Questions

Question 1

The main factor causing the transition from corporate planning to strategic management was the work of Michael Porter and fellow academics at Harvard Business School.

1. True
2. False

Question 2

An intended strategy is a set of initial ethical intentions; an emergent strategy comprises actions or changes that emerge from the organization or its environment; and finally, the realized strategy is the set of strategic changes and actions that actually takes place.

1. True
2. False

Question 3

If a firm adjusts its strategy to ensure it is consistent with its external environment, it benefits from a:

1. Strategic fit
2. Strategic leadership
3. Location within an attractive industry
4. A license to operate

Question 4

To survive and prosper over the long run requires a firm to:

1. Commit itself to growing its sales
2. Be responsive to its external environment—including its social, political, and natural environment
3. Pursue simultaneously strategies of low cost and differentiation
4. Ensure the ethical conduct of executives

Question 5

The primary justification for the assumption that the primary goal of strategy is to maximize profits over the long term is:

1. The fact that in today’s intensely competitive markets, firms must focus on profit maximization in order to survive
2. The legal requirement on Boards of Directors to ensure that companies are operated in the interests of their shareholders
3. In order to earn profits over the long run, firms must attend to the interests of all their stakeholders
4. Shareholders will oust CEOs that are not effective at maximizing profits.

Question 6

Maximizing enterprise value and maximizing shareholder value are linked because:

1. Enterprise value and shareholder value are the same thing
2. Shareholder value is calculated by adding debt and other non-equity financial claims to the DCF value of the firm
3. Shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm
4. It is obvious that they must be linked

Question 7

In formulating strategies under uncertainty, real option analysis is a valuable strategic tool because:

1. It allows firms to create value from flexibility and a wider range of growth opportunities
2. It can assist firms in using complex financial derivatives to hedge risk
3. It allows firms to make investment decisions without the need to forecast cash flows long into the future
4. It renders obsolete most conventional tools and techniques of strategy analysis.

Question 8

The level of profit in an industry is determined almost entirely by the value of products to customers.

1. True
2. False

Question 9

Niche markets are often highly profitable for incumbents because they can often be dominated by a single firm.

1. True
2. False

Question 10

Economies of scale, absolute cost advantages, high capital start-up costs, and lack of access to channels of distribution are all examples of “barriers to entry”.

1. True
2. False

Question 11

Given the plethora of external influences, understanding the external environment requires managers to:

1. Use a framework or a system that allows them to organize information and rank factors
2. Monitor their rivals closely to detect signals of change in their strategies
3. Use all existing techniques to gather and analyze information
4. Work on the matter full-time

Question 12

If an industry earns a return on capital in excess of its cost of capital:

1. It will soon attract the attention of competition authorities
2. Workers will push for higher pay and benefits causing the level of profitability to fall
3. It is likely to attract the attention of potential entrants; unless the industry is protected by high barriers to entry, the return on capital will fall
4. The high profits earned will encourage over-investment by firms causing the return on capital to fall.

Question 13

By modeling the process of interactive decision making by rival firms, game theory can predict the outcome of a range of competitive situations.

1. True
2. False

Question 14

The difference between substitute and complementary products may be summarized as follows:

1. Substitutes reduce the value of a product, whereas complements increase value
2. Complements reduce the value of a product, whereas substitutes increase value
3. Complements cannot be used together, whereas substitutes can
4. Complements increase the average price of any of them, whereas substitutes do the opposite

Question 15

Joseph Schumpeter viewed competition as:

1. An unstable and dynamic field where more destruction exists than creation
2. A gale of creative destruction
3. A breeze of creative destruction
4. Inevitable

Question 16

A firm will choose to compete across multiple segments rather than specialize in a single segment if:

1. It is a family owned firm
2. If the same resources and capabilities can be shared across different segments
3. There are large differences in income among consumers
4. Barriers to mobility are high.

Question 17

The ability of established firms to reconfigure their resources and capabilities around new technologies means that, typically, disruptive technologies are launched by established rather than new firms.

1. True
2. False

Question 18

“Organizational capability” and organizational competence” refer to different concepts.

1. True
2. False

Question 19

In 1990, C.K. Prahalad and Gary Hamel introduced the concept of “core competence.” Their argument was that:

1. Competence was more important than capability as a basis for sustainable competitive advantage
2. Management should build strategy on competences rather than resources
3. Strategy should be focused on both exploiting and developing firms’ core competences
4. Competitive advantage rather than industry attractiveness was the primary source of superior profitability

Question 20

In exploiting tangible assets, two questions must be addressed:

1. Can a firm save money on these assets by changing the depreciation policy, and how can it delay replacing them?
2. How can a firm reduce cost/unit of output on underutilized assets, and/or how can it redeploy them more profitably?
3. How can a firm beat its rivals regarding these assets, and how can it build a better reputation in regards to its external environment?

Question 21

Enterprise Resource Planning software (such as that supplied by SAP) is unlikely, on its own, to be source of competitive advantage because:

1. It is expensive to install hence its benefits are offset by its costs
2. It is available to any firm that wishes to purchase it; hence, it is not scarce
3. It needs to be updated periodically, hence it lacks sustainability
4. Its benefits are limited to those activities that require substantial information processing

Question 22

Firms and markets represent the two primary modes of economic organization in the capitalist economy.

1. True
2. False

Question 23

In general, “structure follows strategy.”

1. True
2. False

Question 24

The most valuable contribution of strategic planning processes to the success of companies is by:

1. Allowing quantitative analysis to be applied to strategy alternatives
2. Introducing the tools and techniques of strategic analysis into companies’ decision making
3. Curbing the power of CEOs
4. Creating a dialogue for sharing knowledge and ideas, and building consensus.

Question 25

The main factors facilitating the emergence of large industrial enterprises towards the end of the 19th century were:

1. Reduction in tariffs and growth of international trade
2. The role of industrial leaders such as Andrew Carnegie, John D. Rockefeller and Alfred Krupp
3. The introduction of limited liability, the railroad, and the telegraph d. The divisional and functional organizational structure

Question 26

Corporate culture:

1. Can be manipulated over time by the CEO and the HR department
2. Is a property of the organization, which may facilitate or impede top management’s efforts to implement strategy
3. Is determined by careful psychometric evaluation at the recruitment stage
4. Is such a dominant influence on organizational performance that it “Eats strategy for lunch”

Question 27

Large divisionalized firms are organized into three levels:

1. Corporate R&D department, central administrative departments, and business units
2. Corporate center, integrative departments, and business centers
3. Corporate center, divisions, and business units
4. Corporate headquarters, business units, and organizational gatekeepers

Question 28

Which of the following product categories offers the greatest potential for differentiation?

1. Clothes and restaurants
2. Cement and wheat
3. Jet fuel for airline jets
4. Sulfur and ethylene

Question 29

During the introduction phase of the industry life cycle, competition is between different technologies and different design configurations.

1. True
2. False

Question 30

With the onset of the decline phase of an industry’s development, an industry enters its shake-out period.

1. True
2. False

Question 31

The duration of the industry life cycle:

1. Typically extends over a century or more
2. Is determined by the longevity of the firms within the industry
3. Has become compressed as the pace of technological change has accelerated
4. Depends upon the ability of the firms within the industry to sustain innovation

Question 32

The different stages of the industry life cycles are defined primarily on the basis of:

1. The rate of growth of industry sales
2. The characteristics of competition within the industry
3. The pace of innovation within the industry
4. None of the above

Question 33

Being the leader in innovation is usually better than being a follower.

1. True
2. False

Question 34

Cooperation with lead users and flexibility are two illustrations of:

1. Business level strategies
2. Corporate level strategies associated with innovation and technological management
3. Tactics to limit the exposure to financial risk in the context of a depressed economy
4. Strategies to limit the technological risk associated with emerging industries

Question 35

Computers, smartphones, search engines, and online dating agencies are examples of industries where the following phenomenon is at work:

1. Product differentiation
2. Network externalities
3. Commoditization
4. Radical innovation.

Question 36

CRM stands for Cost Reduction Management

1. True
2. False

Question 37

The experience economy refers to a process where firms try to involve their customers emotionally, intellectually, and even spiritually

1. True
2. False

Question 38

In mature industries, the most important sources of cost advantage are:

1. Economies of scale and economies of learning
2. Low-cost inputs, low overheads, and economies of scale
3. Superior process technologies
4. Business model innovation.

Question 39

To realize the potential for strategic innovation, managers in mature sectors need to escape from “industry recipes.” J-C Spender concept of an “industry recipe” refers to:

1. The established process technology for manufacturing a product
2. Isomorphism—the tendency for companies within an industry to adopt similar organizational structures
3. The mental frameworks and systems of belief that that are common to senior managers within an industry
4. The tendency for senior managers in an industry to come from similar social backgrounds and display similar psychological characteristics.

Question 40

One of the greatest challenges of strategy implementation in mature industries is:

1. Reconciling differentiation and innovation with a relentless drive for cost efficiency
2. Encouraging strategic innovation by widening the strategic planning process to include younger organizational members
3. Continually adjusting the strategy to adapt to environmental changes
4. Both b and c

Question 41

Firms exist in situations where the administrative costs of coordinating economic activity are less than the transactions costs of organizing such activity across markets.

1. True
2. False

Question 42

The growth in the size and scope of companies throughout most of the 20^th century can be attributed primarily to the increasing transaction cost of markets.

1. True
2. False

Question 43

In general, vertical integration compounds risk, because all the integrated stages of the value chain are affected simultaneously

1. True
2. False

Question 44

The main cause of downsizing, refocusing, and outsourcing during the latter part of the 20^th century were:

1. Developments in IT—especially the advent of the internet
2. A greater turbulence in the environment
3. A loss of confidence in the organizational capabilities of corporate managers
4. Financial crises.

Question 45

When a winery opens a tasting room through which it sells its wine to visitors, this represents a strategy of:

1. Backward integration
2. Forward integration
3. Partial integration
4. Diversification.

Question 46

Vertical integration by Zara, the main division and brand of the Spanish clothing firm Inditex, illustrates:

1. The potential of vertical integration to offer flexibility in responding to seasonal fluctuations in demand
2. The potential for vertical integration to offer flexibility in responding to rapid changes in customer product preferences
3. The potential for vertical integration to overcome problems arising from the need for transaction- specific investments by garment manufacturers
4. The potential for vertical integration to exploit technical economies from co-locating adjacent processes.

Question 47

In general, internationalization of an industry results in more competition and lower profitability

1. True
2. False

Question 48

For high-tech products, the international fragmentation of the value chain tends to be driven less by cost considerations and more by the availability of sophisticated technical capabilities.

1. True
2. False

Question 49

Firms internationalize through two mechanisms:

1. Exports and imports
2. Trade in goods (visible trade) and trade in services (invisible trade)
3. Direct and indirect investment
4. Trade and direct investment.

Question 50

According to Porter’s “national diamond” analysis, the competitive advantage of Swiss firms in watches, German firms in luxury cars, and Japanese firms in cameras is a result of:

1. The availability of highly skilled workers in each of these countries b. The lack of natural resources in each of these countries
2. The characteristics of local demand in each of these countries
3. The willingness of firms in these countries to invest heavily in technology, plants, and products.

Question 51

The Dutch-based electrical and consumer electronics multinational, Philips, has transferred the headquarters for several of its global business away from the Netherlands. In terms of Bartlett and Ghoshal’s typology of multinational strategies, this represents a transition from:

1. A “centralized hub” to a “decentralized federation”
2. A “centralized hub” to a “transnational”
3. A “decentralized federation” to a “transnational” ○
4. A “coordinated federation” to a “decentralized federation”

Question 52

The primary motives for diversification during the period 1960-1980 were growth and risk reduction

1. True
2. False

Question 53

Diversification decisions by firms involve the following key issues:

1. The attractiveness of the industry to be entered and the potential for competitive advantage
2. The potential for the diversification to increase growth and reduce risk
3. The opportunities for exploiting economies of scope in resources and capabilities
4. The benefits of synergy relative to the costs or coordination.

Question 54

When diversification combines two businesses in different industrial sectors, the key determinant of whether the diversification creates value is whether the diversification:

1. Change the debt/equity ratio of the combined company
2. Is between culturally-compatible businesses
3. Causes management to lose its focus on its core business
4. Enhances the competitive advantage of either or both of the two businesses.

Question 55

Besides managing the overall corporate portfolio of businesses, corporate management can add value to individual businesses by:

1. Enhancing the management of individual businesses, exploiting linkages between businesses, and managing change.
2. Developing and managing corporate-level capabilities,
3. Designing strategic orientations, and developing detailed operational plans for each business
4. Communicating the strategic orientations to the main stakeholders, and managing conflicts at lower divisional levels

Question 56

The development of portfolio planning techniques by General Electric at the end of the 1960s was in response to GE’s problems of:

1. Declining financial performance
2. Controlling its expanding number of businesses
3. Internationalization
4. Failing to establish market leadership within each of its different businesses

Question 57

The basic purpose of the “Ashridge portfolio display” is to:

1. Evaluate the potential for a corporate parent to add value to its individual businesses
2. Appraise the performance of each individual business under the corporate umbrella
3. Benchmark the strategic position of individual businesses in relation to one another
4. Identify businesses that are candidates for divestment.

Question 58

The choice between strategic planning and financial control as a corporate management style for a particular company depends upon:

1. Whether company is managed in the interest of shareholders or stakeholders
2. The degree of maturity of the businesses
3. The relatedness of the businesses and the duration of their investment projects
4. Whether the goals of the company are growth or profitability,

Question 59

Corporate governance is:

1. The way a firm is organized
2. The way a firm makes decisions
3. The system by which the top management of a firm is directed and controlled
4. The way a firm appoints and replaces its CEO

Question 60

Mergers and acquisitions represent paradoxes in the sense that:

1. The stock market remains suspicious of them, despite widespread evidence of their effectiveness as tools of corporate strategy
2. Companies continue to be enthusiastic in initiating acquisitions despite empirical evidence that acquisition destroy shareholder value for acquirers
3. Both (a) and (b)
4. Neither (a) nor (b).

Question 61

Acquisition is the preferred mode of diversification for most firms because:

1. The stock market confers with high price/earnings ratios on companies that pursue diversifying acquisitions
2. Empirical research shows that diversifying acquisitions typically create significant value for the acquiring firm
3. The alternative of acquiring a minority stake does not give the diversifying firms significant decision-making influence over the target firm
4. The alternative of setting up a new enterprise in the target industry involves excessive time and risk.

Question 62

The main reason that a strategic alliance are often an attractive alternative to a merger or acquisition is:

1. Alliances avoid government restrictions relating to antitrust and foreign direct investment
2. Alliances permit firms to access one another’s resources and capabilities without the costs and risks of a merger or acquisition
3. Alliances allow a firm to create growth options d. Alliances allow risk sharing in giant projects.

Question 63

According to systems theory, high levels of interconnectedness can lead to:

1. More pressure on governments to regulate the economy and increase their interventionism
2. A spiral of economic catastrophes and business failures
3. Greater stability in the whole system
4. A tendency for the system to amplify small initial movements in unpredictable ways

Question 64

The need for “social legitimacy” implies that businesses should:

1. Seek permission from the local community to operate
2. Adapt to societal pressures in order to survive and prosper
3. Follow accepted ethical codes
4. Replace shareholder value maximization by stakeholder value maximization.

Question 65

Organizational identity refers to:

1. A collective understanding among employees of what is core, enduring, and distinctive about the character of an organization
2. The set of an organization’s recipes for successfully competing in the marketplace
3. Organizational values that are shared at the system level
4. The norms, values, symbols, and traditions of the organization.

Answers

1. True
2. False
3. a
4. b
5. a
6. c
7. a
8. False
9. True
10. True
11. a
12. c
13. True
14. a
15. b
16. b
17. False
18. False
19. c
20. b
21. b
22. True
23. False
24. d
25. c
26. b
27. c
28. a
29. True
30. False
31. c
32. a
33. False
34. d
35. b
36. False
37. True
38. b
39. c
40. a
41. True
42. False
43. True
44. b
45. b
46. b
47. True
48. True
49. d
50. c
51. c
52. True
53. a
54. d
55. a
56. b
57. a
58. c
59. c
60. b
61. d
62. b
63. d
64. b
65. a