Stakeholders benefit from the value created by the firm

MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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TEST BANK: CHAPTER 1
The Concept of Strategy
Multiple Choice Questions
1. The primary purpose of strategy is:
[See p.4]
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
2. The successful careers of both Queen Elizabeth II and Lady Gaga may be attributed to the fact
that both:
[See pp.4-8]
a. Have used dressing up as a means of attracting attention and establishing identity
b. Have a knack for being in the right place at the right time
*c. Have a consistency of direction based on clear goals
d. Have built a loyal fan base based on astute use of the media.
3. For both individuals and businesses, successful strategies are characterized by:
[See p.5]
a. Unrelenting commitment to ambitious goals
*b. Clear goals, understanding their competitive environment, awareness of internal strengths and
weaknesses, and effective implementation
c. Meticulous planning
d. Possessing superior resources that are deployed to build competitive advantage.
4. Strategic goals should be:
[See pp.5-9]
a. Simple
b. Consistent
c. Long term
*d. All of the above
5. The main problem of SWOT as a framework for strategy analysis is that:
[See p.10]
*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b. It has now been superseded by more sophisticated analytical frameworks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.
6. Strategic fit refers to:
[See p.10]
a. The need for a firm’s strategy to be consistent with its vision, mission, and culture
*b. The consistency of a firm’s strategy with its external and internal environments
c. The need for a firm’s strategy to be unique
d. The need for a firm’s strategy to fit the needs of all its stakeholders, not just shareholders
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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7. A conceptualization the firm as an “activity system” is a means of depicting:
[See pp.10-11]
a. How a firm’s strategy should be implemented
b. The extent to which a firm’s resources and capabilities are aligned with its strategic goals
c. The extent to which a firm’s strategic goals are aligned with its industry environment
*d. The components of a firm’s strategy and consistency with which they fit together
8. Ryanair’s strategic position is as Europe’s lowest-cost airline may be attributed to:
[See p.11]
a. The willingness of its CEO, Michael O’Leary, to challenge conventional notions of customer and
employee satisfaction
b. Its use of secondary airports where costs are lower
c. The high operating costs of major airlines such as British Airways, Lufthansa, and Air France-KLM on
short-haul routes
*d. An integrated, consistent set of activities designed to maximize productivity and minimize operating
costs
9. The principal similarity between business and military strategy is that:
[See p.12]
a. They share the same objective: to annihilate rivals
*b. They share common concepts and principles
c. The nature of leadership is much the same whether in a military or business context
d. They are both concerned with tactical maneuvers to establish positions of advantage.
10. Military strategy and business strategy differ in that:
[See p.12]
a. There is no concept like tactics in business
b. Military strategy can only be learned through field experience; business strategy can be developed
through analytical frameworks
*c. The objective of military strategy is to defeat the enemy; most business strategies seek coexistence
rather than annihilation
d. None – there is no conceptual difference
11. The book that is considered as the first treatise on strategy is:
[See p.11]
a. Carl Von Clausewitz’s “On War” (“Vom Kriege”)
b. Sun Tzu’s “The Art of War” *
c. The Bible
d. Niccolo Machiavelli’s “The Art of War” (“Dell’arte della Guerra”)
12. Strategic decisions are those decisions that are:
[See p.12]
*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
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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13. The main reason for the transition from corporate planning to strategic management during the
late 1970s and 1980s was:
[See p.12]
a. The increasing costs of corporate planning departments
b. Disappointing outcomes of corporate diversification
*c. A more turbulent business environment that was increasingly difficult to predict
d. Growing disillusionment with central planning.
14. Between the 1980sand 1990s the emphasis of strategic analysis shifted from:
[See p.13]
a. Corporate strategy to business strategy
*b. Industry analysis to resource and capability analysis
c. Forecasting macro trends to understanding technological change
d. Generic strategies to strategic differentiation
15. In the late 1970s and early 1980s, Michael Porter pioneered:
[See pp.12-13]
*a. The application of industrial organization economics to strategic management
b. Empirical research into the relationship between market share and firm profitability
c. The resource-based view of the firm
d. The application of game theory to competitive analysis
16. During the 21st century, the complexity of the challenges posed by disruptive, digital
technologies and accelerating rates of change have encouraged companies to:
[See p.13]
a. Shift their strategic focus towards the growth markets of Asia, Africa, and Latin America.
b. Rejecting shareholder value maximization in favor of maximizing stakeholder interests
*c. Depend increasingly upon strategic alliances and other forms of collaboration
d. Prefer mergers and acquisitions to organic growth.
17. The more turbulent a firm’s external environment, the more must its strategy:
[See p.14]
a. Be formulated top-down rather than bottom-up
*b. Be about direction rather than specific plans
c. Emphasize innovation
d. Rely upon inputs from external consultants
18. When a firm’s external environment becomes more turbulent and unpredictable:
[See pp.13-14]
*a. Strategy becomes an increasingly important in providing direction for the business
b. Strategy becomes based upon intuition rather than analysis
c. Cost cutting becomes a dominant priority
d. Strategy becomes an impossible exercise
19. A description of a company’s organizational purpose is called a:
[See p.16]
a. Vision statement
b. Values statement
*c. Mission statement
d. All the above
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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20. The primary distinction between corporate strategy and business strategy is:
[See p.18]
a. Corporate strategy is the responsibility of the CEO, business strategy is formulated by the heads of
business units
*b. Corporate strategy is concerned with where the firm competes; business strategy with how it competes
in particular markets
c. Corporate strategy is concerned with establishing competitive advantage; business strategy with
strategy implementation in individual businesses
d. Corporate strategy is concerned with the long-term performance of the firm; business strategy with
resource deployment.
21. Strategy assists the quality of strategic decision making by:
[See p.15]
a. Expanding the range of decision alternatives under consideration
b. Ensuring that strategic decisions are restricted to senior executives who possess the most relevant
knowledge
*c. Facilitating the use of analytical tools
d. All of the above
22. Which of the following is not one of the ways in which a systematic, strategy-making process
improves an organization’s decision making:
[See pp.15-16]
a. Reducing the number of choices being considered
b. Integrating and pooling the knowledge of different members of the organization
c. Facilitating the use of analytic tools
*d. Providing algorithms that generate optimal solutions to strategic problems
23. The two questions of “where” and “how” to compete define:
[See p18]
*a. A firm’s corporate and business strategies
b. A firm’s strategic management process
c. A firm’s vision and mission
d. A firm’s values and culture
24. When identifying a company’s strategy, its statements of a strategy found in its public
documents need to be:
[See pp.17-18]
a. Treated with skepticism
*b. Checked against the company’s decisions and actions
c. Interpreted using modern techniques of textual analysis
d. Checked against its statements of vision and mission
25. Business strategy defines:
[See p.14]
*a. How a firm competes in a particular industry or market
b. Which industries or markets a firm chooses to compete in
c. Both of the above
d. Neither of the above
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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26. The principal temporal challenge of that strategic management faces is:
[See p.19]
a. The need to match internal organizational change with the rate of change in the external environment
*b. The need to compete for today while preparing for the future
c. The need to keep abreast of technological change
d. Increasing responsiveness and innovation
27. The relationship between design and emergence in strategy making is best described as:
[See pp.20-21]
a. An interactive process between strategic planners and line managers
b. A tension between the forces of centralization and decentralization
*c. A process in which intended strategy is adapted as it is implemented
d. An example of the agency problem in which the interests of salaried managers displace the interests of
owners
28. The extent to which an organization’s strategy is determined by decentralized emergence rather
than by centralized design depends mainly upon:
[See pp.21-22]
*a. How turbulent and unpredictable is the external environment of the organization
b. How the organization is structured
c. The commitment of the organization to experimentation
d. Whether the organization has a formalized process of strategic planning.
29. The main value of analytical approaches to strategy formulation is:
[See pp.22-23]
a. To identify the optimal strategy that a firm should adopt
*b. To provide understanding of strategic issues
c. To substitute for manager’s intuition and creativity
d. To ensure that strategic decision making is assigned to the capable people within the organization
30. The applicability of the tools and techniques of strategy analysis to not-for-profit organizations
is:
[See p.26-28]
*a. Greater for organizations that face competition than those that do not
b. Greater for organizations that charge for their services than those which do not
c. Greater for organizations that compete to for funding than those which compete for customers.
d. Is severely limited by the lack of a profit motive
31. For charities and other not-for-profit organizations that supply goods and services for free, the
most important focus for strategy making tends to be:
a. Competing in the market for finance from donors and other sources
b. Competing with other organizations seeking to supply similar goods or services to the same consumers
c. Establishing internal consensus around organizational goals
d. Managing relations with government and regulatory bodies.
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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TEST BANK: CHAPTER 2
Goals, Values and Performance
Multiple choice questions
1. The main challenge of establishing the goal of the firm is that:
[See p.35]
a. Flexibility of accounting rules allow different firms to measure profit in different ways
b. Each firm has different set of stakeholders, hence will define stakeholder value differently
*c. Each enterprise has a distinct business purpose
d. The goal of the firm is not directly observable
2. Every business enterprise has a distinct purpose, however, common to all businesses is the
goal of:
[See p.35]
a. Satisfying customers
*b. Creating value
c. Satisfying stakeholders
d. Maximizing shareholder value.
3. The two processes through which firms create value are:
[See p.35]
a. Restructuring existing businesses and creating new businesses through entrepreneurship
b. Increases prices and reducing costs
*c. Production and commerce
d. Production to create real value and marketing to create perceived value
4. The total value created by a firm is equal to:
[See pp.36-37]
a. The total revenue the firm receives for the products it sells
b. The total revenue the firm receives less the cost of bought-in materials and components
*c. The sum of producer surplus and consumer surplus the firm creates
d. None of the above
5. Consumer surplus is equal to:
[See p.36]
a. The amount consumers pay for a product
*b. The difference between the amount consumers would be willing to pay for a product and what they
actually pay
c. The difference between the sales value of a firm’s output and the direct costs of producing it
d. The amount consumers pay for a product adjusted for the social costs and benefits of the product.
6. For the purposes of strategy analysis, it is convenient to view business strategy is primarily a
quest for:
[See p.38]
a. Attractive markets
*b. Profit
c. Customer loyalty
d. Motivated and talented personnel
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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7. The main problems in implementing stakeholder value maximization are:
[See pp.37-38]
a. Adjudicating conflicts between different stakeholders
b. The propensity for customers and employees to be even more short-term oriented than shareholders
*c. The difficulties of quantifying value creation and creating a governance system to manage the tradeoffs among the interests of different stakeholders.
d. The legal obligation of boards of directors to operate companies in the interests of their shareholders.
8. For a firm to survive over the long term it must:
[See p.37]
a. Pay a satisfactory level of dividends to its shareholders
b. Create customer loyalty, that can then be converted into profit through increasing prices
*c. Earn as rate of return that covers its cost of capital
d. Balance the interests of all its stakeholders.
9. Although firms may pursue a variety of goals, the assumption that primary goal of strategy is to
maximize profits over the long term may be justified by:
[See p.38]
a. The fact that in today’s intensely competitive markets, firms must focus on profit maximization in order
to survive
*b. The external pressures on firms that arise from (i) strong competition in product markets and (ii) the
threat that firms that do not maximize profits will be acquired by firms that do
c. The legal requirement on Boards of Directors to ensure that companies are operated in the interests of
their shareholders
d. Shareholder pressure on CEOs to maximize profits.
10. The principal difference between accounting profit and economic profit is:
[See p.40]
a. Accounting profit is distorted by the arbitrary treatment of depreciation and unusual items
*b. Accounting profit includes both economic profit and the normal return on capital to the providers of
equity capital
c. Economic profit is cash flow based and is, hence, less subject to manipulation that accounting profit
d. Economic profit is endorsed by economists who tend to be more rigorous than accountants.
11. The divergence between accounting profit and economic profit is likely to:
[See p.40]
a. Greater for highly leveraged firms than for equity-financed firms
b. Greater for labor-intensive firms than for capital-intensive firms
*c. Greater for capital-intensive firms than for labor-intensive firms
d. Greater for technology-based firms than firms in mature industries
12. Profit and value of the firm are two concepts which are:
[See pp.41-42]
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 priceearnings ratio of its shares
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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13. The main difference between accounting measures of firm performance and stock-market
measures of firm performance is:
[See pp.42-43]
a. Accounting measures are less reliable because of firms’ discretion over how they apply accounting
conventions
b. Stock market measures are less reliable because share prices are so volatile
c. Accounting data offers a sound basis for forecasting future performance
*d. Accounting measures are backward looking; stock market measures are forward looking
14. Maximizing enterprise value and maximizing shareholder value are closely linked because:
[See p.40]
a. Enterprise value and shareholder value are the same thing
b. Shareholder value is calculated by adding debt and other non-equity financial claims to the DCF value
of the firm
*c. Shareholder value is calculated by subtracting debt and other non-equity financial claims from the
enterprise value of the firm
d. A business enterprise is owned by its shareholders.
15. In using accounting ratios to appraise a firm’s performance, it is helpful to use:
[See pp.42-43]
a. Benchmarks
b. Trends in these ratios over the past 5 years or more
c. Multiple indicators
*d. All of the above
16. To assess the adequacy of the return on capital employed (ROCE) that a firm earned in its most
recent financial year, which of the following would not be an appropriate benchmark:
[See pp.43-45]
a. The ROCE earned by the same firm in previous years
b. The ROCE earned by competitors during the same period
*c. The firm’s cost of equity capital
d. The firm’s weighted average cost of capital
17. In appraising a firm’s profit performance:
[See pp.43-44]
a. Return on sales is a better indicator than return on invested capital
*b. Return on capital employed is a better indicator than return on sales
c. Net margin is a better indicator than operating margin
d. Narrow measures of profit (such as after-tax net income) are better indicators than broad-based
measures (such as EBITDA—earnings before interest, tax, depreciation and amortization).
18. To assess whether or not a firm is earning an adequate rate of profit, return on capital
employed (ROCE) is a better indicator than return on sales because:
[See pp.43-44]
a. Sales are more variable than capital employed
*b. Return on sales vary between industries according to their capital intensity
c. A firm’s return on sales depends upon the choice between gross margin, operating margin, and net
margin
d. ROCE is based upon cash flow
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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19. To diagnose the sources of a firm’s poor financial performance, it is useful to:
[See pp.44-45]
a. Focus on the firm’s cash flow statement rather than its income statement and balance sheet
b. Concentrate on sales growth and market share rather than profit data
c. Adopt a forward-looking approach through analyzing share price performance rather than looking at
backward-looking accounting statements
*d. Disaggregate overall return on capital into its component items
20. The biggest problem in designing a performance management system arises as a result of:
[See p.47]
a. The tendency for performance management systems to be based entirely on financial targets
*b. A performance management system needs short-term indicators to monitor performance, yet the
ultimate goal is to enhance the long-term performance of the firm
c. Performance targets are always ineffective because individuals will “game the system”
d. The personal interests of organizational members need to be taken into account
21. The Balanced Scorecard is a technique of performance management that establishes and
monitors four dimensions of performance:
[See pp.47-48]
a. Financial, strategic, operational, and ethical performance
*b. Financial, customer, internal, and learning/innovation performance
c. Profit, sales, productivity, and asset management performance
d. Shareholder, customer, employee, supplier, and social performance
22. The main problem of a company establishing shareholder value creation as its primary
performance goal is:
[See pp.48-49]
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
23. In relation to the social responsibilities of firms, leading economists and management
theorists:
[See pp.50-52]
a. Agree that CSR is an essential “moral imperative”
*b. Have fundamental disagreements about the justification for CSR
c. Believe that the capitalist system would operate better if all firms adopted CSR
d. Regard most firms’ CSR initiatives as primarily exercises in public relations
24. Michael Porter and Mark Kramer’s notion of “shared value” reconceptualizes CSR (corporate
social responsibility) by emphasizing:
[See p.52]
*a. CSR as a value creating activity
b. CSR as a source of legitimacy for a company
c. CSR a means of transferring value from shareholders to less fortunate members of society
d. CSR as a counterweight to greed and amorality among managers and investors.
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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25. Which of the following activities by Starbucks Inc. is least likely to be an example of Michael
Porter and Mark Kramer’s “shared value creation”:
[See p.54]
*a. The 2015 “Race Together” initiative to combat racism and promote racial harmony
a. The introduction in 2014 of college tuition benefits to employees
c. Participating in the Coffee and Farm Equity program to benefit growers
d. Setting targets for reducing energy utilization and increasing recycling.
26. In new product development, a “phases and gates” approach means that:
[See p.54]
a. A firm’s market is divided into specific segments (or “phases”) linked by “gates” which allow synergies
to be exploited
b. A firm’s product development relies on time segments that must be linked through gates
*c. The process is divided into consecutive stages, at the end of each a decision is made as to whether to
continue to the next stage of development
d. The product is divided into separate modules where the interface between them are viewed as gates
27. Viewing strategy as a portfolio of options rather than a portfolio of investments, relies upon the
rationale that:
[See pp.54-55]
a. Uncertainty means that flexibility is valuable
b. Committing to a long-term program of investment can be disastrous if circumstances change
c. Most investment projects can be divided into a sequence of stages where, at any point of time, it is only
necessary to decide the next stage
*d. All of the above
28. The value of a real option can be calculated using:
[See p.55]
a. The Black-Scholes option pricing model
b. Binomial options pricing model
c. Discounted cash flow analysis
*d. (a) or (b)
29. The two main categories of real options are growth options and flexibility options. Which of the
following investments is not a growth option?
[See pp.54-55]
*a. Ford’s acquisition of programmable robots that allow different models of car to be produced on a single
assembly line
b. Facebook’s acquisition of WhatsApp 2014
c. Apple’s program of research into virtual reality
d. Callaway Golf’s strategic alliance with Automobili Lamborghini to develop new composite materials
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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TEST BANK: CHAPTER 3
Industry Analysis: The Fundamentals
Multiple choice questions
1. Given the range of external influences that impact a firm, understanding the external
environment requires managers to:
[See pp.60-61]
*a. Use a framework or a system to organize relevant information
b. Monitor competitors closely
c. Use all existing sources and techniques to gather and analyze information
d. Devote a large proportion of their time to this task
2. The core of a firm’s business environment is comprised by:
[See p.61]
*a. Its relationships with customers, competitors and suppliers
b. Its technological environment
c. Its relationships with all stakeholders
d. The nation state
3. Economic value is created when:
[See pp.61-62]
a. The price that customers pay for a product exceeds the costs of producing it
b. Competition causes surplus value to be transferred from producers to consumers
c. The price that customers are willing to pay for a product exceeds the price they actually pay
*d. The price that customers are willing to pay for a product exceeds the cost producing it
4. The profits earned by firms in an industry, are determined by:
[See p. 62]
a. The intensity of competition among the firms within the industry
b. How much customers value the products supplied by the industry
c. The extent to which the industry is protected by barriers to entry
*d. The value of the product tor customers, the intensity of competition, and the relative bargaining powers
of producers, their suppliers and their buyers
5. The basic premise of industry analysis is that:
[See p.63]
a. Most industries lie on a spectrum between perfect competition at one end and monopoly at the other
*b. The level of profitability within an industry is determined by the systematic influence of the industry
structure
c. Industry profitability depends upon the interaction among competing firms
d. Technology and consumer demand are the basic forces that shape industry structure
6. Firms supplying niche markets are often highly profitable because:
[See pp.62, 64]
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
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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7. If an industry earns a return on capital in excess of its cost of capital:
[See p.66]
a. It will soon attracts the attention of competition authorities
b. Workers will push for higher pay and benefits causing the level of profitability to fall
*c. It will attract the attention of potential entrants and, unless protected by high barriers to entry, the return
on capital will fall
d. Firms within the industry will over-invest causing the return on capital to fall
8. Economies of scale are a barrier to entry because:
[See p.66]
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 largescale entry that initially operates with substantial excess capacity
9. The effectiveness of barriers to entry depends upon:
[See p.67]
a. How quickly new technologies emerge
b. How fiercely incumbents retaliate against new entrants
*c. The resources and capabilities that potential entrants possess
d. How vigorously governments enforce competition law
10. The relationship between seller concentration and industry profitability is:
[See p.68]
a. Strongly positive—increasing concentration is almost always followed by increasing profit margins
b. Mainly negative—as industries become more concentrated, the competition between leading firms for
market dominance becomes more aggressive
c. Dependent upon the size of the industry
*d. Statistically weak.
11. As the competitors in an industry become more diverse in terms of their goals, cost structures,
and strategies, it is likely that:
[See p.68]
a. Their incentives to collude on price increase
*b. They will compete more fiercely on price
c. Their products will become increasingly differentiated
d. Mergers, acquisitions and alliances among them will increase
12. Industries where a decline in demand is most likely to cause industry-wide losses tend to have
the following characteristics:
[See pp.68-69]
a. High concentration, lack of product differentiation and scale economies
*b. High exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs
c. High exit barriers, lack of product differentiation, and powerful buyers
d. Powerful buyers and suppliers and high exit barriers
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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13. Which of the following does not enhance buyers’ bargaining power
[See pp.69-71]
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
14. Bargaining power rests, ultimately, on:
[See p.70]
a. The negotiating skills of the buyer versus the seller
b. Tradition
c. The respective effectiveness and cohesion of top management teams
*d. The relative costs that each party would incur from walking away from the deal
15. The restrictions that governments place on the advertising of tobacco products:
[See pp.64-69)
a. Reduce the demand for tobacco thereby depressing profitability
b. Reduce the marketing costs of tobacco companies and impede the entry of newcomers to the market,
boosting the profitability
*c. Cause both (a) and (b)
d. Cause neither (a) nor (b)
16. To obtain a license to drive a “black cab” taxi in London, requires passing a rigorous test of
the driver’s knowledge of London’s streets and buildings involving 2 to 4 years of study. This test
affects the profitability of the London taxi industry:
[See pp.66-67]
a. Negatively, because of the debts that future taxi drivers accumulate during their training
b. Negatively, because it encourages native Londoners, who are already familiar with the city, to enter the
industry
*c. Positively because they restrict entry to the industry
d. Positively, because “doing the knowledge” increases solidarity among London’s taxi drivers. if such
licenses can be sold on a secondary market
17. Profitability of the wireless communications services industry tends to be low throughout the
world. A major reason for this is:
[See pp.64-71]
a. In most markets there are only three or four competitors
*b. In almost every country, the national government is a monopoly supplier of wireless spectrum
c. Entry barriers are high due to the high costs of infrastructure
d. Increased video streaming is increasing the demand for wireless telecommunications
18. The most useful approach to forecasting industry profitability in the future is:
[See pp.71-73]
a. To estimate the industry’s revenues and costs in future years
b. To use an industry’s probability at similar stages of the business cycle in the past as an indicator of
future profitability
c. To extrapolate the trend of industry profitability into the future
*d. To understand how the industry’s structure has determined competitive intensity and profitability in the
past, then to use information on an industry’s changing structure to predict how profitability is likely to
change in the future
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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19. Airlines’ frequent flyer programs and retailer loyalty schemes are both examples of efforts to:
[See p.74]
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
20. Initiatives to improve an industry’s profitability through changing its structure are:
[See p.74]
a. Only feasible for the dominant player within an industry
*b. More difficult in fragmented industries than in concentrated industries
c. Feasible in any industry that is subject to ruinous price competition
d. Always risky because they attract the attention of antitrust authorities
21. A market’s boundaries are determined by:
[See pp.75-76]
a. The geographical extent of the markets that are supplied by the incumbents
b. The type of product, which is sold, and the type of customers willing to pay for the product
c. Price homogeneity—within the confines of a market, a single price rules
*d. Substitutability on both the demand side and the supply side
22. In practice, drawing industry boundaries is:
[See pp.75-76]
a. A subjective exercise that depends upon the personal preferences of top managers
b. An objective exercise that requires estimating cross-elasticities of demand for the industry’s products
*c. A matter of judgment that depends upon the purpose of the analysis
d. Critical to the output of the analysis and therefore should only be undertaken with the help of an
academic or consultant
23. For most business enterprises a market is:
[See pp.75-76]
a. An abstract concept—from the point of view of competition it is a continuum from a firm’s closest
competitor towards more distant competitors
b. A sociological concept that is defined mainly by convention and institutions
c. Geographical concept defined by the location of customers and competitors
*d. All the above*
24. Key success factors are:
[See pp.77-80]
a. Factors that allow rivals to undermine a firm’s competitive advantage
*b. The sources of competitive advantage within an industry
c. The forces of competition that are most influential in determining industry profitability
d. The generic strategy that is most closely aligned with customer preferences
25. Identifying key success factors within an industry requires answers to the following questions:
[See pp.77-80]
*a. What do customers want and what should the firm do to survive competition?
b. What is a firm’s unique selling proposition?
c. Which of the five forces of competition most threaten a firm’s survival and how could the firm deal with them?
d. What are the main sources of a company’s cost efficiency?
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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TEST BANK: CHAPTER 04
Further Topics in Industry and Competitive Analysis
Multiple choice questions
1. Empirical research shows that proportion of inter-firm differences in profitability that industry
factors explain is:
[See pp.84-85]
a. More than 75%
b. About half
*c. Less than 25%
d. The question is unanswerable because “industry” is a meaningless concept.
2. A key limitation of Porter’s five forces framework is that:
[See p.85]
a. I looks only at single industries not at relationships between industries
*b. Competitive strategies may shape industry structure, rather than structure shaping competition
c. Industries are more complex than can be reduced to five competitive forces
d. It offers qualitative, not quantitative predictions
3. Joseph Schumpeter perceived competition among companies as:
[See p.85]
a. Corresponding closely to economists’ model of perfect competition where profits are competed away
b. A process of oligopolistic rivalry
*c. A process of creative destruction
d. A process of punctuated equilibrium in which periods of stability were interspersed by bouts of intense
competition
4. Schumpeter’s process of “creative destruction” challenges Porter’s five forces of competition
framework by:
[See p.85]
a. Introducing concepts of renewal and rebirth into the analysis of industrial change
b. Recognizing the cooperation is as important in business as competition
*c. Proposing that competitive behavior determines industry structure rather than the other way round
d. Viewing competition is essential for the renewal of mature and declining industries
5. The key implication of “hypercompetition” in business is that:
[See p.85]
*a. Competitive advantage is temporary
b. Technological change will continue to accelerate
c. “If it ain’t broke, don’t fix it” is an obsolete piece of advice
d. The concept of Schumpeterian competition needs to be updated to realities of the 21st century.
6. The prediction that hypercompetition makes competitive advantage temporary:
[See p.85]
a. Is confirmed by empirical research shows that the answer is Yes
b. Is refuted by empirical research shows that the answer is No
*c. Has not been answered by empirical research
d. Cannot be answered by empirical research because competitive advantage cannot be measured.
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7. Winner-take-all industries, where the leading firm accounts for the great majority of the
industry’s total profit, are usually the result of:
[See pp.85-86]
a. Economies of scale
b. Economies of scope
*c. Network externalities
d. Product differentiation
8. The difference between substitute and complementary products may be summarized as follows:
[See pp.86-87]
*a. Substitutes reduce the value of a product, whereas complements increase value
b. Complements reduce the value of a product, whereas substitutes increase value
c. Substitutes cannot be used together, whereas complements must be used in combination
d. Complementary relationships increase the profitability of all firms engaged in supplying them; substitute
relationships reduce the profitability of all firms supplying them.
9. Video game consoles and video games are complementary products: the availability of one
increases the value of the other. In the past the suppliers of consoles were able to appropriate
most of the profits generated by video game systems because:
[See pp.86-87]
a. Video game consoles cost more to develop than video games
b. The consoles were more powerful determinant of the consumer experience than the games
*c. The console suppliers controlled technology and distribution giving them more bargaining power than
the suppliers of video games
d. The console makers—Nintendo, Sony and Microsoft—were bigger companies than the suppliers of
video games.
10. The producer of a complementary product can maximize its relative bargaining power by
means of:
[See pp.86-87]
a. Adopting a differentiation strategy that allows it to sell at a premium price
b. Adopting a cost cutting strategy to provide its product at the lowest possible cost and so exploit
economies of scale
c. Restricting complementors’ access to the market
*d. Commoditizing the market for the complementary good.
11. The key problem facing Nespresso in implementing a “razors and blades” strategy for its
Nespresso system is that:
[See p.87]
*a. It has been unable to prevent the emergence of other suppliers of Nespresso-compatible coffee
capsules
b. Its Nespresso coffee machines are manufactured under license by other companies
c. Keurig Green Mountain is the market leader for capsule coffee systems in the US
d. The high cost of Nespresso capsules compared to traditionally-packaged coffee
12. Business model mapping is a useful technique for developing strategy for firms:
[See pp.88-89]
a. In mature industries
b. In technology-based industries
*c. Which inhabit complex business ecosystems
d. Which are seeking venture capital funding
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13. The contribution of game theory to the field of strategic management is in:
[See p.91]
a. Generating more accurate predictions about competitive behavior
b. Extending the theory of competition to embrace cooperation
c. Extending the analysis of competitive behavior to the realms of politics, diplomacy, and social behavior
*d. Permitting a more rigorous framing of competitive situations and strategic decisions
14. The key insight from the “prisoners’ dilemma” game is:
[See pp.92-93]
*a. Competitive behavior can create an outcome that is inferior for all involved in a situation
b. The principle of “honor among thieves” is inapplicable either to thieves or to business executives
c. In every social interaction, the inability to communicate effectively always results in an inferior outcome
d. Trust can play a critical role in creating favorable outcomes form both crime and business
15. If administering deterrence is costly or unpleasant for the threatening party, then:
[See p.92]
*a. It may lack credibility
b. It will always lack effectiveness
c. It will need to be supported by appropriate signaling
d. It reinforces the power of the threatening party
16. The relationship between commitment and strategic options may be best described as:
[See p.92]
a. Commitments increase the value of real options
b. By committing to a set of options, a firm can reconcile two sources of value: value from deterring
competitors and value from real options
*c. Making commitments inevitably involve giving up options
d. The two reside in different realms of analysis: commitments can be analyzed using game theory; real
options can be analyzed using financial theory
17. Signaling refers to:
[See p.94]
a. Communications that announce your strategic intentions or plans to rivals
*b. Any deliberate action that is intended to influence other players’ perceptions or behavior
c. Deception through misinformation
d. Internal communications that divert strategic orientations and obtain the buy-in of the organization’s key
stakeholders
18. The relationship between competition and cooperation can be described as follows:
[See pp.92-93]
a. Industries either compete or cooperate; if they cooperate, they are likely to be in breach of competition
law
b. Cooperation and competition may exist in an industry, but not at the same time
*c. Both can co-exist simultaneously
d. Both can co-exist at the same time, but not in the same industry segment or strategic group
19. In a market where Firm A and Firm B are leading suppliers, if Firm A initiates a price cut, the
likelihood that Firm B responds with an identical price cut will be greater:
[See pp.96-99]
a. If Firm B’s goal is to maximize profit
*b. If Firm B’s goal is to maximize market share
c. If Firm B is a private rather than a public (listed) company
d. If the market is growing.
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20. Competitive intelligence, the systematic collection and analysis of information about rival firms,
is:
[See pp.95-98]
a. A practice which, though legal in most countries, is unethical
b. Likely to distract firms from their efforts to establish positions of competitive advantage based upon
their distinctive strengths
*c. An important component of a firm’s environmental scanning and strategic analysis
d. A useful activity because it can help firms imitate the strategies of their more successful competitors.
21. The main purpose of competitive intelligence is to:
[See pp.95-98]
*a. Forecast competitors’ behavior
b. Assess competitors’ resources and capabilities
c. Signal to competitors in order to influence their behavior
d. Gain access to competitors’ trade secrets
22. The distinction between legitimate competitive intelligence and industrial espionage:
[See pp.95-98]
a. Is clearly defined by legislation and case law relating to trade secrets
*b. Is not always clear
c. Is non-existent – they overlap
d. Is easily resolved by hiring a good lawyer
23. To attempt to predict competitive behaviors, Porter suggests a four-step framework, where
analysts must identify:
[See pp.95-98]
*a. The competitor’s current strategy, its objectives, its assumptions about the industry and itself, and its
available resources and capabilities
b. The competitor’s current strategy, its future strategy, its assumptions, and its vulnerabilities
c. The competitor’s assumptions about the industry, its available resources and competencies, its
objectives, and its competitive advantage
d. The competitor’s available resources and competencies, its objectives, then its competitive advantage,
and finally its performance
24. Segmentation is a process through which:
[See pp.98-101]
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
25. The main use of industry segmentation analysis is to:
[See pp.98-101]
*a. Identify the most attractive segments for a firm to locate within
b. Understand better the needs of different customer groups
c. Formulate better marketing strategies
d. Predict the likely evolution of market structure
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26. Barriers to mobility are:
[See p.99]
*a. Barriers that protect a segment from firms established in other segments of the same industry
b. Barriers that protect incumbents from established firms in other industries rather than from new start-up
companies
c. Obstacles that a firm faces in changing its strategy
d. Barriers that prevent globalization and developing a firm’s business abroad
27. The difference between barriers to entry and barriers to mobility is:
[See p.99]
a. The sources of barriers to mobility are different than the sources of barriers to mobility
b. There is no real difference
c. Barriers to mobility are less effective than barriers to entry
*d. Barriers to entry protect the industry as a whole whereas barriers to mobility protect segments within
the industry
28. A firm will choose to compete across multiple segments rather than specialize in a single
segment if:
[See p.101]
a. It is a publicly-listed company that than a family owned company
*b. The same resources and capabilities can be deployed in different segments
c. Segments are defined by distinct socio-economic groups of customers
d. Barriers to mobility are high.
29. “Profit pool mapping” describes a technique for:
[See p.101]
*a. Analyzing the distribution of profit across different stages of an industry’s value chain
b. Analyzing the distribution of value added across different stages of an industry’s value chain
c. Analyzing competitive advantage in the different stages of an industry’s value chain
d. Analyzing the distribution of an industry’s profit among the member firms of that industry
30. A strategic groups consists of:
[See p.102]
a. Firms that follow the same generic strategies (e.g. cost leadership or differentiation)
*b. Firms within an industry that have similar strategies
c. Firms that occupy the same industry segment
d. Firms that target the same customer groups
31. Strategic group analysis is primarily useful for:
[See p.102]
a. Identifying “blue ocean” opportunities
*b. Describing and understanding the strategic positioning of firms within an industry
c. Identifying the strategies that are most conducive to profitability within an industry
d. Identifying which strategic niches in an industry are least saturated and therefore have the greatest
profit potential
32. In the European airline industry, EasyJet, Baltic Air, WizzAir, and Ryanair:
[See p.102]
a. Have different route networks, therefore belong to different strategic groups
*b. Have similar strategies, hence belong to the same strategic group
c. Belong to the same strategic group and can therefore be expected to have similar financial performance
d. Have little in common
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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TEST BANK: CHAPTER 5
Analyzing Resources and Capabilities
Multiple choice questions
1. The main implication of the resource-based view of firm is:
[See pp.108-109]
a. The boundaries of the firm are determined by the firm’s resources rather than by transaction costs
b. The resources of the firm are the foundation for its capabilities
*c. Resources and capabilities are the principal basis for firm strategy and the primary source of
profitability
d. Ricardian rents are a more important source of firm profitability than monopoly rents
2. Strategy needs to take account of both the requirements of the firm’s external environment and
the firm’s own resources and capabilities. Resources and capabilities rather than requirements of
the external environment offer a more stable basis for strategy formulation when:
[See pp.108, 109, 111]
a. The firm is engaged in the exploitation of natural resources such as petroleum or metal
*b. The external environment is in a state of flux
c. When the firm is supplying producer goods rather than consumer goods
d. When the firm is a multinational corporation.
3. The main strategic lesson to be drawn from the Biblical story of David and Goliath is:
[See p.109]
a. The importance of first-mover advantage
*b. Adapt strategy to your relative strengths
c. Conventional strategies don’t work for newcomers
d. The Israelis usually win.
4. In 1990, C.K. Prahalad and Gary Hamel introduced the concept of “core competence.” Their
argument was that:
[See p.109]
a. Competence was more important than capability as a basis for sustainable competitive advantage
b. Management should accumulate the resources that form the basis of competences
*c. Strategy should be focused on both developing and exploiting firms’ distinctive capabilities
d. Competitive advantage rather than industry attractiveness was the primary source of superior
profitability
5. The difficulties faced by Eastman Kodak, Smith Corona. and Olivetti in adapting to radical
technological change within their markets point to:
[See p.111]
a. The failure of senior managers to understand the implications of new technologies.
b. The power of digital technology as a force for creative destruction
c. The need for firms to devote more resources to technological forecasting
*d. The difficulties established firms experience in building the new capabilities
6.There are two types of economic rent (pure profit):
[See pp.111]
*a. Monopoly rent and Ricardian rent
b. Market power and competitive advantage
c. Monopoly rent and quasi rent
d. Cost advantage and differentiation advantage
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7. One implication of the resource-based perspective is that:
[See pp.111-112]
a. Firms tend to adopt similar or close strategies
*b. Aligning strategies with resources and capabilities implies that firms emphasize their differences rather
than their similarities
c. Firms focus on building a stronger portfolio of capabilities than their rivals
d. Firms focus on reducing their vulnerability by eliminating their weaknesses
8. The difference between a resource and a capability is:
[See pp.112-113]
*a. A resource is a productive asset; a capability refers to what the firm can do
b. A resources are static; capabilities are dynamic
c. A resource is a weak source of competitive advantage whereas a capability is a strong one
d. There is no clear distinction: a capability is a type of resource
9. The main problem in using a company’s balance sheet to identify its resources and capabilities
is that:
[See pp.113-115]
a. Human resources are not included
b. Intangible resources are mis-valued, and some are excluded
*c. Both (a) and (b)
d. Neither (a) nor (b)
10. To exploit its tangible assets more effectively requires that a firm:
[See pp.113-114]
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
11. Organizational culture is an important resource for most business enterprises because:
[See p.114]
a. It help employees to understand one another
b. It has a powerful motivating effect
*c. It influences the capabilities a business develops and how these capabilities are exercised
d. It shapes a business’s vision
12. Intangible resources tend to be more valuable than tangible resources because:
[See p.114, 121-122]
a. They are easier to acquire
b. They are cheaper to acquire
*c. They are more likely to provide sustainable competitive advantage
d. All of the above
13. A major reason why many companies have the high valuation ratios (ratio of stock market value
to balance sheet net asset value) is:
[See p.114-115]
a. Stock market irrationality which results in some companies becoming overvalued
*b. The undervaluation of intangible resources on companies’ balance sheets
c. Stock market doubts over the valuation of financial assets by companies and their auditors
d. The rise of intellectual property valuation as a result of recent patent litigation.
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14. For most organizations, geographical location should be regarded as:
[See pp.113-115, 125]
*a. A resource whose characteristics can be an important source of competitive advantage
b. A formerly-important resource which is becoming increasingly irrelevant in a digital world
c. An organizational characteristic, not a resource
d. A source of competitive advantage only if it offers access to an industry ecosystem such as Silicon
Valley for IT firms and New York for advertising firms
15. Firm’s with outstanding capabilities are typically those which:
[See pp.116-119]
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.
16. Prahalad and Hamel’s “core competences” tend to be broad-based organizational capabilities
that:
[See p.118]
*a. Integrate a number of more specialist organizational capabilities
b. Are also known as “dynamic capabilities”
c. Are found primarily in Japanese companies
d. Are mainly concerned with technological expertise
17. Enterprise Resource Planning software (such as that supplied by SAP) is unlikely, on its own,
to be source of competitive advantage because:
[See p.120]
a. It is expensive to install hence its benefits are offset by its costs
*b. It is available to any firm that wishes to purchase it; hence, it is not scarce
c. It needs to be updated periodically, hence it lacks durability
d. Its benefits are limited to those activities that require substantial information processing
18. A well-established brand can be a source of sustainable competitive advantage because:
[See pp.121-122]
a. Consumers will always pay a premium for a recognized brand
b. Brands are protected by trademark law, hence cannot be copied
c. Brand 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.
19. Resources lack transferability between firms when:
[See pp.121-122]
a. They are tangible (rather than intangible)
b. They are difficult to replicate
c. When the firms involved are in different industries
*d. Lack of information about the characteristics of the resources impedes market transactions
20. “Benchmarking” is: [See p.123]
a. A process to ensure that a firm is as similar to competitors as possible
b. An HR manager’s tool to set and justify the firm’s salary scheme versus the industry norm
*c. A way to compare a firm’s resources and capabilities against those of competitors
d. All of the above
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21. The firm’s ability to appropriate the rents generated by its organizational capabilities:
[See pp.122-123]
a. Is guaranteed by the fact that firms have full ownership of their capabilities
b. Is greater for firms in high technology than in low technology industries
c. Is weakened if a firm uses independent contractors instead of full-time employees
*d. Depends upon the extent to those capabilities are embedded in team-based processes that are heavily
dependent upon corporate systems
22. A bank is establishing a fixed income trading department. It is considering whether to hire a
team of star traders or to invest a similar sum of money in developing a proprietary, automated
trading system. The most valid reason for investing in the automated trading system in preference
to hiring star traders is:
[See pp.122-123]
*a. The proprietary trading system is likely to generate better returns since star traders are in a powerful
position to negotiate pay packages which appropriate the major part of the profit they create
b. Advanced software is better than human intuition at identifying mispricing in financial markets
c. Star traders are difficult to manage and can easily become “rogue traders”
d. It’s difficult to motivate traders once they have earned their first few million.
23. When a company has weaknesses relative to competitors among strategically important
resources and capabilities, the appropriate strategic response is to:
[See pp.124-125]
a. Invest heavy in order to upgrade weaknesses
b. Diversify in order to find new areas of business where these resources and capabilities are unimportant
to competitive advantage
*c. Outsource those activities where third parties can offer superior capabilities while positioning the
business to reduce vulnerable to remaining weaknesses
d. Employ management consultants to seek a solution.
24. If an organization possesses strengths in a resource or capability that bears little relationship
to the industry’s key success factors it should:
[See p.125]
a. Regard that resource or capability as strategically irrelevant
b. Seek to sell that resource r capability to another organization
*c. Seek an innovative approach to making that resource or capability strategically relevant
d. Adopt a niche strategy.
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
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TESTBANK: CHAPTER 6
Organization Structure and Management Systems:
The Fundamentals of Strategy Implementation
Multiple choice questions
1. Jay Galbraith and Ed Lawler’s comment that: “Ultimately, there may be no long-term sustainable
advantage that the ability to organize and manage” may be justified by:
[See p. 139]
a. The impact of disruptive technologies in most industries
b. The realities of Schumpeterian competition
*c. The need for firms to continually develop and renew their organizational capabilities
d. Of all the most strategically important resources, good managers are the most scarce
2. The epithet “Great strategy; lousy implementation” is typically wrong because:
[See p.141]
a. Strategies are typically formulated in the course of their implementation (i.e. they are “emergent”)
*b. Strategies whose formulation does not take account of their potential for implementation are not great
strategies
c. Both (a) and (b)
d. Neither (a) nor (b)
3. In most large companies strategic planning is:
[See p.142]
a. Primarily a top-down process
b. Primarily a process of managed emergence
*c. A process that combines top-down initiatives and directives and bottom-up proposals
d. A formalized ritual that has little to do with real strategy formulation
4. The main reason that most entrepreneurial start-up companies adopt a formalized process of
strategic planning processes at some stage of their development is:
[See p.141]
a. To allow quantitative analysis to be applied to strategic decision
b. To limit the power of founders
*c. To facilitate coordination and control as a company grows in size and complexity
d. To enable decisions to become focused more on long term development â—‹
5. In most large companies the strategic planning cycle begins with:
[See p.142]
*a. Top management setting strategic priorities
b. Business units developing business plans
c. The financial requirements set by investors and the stock market
d. Guidelines developed by the board of directors
6. The primary mechanisms through which companies translate strategic plans into action are:
[See p.143]
a. Statements of vision and mission
*b. Operating plans and capital expenditure budgets
c. CEO leadership
d. Resolutions by the board of directors.
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7. During the 19th century the principle source of ideas about how to organize large business
enterprises derived from:
[See p.146]
a. Max Weber’s principles of bureaucracy
b. The ideas of industrial leaders such as Andrew Carnegie, John D. Rockefeller and Alfred Krupp
c. Frederick Taylor’s “scientific management” The introduction of limited liability, the railroad, and the
telegraph
*d. The military
8. The Tata Group, the Virgin Group, and Alphabet Inc. are examples of:
[See p.146]
a. Multidivisional corporations
b. Adhocracies
c. Line-and-staff organizations
*d. Holding companies.
9. The creation of business enterprises where a head office managed geographically-separate
operational units was facilitated by:
[See p.148]
a. The development of management as a practical science
*b. Improvements in transportation and communication—especially the railroad and telegraph
c. The development of the multidivisional corporation
d. The introduction of limited liability
10. The success of the multidivisional structure as an organizational form was because:
[See p.148]
a. Line-and-staff structures allowed companies to serve to a broader geographical area
*b. The separation of strategic from operational decision allowed corporate management to exercise more
effective strategic and financial control
c. Divisions were forced to compete with one another for corporate resources
d. It permitted decision making ot be decentralized
11. The pioneers of the multidivisional structure were:
[See p.146]
a. Ford and General Motors
b. Standard Oil and Shell
c. Sears Roebuck and General Electric
*d. DuPont and General Motors
12. According to Henry Mintzberg, organizational structure can be defined as:
[See p.144]
*a. The ways in which labor is divided into distinct tasks, and coordination is achieved among these tasks
b. The ways in which tasks are divided among divisions, and managerial coordination achieved from the
highest level of the organization
c. The allocation of an organization’s resources to divisions and departments
d. The way in which coordination and cooperation between productive tasks is organized
13. A fundamental task of organization is to manage:
[See p.144]
a. Cooperation and coordination
b. The division of labor into separate tasks
*c. The division of labor into separate tasks and their subsequent integration
d. The problem of agency
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14. The tendency for societies to revert to subsistence economies when the fabric of civilization
breaks down is because:
[See p.145]
a. Shops cannot operate when there is a risk of looting
b. Uncertainty reinforces the role of the family and family-based production
*c. Specialization and the division of labor require an exchange economy which depends upon mutual trust
and the rule of law
d. The modern economy requires money which requires a stable national government
15. The “agency problem” refers to:
[See p.145]
a. The inability the owners of a company to control the managers they appoint to run the company
b. The misalignment of goals between the shareholders and managers of a company
*c. The misalignment of goals between a principal and his/her agent
d. The tendency for the CEOs of public corporations to receive excessive compensation
16. An important role of shared values within an organization is to:
[See p.148]
a. Increase employee productivity
*b. Support cooperation and goal alignment among organizational members
c. Economize on the need for financial incentives
d. Resolve stakeholder conflict
17. The major determinant of the organizational culture of most companies is:
[See p.152]
*a. The personality and beliefs of the founder
b. The impact of the company’s local environment
c. The personal traits of employees
d. The cultural change initiatives promoted by top management.
18. It is important for in incoming CEO to be intimately familiar with the culture of the organization
he/she is joining because:
[See p.149]
a. Culture is a vital lever that the CEO can manipulate
*b. Top management initiatives that conflict with the culture of the organization are likely to fail
c. A critical task for a new CEO is to adapt the organization’s culture to the strategy that the CEO wishes
to pursue
d. The fact that “Culture eats strategy for lunch” means that managing culture is a more important task for
a CEO than managing strategy
19. Rules and directives, mutual adjustment, and routines are:
[See p.150]
a. Mechanisms for overcoming goal misalignment among organizational members
b. Means for controlling employees in an organization
c. Means for people to build a hierarchy within the firm
*d. Mechanisms for achieving coordination among organizational members
20. In doubles tennis, the main mechanism through which the players coordinate their actions is:
[See p.150]
a. Rules and directives
b. Organizational routines
*c. Mutual adjustment
d. Shared values
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21. Hierarchy is a feature of:
[See p.151]
a. All human societies
*b. Most complex systems
c. Most companies before the digital era
d. Authority-based organizations only
22. For hierarchical organizations to be adaptable requires:
[See p.155]
a. Separation between centralized strategic decisions and decentralized operating decisions
*b. Some degree of decomposability
c. Shared values
d. Adequate resources
23. Organic organizational forms are preferable to mechanistic organizational forms:
[See pp.152-153]
a. For large, diversified firms
b. For firms supplying consumer goods
*c. For firms in dynamic, uncertain environments
d. In countries with well-educated workforce.
24. Firms organized around functional structures tend to experience management problems when:
[See p.156]
a. Top managers must envision their succession
*b. The range of products expands
c. The business environment becomes more turbulent
d. A global strategy is pursued.
25. Large corporations with matrix structures where control is shared among different
organizational dimensions have experienced:
[See pp.158-159]
a. Benefits from superior coordination
b. The need to put primary emphasis upon their regional and country-based organizational units
*c. Excessive headquarters cost and complexity
d. Lower levels of politicization s compared with functional and divisional structures
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
28
TEST BANK: CHAPTER 7
The Sources and Dimensions of Competitive Advantage
Multiple choice questions
1. Competitive advantage can be defined as:
[See pp.156-157]
a. A firm’s ability to establish market leadership
b. A firm’s ability to grow faster than its competitors
*c. A firm’s potential to earn a rate of profit that is persistently higher than its rivals
d. A firm’s potential for launching innovative new products.
2. A firm’s competitive advantage is not necessarily revealed in higher profitability; it may be
reflected in:
[See p.157]
a. Expanding market share
b. An aggressive quest for acquisitions
c. Increasing employee bonuses
*d. Expanding market share and/or increasing employee bonuses â—‹
3. When an industry is subject to externally generated changes, the firms which are most likely to
establish a competitive advantage are:
[See pp.157-158]
a. Those with the highest market share
*b. Those that that respond most quickly to the change and have the resources and capabilities that are
most closely aligned to the emerging success factors
c. Those with the greatest agility and capacity for innovation
d. A combination of (a), (b), and (c).
4. As markets become more turbulent and unpredictable, seizing opportunities to establish
competitive advantage depends primarily upon:
[See p.158]
a. Good forecasting
b. Quick identification of emerging changes
c. Speed of response
*d Agility: quick identification of emerging changes and speed in responding to them
5. Most of the innovative business models deployed by e-commerce firms:
[See pp.158-159]
a. Could not have been conceived of prior to the advent of digital technology
*b. Have their roots in in business models developed by firms in the pre-digital era
c. Exploit network externalities
d. Are dependent uponthe ability to generate revenues from advertising
6. Conceiving of innovative business models typically involves:
[See p.160]
*a. Using analogies to transfer and adapt business models from other business sectors
b. Using brain storming to generate creative ideas
c. Deploying articficial intelligence
d. Exploring the interface between custimewr need and the firm’s resources and capabilities
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
29
7. In strategic management, the expression “blue oceans” refers to:
[See p.160]
a. Radical innovation
*b. The potential offered by uncontested market space
c. The campaign to reduce pollution in the world’s oceans
d. Cost reduction through offshoring production
8. The usefulness of the strategy canvas in developing blue ocean strategies rests on its ability to:
[See pp.160-161]
a. Suggest possible applications of frontier technologies
*b. Identify opportunities for recombining existing product attributes in novel ways
c. Identify unfulfilled customwer needs
d. Reconfigure a firm’s value chain
9. Isolating mechanisms are:
[See p.162]
*a. Barriers to the erosion of interfirm profit differentials
b. Mechanisms that impede the equilibration of rents between industries
c. The same as “barriers to mobility”
d. Sources of disequilibrium that cause the profitability of different firms in an industry to diverge over time
10. Which of the following is not an isolating mechanism?
[See pp.162-165]
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.
11. Pre-emption strategies can help sustain a firm’s competitive advantage through:
[See p.163]
*a. Reducing the opportunities available to competiors to invade the firm’s strategic space
b. Threatening compeitors with retaliation
c. Engaging in limit pricing that makes entry unprofitable for would-be rivals
d. Reinforcing barriers of mobility
12. Causal ambiguity allows a firm’s competitive advantage to be sustained because potential
rivals are:
[See pp.163-164]
a Deterred from directly competing with the advantaged firm
*b. Unable to identify the sources of the advantaged firm’s superior performance
c. Unable to acquire the resources needed to compete against the advantaged firm
d. All the above
13. Complementarity between a firm’s management practices means that:
[See pp.164-165]
a. None: the concepts are identical in practice
*b. The performance impact of a generic practice is independent of the firm’s other practices; the impact of
a contextual practice depends upon the firm’s other practices
c. Generic practices relate to basic functions; contextual practices tend to be more idiosyncratic
d. A generic practices offers incremental performance improvement; a contextual practices leads to a new
fitness peak.
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
30
14. In retailing, the cost advantages of large retail chains (such as Wal-Mart in the US, Tesco in
Britain, Metro in Germany, and Carrefour in France) is primarily the result of:
[See pp.179-185]
a. Scale economies in operating large individual retail units
*b. Lower costs of bought-in products as a result of superior bargaining powerâ—‹
c. Higher capacity utilization in retailing and distribution
d. Using superior bargaining power to pay lower wage rates.
15. Compared with simple products like flour or toilet paper, complex products such as cars or
hotels:
[See p.188]
a. Fewer opportunities for differentiation
*b. Greater potential for differentiationâ—‹
c. Offer similar opportunities for differentiation–it all depends upon the creativity of product designers and
marketers
d. Fewer incentives for differentiation because of their high costs
16. Which of the following product categories offers the greatest potential for differentiation?
[See pp.188-189]
*a. Clothes and restaurants
b. Cement and wheat
c. Jet fuel for airline jets
d. Sulfur and ethylene
17. What is the difference between differentiation and segmentation?
[See p.189]
a. There is no difference between the two
*b. Differentiation deals with the “how” a firm chooses to compete, while segmentation describes “where” in
the entire market a firm chooses to compete
c. Differentiation is a firm’s strategic choice, whereas segmentation is given by its environment
d. Segmentation is the head of the marketing department’s responsibility, whereas the CEO is in charge of
differentiation
18. In supplying “lifestyle” products which are designed to meet consumers’ social and
psychological needs, the key to differentiation advantage is:
[See pp.190-193]
a. A relentless pursuit of quality
b. Thorough market research
*c. Product integrity
d. Market segmentation.
19. Banks spend more money on their head office buildings than most other large corporations
because:
[See p.195]
a. They tend to be located in financial centers where property prices are high
*b. They offer “experience goods”, hence they need to signal wealth and stability
c. Their CEOs are more committed to the display of wealth than other CEOs
d. Because their products are essentially commodities, they need to find alternative ways of
differentiating.
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
31
20. “Experience goods” are those which:
[See p.194]
*a. Have performance attributes that are difficult to ascertain at the moment of purchase
b. Only customers with previous experience of using these goods would rationally consider purchasing
c. Only firms with wide experience in an industry would rationally consider making
d. Have been produced by the firm furthest down the learning curve
21. Firms pursuing differentiation advantages will implement their strategies differently from those
pursuing cost advantage. The implementation of differentiation strategy is likely to feature:
[See p.199]
a. Employee remuneration based upon individual productivity
b. Frequent performance reporting
c. High levels of outsourcing
*d. Low levels of job specialization.
22. According to Porter, cost leadership and differentiation are:
[See p.198]
a. What leads a firm to “be stuck in the middle”
b. Two names for the same fundamental strategy
*c. Distinct generic strategies
d. Strategies that can be pursued simultaneously
23. The examples of Ikea and Southwest Airlines demonstrate:
[See p.199]
a. The power of brand as a factor of success
b. The quality of the top management of these firms
c. The power of advertising
*d. How a cost-leadership strategy can be combined with distinctive product differentiation
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
32
TEST BANK: CHAPTER 8
Industry Evolution and Strategic Change
Multiple choice questions
1. The main forces driving industry evolution are:
[See p.191]
*a. Technology and demand
b. Technology and globalization
c. The quest for cost and differentiation advantage
d. Government policies and global financial flows.
2. The different stages of the industry life cycles are defined primarily on the basis of:
[See p.191]
*a. The rate of growth of industry sales
b. The characteristics of competition within the industry
c. The pace of innovation within the industry
d. None of the above
3. The characteristic profile of an industry life cycle has an ‘S’ shaped curve because:
[See p.191]
a. It is modeled on the Product Life Cycle, which is also ‘S’ shaped
b. It is generated by a quadratic function
c. It reflects the changing pace at which technology is diffused
*d. It is the result of changes in rates of growth of market demand.
4. Which of the following developments is not a typical feature of the transition from the
“introductory” to the “growth” phase of the industry life cycle?
[See pp.192-193]
a. The emergence of a dominant design
b. The shift from product to process innovation
*c. The shift of production from advanced to emerging countries
d. Rapid market penetration
5. The duration of the industry life cycle:
[See pp.193-194]
a. Typically extends over a century or more
b. Is determined by the longevity of the firms within the industry
*c. Has become compressed as the pace of technological change has accelerated
d. Depends upon the ability the industry to sustain innovation
6. A dominant design is best described as:
[See p.192]
a. A technical standard
b. The product design chosen by the leading firm in an industry
*c. A common product architecture
d. The culmination of the process of commodification that accompanies industry evolution
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
33
7. A technical standard tends to emerge in an industry if:
[See p.193]
a. Economies of scale are present
b. The industry has converged around a dominant design
c. The industry is subject to economies of learning
*d. Network effects exist
8. Which statement best describes the extent to which different industries conform to the same life
cycle pattern?
[See pp.193-194]
*a. The duration of the life cycle varies from industry to industry
b. The same stages exist whatever the industry
c. All industries have experienced a shortening of the stages of their life cycle
d. Different go through a renewal of their fife cycle at different stages of their development
9. The transition from the introduction to growth phase of the industry life cycle features:
[See pp.192-196]
a. Increasing product differentiation
b. Declining innovation
c. Offshoring of production
*d. Product innovation giving way to process innovation
10. Firm entry rates tend to be highest during the growth stage of an industry life cycle because:
[See pp.195-196]
a. Shortage of production capacity keeps margins attractive
b. The propensity for entrepreneurs and venture capitalists to imitate one another
c. Growing legitimacy of the industry attracts resources to the industry
*d. Both (a) and (c).
11. The history of the retail sector over the past 150 years points to:
[See p.195]
a. The tendency for retailing to follow the same pattern of growth, maturity and decline as most other
industries
b. Increasing globalization
*c. Revitalization through continuous strategic innovation
d. Increasing commoditization as differentiation declines.
12. Industries change mainly as a result of:
[See pp.195-197]
a. Government policies
*b. The death of existing firms and the birth of new firms
c. Continuous adaptation by a constant population of firms
d. Changing customer preferences.
13. “Shakeout”–a period when many firms exit from an industry following a period of intense
competition—characterizes an industry’s transition from:
[See p.196]
a. Introduction to growth stage
*b. From growth to maturity
c. From maturity to decline
d. From product innovation to process innovation.
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
34
14. With the onset of the maturity stage, the number of firms in most industries:
[See pp.196-197]
a. Remains stable
*b. Decreases significantly, then stabilizes
c. Rises
d. Rises sharply until shake-out is triggered
15. The term “competency trap”, refers to:
[See p.199]
a. The hubris that affects the senior managers of successful firms
b. The tendency for firms with competitive advantage based in one industry to fail when they diversify into
a new industry
*c The tendency for capabilities based on highly developed organizational routines to be a source of
inflexibility
d. The tendency for managers to be reluctant to change the strategies that brought them their initial
success.
16. According to institutional sociologists, the propensity for organizations to adopt similar
structures (“institutional isomorphism”) is primarily a result of
[See p.199]
a. Common key success factors within an industry
b. Bounded rationality
c. The complementarity among different managerial practices within firms’ “activity systems”
*d. The propensity of firms to imitate one another as they seek legitimacy.
17. An organizational routine is:
[See p.199]
*a. A stable, repeatable, pattern of coordinated activity among organizational members
b. A lower-level, operational capability, as opposed to a dynamic capability which tends not to be
routinized
c. The resource needed to create a new capability
d. A new capability after it has been institutionalized within an organization
18. The field of “organizational ecology” studies:
[See p.201]
a. Companies’ contributions to environmental sustainability
*b. Changes in the population of firms in an industry
c. The process of competition between different types of firm
d. Management practices that promote the evolutionary adaptation of firms.
19. Which of the following is not a source of organizational inertia?
[See pp.199-200]
a. The tendency for organizations to limit themselves to local search
b. Organizational routines
c. Complementarities between the different activities of a firm
*d. The hierarchical structure of large firms
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
35
20. When an industry is subject to technological change, the ability of new entrants to displace
incumbent firms will be increased if:
[See pp.203-204]
*a. The technological change represents an architectural innovation rather than component innovation
b. The technological change is competence enhancing rather than competence destroying
c. Incumbent firms are insufficiently attentive to the industry’s largest customers
d. Incumbent firms are geographically dispersed.
21. The reluctance of shipping companies to switch from sail to steam propulsion can be
attributed to the fact that:
[See p.203]
a. The owners of shipping company were resistant to new technology
*b. For several decades after the introduction of steam ships, sailing ships were faster, cheaper, and more
reliable
c. Complementary resources such as engineers and coaling stations were scarce
d. Shipping company owners were over the environmental impact of coal burning ships
22. When a company places its new businesses or new products into separate organizational units
from its established business activities, this is an example of:
[See pp.204-205]
a. Contextual ambidexterity
*b. Structural ambidexterity
c. Both contextual and structural ambidexterity
d. Effective change management
23. The experience of Xerox Corporation with its Palo alto research Center and GM with its Saturn
division points to:
[See pp.204-205]
a. The disadvantages of geographically-separated business units
*b. The folly of mixing contextual and structural ambidexterity
c. The difficulty of transferring innovation developed in a separate exploration unit back to the main
company
d. The need for chief executives to be more closely involved in R&D.
24. Changing a company’s organizational structure can facilitate strategic change because:
[See p.206]
*a. It can help break down established power centers
b. It provides a means for CEOs to centralize decision making power
c. It can convince investment analysists that real change is taking place
d. It can improve the alignment of organizational capabilities with organizational units. The managers
which head different organizational capabilities need to have clear lines of reporting
25. The main reason why a firm’s distinctive capabilities reflect the conditions that the firm faced
during the early years of its development is because:
[See pp.207-208]
a. Most managers adhere to the old adage: “If it ain’t broke, don’t fix it”
*b. Capabilities that develop early become embedded in a firm’s organizational culture
c. Exploitation tends to dominate exploration
d. Managers’ bounded rationality
MGT 510 / Contemporary Strategy Analysis 10e © 2019 John Wiley & Sons, Inc.
36
26. The approach that Hyundai Motor and Panasonic have taken to developing organizational
capabilities involves:
[See pp.209-210]
a. An unrelenting commitment to continuous improvement
b. Imposing stretch goals on managers backed by strong financial incentives
c. Ensuring high levels of collaboration among employees
d. A product sequencing approach in which each product phase s linked to the development of specific
capabilities.
27. IBM, 3M, and General Electric are companies that demonstrate, over periods of several
decades, the capacity to adapt to multiple changes in their external environment. These companies
are characterized by:
[See p.211]
a. Dynamic, entrepreneurial CEOs
b. Corporate cultures that value and celebrate risk taking
*c. Business processes that sense and seize opportunities
d. Embracing diversity
28. The capabilities of “craft enterprises” are based upon the tacit knowledge of skilled employees.
The capabilities of “industrial enterprises” are based upon systematized knowledge located within
processes. The key advantage of industrial enterprises over craft enterprises is that:
[See pp.211-214]
*a. They can replicate their capabilities at low cost in multiple locations
b. They are less vulnerable to shortages of skilled workers
c. They can standardize their offerings
d. They can automate their production.

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