Exam key (solution approaches) TEK017 January 2024.pdf

Question 1

What is the primary purpose of strategy?

a. To maximize shareholder value
b. To achieve success
c. To ensure that all stakeholders benefit from the value created by the firm
d. To be a responsible corporate citizen

Answer 1

To achieve success

Question 2

What is the main problem of SWOT as a framework for strategy analysis?

a. Distinguishing opportunities from threats and strengths from weaknesses is often difficult
b. It has now been superseded by more sophisticated analytical frameworks
c. It is focused on strategy formulation and fails to take account of strategy implementation
d. It is so widely used that it no longer has any novelty

Answer 2

Distinguishing opportunities from threats and strengths from weaknesses is often difficult

Question 3

Strategic decisions are those decisions that are:
a. Important, commit resources, and are irreversible
b. Long term
c. Are confined to the senior executives of an organization
d. Concerned with establishing competitive advantage

Answer 3

Important, commit resources, and are irreversible

Question 4

Every business enterprise has a distinct purpose, however, common to all businesses is the goal of:
a. Satisfying customers
b. Creating value
c. Satisfying stakeholders
d. Maximizing shareholder value

Answer 4

Creating value

Question 5

Profit and value of the firm are two concepts which are:

a. Unrelated because cash flow not profit is the main determinant of firm value
b. Closely linked because the present value of a firm’s expected future profits approximates to the market
value of its securities
c. Closely linked because dividends are paid out of profits, and it is dividends that determine the market value
of a firm’s shares
d. Closely linked because the market value of a firm is determined by its profits multiplied by the price-
earnings ratio of its shares

Answer 5

Closely linked because the present value of a firm’s expected future profits approximates to the market value of its securities

Question 6

Firms supplying niche markets are often highly profitable because:
a. They tend to supply specialty products for high income consumers
b. They tend to be sufficiently small that a single firm can often establish a dominant position
c. They tend to be disregarded by major corporations
d. They tend to have high entry barriers

Answer 6

They tend to be sufficiently small that a single firm can often establish a dominant position

Question 7

Which of the following does not enhance buyers’ bargaining power
a. Low switching costs for buyers
b. The size of buyers relative to that of sellers
c. A high level of differentiation among the products that buyers purchase
d. The ability of buyers to backward integrate

Answer 7

A high level of differentiation among the products that buyers purchase

Question 8

Airlines’ frequent flyer programs and retailer loyalty schemes are both examples of efforts to:
a. Offer disguised price reductions to customers
b. Establish product differentiation by measures that reward customer loyalty
c. Establish competitive advantage that failed because they could be easily imitated by competitors
d. Promote a company’s product to new customers

Answer 8

Establish product differentiation by measures that reward customer loyalty

Question 9

Winner-take-all industries, where the leading firm accounts for the great majority of the industry’s total profit, are usually the result of:
a. Economies of scale
b. Economie of scope
c. Network externalities
d. Product differentiation

Answer 9

Network externalities

Question 10

The difference between substitute and complementary products may be summarized as follows:
a. Substitutes reduce the value of a product, whereas complements increase its value
b. Complements reduce the value of a product, whereas substitutes increase its value
c. Substitutes cannot be used together, whereas complements must be used in combination
d. Complements encourage collusion; substitutes encourage competition

Answer 10

Substitutes reduce the value of a product, whereas complements increase its value

Question 11

To exploit its tangible assets more effectively requires that a firm:
a. Economizes on these assets by changing its depreciation policy
b. Economizes on underutilized assets and redeploys assets into more profitable uses
c. Expands sales in order to ensure they are fully deployed
d. Leases assets rather than owning them in order to boost return on capital employed

Answer 11

Economizes on underutilized assets and redeploys assets into more profitable uses

Question 12

Firm’s with outstanding capabilities are typically those which:
a. Possess the best resources
b. Have developed their organizational routines over the longest periods of time
c. Are able to integrate their resources most effectively
d. Have the most effective leaders

Answer 12

Are able to integrate their resources most effectively

Question 13

A well-established brand can be a source of sustainable competitive advantage because:
a. Consumers will always pay a premium for a recognized brand
b. Brands are protected by trademark law, hence cannot be copied
c. Brands create product differentiation barriers to entry that protect a firm from competition from new
entrants
d. Brands are durable, they lose value when transferred between firms, and are costly to create

Answer 13

Brands are durable, they lose value when transferred between firms, and are costly to create

Question 14

As markets become more turbulent and unpredictable, seizing opportunities to establish competitive advantage depends primarily upon:
a. Good forecasting
b. Quick identification of emerging changes
c. Speed of response
d. Alertness to change and the agility to respond to them

Answer 14

Alertness to change and the agility to respond to them

Question 15

The main business of the Coca-Cola Company is manufacturing, marketing and distributing concentrate for soda drinks to bottlers in over 200 countries of the world. The corporate scope of the Coca-Cola Company is best described as:

a. A broad product, geographical, and vertical scope

b. A broad product and vertical scope, and a narrow geographical scope

c. A broad geographical scope and narrow product and vertical scope

d. A broad product and geographical scope and narrow vertical scope

Answer 15

A broad geographical scope and narrow product and vertical scope

Question 16

Vertical integration is:
a. A firm’s ownership and control of vertically-related activities
b. A firm’s control over its input sources and the distribution of its output
c. A firm establishing close relationships with its suppliers and its buyers
d. A firm acquiring an equity stake in a supplier or buyer

Answer 16

A firm’s ownership and control of vertically-related activities

Question 17

McDonalds–like most other fast-food chains–prefers to franchise rather than directly operate its retail outlets. An advantage of franchising over vertical integration is:
a. Franchising permits superior coordination of retail activities with upstream activities
b. Franchising subjects the operators of retail outlets to “high-powered” incentives
c. Franchising permits more effective quality control of the retail outlet
d. Franchising avoids some of the transaction costs that can arise with owning and operating retail outlets

Answer 17

Franchising subjects the operators of retail outlets to ‘high-powered’ incentives

Question 18

By separating their corporate headquarters into a corporate management unit and a shared services organization, large corporations anticipate the following benefits:
a. Better exploitation of synergy among the business units
b. Economies of scale and greater responsiveness to user needs in supplying services to the business units
c. Ensure standardization in the support services provided to business units
d. Encourage the identification and transfer of best practices

Answer 18

Economies of scale and greater responsiveness to user needs in supplying services to the business units

Question 19

Although sharing resources among the different businesses within the multibusiness corporation can offer substantial cost economies, these savings are often offset by:
a. Internal conflicts between divisional managers
b. The need for each business to have resources and facilities that are specialized to its own requirements
c. The costs of coordinating such resource sharing
d. The unwillingness of each business to pay for the maintenance of common resources

Answer 19

The costs of coordinating such resource sharing

Question 20

The main reason that a strategic alliance is often an attractive alternative to a merger or acquisition is:
a. Alliances avoid government restrictions relating to antitrust and foreign direct investment
b. Alliances permit firms to access one another’s resources and capabilities without the costs and risks of a
merger or acquisition
c. Alliances allow a firm to create growth options
d. Alliances allow risk sharing in giant projects

Answer 20

Alliances permit firms to access one another’s resources and capabilities without the costs and risks of a merger or acquisition

Question 21

The main problem of a company establishing shareholder value creation as its primary performance goal is:
a. Shareholder value maximization is appropriate only for financial service companies
b. Pursuing shareholder value inevitably leads to unethical behavior by senior managers
c. Focusing on shareholder value does not necessarily encourage managers to concentrate on the actions and activities that create the profits that are the source of shareholder value
d. Pursuing shareholder value is likely to be detrimental to employee morale and customer satisfaction

Answer 21

Focusing on shareholder value does not necessarily encourage managers to concentrate on the actions and activities that create the profits that are the source of shareholder value

Question 22

Economies of scale are a barrier to entry because:
a. New entrants are positioned at the top of their learning curve
b. New entrants are uncertain about their future costs which discourages then from making investments
c. New entrants face a risk of retaliation from the incumbents whose large scale of operation allows them to
flood the market
d. New entrants face high unit costs either because they enter at sub-optimal scale, or they make a large-scale
entry that initially operates with substantial excess capacity

Answer 22

New entrants face high unit costs either because they enter at sub-optimal scale, or they make a large-scale entry that initially operates with substantial excess capacity

Question 23

Which of the following is not an isolating mechanism?
a. Private ownership of a company which means that it is not obliged to publish its financial statements
b. Competitive advantage which is based upon the interaction of a number of different resources and capabilities
c. Competitive advantage based upon exploiting pricing anomalies
d. Competitive advantage based upon resources that are difficult to transfer and slow to replicate

Answer 23

Competitive advantage based upon exploiting pricing anomalies

Question 24

Segmentation is a process through which:
a. Market demand is analyzed through identifying different customer groups
b. Industries are disaggregated into more narrowly-drawn markets
c. Industries are divided into groups of similar products
d. Industries are divided into separate geographical markets

Answer 24

Industries are disaggregated into more narrowly-drawn markets

Question 25

When a winery opens a tasting room through which it sells its wine to visitors, this represents:
a. Backward integration
b. Forward integration
c. A marketing initiative
d. Diversification

Answer 25

Forward integration