onewillcontroldomesticandinternationalcarpetoperations,
whiletheotherwillcontroldomesticandinternationaloperationsforotherproducts.
Thisistheleastcomplexandleastexpensivestructurethatwillprovideeffective
supportforafirmpursuingtheglobalstandardizationstrategy.Thisstructurerequires
thateachvaluecreationactivitybeperformedatjustonegloballocationtoreduce
costs.
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84.Howcaninformationtechnology(IT)helpintheimplementationofa
multibusinessmodel?
ITcanprovideacommonsoftwareplatformthatcanmakeiteasierfordifferent
divisionstocommunicateandshareinformationandthushelpcompaniesleverage
their competencies. With better and timelier information, a more decentralized
structureispossible,andthiscanhelpreducebureaucraticcosts.
IT also helps corporate managers oversee the performance of different divisions.
Goodinformationmakesitlesslikelythatperformanceinformationwillbedistorted,
and managers can use standardized information to compare performance across
divisions.
Afinalbenefitisthatthroughaccurateandtimelyinformation,manytransferpricing
problemscanbeeliminated.ThepotentialbenefitsofeffectiveITforcompanies
usingthemultibusinessmodelarehuge.
Question Excerpt From capstone final
Q.1 Strong pressures for local responsiveness emerge when
)
customer tastes and preferences
A.
B.
C.
D.
differ significantly between countries.

differ slightly between countries.
are universally alike.
are cyclical in nature.
E.
none of the above.
Q.2 Which of the following entry modes allow(s) a company to
)
engage in global strategic coordination?
A.
B.
C.
D.
E.
Q.3)
Exporting
Licensing
Joint ventures
Wholly owned subsidiaries
Joint ventures and wholly owned subsidiaries
A key to making a strategic alliance work is
A.
having one partner handle daily operations.
B.
selecting the right partner.
C.
sharing all knowledge.
D.
enforcing one culture for both partners.
E.
reducing investment in the alliance to a minimum.
Q.4) Which of the following is not a risk of exporting?
A.
Tariff barriers
B.
Transportation costs
C.
Location diseconomies
D.
Prime interest rates
E.
Delegation of marketing activities to a local agent
Q.5 In which of the following circumstances does a localization
)
strategy make the most sense?
Global market standardization is not possible, and there
are no significant economies of scale to be realized from
centralizing global manufacturing.
Global market standardization is possible, but there are no
B
significant economies of scale to be realized from
.
Global market standardization is not possible, but there
C
are significant economies of scale to be realized from
.
Global market standardization is possible, and there are
D
.
Consumer tastes and preferences differ among
E
national markets, and economies of scale are
.
substantial.
Q.6) Global economies of scale can be realized by
A
.
A.
B.
C.
D.
E.
expansion of overseas sales.

better utilization of production facilities.
boosting bargaining power with suppliers.
increasing cost savings through learning effects.
all of the above.
Which of the following companies increased company growth
Q.7
rates by developing products at home and then expanding sales
)
of these products in international markets?
A.
Procter & Gamble
B.
C.
D.
E.
Ford
Toyota
All of the above
None of the above
Firms should choose likely countries for an international expansion effort based
Q.8
on all of the followingexcept the
)
A.
B.
C.
D.
E.
Q.9)
size of the market.

existing wealth of consumers in that market.
likely future wealth of consumers in that market.
political stability of that market.
age of the country.
Global expansion
A.
B
.
is feasible only for large companies.

can enable companies to increase their profitability
and grow their profits more rapidly.
allows domestic companies in the mature stage of the
C
industry life cycle to maintain profits but not to increase
.
them.
D.
requires locating facilities in foreign countries.
makes sense for manufacturing firms but not for service
E.
firms.
Q.10 Foreign subsidiaries play a major role in shaping the future
)
direction of a company pursuing a(n)
A.
transnational strategy.
B.
international strategy.
C.
localization strategy.
D.
joint venture.
E.
global standardization strategy.
Q.11 A company that enters a foreign market by entering into a
)
licensing agreement with a local company
A.
B.
C.
can realize location economies.

can engage in global strategic coordination.
can realize experience-curve effects.
can realize experience-curve effects. risks losing
D
control over its technology to the venture partner.
.
risks losing control over its technology to the
venture partner.
E
can engage in global strategic coordination and realize
.
experience-curve effects.
Q.12 What are the risks associated with licensing as a means of
)
entering overseas markets?
A
.
B.
C
.
D.
Licensing limits a company's ability to coordinate strategic

moves across countries.
A company may lose control of its technology.
A company may lose control over its manufacturing,
marketing, and strategic functions.
All of the above.
E.
None of the above.
Q.13 A nation's companies gain competitive advantage if their
)
domestic customers are
A.
nondemanding purchasers.
B.
able to obtain products or services in other countries.
C.
sophisticated and demanding.
D.
willing to spend money on novelties.
E.
not willing to accept low-priced products.
Q.14 Which of the following has occurred in international trade over
)
the past half-century?
A
.
B
.
There has been a dramatic lowering of barriers to

international trade.
Tariff rates on manufactured goods traded by advanced
nations have fallen.
Regulations prohibiting foreign companies from entering
C
domestic markets and establishing production facilities
.
have been removed.
D.
The volume of world trade has increased dramatically.
E.
All of the above.
Q.15) Most manufacturing companies begin their global expansion
by
A.
licensing.
B.
franchising.
C.
exporting.
D.
forming a joint venture.
E.
setting up a wholly owned subsidiary in the host country.
Q.16 Which of the following factors increases pressures for cost
)
reductions?
A.
Differences in distribution channels
B.
Increasing national wealth
C.
Great transportation needs
D.
High switching costs
E.
Price as the main competitive weapon in a market
Q.17) Attaining a credible commitment from a potential partner
A.
is a step in partner selection.
B.
requires the ability to share skills with partners.
C.
requires the ability to learn from alliance partners.
D.
is a way to minimize opportunism.
E
requires the ability to share skills with and learn from
.
alliance partners.
Q.18 Cost reduction pressures can be particularly intense in
)
industries producing
A.
B.
C.
D.
E.
commodity-type products.
highly differential products.
goods that do not compete on the basis of price.
goods servicing narrowly defined markets.
highly advertised goods.
Q.19 The ability to realize cost economies from global volume is

)
greatest in the case of
products that need to be customized to local
requirements.
commodity-type products that serve universal
B.
needs.
C
low-weight, high-value products that can be differentiated
.
by global companies.
D
products that can be economically manufactured in small
.
batches.
E
companies competing in industries where they face a
.
large number of multinational competitors.
Q.20)
Factors of production include all but which of the following?
A.
A.
Land
B.
Labor
C.
Raw materials
D.
Ethnic diversity
E.
Managerial sophistication
Q.21 When entering an overseas market, which of the following
)
factors should be considered?
A.
Size of the market
B.
Purchasing power
C.
Consumer demand for the company's product
D.
Economic risks
E.
All of the above
Q.22 Which entry mode gives a multinational the tightest control
)
over foreign operations?
A
.
B.
C.
D
.
E.
Exporting from the home country and letting a foreign

agent organize local marketing
Licensing
Franchising
Entering into a joint venture with a foreign company to set
up overseas operations
Setting up a wholly owned subsidiary
When a company increases its growth rate by taking goods or
Q.23
services developed at home and selling them internationally, it
)
is
A.
leveraging its existing products.
B.
taking the path of least resistance.
C.
engaging in product positioning.
D.
realizing cost economies from global expansion.
E.
realizing location economies.
Q.24 Which of the following isnot a necessity for leveraging the
)
skills of global subsidiaries?
A
.
The firm must have incentives for local managers to share

knowledge and ideas.
B
.
The firm's managers must be aware that competencies

can develop anywhere.
The firm must be pursuing a strategy of
C.
differentiation.
D
The firm's managers must help to transfer competencies
.
around the company.
E
The firm must offer incentives that encourage employees
.
to take necessary risks.
Q.25) A localization strategy is most appropriate when
A
there are relatively few differences from one location to
.
another.
B.
consumer tastes and preferences are universally similar.
C
consumer tastes and perferences differ
.
substantially across nations.
D.
there is no need to customize products.
E.
local demand and national demand are equal.
Q.26 Companies that pursue a transnational strategy are trying to
)
develop
A.
a business model that achieves low costs.
B.
a differentiation strategy across geographical markets.
C
a flow of skills between different subsidiaries in the global
.
network.
D.
all of the above.
E.
none of the above.
Q.27 Which of the following factors increases pressures for local
)
responsiveness?
A.
Powerful buyers
B.
Persistent excess capacity
C.
Low-cost competitors
D.
Differences in customer tastes and preferences
E.
Trade barriers
Q.28 Procter & Gamble grew rapidly in international markets
)
because of its
A.
B.
C.
D.
E.
skills in mass-marketing.
patents on essential products.
financial stamina.
work force diversity.
concentric diversification.
When a company performs a value creation activity in the
Q.29
optimal location for that activity, wherever in the world that
)
might be, it is trying to capitalize on
A.
economies of scale.
B.
economies of scope.
C.
the transnational strategy.
D.
location economies.
E.
its localization strategy.
Q.30 For a hotel company whose competitive advantage is based on
)
high brand-name recognition, which of the following ways of
serving an overseas market makes the most sense?

A.
Franchising
B.
Licensing
C.
Exporting
D.
Entering into a joint venture with a foreign company
E.
Setting up a wholly owned subsidiary
Q.31)
Host government demands generally
A.
B.
C
.
increase pressures for local responsiveness.

increase pressures for cost reductions.
discourage foreign companies from operating in the home
country.
impede a company's ability to minimize its transaction
D.
costs.
E
impede a company's ability to differentiate its product
.
offering across national borders.
Q.32 Clear Vision's decision to own a manufacturing facility
)
overseas was not influenced by which of the following factors?
A.
B.
C.
D.
E.
Low labor costs

Availability of a skilled work force
Geographical proximity to India
Tax breaks given by the Hong Kong government
Ability to find a Chinese partner
When toymaker Mattel sells Barbie dolls in the Middle East, it
Q.33
changes the doll's shape to one that is a more accurate
)
portrayal of a female body. Mattel does this to
A.
create a commodity-type product.
B.
transfer technological know-how.
C.
increase product standardization.
D.
realize experience curve effects.
E.
respond to differences in local tastes.
Q.34 In which of the following circumstances does a global
)
standardization strategy make the most sense?
Global market standardization is not possible, and there
are no significant economies of scale to be realized from
Global market standardization is possible, but there are no
B
.
Global market standardization is not possible, but there
C
are significant economies of scale to be realized from
.
D
Consumer tastes and preferences differ among national
.
markets, and economies of scale are insubstantial.
Global market standardization is possible, and
E
there are significant economies of scale to be
.
realized from centralizing global manufacturing.
Q.35 Which of the following is not an objective of a transnational
)
company?
A
.
A.
Local responsiveness
B.
Realization of experience-based economies
C.
Low cross-national integration
D.
Global learning
E.
Realization of location economies
Q.36) Managers of a multinational enterprise must recognize that
skills
A
need to be transferred from headquarters to the firm's
.
overseas operations.
B
may arise from anywhere within the firm's global
.
network.
C
developed overseas usually do not rise to the level of
.
domestic skills.
D.
should not deviate from their domestic level.
E.
must be tightly controlled to assume global similarity.
Q.37) The timing of entry into an overseas market
A.
B.
C.
doesn't matter in the long run.

has little effect on long-term success.
is a matter for careful consideration.
has little or no effect on the overall costs of market
D.
entry.
E.
depends on the entry of competition.
Which of the following is not an attribute of a national or
Q.38
country-specific environment that has an impact on global
)
competitiveness of companies located in that nation?
A.
Factory production endowments
B.
Local demand conditions
C.
Related and supporting industries
D.
Strategy, structure, and rivalry of firms within the nation
E.
Advertising expenses
Q.39 All of the following are first-mover advantages except the
)
ability to
A.
ride down the experience curve ahead of rivals.
B.
avoid pioneering costs.
C.
discourage new entrants.
D.
create switching costs for customers.
E.
preempt rivals by building a strong brand name.
Q.40) A localization strategy is based on which of the following
ideas?
A
.
B
.
C
.
D
.
There is a convergence in the tastes of consumers in

different nations of the world.
There are substantial economies of scale to be realized
from centralizing global production.
Consumer tastes and preferences differ among
national markets.
There are cost advantages associated with manufacturing
a standard product for global consumption.
E
.
Competitive strategy should be centralized at the world

head office.
When technology in an industry is changing rapidly, a
Q.41
company pursuing a strategy of vertical integration may find
)
itself
A.
locked into an old, inefficient technology.
B.
able to sell its products at continually lower prices.
C.
increasing returns on its assets.
D.
all of the above.
E.
none of the above.
Q.42 Which of the following statements concerning vertical
)
integration is not correct?
A
.
B
.
C
.
D
.
E
.
Vertical integration can reduce a company's overall cost

of production.
Vertical integration allows a company to circumvent
powerful buyers and suppliers.
Vertical integration can be used to protect a
company's investments in proprietary technology.
Vertical integration is a means of implementing just-intime inventory systems when suppliers are unreliable.
Vertical integration facilitates the attainment of
economies of scope.
Hewlett Packard and Compaq recently completed a merger.
Q.43 The combined firm is larger and therefore can negotiate lower
)
prices from suppliers. This benefit of horizontal integration is
called
A.
economies of scale.
B.
reduction of excess capacity.
C.
cross-selling.
D.
product bundling.
E.
market power.
Q.44 Observing the pattern of consolidation in U.S. industries over
)
time, one will notice that
A
horizontal integration has never been a very popular
.
strategy.
B.
firms that horizontally integrate tend to divest later.
C
horizontal integration has been very popular in the
.
last decade.
D
while a few industries have consolidated since 1970, most
.
remain fragmented.
E
mergers were very common and acquisitions were rare
.
from 1900 to 1999.
Q.45)
Outsourcing occurs when a firm
A.
B.
C.
D.
buys one of its rivals.

merges with one of its suppliers.
enters into a joint venture with a rival.
hires another firm to perform value creation
activities.
E.
enters into contracts with two suppliers simultaneously.
Q.46) When a company decides to expand into new industries, it
must
A.
construct its business models at two levels.
B
secure government approval from the Securities and
.
Exchange Commission (SEC).
C.
select a new CEO.
D.
all of the above.
E.
none of the above.
Q.47 Which of the following is not an accurate statement about
)
outsourcing?
A
.
B
.
C
.
D
.
Outsourcing should be done for an entire function

for example, all of human resources.
Outsourcing requires that some value creation activities
be performed outside an organization.
A risk of outsourcing is the decreased control that
organizations have over how the functions are performed.
Outsourcing means that activities can be performed by
companies that specialize in that activity.
Outsourcing is a strategy that is primarily used by small
E
firms who cannot afford skilled personnel in every
.
specialty.
Q.48)
Antitrust regulation
A.
B.
favors large companies.

reduces industry competition.
is concerned with companies' abuse of their market
C
power to raise prices for consumers above the level
.
that would exist in more competitive situations.
D.
tends to raise prices for consumers.
E.
enables the achievement of market power.
Q.49)
Which of the following is not a benefit of vertical integration?
A.
Facilitating investments in specialized assets
B.
Enhancing product quality
C.
Improved scheduling
D.
Increasing cost structure
E.
None of the above
Q.50 Which of the following strategies facilitates the implementation
)
of a just-in-time inventory system?
A.
Short-term contracts
B.
Vertical integration
C.
Unrelated diversification
D.
Diversification based on transferring competencies
E.
Diversification based on realizing economies of scope
Q.51 Companies invest in specialized assets because these assets
)
allow them to
A.
lower their cost structure.
B.
C.
D.
E.
charge excessive prices for their products.

better differentiate their products.
A and B.
A and C.
To ensure the easy transfer of important competitive
Q.52
information between a firm and its outsourcing contractors, the
)
firm should
A.
B.
C.
D.
E.
Q.53)
exchange hostages.
use parallel sourcing.
lengthen the supply chain.
develop trust.
become a virtual corporation.
Credible commitments
are believable promises or pledges to support the

development of a long-term relationship between
companies.
B
facilitate diversification based on acquisitions and
.
restructuring.
C.
facilitate competitive bidding.
D.
facilitate vertical integration.
E
reduce the risk of losing proprietary technology to a
.
venture partner and facilitate vertical integration.
Adam's boss tells him that their company is pursuing a
Q.54
strategy of horizontal integration, which means that the
)
company will
A
.
A.
acquire one of its suppliers.
B.
buy one of its rivals.
C.
begin to distribute its own products.
D.
reorganize into fewer business units.
E.
centralize all of its support functions.
Q.55 Which of the following activities should not be outsourced by a
)
virtual corporation?
A.
Manufacturing
B.
Research and developoment (R&D)
C.
Materials management
D.
Contract management
E.
Marketing
Q.56 In which of the following is a firm most likely to lose direct
)
control over value creation activities?
A.
Merger
B.
Acquisition
C.
Vertical integration
D.
Strategic alliance
E.
Outsourcing
Q.57 Many industries have experienced increased consolidation
)
over the last decade due to an increase in
A.
strategic alliances.
B.
C.
D.
E.
Q.58)
vertical integration.
horizontal integration.
franchising.
diversification.
A wealth of data suggests that most mergers and acquisitions
A.
B
.
create extensive value for the companies involved.

do not create, and may actually reduce, value for
the entities involved.
create and sustain large and immediate increases in
C.
value.
D.
have little financial impact on the firms involved.
E.
none of the above.
Q.59 Which of the following is not a characteristic of strategic
)
alliances entered into to support related diversification?
A
It is a way for companies to realize some of the benefits of
.
diversification at a lower level of bureaucratic costs.
B
It requires each company to take an equity stake in the
.
new venture.
C
A disadvantage is the risk of losing proprietary know-how
.
to a competitor.
D
It entails investing in a new business or product
.
(including upgrades) instead of an existing one.
E.
It allows a company to swap complementary skills.
Q.60)
Companies can maintain market discipline over suppliers by
A.
B.
C.
D.
E.
outsourcing.
demanding hostages.
attaining a credible commitment.
parallel sourcing.
full integration.
When Daimler-Benz and Chrysler merged, DaimlerChrysler
sharply reduced its U.S. corporate-level staff, running the
Q.61
combined company primarily from its German headquarters.
)
Which benefit of horizontal integration does this example
illustrate?
A.
B.
C.
D.
E.
Economies of scale
Reduction of excess capacity
Product bundling
Cross-selling
Elimination of duplication
Under which of the following circumstances is vertical
Q.62
integration most likely to help a company establish itself as a
)
differentiated player in its core business?
A
.
B
When backward vertical integration involves

circumventing suppliers with the power to charge high
prices
When vertical integration is based on a desire to avoid
paying market middlemen

When vertical integration allows the company to
C
establish for itself a stable supply of high-quality
.
inputs
When vertical integration facilitates close coordination
D
among adjacent stages of production, eliminating the
.
need to hold excessive inventories
When vertical integration prohibits technologically
E
complementary processes being carried out in quick
.
succession
A hospital supply company invests in training for a team of
sales associates to learn the details of each hospital chain's
Q.63 operations. In return, the hospital chain invests in a computer
)
system that supports supply ordering. The supply company
and the hospital chain are working to ensure the success of
their long-term relationship by
A.
reducing the risk of losing proprietary technology.
B.
making a credible commitment.
C.
encouraging competitive bidding.
D.
facilitating vertical integration.
E.
using parallel sourcing.
Q.64 Under which of the following circumstances is vertical
)
integration hazardous?
A
.
B
.
C
.
When the technology involved in different stages of

production is changing rapidly
When vertical integration involves moving downstream
into retailing
When the value added by successive stages of production
is declining
When the industries involved are undergoing rapid
D.
expansion
E
When the company's competitors are also following a
.
strategy of vertical integration
Q.65 When an intermediate manufacturer moves into final
)
assembly, it is pursuing
A.
backward integration.
B.
forward integration.
C.
taper integration.
D.
related diversification.
E.
unrelated diversification.
Q.66 John's surfboard shop has a long-term relationship with two
)
surfboard makers. John is using
A.
parallel sourcing.
B.
cross-selling.
C.
product bundling.
D.
E.
Q.67) Forward integration means that a company is moving into
A.
B.
C.
D.
E.
Q.68)
sales.
retail.
distribution.
all of the above.
none of the above.
Horizontal integration may be thought of as
A.
moving into a new unrelated industry.
B.
giving control to suppliers.
C.
gaining control of distributors.
D
staying inside the industry in which the company
.
currently operates.
E.
combining functional units within the company.
Q.69) To build trust in a cooperative relationship, both firms can
A.
B.
rely on competitive bidding.

make mutual investments in specialized assets.
write short-term contracts that must be renewed
C.
frequently.
D.
increase their vertical integration.
E.
use outsourcing of noncore activities.
Q.70) A specialized asset is one that is designed to
A.
B.
C.
D.
E.
perform a multitude of generic tasks.

perform a specified sequence of tasks.
perform several nonsequential tasks.
perform a specific task.
none of the above.
When there is a minimal need for close long-term cooperation
Q.71
between a company and its suppliers, which of the following
)
strategies is the most appropriate?
A.
B.
C.
D.
E.
Q.72)
A
.
B
.
C
.
D
.
Full integration
Taper integration
Competitive bidding
Long-term contracting
Diversification based on economies of scope
Long-term contracts
are preferable to short-term contracts when there is a

minimal need for cooperation.
are preferable to vertical integration when it is not feasible
to exchange hostages.
generally result in lower prices than does competitive
bidding.
achieve exactly the same outcomes as vertical
integration, but they incur higher bureaucratic costs.
are a low-cost alternative to vertical integration
E
when it is possible to build cooperative
.
relationships with suppliers.
Another name for long-term cooperative relationships between two or more
Q.73
companies who agree to commit resources to develop new products is
)
A.
B.
C.
D.
E.
Q.74)
outsourcing.
strategic alliance.
joint venture.
Strategic outsourcing is best described as a
A.
B
.
C
.
means of getting rid of excess activities.

way of getting other companies to do what the
outsourcing company no longer wants to do.
method of streamlining the marketing activities of a
company.
decision to allow one or more of a company's value
D
chain activities to be performed by other
.
companies.
E.
none of the above.
Q.75 Vertical integration is based on a company entering industries
)
that add _________ to its core products.
A.
costs
B.
little or nothing
C.
incremental elements
D.
shipping expenses
E.
value
Q.76) In today's business environment, mergers and acquisitions
are
A.
rare.
B.
too expensive to undertake.
C.
occurring in many industries.
D.
an inappropriate technique for expanding a company.
E.
none of the above.
Q.77)
Outsourcing
A.
B.
C.
eliminates the need for a value chain.

reduces the firm's dependence on its value chain.
reorders the steps in a firm's value chain.
moves some value chain activities outside the
D.
firm.
E
strengthens the firm's capabilities in each value chain
.
function.
Q.78) The final part of the strategy formulation process is
A.
formulation of business-level strategies.
B.
formulation of functional-level strategies.
C.
formulation of corporate-level strategies.
D.
development of functional-level goals.
E.
development of business-level goals.
Q.79 Which of the following problems is (are) associated with a
)
strategy of vertical integration?
A.
B
An increasing cost structure

Manufacturing disadvantages that arise because of rapidly
.
changing technology
C
Marketing disadvantages that arise when demand is
.
unpredictable
D.
All of the above
E.
None of the above
Q.80 Ownership of retail outlets may be important for a
)
manufacturer if
the products produced by the manufacturer are not
complex.
after-sales service is required for complex
B.
products.
C.
products are expended in consumption.
D.
products are intended for one-time use.
E.
products are inexpensive.
Q.81 Which of the following statements concerning research and
)
development is correct?
A.
A
Exploratory research is more important than development
.
research.
B
Development research is more important than exploratory
.
research.
C
Exploratory research is directed toward commercialization
.
of a new technology.
D.
Development research advances basic science.
E
Companies with a strong record of internal new
.
venturing excel at both types of research.
Q.82 Which of the following entry strategies should be used when
)
speed is an important consideration?
A.
B.
C.
D.
E.
Q.83)
Internal new venture

Acquisition
Joint venture
Related diversification
General organizational competencies are found
A
in the skills of a company's top managers and
.
functional experts.
B.
at low levels in the organization.
C.
among technology professionals.
D.
within a company's strategic core.
E.
in an organization's tangible resources.
Q.84 New ventures are likely to be preferred compared to
)
acquisitions when
A.
B.
C
.
D.
E.
entry barriers are high.

exit barriers are high.
a company's business model is based on using its
technology to innovate new kinds of products for
related markets.
the company needs more mega-opportunities.
the industry is in the mature stage of the industry life
cycle.
Q.85 What accounts for the high failure rate of all new products that
)
reach the marketplace?
A.
B.
C.
D.
E.
Market entry on too small a scale

Poor commercialization of the new-venture product
Poor corporate management of the new-venture unit
All of the above
None of the above
Companies that base their diversification strategy on
Q.86
transferring competencies tend to acquire new businesses that
)
are ___________ to their existing business activities.
A.
unrelated
B.
not comparable
C.
opposed
D.
related
E.
identical
Q.87 A company pursuing a multibusiness model based on
)
diversification may justify this strategy for what reason(s)?
A.
B.
C.
D.
E.
Q.88)
Transfer competencies
Reserve competencies
Resource sharing
Product bundling
All of the above
New ventures
should be killed if they don't make a profit within three

years.
B
are often preferred compared to acquisitions by
.
technology-based companies.
C
are preferred compared to acquisitions when entry
.
barriers are high.
D.
are less risky than acquisitions.
E
are best when the company is entering the industry on a
.
small scale.
Q.89 What is perhaps the most important reason why acquisitions
)
made by a company fail?
A.
A.
The expense of the acquisition
B.
The timing of the acquisition
C
Management's unwillingness to expend the necessary
.
effort to make the acquisition work effectively
D.
Incompetence on the part of workers in the acquired firm
E.
Difficulties in coordinating manufacturing activities
Q.90) Diversification dissipates value when it is based on
A.
B.
C.
D.
E.
realizing economies of scope.

pooling risks.
transferring competencies.
acquisitions and restructuring.
leveraging existing competencies.
Which of the following may be true for a company pursuing a

Q.91
strategy of unrelated diversification rather than a strategy of
)
related diversification?
A
The company does not have to achieve coordination
.
between business units.
B
The company may create more value from an unrelated
.
diversification strategy.
C.
The company may experience lower bureaucratic costs.
D.
All of the above.
E.
None of the above.
Q.92) The role of managers in corporate-level strategy is to
A
.
B
.
C
.
D.
E.
identify markets or industries in which a company

should compete to maximize long-term profitability.
invent products that ensure the long-run success of the
company.
use their corporate power to ensure the profitability of
functional-level strategies.
all of the above.
none of the above.
Hamel and Prahalad have developed a model that can help
Q.93 managers assess how and when they should expand beyond
)
their current market or industry. They find that it is useful to
view a company as a portfolio of
A.
B.
C.
D.
E.
resources.
distinctive competencies.
strategies.
situational advantages.
strategic intent.
Stanley's services firm wants to enter an embryonic market,
Q.94 but it doesn't have enough cash to purchase the required
)
assets. Which of the following strategies would you
recommend to Stanley?
A.
B.
C.
D.
E.
Diversify through acquisition

Do not diversify at all
Diversify with an internal new venture
Diversify with a joint venture
Diversify through vertical integration
Which of the following statements is not generally true of a
Q.95
diversification strategy based on the realization of economies
)
of scope?
A
.
B
.
C
.
The head office evaluates each business unit as a

stand-alone operation.
The strategy allows a company to realize cost economies
from sharing manufacturing facilities, distribution
channels, advertising campaigns, and research and
development costs among business units.
The strategy may allow a company to use shared
resources more intensively, thereby realizing economies of
scale.
D.
Managers must be aware of the costs of coordination.
E
The strategy requires close coordination among different
.
business units.
Q.96 Which of the following is not a general organizational
)
competency?
A.
B.
C.
D.
E.
Q.97)
Entrepreneurial capabilities
Capabilities in organizational design
Superior strategic capabilities
Product bundling
All of the above
At its simplest level, a joint venture may be thought of as a(n)
A.
B.
C.
D.
E.
merger of two companies.

acquisition of a smaller company by a larger company.
form of strategic outsourcing.
sign of weakness on the part of one of the companies.
corporate partnership.
Leveraging competencies involves taking a distinctive
Q.98
competency developed by a business unit in one industry to
)
create
A.
B.
C.
D.
E.
Q.99)
a new business unit in the same industry.

a new business unit in a different industry.
a new industry.
a new market segment.
new customers in the same industry.
Product bundling refers to
A.
preparation of products for shipment.
B.
a complete package of related products.
C.
a method of stocking products efficiently.
D
an inventory procedure for ensuring effective counting of
.
products.
E.
a package of unrelated products.
Q.100A strategy based on diversification may fail to add value
)
because companies
A.
seek to achieve differentiation instead of low cost.
B
diversify into areas in which they have some knowledge
.
and miss out on profitable opportunities in other areas.
C
make acquisitions rather than develop new technologies
.
on their own.
D
incur bureaucratic costs that exceed the value
.
created by the strategy.
E.
seek to achieve cost leadership instead of differentiation.
Q.101)
Joint ventures
A.
B.
C.
are an alternative to new ventures.

are attractive when speed is important.
are attractive when entry barriers are high.
D.
E.
should be done on a small scale.

reduce the risk of loss of proprietary knowledge.
A company considering entering an industry that is in the
Q.102
mature stage of its life cycle would generally prefer which of
)
the following entry strategies?
A.
Joint ventures
B.
New ventures
C.
Acquisitions
D.
Long-term contracting
E.
Taper integration
Q.103) A diversification strategy based on resource sharing
entails a company creating value by applying the
distinctive competencies it developed in one line of
business to another line of business.
requires the development of new business-level
B.
strategies.
C.
can help a company to realize economies of scope.
D
is a valid way of supporting the generic business-level
.
strategy of differentiation.
E.
increases the accountability of units.
Q.104Which of the following reasons can make a diversification
)
strategy an unwise course of action for a company to pursue?
A
.
A.
B.
C.
D.
E.
Changing industry conditions

Changing firm-specific conditions
Diversification for the wrong reasons
Increasing bureaucratic costs of diversification
All of the above
Q.105 Which of the following is not a guideline for a successful

)
acquisition?
A.
Good bidding strategy
B.
A clear strategic rationale for making the acquisition
C.
Completing the acquisition quickly
D.
Thorough preacquisition screening
E
Postacquisition audit to review the process and discuss
.
ways to improve it
Q.106)
Free cash flow is defined as
A.
B
.
C.
money in a company's bank account.

government funds given to a company for meeting
Environmental Protection Agency (EPA) regulations.
additional funds donated by stockholders.
cash in excess of that required to fund investments
D
in the company's industry and to meet any debt
.
commitments.
E
money borrowed by the company that requires no interest
.
payments.
Q.107When a company has cash in excess of the amount needed to
)
maintain a competitive advantage in its core business, it will
most likely pursue

A.
B.
C.
D.
E.
taper integration.
full integration.
diversification.
long-term contracts.
strategic alliances.
When one or more components of a company's value chain
Q.108are applicable to a wide variety of industrial and commercial
)
situations, which of the following strategies should a
company pursue?
A.
B.
C.
D.
E.
Related diversification
A focus strategy
Taper integration
Backward integration
A focus on using or recombining existing competencies or building new
Q.109competencies to enter new markets helps managers think strategically about
)
how industry boundaries
A.
tend to remain static over time.
B.
might change over time.
C.
completely disappear over five-year spans.
D.
are not important.
E.
none of the above.
Q.110According to Gary Hamel and C. K. Prahalad, a company is
)
best viewed as a
A.
B.
C.
D.
E.
portfolio of products.
series of possibilities.
collection of functions.
set of applications.
portfolio of distinctive competencies.
Diversification is sometimes pursued by a company for the
Q.111
wrong reasons. Which of the following is a faulty justification
)
for diversification?
A.
B.
C.
D.
E.
Risk pooling
Rescuing the core business from difficulty
Growth for growth's sake
All of the abaove
None of the above
In the joint venture between Stephanie's dressmaking shop
and Kevin's fabric factory, the partners argue constantly
Q.112
about how to schedule tasks and reward workers. Which of
)
the following disadvantages is Stephanie and Kevin's joint
venture experiencing?
A
.
B.
Joint ventures risk the loss of proprietary information to a

partner.
Joint venture partners must split the profits of the
business.
C
Joint venture partners must share control and
.
decision-making power.
D
Joint ventures are slower to reach profitability than are
.
acquisitions.
E
Joint ventures require less up-front investment than do
.
internal new ventures.
Q.113Which of the following seems to be a major determinant of a
)
new venture's success?
Large-scale entry into the target industry designed
to build market share, even when such entry
involves significant short-term losses
Cautious small-scale entry into the target industry so that
B
the company can assess the probable outcome of the
.
venture without losing too much money
A low level of integration between the marketing and the
C
research and development functions of the venturing
.
company
D
Supporting many new venture projects in the hope that
.
one will succeed
E
Killing the new venture if it does not show a profit after the
.
end of the third year
Q.114What is the process of transferring resources to and creating
)
a new business unit in a new industry called?
A
.
A.
External new venturing
B.
Exportation of resources
C.
Intrapreneuring
D.
Risk avoidance
E.
Internal new venturing
Q.115 An internal new venture is the most appropriate strategic
)
choice when
A.
an industry is mature.
B.
the firm will enter on a small scale.
C.
the firm has competencies that can be leveraged.
D.
speed of entry is the most important consideration.
E.
there is strong pressure for quick profitability.
Q.116Which of the following is not a reason for the failure of an
)
acquisition to generate the gains originally expected of it?
A.
B
.
C.
D.
E
.
Poor postacquisition integration

Overestimation of the potential gains to be derived from
synergy
The high cost of making acquisitions
Lack of preacquisition screening
Overestimation of the potential costs of realizing
synergies
The greater the number of business units in a company's
Q.117
portfolio, the _________ it is for corporate managers to remain
)
informed about the complexities of each business.
A.
B.
C.
D.
E.
Q.118)
easier
more difficult
less important
less expensive
more simplistic
Which of the following statements is false?
A
Acquisitions are preferable to joint ventures when the new
.
business is unrelated to the existing business.
B
Acquisitions are preferable to new ventures when speed is
.
important.
C
Joint ventures are generally preferable to
.
acquisitions when entry barriers are high.
D
Acquisitions can be both a reason for corporate decline
.
and part of a turnaround strategy.
E
New ventures are preferable to acquisitions in the
.
embryonic stage of the industry life cycle.
Q.119 In which of the following cases are bureaucratic costs likely to
)
be lowest?
A
.
B
.
C
.
D
.
E
.
A vertically integrated company with five divisions that

pursues full integration
A company with five divisions that pursues related
diversification based on economies of scope
A company with five divisions that pursues related
diversification based on transferring competencies
A company with five divisions that pursues unrelated
diversification based on acquisitions and restructuring
A company with twenty divisions that pursues taper
integration
If a company is to increase the probability of a new product's
Q.120
commercial success, the company must foster close links
)
between
A.
marketing and sales.
B.
engineering and advertising.
C.
quality assurance and inventory management.
D.
research and development (R&D) and marketing.
E.
accounting and industrial engineering.
Q.121)
The basic principles of agency theory are
A.
B.
C
.
relatively straightforward.
somewhat obtuse.
of limited use in explaining the relationship between
senior managers and stakeholders.
slanted in favor of managers as opposed to
D.
stakeholders.
E.
mostly theoretical in nature.
Q.122)
A typical board of directors is composed of
A.
B.
C.
inside directors.
external directors.
inside directors and consumer advocates.
D.
outside directors and union representatives.
E.
inside and outside directors.
Q.123The quest to maximize a company's profitability should be
)
constrained by
A.
B.
C.
D.
E.
Q.124)
law.
managers.
ethical obligations.
CEOs.
all of the above.
The purpose of governance mechanisms in corporations is to
A.
keep employees in line.

reduce the scope and frequency of the agency
B.
problem.
C
satisfy the requirements of the Securities and Exchange
.
Commission (SEC).
D.
limit corporate growth to manageable rates.
E.
none of the above.
Q.125) A company's stockholders provide a company with
A.
B.
C.
D.
E.
emotional and intellectual support.

risk capital.
free advertising.
advice on new product lines.
a code of ethics.
Which of the following is not a reason why the board of
Q.126
directors may act as the guardian of stockholder interests
)
within a company?
A.
Board members are directly elected by stockholders.

The board is positioned at the apex of decision making
B
within a company and is thus in a good position to monitor
.
strategies.
C
Board members can be held legally accountable for the
.
actions of the company.
D
Many board members are the nominees of the
.
company CEO.
E
The board has legal authority to hire, fire, and compensate
.
senior executives.
Q.127)
A company's stakeholders include which of the following?
A.
Stockholders
B.
Creditors
C.
Employees
D.
Customers
E.
All of the above
Q.128) Why are managers thought to engage in empire building?
A
.
Growth results in large company size, and large

size satisfies managers' needs for power, status,
income, and job security.

B
The pursuit of growth represents the best way of
.
maximizing the long-run profitability of the company.
C
Growth is designed to increase market share, which in turn
.
increases company profits.
D.
Companies that do not grow stagnate.
E
Stockholders would rather invest in large companies than
.
in small ones.
Q.129)
The abbreviation IPO stands for
A.
initial product output.
B.
interim production output.
C.
initial public offering.
D.
inventory purchasing online.
E.
none of the above.
Q.130) Over the past decade, maximizing returns to shareholders
has
A.
become less important.
B.
taken on added importance.
C.
remained the same as in the past.
D.
been a minor corporate goal.
E.
none of the above.
Q.131When are the interests of stockholders and senior managers
)
likely to be most closely aligned?
A.
B
.
C.
D
.
When the board of directors is dominated by insiders

When managers receive most of their compensation in the
form of a regular salary
When stockholders are weak
When managers receive most of their
compensation in the form of stock options
When corporate raiders are unable to mount a takeover
E.
bid
Q.132When managers pay bribes to gain access to lucrative
)
business contracts, they are engaging in
A.
B.
C.
D.
E.
opportunistic exploitation.
utilitarian ethics.
self-dealing.
information manipulation.
corruption.
When managers of a firm seek to unilaterally rewrite the
Q.133terms of a contract with suppliers, buyers, or complement
)
providers in a way that is more favorable to their firm, they
are engaging in
A.
B.
C.
D.
E.
Q.134)
opportunistic exploitation.
ethical behavior.
corruption.
philosophical ethics.
self-dealing.
The takeover constraint
A
.
effectively limits the number of independent companies

that a company can acquire.
limits the degree to which managers can pursue
B
strategies that are at variance with stockholder
.
interests.
C.
is a theoretical construct that can be ignored in practice.
D
limits the freedom that individual companies have to
.
maximize their long-run return on investment.
E
is imposed by corporate managers on errant business.
level managers.
Q.135Which of the following is not a governance mechanism used
)
to align the interests of managers and stockholders?
A.
Stockholder meetings
B.
The board of directors
C.
Stock-based compensation schemes
D.
The mission statement
E.
Takeover constraints
Q.136) Sarbanes-Oxley, federal legislation enacted in 2002,
requires
A.
CEOs to endorse their company's financial statements.
B.
CFOs to endorse their company's financial statements.
C
companies to use the same accounting firm for auditing
.
and consulting services.
D.
members of the board of directors to post a surety bond.
E
CEOs and CFOs to endorse their company's
.
financial statements.
Q.137)
A stock option is a right to buy
shares of the company's stock at the stock's current
price.
shares of the company's stock at half the stock's current
B.
price.
C
shares of the company's stock at a predetermined
.
price at some point in the future.
D.
bonds issued by the company.
E.
none of the above.
Q.138)
A takeover constraint
A.
limits the extent to which managers pursue

strategies that are inconsistent with shareholder
interest.
B.
prevents a company from being taken over.
C
uses the threat of a takeover to cause the CEO to fear the
.
loss of his or her job.
D.
is reduced by corporate raiders.
E
is greatest when a company's stock price is significantly
.
higher than book value.
Which of the following stakeholders might not want a
Q.139
company to maximize its long-run profitability and profit
)
growth?
A
.
A.
Suppliers
B.
Creditors
C.
Customers
D.
A and C
E.
B and C
Q.140 Which of the following is not a responsibility of the board of
)
directors?
A
Monitor corporate strategy decisions and ensure that they
.
are consistent with stockholder interests
B.
Apply sanctions on management when appropriate
C.
Hire, fire, and compensate the CEO
D.
Develop the company's competitive strategy
E
Make sure the audited financial statements present a true
.
picture of the company's financial situation
Q.141In applying agency theory to problems of corporate
)
management, the principals are the
A.
B.
C.
D.
E.
Q.142)
employees.
CEO.
top management team.
CEO and the top management team.
stockholders.
Internal stakeholders of a company include
A.
B.
C.
D.
E.
unions.
customers.
the board of directors.
suppliers.
local communities.
Although stockholders are legal owners, CEOs do not always
Q.143
pursue stockholders' interests. CEOs can pursue their own
)
interests because
A
they can use their authority over corporate funds to
.
satisfy their desires for status, power, and income.
B.
they have the ability to initiate a leveraged buyout.
C
an outside director will not have knowledge of inside
.
operations if he or she chairs the board.
D
stockholders are the weakest stakeholder group because
.
they are removed from operations.
E.
stockholder meetings are not required.
Q.144Which of the following actions reduces the risk of a company
)
losing external stakeholder support?
A.
B.
C
.
D
.
E.
Recognizing stakeholder claims in the mission statement

Maximizing short-run profit
Pursuing strategies with high social returns, regardless of
cost
Pursuing strategies with high profits, regardless of the
social consequences
Implementing stock-based compensation schemes
Q.145)
The takeover constraint refers to the
A
opportunity to acquire competitors if they are smaller than
.
the acquiring company.
B.
risk of being acquired by another company.
C
drop in the price of a share of stock due to a rumored
.
takeover of the company.
D.
lack of resources required to acquire another company.
E
reluctance of a company's managers to acquire another
.
company.
Q.146Which of the following statements concerning profitability and
)
profit growth is false?
A
.
B
.
Attaining future profit growth may require investments

that reduce current profitability.
Managers must find the right balance between profitability
and profit growth.
Too much emphasis on current profitability at the expense
C
of profit growth can make an enterprise less attractive to
.
shareholders.
Boosting a company's profitability and profit
D
growth rate is inconsistent with satisfying the
.
claims of other key stakeholder groups.
Too much emphasis on profit growth can reduce
E
profitability and make an enterprise less attractive to
.
shareholders.
Q.147Which of the following statements concerning stock-based
)
compensation schemes for executives is incorrect?
A
.
They are the most objective and unambiguous way

to compensate executives.
They can align the interests of management and
B.
stockholders.
C.
They can dilute the equity of stockholders.
D
The option strike price is typically the price that the stock
.
was trading at when the option was granted.
E.
None of the above are correct.
Q.148Institutional investors are becoming more aggressive in
)
exerting their power with the board by
A.
B.
C
.
D.
E.
boycotting stockholder meetings.

pursuing leveraged buyouts.
selling their shares when they do not agree with company
actions.
defining a company's business for them.
pushing for more effective governance structures.
When corporate CEOs and top managers use their power and
Q.149
control over funds to satisfy their personal desires for wealth
)
or status, this is called
A.
B.
C.
on-the-job consumption.
agency theory.
information asymmetry.
D.
a tradeoff between stakeholders.
E.
a performance measurement.
Q.150A stakeholder impact analysis would include which of the
)
following steps?
A.
B.
C
.
D.
E.
Identification of stakeholders
Identification of stakeholders' interests and concerns
Assessment of the likelihood that a stakeholder will file
discrimination charges against the company
A and B
A and C
Pursuing strategies that maximize the long-run profitability
Q.151
and profit growth of a company benefits which group(s) of
)
stakeholders?
A.
Employees
B.
Creditors
C.
Charitable organizations in the local community
D.
The general public
E.
All of the above
Q.152 Which of the following statements about the board of
)
directors is false?
A.
B
.
C
.
Board members are elected by stockholders.

The board can be held legally accountable for a
company's actions.
The board has the legal authority to hire, fire, and
compensate the CEO.
All directors are full-time employees of the
D.
company.
E
Outside directors help perform the monitoring function of
.
the board.
Business ethics is concerned with
Q.153)
Business ethics is concerned with
A.
teaching people the difference between right and wrong.
B
ensuring that managers weigh the ethical
.
implications of their decisions.
C.
ensuring that employees obey the law.
D
replacing economics with social responsibility in the
.
decision-making process.
E.
increasing profits.
Q.154Which of the following is not an accurate statement about
)
current levels of pay for CEOs of U.S.-based firms?
A.
B.
C
.
D.
E
.
CEO pay since 2000 is at a historically high level.

Most of CEO pay is in the form of salary.
CEO compensation is not closely tied to corporate
performance in most firms.
CEO pay is rising more rapidly than pay for other
workers.
The level of CEO compensation is determined by the
corporate board of directors.
Q.155)
External stakeholders of a company include
A.
unions.
B.
the board of directors.
C.
executive officers.
D.
stockholders.
E.
employees.
Q.156CEO compensation packages are most frequently criticized
)
because of their
apparent lack of relationship to company
performance.
B.
life insurance benefits.
C.
features.
D.
cost to the company.
E.
lack of motivation.
Q.157)
Ethics may best be thought of as
A.
A.
legal prescriptions for conduct.
B.
standards of right and wrong.
C.
cultural mores.
D.
desirable but unattainable behaviors.
E.
all of the above.
Q.158The relationship between an enterprise and its stakeholders is
)
essentially what type of relationship?
A.
Exchange
B.
Master-servant
C.
Bailor-bailee
D.
Supply and demand
E.
Quasi-egalatarian
Q.159 Members of the board of directors are supposed to be agents
)
for
A.
stockholders.
B.
employees.
C.
executive officers.
D.
customers.
E.
suppliers.
Q.160) Which of the following is not a criticism of boards?
A
.
B.
Inside directors can use their control over information to

influence outside directors.
The CEO nominates most board directors.
Outside board chairpersons are ineffective since the
C
outside directors have no knowledge of company
.
operations.
D.
Insiders can control the information the board receives.
A board with more insiders may pursue strategies
E
consistent with the interests of management rather
.
than those of stockholders.
Q.161Which of the following is not one of the advantages of a geographic structure
)
A.
Cost inefficiencies from issues of scope
B.
Responsiveness to the needs of regional customers
C.
Lower transportation costs
D.
More coordination and control than a functional structure
E
Centralization of key activities and functions that allow
.
leveraging skills across regions
Q.162The organizational structure and organizational culture of a
)
company can have
A.
little effect on overall company performance.
B.
a direct bearing on a company's profits.
C.
a tangential effect on employee morale.
D.
no impact on employee morale.
E.
none of the above.
Q.163) To a large degree, any organization's tasks are a function of
its
A.
B.
C.
D.
E.
Q.164)
market area.
labor supply.
supervisors.
strategy.
compensation plan.
Control through organizational culture
A.
is less expensive than output control.
B.
reduces mutual adjustment.
C
involves employees internalizing the norms and
.
values of the organization.
D.
includes setting individual goals.
E
reduces mutual adjustment and includes setting
.
individual goals.
Q.165The most appropriate structure for a company pursuing low)
cost and differentiation strategies simultaneously is
A.
B.
C.
D.
E.
Q.166)
functional.
geographic.
matrix.
product team.
simple.
A drawback of the functional structure is
A.
that each worker must report to more than one superior.
B
the difficulty in communicating and coordinating
.
across functions.
C.
too much decentralization of decision-making authority
D.
its lack of flexibility.
E.
the need to downsize before implementing this structure.
Q.167The term used to describe how people learn an organization's
)
culture and way of behaving in the organization is
A.
B.
C.
organizational structure.
organizational development.
organizational design.
D.
E.
organizational behavior.
organizational socialization.
The process of deciding how a company should create, use,
Q.168and combine organizational structure, control systems, and
)
culture to pursue a business model successfully is referred to
as
A.
organizational structuring.
B.
corporate systems design.
C.
organizational design.
D.
departmentalization.
E.
structural landscaping.
Q.169A matrix structure would be the most appropriate for which of
)
the following firms?
A
A large multinational company with a distinctive
.
competence in marketing
B
A company operating in the maturity stage of the industry
.
life cycle
C
A medium-sized technological firm with an objective
.
of fast product development time
D.
A company with a high level of vertical differentiation
E.
A company pursuing a cost-leadership strategy
Q.170As a general principle, a company should always choose the
)
hierarchal organization structure that has the
A.
most levels of authority.
B.
fewest levels of authority.
C.
greatest number of people.
D.
least number of people.
E.
none of the above.
Q.171 Strategic control systems utilized to ensure long-run
)
profitability include
A.
B.
C.
D.
E.
personal control.
output control.
behavior control.
all of the above.
none of the above.
The organization structure that organizations most commonly
Q.172adopt to solve control problems that result from producing
)
many different kinds of products for many different market
segments is the
A.
functional structure.
B.
process structure.
C.
matrix structure.
D.
product structure.
E.
differentiated structure.
Q.173When decision-making responsibilities are decentralized,
)
benefits include all of the following except
A.
increased motivation and accountability.
B.
C.
D.
E.
lower bureaucratic costs from flattened hierarchy.

reduced information overload.
easier coordination.
all of the above are benefits of decentralization.
Which of the following integrating mechanisms consists of
Q.174
one manager from each relevant function or division assigned
)
to a team that meets to solve a specific mutual problem?
A.
Direct contact
B.
Liaison roles
C.
Teams
D.
Integrating roles
E.
The matrix structure
Q.175) In a successful company, the purpose of a control system is
to
A
provide managers with a set of incentives to motivate
.
employees to work toward company goals.
B
provide managers with specific feedback on how well the
.
organization and its members are performing.
C
provide managers with information that can be used to
.
criticize employee performance objectively.
D.
A and B.
E.
B and C.
Q.176) A cost-leadership strategy would be most effective with
A.
B.
C.
D.
E.
Q.177)
output controls.
personal controls.
behavioral controls.
cultural controls.
no controls.
Which of the following structures is the flattest?
A.
B.
C.
D.
E.
Functional
Geographic
Market
Matrix
Product
A hospital examines its processes closely and then changes
Q.178them radically to become more patient-centered. Among the
)
changes are new ways of doing tasks and new groupings of
workers. This is an example of
A.
restructuring.
B.
reengineering.
C.
benchmarking.
D.
downsizing.
Q.179Which of the following structures requires centralization of
)
value chain support activities?
A.
B.
C.
The product structure

The product team structure
The matrix structure
D.
The product and product team structures
E.
The matrix and product team structures
Q.180Which form of control would you be most likely to find in a
)
voluntary or charity organization?
A.
Bureaucratic control through rules and procedures
B.
Control through norms and values
C.
Financial control through accurate financial statements
D.
Output control
E.
Incentive systems
Q.181)
Restructuring is
A.
B
.
a rethinking and redesign of a firm's business processes.

a radical readjustment of the organization's staffing
and hierarchy.
a philosophy that states that mistakes, defects, and poorC
quality materials are not acceptable and should be
.
eliminated.
the shift that firms make from a functional to a more
D
complex structure as the firm grows in complexity and
.
size.
E
employed when a firm needs help in improving its
.
functional strategies.
Q.182In any organization, for-profit or not-for-profit, span of control
)
refers to the
number of managers at the highest levels in the
organization.
B.
the CEO and his or her management team.
C
the number of subordinates who report directly to
.
one manager.
D
the number of supervisors in a specific segment of a
.
manufacturing activity.
E.
none of the above.
Q.183Essentially, centralization or decentralization are concepts
)
that refer to the
A.
levels where decisions are made in an

organization.
B.
number of hierarchical levels existing in an organization.
C.
numbers of managers in an organization.
D.
number of employees in an organization.
E.
none of the above.
Q.184Using output controls at the individual level is least
)
appropriate when the work force consists primarily of
A.
A.
salespeople.
B.
production workers.
C.
research and development scientists.
D.
tax accountants.
E.
data-entry clerks.
Q.185 An organization that has an adaptive culture is an
)
organization that is
A.
B.
C
.
D.
E.
innovative.
resistant to major changes.
supportive of managers who take the initiative and make
changes on their own.
A and C.
B and C.
The specific collection of values, norms, beliefs, and attitudes
Q.186
shared by people and groups in a company is commonly
)
referred to as
A.
B.
C.
D.
E.
Q.187)
organizational fit.
organizational culture.
organizational development.
organizational positioning.
all of the above.
Matrix structures
A.
have many hierarchical levels.
B
are appropriate for companies with many low-skilled
.
workers.
C
group activities vertically by function and
.
horizontally by product or project.
D.
are appropriate for a firm pursuing a low-cost strategy.
E
have many hierarchical levels and two forms of horizontal
.
differentiation.
Q.188Which of the following is not one of the company levels where
)
strategic control systems measure performance?
A.
Board of directors
B.
Corporate
C.
Divisional
D.
Functional
E.
Individual
Q.189Which of the following actions would you expect to see in a
)
company that is undergoing a reengineering?
A.
B.
Hiring more managers

Hiring more workers
Examining activities from a customer's point of
C.
view
Investing more in product research and development
D.
(R&D)
E.
Centralizing decision-making authority
A stereo manufacturer sells only leading-edge stereos to the
Q.190
upscale segment. Which of the following structures is the
)
most appropriate for this firm?
A.
B.
C.
D.
E.
Matrix
Multidivisional
Geographic
Functional
Simple
Q.191) Control through organizational culture is so powerful

because
A
.
B
.
C
.
it reduces the costs of organizational control in a large

company.
self-control develops through the establishment of an
internal system of organizational values.
it results in maximum decentralization and the elimination
of bureaucracy.
it achieves increased performance through the
D
alignment of organizational goals with societal
.
expectations.
it achieves external control through motivated
E.
coworkers.
Standardization is employed to squeeze out costs in
Q.192
manufacturing. Standardization may be achieved through
)
standardization of
A.
inputs.
B.
work processes.
C.
outputs.
D.
both B and C.
E.
A, B, and C.
Q.193Organizations strive to control employees' behavior by linking
)
__________ systems to their control systems.
A.
computer
B.
disincentive
C.
reporting
D.
administrative
E.
reward
Q.194 When a company engages in restructuring, it may be
)
necessary to
A.
increase the size of the work force.
B.
increase the number of organizational levels.
C.
lay off employees.
D.
add to the operating costs.
E.
none of the above.
Q.195Which characteristic is shared by all three of the product,
)
market, and geographic structures?
A.
B.
C.
All three utilize permanent organizational groups.

All three are based on the use of cross-functional teams.
All three require that support functions be decentralized.
All three organize workers into permanent groups, are
D
based on the use of cross-functional teams, and require
.
that support functions be centralized.
There is no common characteristic for all three
E.
structures.
Q.196)
A typical matrix organizational structure is
A.
flat and decentralized.
B.
flat and centralized.
C.
tall and decentralized.
D.
tall and centralized.
E.
none of the above.
Q.197) Which of the following is required by a restructuring?
A.
Eliminating business units
B.
Rethinking business processes
C.
Creating more business units
D.
Flattening the organizational hierarchy
E.
Broadening the span of control
Q.198)
Standardization is a form of
A.
B.
C.
D.
E.
output control.
financial control.
organizational inertia.
organizational culture.
behavior control.
The degree to which a company specifies how decisions are
Q.199
to be made so that employees' behavior becomes predictable
)
is referred to as
A.
B.
C.
D.
E.
Q.200)
A.
B.
C.
D.
E.
uniformity of output.
conformity of behavior.
standardization.
maximization of effort.
behavioral control.
Control systems
enable a company to evaluate its performance.

help managers determine which generic strategy to
pursue.
are used only at the business level.
allow firms to control the external environment.
are most effective for firms pursuing cost leadership

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Chapter1StrategicLeadership:Managing

2.Strategic leadership is concerned with how to most effectively manage a

13.The first component of the strategic management process is crafting the

22.Mintzberg's model suggests a company's realized strategy is the product of

27.Leaders who exhibit a high degree of emotional intelligence tend to be more

30.Using informal and unconventional ways to gather information is an unwise

33.Which ofthe following dimensions are encompassed bya company's business

35.Which of the following is the organization's principal general manager? A.

36.Within a diversified company, the responsibilities ofcorporatelevelstrategic

38.Vice President Chung is responsible for executing decisions about human

53.Scenariobasedplanning is a technique for coping with the problem

54.Whichofthe followingcognitive biases occurs whendecision makers commit

56.Sam Walton wanted Walmart to keep costs low. Therefore, as an example to

68.The primary goal of a SWOT analysis is to A. benchmark a company's

74.Systematic errors in thedecisionmakingprocess are caused by A. inadequate

2.Opportunities arise when a company takes advantage of conditions in its

17.When buyers are in a weak bargaining position, companies in the supplying

25.The punctuated equilibrium view can also be described as a freezing and

28.Anheuser Busch, because it dominates themassmarketbeer segment, does not

36.Which of the following isnotone of Porter's five forces, as proposed in his

43.Which of the following isnota determinant of the extent of rivalry among

44.The extent of rivalry among established companies is lowest when A. the

70.Beveragemakers arefindingthatwatersales areincreasingduetoconsumers'

73.Due to a recent relaxation in pollution standards, Ford Motors is withdrawing

74.All of the companies in a strategic group are A. pursuing different business

80.Why is it important to understand the external environment in order to think

5.Distinctive competencies arefirmspecificstrengths that allow a company to

22.Absorptive capacity refers to the ability of an enterprise to identify, value,

24.The importance of reliability in building competitive advantage has increased

26.IBM's investment in mainframe computers is an example of a prior strategic

27.Brad has developed a new,improved irrigation procedure foruse in his apple

45.Mike works as a corporate trainer, teaching new employees how to perform

64.Customer responsiveness includes which of the following? A. Identifying and

74.The Icarus paradox can be overcome if a company A. achieves superior

78.According to a number of scholars, what role does luck play in determining

3.One ofOtis Elevator's strengths is the ability to continue to improve employee

11.Mass customization describes the ability of companies to use flexible

13.A benefit oflongtimecustomer loyalty is the free advertising that customers

16.Materials management encompasses the activities necessary to get inputs and

26.Although important, innovation plays a minor role in achieving competitive

27.Tight integration between research and development (R&D), production and

42.The resources and capabilities that lead to the formation of distinctive

50.Which of the following statements concerning customer defection rates

55.Research and development (R&D) can help a company improve quality

61.The role played by infrastructure leadership in implementing reliability

63.According to the TQM philosophy, who should be the primary evaluator of

71.A computer manufacturer allows scientists and engineers a certain amount of

7.Companies that successfully pursue a cost leadership strategy generally have a

23.A product's appeal to customers' psychological desires is a source of

27.Zara, the Spanishhighfashionhouse, was unsuccessful in using creative

28.Ryanair, based in Dublin, Ireland, used thecostleadershipbusiness model

33.Which genericbusinesslevelstrategy is based on the intent to outperform

34.A cost leader could reasonably be expected to reduce costs by developing

36.Companies are now able to pursue cost leadership and differentiation

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59.The principal dangers of a cost leadership approach include all of the

67.Which of the following automobile manufacturers have found it difficult to

78.A competitor's ability to ____ a cost leader's methods is a threat to acost

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46.Clear Vision's decision to own a manufacturing facility overseas

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