Test 2 Flashcards
1
Q
Corporate level strategies are actions firms take to gain competitive advantages in a single market or industry.
A
f
2
Q
Cost leadership and product differentiation are so widely recognized that they are often called generic business strategies.
A
t
3
Q
A firm that chooses a cost-leadership business strategy focuses on gaining advantages by reducing its costs to a level equal to all of its competitors.
A
f
4
Q
Firms that are successful in pursuing a cost-leadership strategy focus solely on keeping costs low and abandoning other business or corporate strategies.
A
f
5
Q
In general, cost advantages are not possible when competing firms produce similar products.
A
f
6
Q
Economies of scale are said to exist when the increase in firm size (measured in terms of volume of production) are associated with lower costs (measured in terms of average costs per unit of production).
A
t
7
Q
As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs per unit of production begin to rise because of diseconomies of scale.
A
t
8
Q
When a firm has high levels of production, it is often able to purchase and use manufacturing tools that cannot be kept in operation in small firms.
A
t
9
Q
The link between volume of production and the cost of building manufacturing operations is particularly important in industries characterized by product manufacturing, such as chemical and oil refining
A
f
10
Q
High volumes of production are also associated with high levels of generality in employee tasks and as workers become increasingly generalized in accomplishing a variety of tasks, they can become more effective at these tasks, thereby reducing the firm’s costs.
A
f
11
Q
There are physical limitations to the size of some manufacturing processes and when this size is exceeded, diseconomies of scale are experienced.
A
t
12
Q
) As a firm increases in size, it often increases in complexity; however, the ability of managers to control and operate the firm efficiently are virtually unlimited and therefore costs do not substantially increase.
A
f
13
Q
Increased worker specialization associated with higher levels of production can lead to worker de-motivation and diseconomies of scale.
A
t
14
Q
Large transportation costs can offset cost reductions attributable to the exploitation of economies of scale in manufacturing.
A
t
15
Q
The link between cumulative volumes of production and cost has been formalized in the concept of the learning curve.
A
t
16
Q
Economies of scale focus on the relationship between the cumulative volume of production and average unit costs, while the learning curve focuses on the relationship between the volume of production at a given time and average unit costs.
A
f
17
Q
If a firm gets too large, it will eventually experience both diseconomies of scale and an increase in costs associated with the learning-curve effect as cumulative volume of production grows.
A
f
18
Q
Learning curve-cost advantages are restricted solely to manufacturing and the advantage associated only with the manufacturing business function.
A
f
19
Q
Efforts to move down the learning curve quickly by acquiring market share are likely to generate only normal economic performance.
A
t
20
Q
Differential low-cost access to productive inputs may create cost differences among firms producing similar products in an industry.
A
t
21
Q
Productive inputs are any supplies used by a firm in conducting its business activities.
A
t
22
Q
One of the least important productive inputs in almost all companies is labor and it is unlikely that differential low cost access to labor can give a firm a cost advantage.
A
f
23
Q
Physical technology-based cost advantages apply only in manufacturing firms.
A
f
24
Q
Technological software includes things like the quality of relations among labor and management, an organization’s culture, and the quality of managerial controls.
A
t
25
In general, firms that are attempting to implement a cost-leadership strategy will choose to produce relatively simple standardized products that sell for relatively low prices compared to the products and prices of firms pursuing other business or corporate strategies.
t
26
Firms for whom the price of the products or services they sell is determined by market conditions and not by the individual decisions of the firms themselves are known as price makers.
f
27
A cost-leadership competitive strategy helps reduce the threat of entry by creating cost-based barriers to entry.
t
28
The threat of rivalry is increased when low-cost firms set their prices equal to those of higher cost competitors.
f
29
A cost-leadership competitive strategy can reduce both the threat of substitutes and the threat of suppliers that a firm may face.
t
30
Given the relatively low margins of firms pursuing a cost-leadership strategy, firms pursuing this strategy are especially vulnerable to buyers having their revenues reduced to a point where they are unable to earn normal or above-normal performance.
f
31
If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm.
t
32
Sources of cost advantage that are unlikely to be rare include learning-curve economies, differential low-cost access to productive inputs and technological software.
f
33
When the efficient size of a firm or plant is significantly smaller than the total size of an industry, there will usually be numerous efficient firms/plants in that industry, and a cost-leadership strategy based on economies of scale will be rare.
f
34
Cost advantages based on diseconomies of scale are likely to be rare.
f
35
In general, economies of scale and diseconomies of scale are relatively easy-to-duplicate bases of cost leadership.
t
36
Firms implementing cost-leadership strategies will generally adopt what is known as a functional organizational structure.
t
37
Cost-leadership firms are typically characterized by very tight cost control systems; frequent and detailed cost control reports; an emphasis on quantitative cost goals and targets; and close supervision of labor, raw materials, inventory, and other costs.
t
38
Compensation at cost-leadership firms is usually tied directly to product innovation and customer service efforts.
f
39
Even the best formulated strategy is competitively irrelevant if it is not implemented.
t
40
The U in U-form structure stands for "unitary."
t
41
```
Actions that firms take to gain competitive advantage in a single market or industry are known as
A) business-level strategies.
B) corporate-level strategies.
C) functional-level strategies.
D) macro-level strategies.
```
a
42
```
Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as
A) business-level strategies.
B) corporate-level strategies.
C) functional-level strategies.
D) macro-level strategies.
```
b
43
```
Cost-leadership and product-differentiation strategies are so widely recognized that they are often called
A) common business strategies.
B) generic corporate strategies.
C) generic business strategies.
D) common corporate strategies.
```
c
44
A firm that chooses a ________ focuses on gaining advantages by reducing its cost below all of its competitors.
A) diversification strategy
B) product-differentiation business strategy
C) corporate strategy
D) cost-leadership business strategy
d
45
```
The best example of a firm following a cost-leadership business strategy is
A) Mercedes Benz.
B) Macy's.
C) Wal-Mart.
D) Rolls Royce.
```
c
46
```
________ are said to exist when the increase in firm size (measured in terms of volume of production) are associated with lower costs (measured in terms of average costs per unit of production).
A) Sustainable competitive advantages
B) Economies of scale
C) Temporary competitive advantages
D) Economies of scope
```
b
47
```
As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs of production begin to rise because of
A) diseconomies of scale.
B) economies of scope.
C) diseconomies of scope.
D) economies of scale.
```
a
48
```
The link between volume of production and the cost of building manufacturing operations is particularly important in industries characterized by
A) process innovations.
B) product manufacturing.
C) product innovation.
D) process manufacturing.
```
d
49
```
According to the "two-thirds rule," it would cost a firm ________ to build a plant with a capacity of 100,000 units.
A) 2/3*100,000
B) 100,000 / 2/3
C) 100,000 raised to the 2/3 power
D) 2 * 100,000 / 3
```
c
50
```
________ levels of production are associated with ________ levels of employee specialization.
A) High, high
B) High, low
C) Low, high
D) Low, moderated
```
a
51
```
Which of the following is not a potential source of diseconomies of scale?
A) Physical limits to efficient size
B) Worker de-motivation
C) Distance to markets and suppliers
D) Learning-curve economies
```
d
52
```
If Temper Company, a manufacturer of mattresses, was considering moving its production facilities to China but decided against it because the additional costs of shipping the mattresses back to the U.S. would offset the cost savings associated with moving the production facilities, the increased costs associated with shipping would be an example of
A) learning-curve economies.
B) diseconomies of scale.
C) economies of scale.
D) competitive advantages
```
b
53
________ focus(es) on the relationship between the volume of production and a given point in time and average unit costs, the ________ focus(es) on the relationship between cumulative production and average costs.
A) Economies of scale; learning curve
B) Competitive advantage; economies of scale
C) Learning curve; economies of scale
D) Economies of scale; competitive advantage
a
54
Which of the following statements regarding the learning curve and economies of scale is accurate?
A) Just as diseconomies of scale are presumed to exist if a firm gets too large, there is a corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
B) Where diseconomies of scale are presumed to exist if a firm gets too large, there is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
C) Where diseconomies of scale are presumed to exist if a firm gets too small, there is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
D) Just as diseconomies of scale are presumed to exist if a firm gets too small, there is a corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
b
55
Learning-curve-cost advantages are
A) restricted only to manufacturing firms.
B) restricted only to firms in services industries.
C) restricted only to firms in extraction industries.
D) not restricted to manufacturing.
d
56
```
________ are any supplies used by a firm in conducting its business activities.
A) Productive assets
B) Productive inputs
C) Productive outputs
D) Productive inventory
```
b
57
```
In order to create a cost advantage, the cost of acquiring low-cost productive inputs must be ________ the cost savings generated by these factors.
A) greater than
B) equal to
C) less than
D) greater than or equal to
```
c
58
```
Machines and robots are examples of
A) technological software.
B) economies of scale.
C) learning-curve effects.
D) technological hardware.
```
d
59
```
The quality of relations among labor and management, an organization's culture, and the quality of management controls are all examples of
A) technological hardware.
B) technological software.
C) productive inputs.
D) economies of scale.
```
b
60
```
Choices that firms make about the kinds of products and services they will sell that impact their relative cost position are known as
A) technological hardware.
B) policy choices.
C) technological software.
D) corporate level strategies
```
b
61
```
Firms for whom the price of the products or services they sell is determined by market conditions and not by the individual decision of the firms are known as
A) profit takers.
B) price makers.
C) price takers.
D) profit makers.
```
c
62
Which of the following statements is accurate?
A) A cost-leadership competitive strategy increases the threat of new entrants by lowering cost-based barriers to entry.
B) Firms with a low-cost position can reduce the threat of rivalry in an industry.
C) Cost leaders are especially vulnerable to substitute products.
D) Cost leaders are especially vulnerable to the threat of suppliers.
b
63
If the potential responses of competing firms are likely to be very detrimental to the costs advantages of cost leaders, firms pursuing a cost-leadership competitive strategy should
A) drop their prices below competitors' prices to increase overall economic performance through increased volumes of profitable sales.
B) raise their prices above competitors, increasing overall economic performance through higher margins.
C) focus on a specific niche market to avoid direct competition with aggressive competitors.
D) set their prices equal to competitors' prices, sacrificing some market share for increased profit margins and the release of less information.
d
64
Which of the following statements about cost leadership and the threat of buyers is accurate?
A) If buyers demand increased quality or service, cost leaders can absorb these costs and may still have a cost advantage over the competition.
B) Being a cost leader encourages buyer backward vertical integration.
C) Firms pursuing a cost-leadership strategy are especially vulnerable to powerful buyers who insist on low prices or higher quality and service from their suppliers.
D) Cost leaders are not able to absorb costs associated with buyers' demands for increased quality or service.
a
65
Which of the following is likely to be a rare source of cost advantage?
A) Technological software
B) If the efficient size of a firm or plant is significantly smaller than the total size of an industry
C) Cost disadvantages based on diseconomies of scale
D) Technological hardware
a
66
Which of the following is less likely to be a rare source of cost advantage?
A) Technological software
B) Learning-curve advantages
C) Differential low-cost access to productive inputs
D) Policy choices
d
67
```
Perhaps the only time economies of scale are not subject to low-cost duplication is when the ________ size of operations is a significant percentage of ________ in an industry.
A) minimum; marginal demand
B) efficient; total demand
C) maximum; marginal demand
D) efficient; marginal demand
```
b
68
Which of the following statements is accurate?
A) In general, economies of scale are relatively easy-to-duplicate bases of cost leadership, but diseconomies of scale are not.
B) In general, diseconomies of scale are relatively easy-to-duplicate bases of cost leadership, but economies of scale are not.
C) In general, neither economies of scale nor economies are relatively easy-to-duplicate bases of cost leadership.
D) In general, both economies of scale and diseconomies of scale are relatively easy-to-duplicate bases of cost leadership.
d
69
```
When managers committed to an incorrect course of action increase their commitment to this action even as its limitations become manifest, this is known as
A) de-escalation of commitment.
B) diseconomies of scale.
C) escalation of commitment.
D) economies of scale.
```
c
70
Cost advantages based on learning-curve economies are
A) rare, but they usually are not costly to duplicate.
B) costly to duplicate, but they usually are not rare.
C) both rare and usually costly to duplicate.
D) not rare and usually are not costly to duplicate.
a
71
```
Firms implementing cost-leadership strategies will generally adopt a
A) multidivisional structure.
B) product divisional structure.
C) functional organizational structure.
D) matrix structure.
```
c
72
```
In a functional structure, each of the major business functions is managed by a
A) functional manager.
B) divisional manager.
C) chief executive officer.
D) line manager.
```
a
73
```
The only person in a functional organization to have a multifunctional perspective is the
A) CFO.
B) CEO.
C) COO.
D) marketing manager.
```
b
74
Firms pursuing a cost-leadership strategy are typically characterized by
A) loose cost control systems.
B) a de-emphasis on quantitative cost goals and costs.
C) infrequent cost control reports.
D) close supervision of labor, raw materials and inventory.
d
75
Which of the following compensation policies is most likely to enhance a firm's ability to pursue a low-cost strategy?
A) Awarding employees bonuses based on the total amount of goods produced
B) Awarding employees bonuses based on customer comment cards
C) Awarding employees bonuses that are equal to 50% of the total cost savings achieved based on employee suggestions and initiatives
D) Awarding employees bonuses based solely on how long they have been employed with the company
c
76
```
Cost-leadership firms are typically characterized by very ________ cost-control systems.
A) tight
B) flexible
C) loose
D) decentralized
```
a
77
```
The U in U-form structure stands for
A) "uniform."
B) "unitary."
C) "unilateral."
D) "unambiguous."
```
b
78
```
In ________ structures, employees report to two or more people.
A) unilateral
B) functional
C) divisional
D) matrix
```
d
79
```
A marketing manager is an example of a(n) ________ manager.
A) ambidextrous
B) divisional
C) functional
D) unitary
```
c
80
```
Firms implementing cost-leadership strategies will have ________ layers in their reporting structure.
A) many
B) relatively simple
C) relatively few
D) relatively complex
```
c
81
Wal-Mart exemplifies a firm pursuing a product-differentiation strategy while Victoria's Secret exemplifies a firm pursuing a cost-leadership strategy.
f
82
Product differentiation is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firms' products or services.
t
83
Attempts to create differences in the relative perceived value of a firm's products or services are rarely made by altering the objective properties of those products or services.
f
84
While firms often alter the objective properties of their products or services in order to implement a product-differentiation strategy, the existence of product differentiation is always a matter of customer perception.
f
85
If products or services are perceived as being different in a way that is valued by customers, even if there is no physical differentiation, then product differentiation exists.
t
86
A hedonic price is that part of a products' or services' actual price that is not attributable to a particular attribute of that product or service.
f
87
Chryslers' introduction of the "cab forward" design was an attempt at differentiation through product features.
t
88
To the extent that differences in product complexity lead customers to conclude that the products of some firms are more valuable than the product of other firms, then product complexity can be a basis of product differentiation.
t
89
Timing-based product differentiation relies solely on being a first mover.
f
90
The physical location of a firm cannot be a source of product differentiation.
f
91
Products can be differentiated by the extent to which they are customized for particular customer applications.
t
92
Through advertising and other consumer marketing efforts, firms attempt to alter the perceptions of current and potential customers, but only when specific attributes of a firm's products or services are altered.
f
93
Once developed, a firm's reputation can last a long time, even if the basis for that reputation no longer exists.
t
94
The ability to use organization structure to facilitate coordination among scientific disciplines to conduct research is known as architectural competence.
t
95
When firms place their products in movies, this is known as co-branding.
f
96
In the information technology business, interconnectivity is a relatively unimportant basis of potential product differentiation.
f
97
Product differentiation is ultimately an expression of the creativity of individuals and groups within firms and is limited only by the opportunities that exist, or that can be created, in a particular industry and by the willingness and ability of firms to creatively explore ways to take advantage of those opportunities.
t
98
It is reasonable to expect that in the near future a marketing specialist will develop a definitive list of bases of product differentiation.
f
99
Firms selling differentiated products face a horizontal demand curve.
f
100
Edward Chamberlin described firms selling differentiated products and facing a downward-sloping demand curve as being in an industry characterized by monopolistic competition.
t
101
Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming incumbent firms' product-differentiation advantages.
t
102
Product differentiation effectively reduces rivalry to zero.
f
103
Product differentiation increases the threat of substitutes by making a firm's current products appear less attractive than substitutes.
f
104
Firms with highly differentiated products may have loyal customers, or customers who are unable to purchase similar products or services from other firms and are therefore more likely to accept increased prices due to a firm passing on increased costs by a powerful supplier.
t
105
When a firm sells a highly differentiated product, it enjoys a quasi-monopoly in that segment of the market.
t
106
In fragmented industries firms can use product differentiation to help consolidate a market.
t
107
In emerging industries, product-differentiation efforts often focus on product refinement as a basis for product differentiation.
f
108
The concept of product differentiation generally assumes that the number of firms that have been able to differentiate their products in a particular way is, at some point in time, less than the number of firms needed to generate perfect competition dynamics.
t
109
Firms that pursue a product-differentiation strategy can choose whether or not they want to reveal this strategic choice to their competition by adjusting their prices.
f
110
Knowing how a firm is differentiating its products necessarily means that competitors will be able to duplicate a firm's product-differentiation strategy at a lower cost.
f
111
Product features as a basis for product differentiation are generally not easy to duplicate.
f
112
`While product features, by themselves, are usually not a source of sustained competitive advantage, they can be a source of a temporary competitive advantage.
t
113
Product features, product customization, and product complexity have few obvious close substitutes and may be sources of sustained competitive advantages.
f
114
Timing, location, distribution channels, and service and support are all very similar bases of product differentiation and can act as substitutes for each other.
f
115
While the U-form structure for a firm pursuing cost leadership is relatively simple, the U-form structure for a firm implementing a product-differentiation strategy can be somewhat more complex.
t
116
Firms pursuing a differentiation strategy often use temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative and highly differentiated products.
t
117
More recent work contradicts Porter's assertion about being "stuck in the middle" and suggests that firms that are successful in both cost leadership and product differentiation often can expect to gain a sustained competitive advantage.
t
118
McDonald's is an excellent example of a firm that simultaneously employs both a product-differentiation and a cost-leadership strategy since their product differentiation based on cleanliness, consistency and fun in its fast food outlets allowed the company to become the market share leader in the industry and to reduce its costs.
T
119
Firms able to successfully differentiate their products and services are likely to see a decrease in their volume of sales.
F
120
Product differentiation can lead to high market share and low costs.
t
121
```
________ is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firms' products or services.
A) Product differentiation
B) Related diversification
C) Cost leadership
D) Best-cost provider
```
a
122
By increasing the perceived value of a firm's products or services, a firm will be able to
A) charge a lower price than it would otherwise be able to do.
B) charge a higher price than it would otherwise be able to do.
C) sell its products at lower prices than firms pursuing a cost-leadership strategy.
D) gain significantly more market share than firms pursuing a cost-leadership strategy.
b
123
While firms often alter the ________ of their products or services in order to implement a product-differentiation strategy, the existence of product differentiation, in the end, is always a matter of ________.
d
124
```
If an individual is considering purchasing a Toyota Camry or a Ferrari and decides that it is worth paying the extra money for the prestige that is associated with the Ferrari, the additional money the customer is willing to pay for the prestige is know as a(n)
A) altruistic price.
B) hedonic price.
C) fair market value.
D) margin price.
```
b
125
The most obvious way that firms can try to differentiate their products is by
A) making the product more complex.
B) introducing the product at the right time.
C) customizing the product for a particular segment.
D) altering the features of the products they sell.
d
126
```
Which of the following bases of product differentiation attempts to create the perception that a firm's products or services are unusually valuable by focusing directly on the attributes of the products or services a firm sells?
A) Product complexity
B) Product customization
C) Consumer marketing
D) Reputation
```
a
127
```
) The ability of companies that produce complex software packages to tailor these packages to the specific needs of their customers is an example of product differentiation through
A) complexity.
B) consumer marketing.
C) product customization.
D) timing.
```
c
128
```
A firm's ________ is really no more than a socially complex relationship between a firm and its customers and can serve as a basis for product differentiation.
A) location
B) reputation
C) consumer marketing
D) architectural competence
```
b
129
```
Which of the following bases of product differentiation attempts to create the perception that a firm's products or services are unusually valuable by focusing on the relationship between a firm and its customers?
A) Linkages between functions
B) Product customization
C) Location
D) Product complexity
```
b
130
```
Through which bases of competitive advantage do firms attempt to alter the perceptions of current and potential customers, whether or not specific attributes of a firm's products or services are altered?
A) Reputation
B) Location
C) Product customization
D) Consumer marketing
```
d
131
```
________ is the ability to use organizational structure to facilitate coordination among specific disciplines to conduct research.
A) Architectural competence
B) Cross-functional linking
C) Organizational coordination
D) Managerial leverage
```
a
132
```
Which of the following bases of product differentiation attempts to create the perception that a firm's products or services are unusually valuable by focusing on links within and between firms?
A) Reputation
B) Product complexity
C) Consumer marketing
D) Product mix
```
d
133
```
When the television show "American Idol" shows the judges drinking beverages from cups with the Coca-Cola label, or when a corporate sponsor places its logo on a NASCAR car, this is an attempt at product differentiation by linking with other firms through
A) product placements.
B) reputation.
C) product mix.
D) architectural competence.
```
a
134
```
Product differentiation is ultimately an expression of the ________ of individuals and groups within firms and is limited only by the ________ that exist, or that can be created, in a particular industry.
A) creativity; resources
B) resources; opportunities
C) creativity; opportunities
D) opportunities; resources
```
c
135
```
In general, firms selling differentiated products face a demand curve that is
A) upward sloping.
B) horizontal.
C) vertical.
D) downward sloping.
```
d
136
```
According to Chamberlin, firms selling differentiated products and facing a downward sloping demand curve are in an industry described as
A) perfect competition.
B) monopolistic competition.
C) oligopolistic competition.
D) semi-structured competition.
```
b
137
Which of the following statements regarding the impact of product differentiation on the threat of new entry is accurate?
A) Product differentiation helps reduce the threat of new entry by forcing potential new entrants to absorb costs associated with overcoming incumbent firms' product-differentiation advantages.
B) Product differentiation increases the threat of new entry by allowing potential new entrants to avoid costs associated with overcoming incumbent firms' product-differentiation advantages.
C) Product differentiation has no impact on the threat of new entry.
D) It is not possible to determine the impact of product differentiation on the threat of new entry.
a
138
When considering the impact of product differentiation on the threat of rivalry, product differentiation
A) reduces the threat of rivalry to zero.
B) increases the threat of rivalry by forcing each firm in an industry to compete directly with one another instead of allowing them to carve out their own unique product niche.
C) has no impact on the threat of rivalry.
D) reduces the threat of rivalry because each firm in an industry attempts to carve out its own unique product niche.
d
139
With regard to the threat of suppliers, product differentiation
A) reduces the threat of suppliers because a firm with a highly differentiated product can pass increased costs on to customers.
B) increases the threat of suppliers because a firm with a highly differentiated product is unable to pass increased costs on to customers.
C) has no impact on the threat of suppliers.
D) can either increase or reduce the threat of suppliers.
a
140
In emerging industries
A) firms that are first movers are unlikely to gain product-differentiation advantages based on buyer loyalty and high switching costs.
B) firms that are first movers can gain product-differentiation advantages based on perceived technological leadership.
C) product-differentiation efforts are focused on product refinement as a basis of product differentiation.
D) firms can sometimes be tempted to exaggerate the extent to which they have refined and improved their products and services.
b
141
In a declining industry
A) product-differentiation efforts are focused on product refinement as a basis of product differentiation.
B) firms that are first movers can gain product-differentiation advantages based on perceived technological leadership.
C) highly differentiated firms may be able to gain product-differentiation advantages by preempting strategically valuable assets.
D) highly differentiated firms may be able to discover a viable market niche that will enable them to survive despite the overall decline in the market.
d
142
```
Which of the following bases of product differentiation is almost always easy to duplicate?
A) Product features
B) Product mix
C) Product customization
D) Consumer marketing
```
a
143
```
Which of the following bases of product differentiation is usually costly to duplicate?
A) Product features
B) Links with other firms
C) Reputation
D) Product mix
```
c
144
```
Which bases of product differentiation is by far the most popular way for firms to try to differentiate their products but is identified as almost always being easy to duplicate?
A) Product mix
B) Product features
C) Customization
D) Distribution channels
```
b
145
Product features, by themselves, are
A) usually not a source of temporary competitive advantage, but they can be a source of a sustainable competitive advantage.
B) usually not a source of either a temporary competitive advantage, or a source of a sustainable competitive advantage.
C) usually can be a source of both a temporary competitive advantage and a source of a sustainable competitive advantage.
D) usually not a source of sustained competitive advantage, but they can be a source of a temporary competitive advantage.
d
146
Under which of the following conditions is the product mix advantage as a basis of product differentiation the least difficult to duplicate?
A) When the base of a product mix advantage is a common customer
B) When the mix of products is highly integrated with each other
C) If each of the products in a product mix has unique features
D) If a firm brings a series of products to market
a
147
Research on architectural competence in pharmaceutical firms suggests that
A) not only do some firms possess this competence, but that other firms do not; firms without this competence have, on average, been able develop it with minimal investment.
B) very few firms possess this competence, but firms without this competence, on average, are able to develop it.
C) not only do some firms possess this competence, but also that other firms do not and firms without this competence have, on average, been unable to develop it.
D) virtually every firm possesses this competence to some extent.
c
148
```
Which of the following bases of product differentiation is generally viewed as the most difficult to duplicate?
A) Product features
B) Reputation
C) Linkages with other firms
D) Location
```
b
149
The U-form structure used to implement a product-differentiation strategy
A) rarely uses temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative, and highly differentiated products.
B) has simple reporting relationships.
C) often uses temporary cross-divisional and cross-functional teams to manage the development and implementation of new, innovative, and highly differentiated products.
D) has a small corporate staff.
c
150
```
A ________ structure exists when individuals in a firm have two or more bosses simultaneously.
A) U-form
B) multidivisional
C) cross-divisional
D) matrix
```
d
151
The Lockheed Corporation Skunk Works is an example of a(n)
A) cross-divisional or cross-functional team.
B) M-form structure.
C) U-form structure.
D) multidivisional structure.
a
152
Small entrepreneurial firms
A) have numerous bureaucratic controls that impede cross-functional communication and thus slow innovation.
B) have relatively few bureaucratic controls that allow information and ideas to flow freely and to facilitate innovation.
C) have relatively few bureaucratic controls that impede cross-functional communication and thus slow innovation.
D) have numerous bureaucratic controls but information and ideas still flow freely and facilitate innovation.
b
153
```
A ________ exists when firms are committed to engage in several related product-differentiation strategies simultaneously.
A) policy of substitution
B) policy of extrapolation
C) policy of exploration
D) policy of experimentation
```
d
154
In developing a compensation policy used to implement a product-differentiation strategy, firms will
A) hold individuals responsible for experiments that fail.
B) punish individuals for taking risks when their projects are not successful.
C) simultaneously use multiple dimensions to examine employee performance.
D) provide appropriate incentives for managers and employees to reduce costs.
c
155
More recent work in the area of strategic management regarding Porter's assertion about being stuck in the middle
A) supports Porter's argument that firms that attempt to simultaneously pursue cost leadership and product differentiation will find themselves at a competitive disadvantage.
B) contradicts Porter's argument and finds that firms that successfully pursue cost leadership and product differentiation simultaneously can often expect to gain a sustained competitive advantage.
C) partially contradicts Porter's argument and finds that firms that successfully simultaneously pursue cost leadership and product differentiation can only expect to gain a temporary competitive advantage.
D) partially contradicts Porter's argument and finds that only firms in certain select industries can successfully simultaneously pursue cost leadership and product differentiation and gain a temporary competitive advantage.
b
156
According to Porter, firms that are stuck in the middle attempt to sell
A) high-priced products and gain small market share.
B) low-priced products and gain large market share.
C) high-priced products and gain a large market share.
D) medium-priced products and gain medium market share.
d
157
```
While cost leadership requires rewards for cost reduction, product differentiation requires rewards for ________.
A) creative flair
B) efficiency
C) quantitative goals
D) production goals
```
a
158
```
Recent research suggests that ________ firms must have competitive levels of cost to survive.
A) low-cost
B) all
C) domestic
D) product-differentiation
```
d
159
```
Recent research shows that firms can simultaneously implement cost-leadership and product-differentiation strategies if they learn how to manage the ________ inherent in these two strategies.
A) consistencies
B) similarities
C) contradictions
D) superfluousness
```
c
160
```
Cross-functional product development teams are suitable for a firm pursuing a ________ strategy.
A) cost-leadership
B) confrontation
C) product-differentiation
D) stuck-in-the-middle
```
c
161
Business strategy is a firm's theory of how to gain competitive advantage by operating in several businesses simultaneously.
f
162
Decisions about whether or not to vertically integrate often determine whether or not a firm is operating in a single business or industry or multiple businesses or industries.
t
163
A firm's level of vertical integration is the number of steps in its value chain that the firm accomplishes within its boundaries.
t
164
More vertically integrated firms accomplish fewer stages of the value chain within their boundaries than less vertically integrated firms.
f
165
A firm engages in backward vertical integration when it incorporates more stages of the value chain within its boundaries and those stages bring it closer to gaining access to raw materials.
t
166
If Wal-Mart were to purchase a factory to make socks and it planned to sell these socks in its stores, this would be an example of forward vertical integration.
f
167
When companies staffed and operated their own call centers in the United States, they were engaging in backward vertical integration, but when they started using independent companies in India to staff and operate these centers, they were more vertically integrated.
f
168
A firm with a high ratio between value added and sales has brought many of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.
t
169
Opportunism exists when a firm is unfairly exploited in an exchange.
t
170
If Iron Horse Helmets (IHH) were to contract with a Chinese manufacturing firm to provide IHH with superior quality helmets for sale in the United States but discovered that the shipments were actually of inferior quality when they were received, IHH would be said to be acting opportunistically.
f
171
If one of a firm's exchange partners behaves opportunistically, this reduces the economic value of the firm.
t
172
Firms should only bring market exchanges within their boundaries when the cost of vertical integration is more than the cost of opportunism.
f
173
The threat of opportunism is the least when a party to an exchange has made transaction-specific investments.
f
174
A transaction-specific investment is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.
t
175
Transaction-specific investments make parties to an exchange vulnerable to opportunism, and vertical integration solves this vulnerability problem.
t
176
Firms should avoid vertically integrating in those businesses where they possess valuable, rare, and costly-to-imitate resources and capabilities.
f
177
Firms should not vertically integrate into business activities where they do not possess the resources necessary to gain competitive advantages.
t
178
If a firm engages in vertical integration into a business activity where it does not possess any of the valuable, rare, or costly-to-imitate resources it needs to gain a competitive advantage, it may find itself at a competitive disadvantage to the extent that some firms already have competitive advantages in these business activities.
t
179
) If a supplier is overly reliant on a single customer, this supplier can be at risk of opportunism on the part of the customer.
t
180
Flexibility refers to how costly it is for a firm to alter its strategic and organizational decisions.
t
181
Flexibility is low when the cost of changing strategic choices is low.
f
182
Research suggests that, in general, vertically integrating is more flexible than not vertically integrating.
f
183
Once a firm has vertically integrated it has committed its organizational structure, its management controls, and its compensation policies to a particular vertically integrated way of doing business and it has enhanced its flexibility.
f
184
Flexibility is always valuable.
f
185
Flexibility is only valuable when the decision-making setting a firm is facing is uncertain.
t
186
A decision-making setting is uncertain when the future value of an exchange cannot be known when investments in that exchange are being made.
t
187
The use of budgets in a vertically integrated U-form organization can lead functional managers to overemphasize short-term behavior that is easy to measure and underemphasize longer-term behavior that is more difficult to measure.
t
188
A flexibility-based approach to vertical integration suggests that when the decision-making setting regarding a business activity is highly uncertain, firms should form a strategic alliance to enter this activity instead of vertically integrating.
t
189
The downside risks associated with investing in a strategic alliance are unknown but fixed.
f
190
A firm's vertical integration strategy is rare when few competing firms are able to create value by vertically integrating in the same way.
t
191
Outsourcing can help firms reduce costs and focus their efforts on those business functions that are central to their competitive advantage.
t
192
A firm's vertical integration strategy can only be rare when it is the only firm that is able to vertically integrate efficiently.
f
193
If a firm has capabilities that are valuable and rare, then vertically integrating into businesses that exploit these capabilities can enable the firm to gain at least a temporary competitive advantage.
t
194
A firm may be able to gain an advantage from vertically integrating when it resolves some uncertainty it faces sooner than its competition.
t
195
) A firm's ability to conceive of and implement vertical integration strategies tends to be highly susceptible to direct duplication
f
196
Strategic alliances are the major substitute for vertical integration.
t
197
While the functional or U-form structure is used to implement a cost-leadership or product-differentiation strategy, a matrix structure is most often used to implement a vertical integration strategy.
f
198
From a CEO's perspective, coordinating functional specialists to implement a vertical integration strategy rarely involves conflict resolution.
f
199
Numerous conflicts can arise among functional managers in a vertically integrated U-form organization.
t
200
Strategizing is one of the most important control mechanisms available to CEOs in vertically integrated U-form organizations.
f
201
```
Vertical integration is a type of
A) business strategy.
B) generic strategy.
C) differentiation strategy.
D) corporate strategy.
```
d
202
```
The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of
A) product differentiation.
B) diversification.
C) vertical integration.
D) competitive dynamics.
```
c
203
```
When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of
A) forward vertical integration.
B) backward vertical integration.
C) forward horizontal integration.
D) backward horizontal integration.
```
a
204
```
If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of
A) forward vertical integration.
B) product differentiation.
C) forward horizontal integration.
D) backward vertical integration.
```
d
205
```
A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.
A) value added as a percentage of sales
B) simple product diversification
C) competitive advantage
D) competitive dynamic
```
a
206
```
Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?
A) Value added
B) Net income
C) Sales
D) Gross margin
```
d
207
```
A firm with a ________ ratio between value added and sales has brought ________ of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.
A) low; many
B) high; many
C) medium; many
D) medium; few
```
b
208
```
In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, which stages of the value chain should be included within a firm's boundaries and why?
A) Ronal Coase
B) Adam Smith
C) David Ricardo
D) Milton Freidman
```
a
209
```
________ exists when a firm is unfairly exploited in an exchange.
A) Competitive advantage
B) Business level strategy
C) Opportunism
D) Corporate level strategy
```
c
210
```
A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.
A) opportunity-specific investment
B) transaction-specific investment
C) competition-specific investment
D) opportunistic investment
```
b
211
```
According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyer due to any transaction-specific investments a firm has made.
A) firm capability explanations
B) opportunity-based explanations
C) flexibility-based explanations
D) opportunism-based explanations
```
d
212
```
The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.
A) flexibility-based explanation
B) opportunism-based explanation
C) firm capability explanation
D) opportunity-based explanation
```
c
213
```
To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a
A) competitive advantage.
B) temporary dynamic disadvantage.
C) sustainable competitive advantage.
D) competitive disadvantage.
```
d
214
```
________ refers to how costly it is for a firm to alter its strategic and organizational decisions.
A) Flexibility
B) Dynamic capability
C) Opportunism
D) Uncertainty
```
a
215
```
Research suggests that, in general, vertically integrating is ________ than not vertically integrating.
A) significantly more flexible
B) somewhat more flexible
C) comparatively flexible
D) less flexible
```
d
216
```
A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.
A) uncertain
B) opportunistic
C) flexible
D) dynamic
```
a
217
```
A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.
A) alliance-based
B) flexibility-based
C) firm capabilities-based
D) opportunism-based
```
b
218
```
Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?
A) Opportunism-based
B) Flexibility-based
C) Firm capabilities-based
D) Alliance-based
```
a
219
```
If a firm decided to maintain relationships with several different call center management companies, each of which have adopted different technological solutions to the problem of how to use call center employees to assist customers who are using very complex products, to reduce the uncertainty of whether the people staffing the phone can help the firm's customers, this would be consistent with which explanation of vertical integration?
A) Opportunism-based
B) Flexibility-based
C) Firm capabilities-based
D) Alliance-based
```
b
220
```
Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.
A) 2010
B) 2012
C) 2014
D) 2015
```
d
221
```
If a computer company decided to open its own call centers to provide technical support to its corporate customers because the employees in these call centers need a significant level of in-depth training that was highly specialized to the computer company's products, this would be consistent with which explanation of vertical integration?
A) Opportunism-based
B) Flexibility-based
C) Firm capabilities-based
D) Alliance-based
```
a
222
A firm is likely to be among the first in its industry to vertically disintegrate an exchange when
A) the firm concludes that the level of specific investment required to manage an economic exchange is high.
B) the firm believes that the exchange is costly to imitate.
C) the level of uncertainty about the value of an exchange has increased.
D) the firm believes that the exchange is rare.
c
223
Which of the following statements regarding direct duplication and substitutes for vertical integration is accurate?
A) A firm's valuable and rare vertical integration choices may be subject to direct duplication and substitutes.
B) A firm's valuable and rare vertical integration choices are subject to neither direct duplication nor substitutes.
C) A firm's valuable and rare vertical integration choices may be subject to direct duplication but not to substitutes.
D) A firm's valuable and rare vertical integration choices may be subject to substitutes but not to direct duplication
a
224
```
The major substitute for vertical integration is
A) vertical disintegration.
B) strategic alliances.
C) a product-differentiation strategy.
D) a low-cost strategy.
```
b
225
```
Which organizational structure is used to implement a vertical integration strategy?
A) Matrix
B) Functional
C) Multidivisional
D) Product-divisional
```
b
226
```
From a CEO's perspective, coordinating functional specialists to implement a vertical integration strategy almost always involves
A) conflict resolution.
B) competitive positioning.
C) product differentiation.
D) corporate expansion.
```
a
227
If Brenda Thompson, Tom Mix's supervisor, wanted to use a budgeting process to help evaluate Tom's performance but wanted to ensure that using a budget did not encourage Tom to focus on short-term behaviors at the expense of long-term results, she should
A) develop the budget herself using realistic goals based on the economic reality facing Tom's function and use both quantitative and qualitative evaluations of the performance of Tom's function and then give the budget to Tom to follow.
B) work with Tom in an open and participative process to develop the budget based on the most optimistic scenario possible and use both quantitative and qualitative evaluations of the performance of Tom's function.
C) develop the budget herself based on the most pessimistic scenario possible and use both quantitative and qualitative evaluations of the performance of Tom's function and then give the budget to Tom to follow.
D) work with Tom in an open and participative process to develop the budget based on the economic reality facing Tom's function and use both quantitative and qualitative evaluations of the performance of Tom's function.
d
228
Evaluating a functional manager's performance relative to budgets can be an effective control when
A) the process used in developing budgets is open and participative.
B) the process reflects the economic best-case scenario developed by the functional manager.
C) the process reflects the economic worst-case scenario developed by the functional manager.
D) the process relies solely on quantitative criteria to evaluate the functional manager's performance.
a
229
```
Which committee in a U-form organization meets monthly and usually consists of the CEO and each of the heads of the functional areas included in a firm?
A) Executive committee
B) Functional committee
C) Operations committee
D) Managerial committee
```
c
230
```
Which committee in a U-form organization meets weekly and reviews the performance of the firm on a weekly basis and typically consists of a CEO and two or three functional senior managers?
A) Top management team
B) Executive committee
C) Operations committee
D) Functional committee
```
b
231
```
Investments made by employees that have more value in a particular company than in alternative companies are known as
A) firm-specific investments.
B) individual-specific investments.
C) group-specific investments.
D) corporate-specific investments.
```
a
232
According to the opportunism-based explanations of vertical integration, which of the following would be the most appropriate type of compensation to support strategy implementation?
A) Cash bonuses for corporate performance
B) Cash bonuses for group performance
C) Stock options for individual performance
D) Stock grants for individual performance
d
233
According to the capabilities-based explanations of vertical integration, which of the following would be the most appropriate type of compensation to support strategy implementation?
A) Salary
B) Cash bonuses for corporate performance
C) Cash bonuses for individual performance
D) Stock grants for individual performance
b
234
According to the flexibility-based explanations of vertical integration, which of the following would be the most appropriate type of compensation to support strategy implementation?
A) Stock options for individual performance
B) Stock grants for individual performance
C) Stock grants for corporate performance
D) Cash bonuses for individual performance
a
235
```
________ are payments to employees in a firm's stock.
A) Stock grants
B) Cash grants
C) Flexibility grants
D) Option grants
```
a
236
```
________ are when employees are given the right, but not the obligation, to purchase stock at predetermined prices.
A) Flexibility grants
B) Stock grants
C) Stock options
D) Grant options
```
c
237
```
The ________ explanations call for compensation that focuses on individual employees, such as cash bonuses for individual performance.
A) capabilities-based
B) strategically-based
C) flexibility-based
D) opportunism-based
```
d
238
```
Compensation that focuses on groups of employees such as cash bonuses and stock grants are best suited for ________ explanations of vertical integration.
A) flexibility-based.
B) capabilities-based.
C) strategically-based.
D) opportunism-based
```
b
239
```
The ________ logic suggests that compensation that has a fixed and known downside risk and significant upside potential is important for firms implementing vertical integration strategies.
A) opportunism
B) strategic
C) capabilities
D) flexibility.
```
d
240
```
Firm-specific investments are a type of ________ investments.
A) operational
B) contingent
C) transaction-specific
D) horizontal
```
c
