Ch.1

Question 1

firm’s strategy

Answer 1

actions that managers take to attain the goals of the firm.

Question 2

profitability definition

Answer 2

rate of return the firm makes on its invested capital

Question 3

profit growth

Answer 3

percentage increase in net profits over time

Question 4

enterprise valuation

Answer 4

profitability, profit growth

Question 5

profitability (table)

Answer 5

reduce costs, add value and raise prices

Question 6

profit growth (table)

Answer 6

sell more in existing markets, enter new markets

Question 7

Competitive advantage theories

Answer 7

your value defined by clients+suppliers
Firm selects value
Value is A moving target It’s not static

Question 8

To increase profitability…

Answer 8

value must be created for the consumer

Question 9

The more value customers place on the firm’s products

Answer 9

the higher the price the firm can charge..

Question 10

The value created by a firm is measured by

- the difference between

Answer 10

V - (the price that the firm can charge for that product given
competitive pressures)
C -(the costs of producing that product)

Question 11

Perceived Utility, Price, Total Cost

Answer 11

Buyer’s Value & Seller’s Value

Question 12

Firms can increase their profits..how?

Answer 12

• by adding value to a product
- so that customers are willing to pay more for it
• by lowering the costs

Question 13

two basic strategies for improving a firm’s profitability:

Answer 13

a differentiation strategy

• a low cost strategy

Question 14

Strategic Fit

Answer 14

•to attain superior performance and earn a high return on capital,
- its strategy must make sense given market
conditions.

Question 15

The operations of the firm

Answer 15

must support the firm’s strategy

Question 16

The organizational architecture of the firm

Answer 16

must match the firm’s operations and strategy

Question 17

• If market conditions shift

Answer 17

– so must the firm’s strategy, operations, and

organization

Question 18

Firms that operate internationally are able to:

Answer 18

Expand the market for their domestic product offerings
Realize location economies
Earn a greater return
Realize greater cost economies from experience effects

Question 19

Core competencies enable the firm to

Answer 19

• reduce the costs of value creation
• to create perceived value in such a way that premium
pricing is possible

Question 20

Location Economies

Answer 20

• Firms can realize location economies – (the economies that arise from performing a
value creation activity in the optimal location for that activity, wherever in the world that might be)
Location Economies

Question 21

•Multinationals

Answer 21

-take advantage of location economies -create a global web of value creation activities

Question 22

Two effects of location economies

Answer 22

• It can lower the costs of value creation
-help the firm to achieve a low cost position
• It can enable a firm to differentiate its product offering from the offerings of competitors

Question 23

Some Caveats

Answer 23

• Introducing transportation costs and trade barriers complicates this picture
• Political risks must be assessed when making location decisions

Question 24

•The experience curve

Answer 24

• the systematic reductions in production costs that have

been observed to occur over the life of a product

Question 25

Learning Effects

Answer 25

•cost savings that come from learning by doing
• So, when labor productivity increases,
- individuals learn the most efficient ways to perform
particular tasks, management learns how to manage the new operation more efficiently

Question 26

Economies of Scale

Answer 26

• the reductions in unit cost achieved by

producing a large volume of a product.

Question 27

Sources of economies of scale :

Answer 27

– the ability to spread fixed costs over a large
volume – the ability of large firms to employ
increasingly specialized equipment or personnel
Strategic Significance

Question 28

Porter’s 5 Forces

Answer 28

Supplier Power 
Degree of 
Rivalry 
Entry Barriers 
Threat of Substitutes 
Buyer Power