Which of the following is not one of the appeals of an

unrelated diversification strategy?

A. The ability to spread business risk over truly diverse businesses (as compared to
related diversification which is limited to spreading risk only among businesses with
strategic fit)
B. An ability to employ the company's financial resources to maximum advantage by
investing in whatever industries/businesses offer the best profit prospects
C. Superior top management ability to cope with the wide variety of problems
encountered in managing a broadly diversified group of businesses
Answer:c

Which of the following is not among the disadvantages and managerial problems
encountered by companies pursuing unrelated diversification strategies?
A. Being without the added source of competitive advantage that cross-business
strategic fit provides
B. Spreading corporate resources too thinly over too many different lines of business
C. The strain it places on corporate-level management in trying to stay on top of
fresh industry developments and the strategic progress and plans of each business
subsidiary
D. Ending up with too many cash hog businesses (as compared to
related diversification strategies where cash hog businesses are rare)
Answer:d

The two biggest drawbacks or disadvantages of unrelated diversification are

A. The difficulties of passing the cost-of-entry test and the ease with which top
managers can make the mistake of diversifying into businesses where competition is
too intense
B. The difficulties of capturing financial fit and having insufficient financial
resources to spread business risk across many different lines of business
C. Demanding managerial requirements and being without the added source
of competitive advantage that cross-business strategic fit provides
Answer:c

The two biggest drawbacks or disadvantages of unrelated diversification are

A. Underemphasizing the importance of resource fit and the strong likelihood of
diversifying into businesses that top management does not know all that much about
B. Insufficient cash flows to finance so many different lines of business and a lack of
uniformity among the strategies of the businesses it has diversified into
C. Volatile sales and profits and making the mistake of diversifying into too
many cash cow businesses
D. The difficulties of competently managing many different businesses and being
without the added source of competitive advantage that cross-business strategic fit
provides
Answer:d

A fundamental weakness of unrelated diversification is

A. The tendency of corporate managers to place too much emphasis on investing in
cash cows rather than promising cash hogs
B. Reducing a company's access to economies of scope
C. Greater potential for there to be too much diversity among the competitive
strategies of the various business subsidiaries
D. The greater risk of getting trapped in tough struggles with strong competitors
E. That the greater the number of businesses a company is in and the more diverse
they are, the harder it is for corporate managers to stay abreast of what's happening
in each industry and each subsidiary, know much about the problems and issues
each business
Answer:d

A fundamental weakness of unrelated diversification is

A. The tendency of corporate managers to place too much emphasis on investing in
cash cows rather than promising cash hogs
B. Reducing a company's access to economies of scope
C. Greater potential for there to be too much diversity among the competitive
strategies of the various business subsidiaries
D. The greater risk of getting trapped in tough struggles with strong competitors
E. That the greater the number of businesses a company is in and the more diverse
they are, the harder it is for corporate managers to stay abreast of what's happening
in each industry and each subsidiary, know much about the problems and issues
each business confronts and know what to do if a business unit stumbles and its
results suddenly head downhill
Answer:e

To identify a diversified company's strategy, one should consider such factors as

A. The extent to which the firm is broadly or narrowly diversified, whether it is
pursuing related or unrelated diversification (or a mixture of both) and the recent
moves it has made to divest businesses, acquire new businesses and strengthen the
positions of existing businesses
B. Whether the company is focusing on "milking its cash cows" or "feeding its cash
hogs."
C. The technological proficiencies, labor skill requirements and functional area
strategies characterizing each of the firm's businesses
Answer:a

When identifying a diversified company's present corporate strategy, which of the

following would not be something to look for?
A. Recent moves to build positions in new industries
B. The company's approach to allocating investment capital and resources across its
present businesses
C. Recent management actions to strengthen the company's positions in existing
businesses
D. Recent moves to divest weak or unattractive business units
E. Actions over the past few years to substitute global strategies for multi-country
strategies in one or more business units
Answer:e

Which of the following is not a major consideration in evaluating the pluses and
minuses of a diversified company's strategy?
A. Checking whether the company's resources fit the requirements of its present
business lineup
B. Scrutinizing each industry/business to determine where driving forces are
strongest/weakest and how many profitable strategic groups the company has
diversified into
C. Ranking the performance prospects of the various businesses from best to worst
and determining what the corporate parent's priorities should be in allocating
resources to its different businesses
Answer:b

Evaluating a diversified company's corporate strategy and critiquing the pluses and
minuses of its business lineup involves
A. A SWOT analysis of each industry in which the firm has a business interest
B. Applying the cost-of-entry test, the better-off test, the profitability test and the
shareholder value test to each business and industry represented in the company's
business portfolio
C. Evaluating the strategic fits and resource fits among the various sister businesses
and deciding what priority to give each of the company's business units in allocating
resources
Answer:c

Which one of the following is not an important aspect of evaluating the merits of a
diversified company's strategy?
A. Assessing the competitive strength of each business the company has diversified
into
B. Determining which business units are cash cows and which ones are cash hogs
and then evaluating how soon the company's cash hogs can be transformed into
cash cows
C. Evaluating the strategic fits and resource fits among the various sister businesses
Answer:b

Which of the following is not generally something that ought to be considered in

evaluating the attractiveness of a diversified company's business makeup?
A. Market size and projected growth rate, industry profitability and the intensity of
competition
B. Industry uncertainty and business risk
C. The frequency with which strategic alliances and collaborative partnerships are
used in each industry, the extent to which firms in the industry utilize outsourcing
and whether the industries a company has diversified into have common key success
factors
Answer:c

Assessments of the long-term attractiveness of each industry represented in a

diversified company's lineup of businesses should be based on
A. A complete value-chain analysis of each industry
B. Whether the industries have the same kinds of driving forces
C. How many companies in each industry are making money and how many are losing
money
D. Quantitative industry attractiveness scores derived from rating each industry on
several relevant attractiveness measures (weighted according to their relative
importance in determining overall attractiveness)
Answer:d
The chief purpose of calculating quantitative industry attractiveness scores for each
industry a company has diversified into is to
A. Determine which industry is the biggest and fastest growing
B. Get in position to rank the industries from most competitive to least competitive
C. Provide a basis for drawing analysis-based conclusions about the attractiveness of
the industries a company has diversified into, both individually and as a group and
further to provide an indication of which industries offer the best and worst long-
term prospects
Answer:c

A weighted industry attractiveness assessment is generally analytically superior to

an unweighted assessment because
A. A weighted ranking identifies which industries offer the best/worst long-term profit
prospects
B. An unweighted ranking doesn't discriminate between strong and weak industry
driving forces and industry competitive forces
C. It does a more accurate job of singling out which industry key success factors are
the most important
D. An unweighted ranking doesn't help identify which industries have the easiest and
hardest value chains to execute
E. The various measures of attractiveness are not likely to be equally important in
determining overall attractiveness
Answer:e

When industry attractiveness ratings are calculated for each of the industries a
multi-business company has diversified into, the results help indicate
A. Which industries appear to be the best and worst ones to be in and the
attractiveness of all the industries as a group from the standpoint of the company's
long-term performance
B. Which industries have attractive key success factors and which industries have
unattractive key success factors
C. Which industries have the biggest economies of scale and which industries have
the greatest economies of scope and the overall potential for cost reduction in the
industries as a group
Answer:a

Calculating quantitative attractiveness ratings for the industries a diversified

company has invested in
A. Allows a company to rank the competitive advantage opportunities in each
industry from best to worst
B. Helps identify which industries have the best/worst prospects for revenue growth
C. Identifies which industry has the best/worst value chain from the standpoint of
cost reduction potential
D. Provides a basis for deciding whether a diversified company has good prospects
for growth and profitability, given the attractiveness ratings of the industries in
which it has business interests
Answer:d

Assessments of how a diversified company's subsidiaries compare in competitive

strength should be based on such factors as
A. Vulnerability to seasonal and cyclical downturns, vulnerability to driving forces
and vulnerability to fluctuating interest rates and exchange rates
B. Relative market share, ability to match or beat rivals on key product attributes,
brand image and reputation, costs relative to competitors and ability to benefit from
strategic fits with sister businesses
C. The appeal of its strategy, relative number of competitive capabilities, the number
of products in each businesses product line, which businesses have the
highest/lowest market shares and which businesses earn the highest/lowest profits
before taxes
Answer:b

The basic purpose of calculating competitive strength scores for each of a

diversified company's business units is to
A. Rank the business unit from best to worst in terms of potential for cost reduction
and profit margin improvement
B. Determine how strongly positioned each business unit is in its industry and the
extent to which it already is or can become a strong market contender
C. Determine which business unit has the greatest number of resource strengths,
competencies and competitive capabilities and which one has the least
Answer:b

Using relative market share to assess a business's competitive strength is

analytically superior to straight percentage measures of market share because
relative market share
A. Is a better measure of a business's potential for increased sales and profitability
B. Is a better indicator of competitive strength than is a simple percentage measure
of market sharefor instance, a company with a 20% share is in a much stronger
competitive position if its largest rival has a share of 10% (which means its relative
market share is 2.0) than it is if its largest rival has a 30% market share (in which
case the company's relative market share is only 0.67)
Answer:b

A weighted competitive strength analysis of a diversified company's business units is

conceptually stronger than an unweighted analysis because
A. It provides a more accurate assessment of the strength of cross-business
strategic fits
B. It provides better indication of which business units have the best strategy (vis--
vis the rival in their respective industry)
C. The different measures of competitive strength are unlikely to be equally
important
Answer:c

The value of determining the relative competitive strength of each business a

company has diversified into is
A. To have a quantitative basis for identifying which businesses have large/small
competitive advantages or competitive disadvantages vis--vis the rivals in their
respective industries
B. To have a quantitative basis for rating them from strongest to weakest in terms of
contributing to the corporate parent's revenue growth
C. To compare resource strengths and weaknesses, business by business
D. To have a quantitative basis for rating them from strongest to weakest in
contending for market leadership in their respective industries
Answer:d

The nine-cell industry attractiveness-competitive strength matrix

A. Is useful for helping decide which businesses should have high, average and low
priorities in allocating corporate resources
B. Indicates which businesses are cash hogs and which are cash cows
C. Pinpoints what strategies are most appropriate for businesses positioned in the
three top cells of the matrix but is less clear about the best strategies for
businesses positioned in the bottom six cells
Answer:a

The most important strategy-making guidance that comes from drawing a 9-cell
industry attractiveness-competitive strength matrix is
A. Which businesses in the portfolio have the most potential for strategic fit and
resource fit
B. Why cash cow businesses are more valuable than cash hog businesses
C. That corporate resources should be concentrated on those businesses enjoying
both a higher degree of industry attractiveness and competitive strength and that
businesses having low competitive strength in relatively unattractive industries
should be looked at for possible divestiture
Answer:c

One of the most significant contributions to strategy-making in diversified companies

that the 9-cell industry attractiveness/competitive strength matrix provides is
A. Identifying which businesses have strategies that should be continued, which
business have strategies that need fine-tuning and which businesses have strategies
that need major overhaul
B. That businesses having the greatest competitive strength and positioned in the
most attractive industries should have the highest priority for corporate resource
allocation and that competitively weak businesses in relatively unattractive
industries should have the lowest priority and perhaps even be considered for
divestiture
C. Pinpointing what strategies are most appropriate for businesses positioned in the
four corners of the matrix (although the matrix reveals little about the best
strategies for businesses positioned in the remainder of the matrix)
Answer:b

In a diversified company, a business subsidiary has more competitive advantage

potential when
A. It is a cash cow
B. It has value chain relationships with other business subsidiaries that present
competitively valuable opportunities to transfer skills or technology or intellectual
capital from one business to another, combine the performance of related activities
and reduce costs, share use of a well-respected brand name or collaborate to create
new competitive capabilities
C. It is the company's biggest profit producer or is capable of becoming the biggest
Answer:b
Checking a diversified company's business portfolio for the competitive advantage
potential of cross-business strategic fits does not involve ascertaining
A. The extent to which sister business units have value chain match-ups that offer
opportunities to combine the performance of related value chain activities and
reduce costs
B. The extent to which sister business units have value chain match-ups that offer
opportunities to transfer skills or technology or intellectual capital from one
business to another
C. The extent to which sister business units have opportunities to share use of a
well-respected brand name
D. The extent to which sister business units have value chain match-ups that offer
opportunities to create new competitive capabilities or to leverage existing
resources
E. Which business units are cash cows and which ones are cash hogs
Answer:e

Checking a diversified firm's business portfolio for the competitive advantage

potential of cross-business strategic fits entails consideration of
A. Whether the parent's company's competitive advantages are being deployed to
maximum advantage in each of its business units
B. Whether the competitive strategies employed in each business act to reinforce the
competitive power of the strategies employed in the company's other businesses
C. Whether the competitive strategies in each business possess good strategic fit
with the parent company's corporate strategy
D. The extent to which there are competitively valuable relationships between the
value chains of sister business units and what opportunities they present to reduce
costs, share use of a potent brand name, create competitively valuable new
capabilities via cross-business collaboration or transfer skills or technology or
intellectual capital from one business to another
Answer:d

Which of the following is not a part of checking a diversified company's business

units for cross-business competitive advantage potential?
A. Ascertaining the extent to which sister business units have value chain match-ups
that offer opportunities to combine the performance of related value chain activities
and reduce costs
B. Ascertaining the extent to which sister business units have value chain match-ups
that offer opportunities to transfer skills or technology or intellectual capital from
one business to another
C. Ascertaining the extent to which sister business units are making maximum use of
the parent company's competitive advantages
Answer:c

A diversified company's business units exhibit good resource fit when

A. Each business is a cash cow
B. A company has the resources to adequately support the requirements of its
businesses as a group without spreading itself too thin and when individual
businesses add to a company's overall strengths
C. Each business is sufficiently profitable to generate an attractive return on
invested capital
Answer:b

The businesses in a diversified company's lineup exhibit good resource fit when
A. The resource requirements of each business exactly match the resources the
company has available
B. Individual businesses add to a company's resource strengths and when a company
has the resources to adequately support the requirements of its businesses as a
group without spreading itself too thin
C. Each business is generates just enough cash flow annually to fund its own capital
requirements and thus does not require cash infusions from the corporate parent
Answer:b

A "cash cow" type of business

A. Generates unusually high profits and returns on equity investment
B. Is so profitable that it has no long-term debt
C. Generates positive cash flows over and above its internal requirements, thus
providing a corporate parent with cash flows that can be used for financing new
acquisitions, investing in cash hog businesses and/or paying dividends
Answer:c

A "cash hog" type of business

A. Is one that is losing money and requires cash infusions from its corporate parent
to continue operations
B. Is one that generates cash flows that are too small to fully fund its operations and
growth
C. Generates negative cash flows from internal operations and thus requires cash
infusions from its corporate parent to report a profit
Answer:b

The difference between a "cash-cow" business and a "cash hog" business is that
A. A cash cow business is making money whereas a cash hog business is losing
money
B. A cash cow business generates enough profits to pay off long-term debt whereas a
cash hog business does not
C. A cash cow business generates positive retained earnings whereas a cash hog
business produces negative retained earnings
D. A cash cow business produces large internal cash flows over and above what is
needed to build and maintain the business whereas the internal cash flows of a cash
hog business are too small to fully fund its operating needs and capital requirements
Answer:d

The tests of whether a diversified company's businesses exhibit resource fit do not
include
A. Whether the excess cash flows generated by cash cow businesses are sufficient
to cover the negative cash flows of its cash hog businesses
B. Whether a business adequately contributes to achieving the corporate parent's
performance targets
C. Whether the company has adequate financial strength to fund its different
businesses and maintain a healthy credit rating
D. Whether the corporate parent has sufficient cash to fund the needs of its
individual businesses and pay dividends to shareholders without having to borrow
money
Answer:d

Which one of the following is not part of the task of checking a diversified company's
business line-up for adequate resource fit?
A. Determining whether the excess cash flows generated by cash cow businesses
are sufficient to cover the negative cash flows of its cash hog businesses
B. Determining whether recently acquired businesses are acting to strengthen a
company's resource base and competitive capabilities or whether they are causing
its competitive and managerial resources to be stretched too thinly across its
businesses (sometimes newly-acquired businesses soak up a disproportionate share
of management's time and put a strain on other company resources)
C. Determining whether some business units have value chain match-ups that offer
opportunities to transfer skills or technology or intellectual capital from one
business to another
Answer:c

Which one of the following is not a particularly relevant consideration in deciding

what the priorities should be for allocating resources to the various businesses of a
diversified company?
A. Whether and how corporate resources and capabilities can be used to enhance the
competitiveness of particular business units
B. What competitive strategy the business is presently using
C. Whether a business exhibits good strategic fit and resource fit with sister
businesses
Answer:b

Which one of the following is the best guideline for deciding what the priorities
should be for allocating resources to the various businesses of a diversified
company?
A. Businesses with high industry attractiveness ratings should be given top priority
and those with low industry attractiveness ratings should be given low priority
B. Business subsidiaries with the brightest profit and growth prospects and solid
strategic and resource fits generally should head the list for corporate resource
support
C. The positions of each business in the nine-cell attractiveness-strength matrix
should govern resource allocation
Answer:b

Which one of the following is not a reasonable option for deploying a diversified
company's financial resources?
A. Making acquisitions to establish positions in new businesses or to complement
existing businesses
B. Concentrating most of a company's financial resources in cash cow businesses
and allocating little or no additional resources to cash hog businesses until they
show enough strength to generate positive cash flows
C. Funding long-range R&D ventures aimed at opening market opportunities in new or
existing businesses
Answer:b
The strategic options to improve a diversified company's overall performance do not
include which of the following categories of actions?
A. Broadening the company's business scope by making new acquisitions in new
industries
B. Increasing dividend payments to shareholders and/or repurchasing shares of the
company's stock
C. Restructuring the company's business lineup and putting a whole new face on the
company's business makeup
Answer:b

Once a company has diversified into a collection of related or unrelated businesses

and concludes that some strategy adjustments are needed, which one of the
following is not one of the main strategy options that a company can pursue?
A. Pursue multinational diversification
B. Restructure the company's business lineup
C. Craft new initiatives to build/enhance the reputation of the company's brand name
Answer:c

Retrenching to a narrower diversification base

A. Is usually the most attractive long-run strategy for a broadly diversified company
confronted with recession, high interest rates, mounting competitive pressures in
several of its businesses and sluggish growth
B. Has the advantage of focusing a diversified firm's energies on building strong
positions in a few core businesses rather the stretching its resources and
managerial attention too thinly across many businesses
C. Is an attractive strategy option for revamping a diverse business lineup that lacks
strong cross-business financial fit
Answer:b

In which of the following instances is retrenching to a narrower diversification base

not likely to be an attractive or advisable strategy for a diversified company?
A. When a diversified company has struggled to make certain businesses attractively
profitable
B. When a diversified company has too many cash cows
C. When one or more businesses are cash hogs with questionable long-term potential
Answer:b

Strategies to restructure a diversified company's business lineup involves

A. Revamping the value chains of each of a diversified company's businesses
B. Focusing on restoring the profitability of its money-losing businesses and thereby
improving the company's overall profitability
C. Revamping the strategies of its different businesses, especially those that are
performing poorly
D. Divesting some businesses and acquiring new ones so as to put a new face on a
diversified company's business makeup
Answer:d

Corporate restructuring strategies

A. Involve making radical changes in diversified company's business lineup, divesting
some businesses and acquiring new ones so as to put a new face on the company's
business lineup
B. Entails reducing the scope of diversification to a smaller number of businesses
C. Entail selling off marginal businesses to free up resources for redeployment to the
remaining businesses
Answer:a

What sets a multinational diversification strategy apart from other diversification

strategies is
A. The presence of extra degrees of strategic fit and more economies of scope
B. The potential to have a higher degree of technological expertise
C. A diversity of businesses and a diversity of national markets
Answer:c

The sources of a competitive advantage for a diversified multinational corporation do

not include
A. Transferring competitively valuable resources from one business to another and
one country to another
B. The ability to exploit opportunities for both cross-business and cross-country
collaboration and strategic coordination
C. Leveraging use of a well-known and competitively powerful brand name
D. Pursuing cross-business economy of scope opportunities and striving to fully
capture scale economies
E. Trying to maximize the number of cash cow businesses and minimize the number
of cash hog businesses
Answer:e

Which one of the following is not a way for a company to build competitive advantage
by pursuing a multinational diversification strategy?
A. Fully capturing economies of scale and experience curve effects as well as cross-
business economies of scope
B. Using cross-business or cross-country market subsidization to outcompete rivals
C. Fully capturing both cross-business financial fits and cross-country financial fits
Answer:c

1. A sustained or sustainable competitive advantage requires that:

a. the value creating strategy be in a formulation stage.
b. competitors be simultaneously implementing the strategy.
c. other companies not be able to duplicate the strategy.
d. average returns be earned by the company.1
Answer: c. other companies not be able to duplicate the strategy.

2. Investors in a company judge the adequacy of the returns on their investment in

relation to:
a. the returns on other investments of similar risk..
b. the stock market's overall performance.
c. the initial size of the investment.
d. the prime interest rate.
Answer: a. the returns on other investments of similar risk..

3. The strategic management process is:

a. a set of activities that is guaranteed to prevent organizational failure.
b. a process concerned with a firm's resources, capabilities, and competencies, but
not the conditions in its external environment.
c. a set of activities that to date have not been used successfully in the not-for-profit
sector.
d. a dynamic process involving the full set of commitments, decisions, and actions
related to the firm.
Answer: d. a dynamic process involving the full set of commitments, decisions, and
actions related to the firm.

4. Which of the following is NOT an assumption of the Industrial Organization, or I/O,

model?
a. Organizational decision makers are rational and committed to acting in the firm's
best interests.
b. Resources to implement strategies are not highly mobile across firms.
c. The external environment is assumed to impose pressures and constraints that
determine the strategies that result in superior performance.
d. Firms in given industries, or given industry segments, are assumed to control
similar strategically relevant resources.
Answer: d. Firms in given industries, or given industry segments, are assumed to
control similar strategically relevant resources.

5. Which of the following is NOT an assumption of the resource-based model?

a. Each firm is a unique collection of resources and capabilities.
b. All firms possess the same strategically relevant resources.
c. Resources are not highly mobile across firms.
d. Firms acquire different resources and capabilities over time.
Answer: b. All firms possess the same strategically relevant resources.

6. In contrast to the industrial organization model, in a resource-based model, which

of the following factors would be considered a key to organizational success?
a. unique market niche.
b. weak competition.
c. economies of scale.
d. loyal employees.
Answer: d. loyal employees.

7. The resource-based model of the firm argues that:

a. all resources have the potential to be the basis of sustained competitive
advantage.
b. resources are not a source of potential competitive advantage.
c. the key to competitive success is the structure of the industry in which the firm
competes.
d. resources that are valuable, rare, costly to imitate, and non-substitutable form the
basis of a firm's core competencies.
Answer: d. resources that are valuable, rare, costly to imitate, and non-substitutable
form the basis of a firm's core competencies.

8. The I/O model and the resource-based view of the firm suggest conditions that
firms should study in order to:
a. compete in domestic but not international markets.
b. examine strategic outputs achieved mainly in the last 5-year period.
c. engage in different sets of competitive dynamics.
d. develop the most effective strategy.
Answer: d. develop the most effective strategy.

9. Strategic mission:
a. is a statement of a firm's unique purpose and scope of operations.
b. is an internally-focused affirmation of the organization's societal and ethical goals.
c. does not limit the firm by specifying the industry in which the firm intends to
compete.
d. is developed by a firm before the firm develops its strategic intent.
Answer: a. is a statement of a firm's unique purpose and scope of operations.

10. The interests of an organization's stakeholders often conflict, and the

organization must prioritize its stakeholders because it cannot satisfy them all. The
________ is the most critical criterion in prioritizing stakeholders.
a. power of each stakeholder
b. urgency of satisfying each stakeholder
c. importance of each stakeholder to the firm
d. influence of each stakeholder
Answer: a. power of each stakeholder

1. The __________ environment is composed of elements in the broader society that can
influence an industry and the firms within it.

a. general
b. competitor
c. sociocultural
d. industry
Answer: a. general

2. The environmental segments that comprise the general environment typically will
NOT include:
a. demographic factors.
b. sociocultural factors.
c. substitute products or services.
d. technological factors.
Answer: c. substitute products or services.

3. Which of the following is an opportunity for an entrepreneur who wishes to open a

business doing therapeutic massage in his small community?
a. the average age of the population in his community is high
b. the level of unemployment in his community is high
c. a chiropractor and two independent physical therapists located in his community
d. the average income level of the population in his community is low
Answer: c. a chiropractor and two independent physical therapists located in his
community

4. The economic environment refers to:

a. the nature and direction of the economy in which a firm competes or may
compete.
b. the economic outlook of the world provided by the World Bank.
c. an analysis of how the environmental movement and world economy interact.
d. an analysis of how new environmental regulations will affect our economy.
Answer: a. the nature and direction of the economy in which a firm competes or may
compete.

5. An industry is defined as:

a. a group of firms producing the same item.
b. firms producing items that sell through the same distribution channels.
c. firms that have the same seven digit standard industrial code.
d. a group of firms producing products that are close substitutes.
Answer: d. a group of firms producing products that are close substitutes.

6. Which of the following is NOT an entry barrier to an industry?

a. expected competitor retaliation
b. economies of scale
c. customer product loyalty
d. bargaining power of suppliers
Answer: d. bargaining power of suppliers

7. Switching costs refer to the:

a. cost to a producer to exchange equipment in a facility when new technologies
emerge.
b. cost of changing the firm's strategic group.
c. one-time costs suppliers incur when selling to a different customer.
d. one-time costs customers incur when buying from a different supplier
Answer: d. one-time costs customers incur when buying from a different supplier

8. Suppliers are powerful when:

a. satisfactory substitutes are available.
b. they sell a commodity product.
c. they offer a credible threat of forward integration.
d. they are in a highly fragmented industry.
Answer: c. they offer a credible threat of forward integration.

9. Buyers are powerful when:

a. there is not a threat of backward integration.
b. they are not a significant purchaser of the supplier's output.
c. there are no switching costs.
d. the buyers' industry is fragmented.
Answer: c. there are no switching costs.

10. Upper limits on the prices a firm can charge are impacted by:
a. expected retaliation from competitors.
b. the cost of substitute products.
c. variable costs of production.
d. customers' high switching costs
Answer: b. the cost of substitute products.
1. As defined in the text, resources:

a. are concrete sources of value.

b. are easily identified.
c. have two categories: generic and unique.
d. are the source of the firm's capabilities.
Answer: d. are the source of the firm's capabilities.

2. Tangible resources include:

a. assets that are people dependent such as know-how.
b. assets that can be seen and quantified.
c. organizational culture.
d. a firm's reputation.
Answer: b. assets that can be seen and quantified.

3. Intangible assets include:

a. the firm's reputation.
b. a firm's borrowing capacity.
c. depreciated capital assets.
d. manufacturing facilities.
Answer: a. the firm's reputation.
http://www.vuzs.info/

4. Compared to tangible resources, intangible resources are:

a. of less strategic value to the firm.
b. not the focus of strategic analysis.
c. a more potent source of competitive advantage.
d. more likely to be reflected on the firm's balance sheet.
Answer: c. a more potent source of competitive advantage.

5. Which of the following is a true statement about capabilities?

a. Capabilities emerge over time through complex interactions of tangible and
intangible resources.
b. Valuable capabilities are based almost entirely on tangible resources.
c. Capabilities based on human capital are more vulnerable to obsolescence than
other intangible capabilities because of the tendency for employee knowledge to
become outdated.
d. The link between firm financial performance and capabilities is dependent on
whether the capabilities are based on tangible or intangible resources.
Answer: a. Capabilities emerge over time through complex interactions of tangible
and intangible resources

6. What is the job of a Chief Learning Officer?

a. implementing employee training and development programs
b. educating customers about the firm's products
c. developing an environment in which knowledge is widespread among employees
d. establishing programs to promote education in the community
Answer: c .developing an environment in which knowledge is widespread among
employees

7. A major department store chain has a strict policy of banning photographs of its
sales floor or back room operations. It also does not allow academics to include it in
research studies for publication in research journals. In fact, some of its own top
managers refer to the store policies on secrecy as "verging on paranoid." These
policies indicate that the top management of the firm believes the organization's
core competencies are:
a. causally ambiguous.
b. unobservable.
c. imitable.
d. valuable.
Answer: c. imitable.

8. When a resource or capability is valuable, rare, costly to imitate, and

nonsubstitutable firms may obtain:
a. a temporary competitive advantage.
b. a complex competitive advantage.
c. competitive parity.
d. a sustainable competitive advantage.
Answer: d. a sustainable competitive advantage.

9. Costly-to-imitate capabilities can emerge for all of the following reasons EXCEPT:
a. scientific transference.
b. social complexity
c. historical conditions
d. causal ambiguity
Answer: a. scientific transference.

An integrated and coordinated set of commitments and actions designed to exploit

core competencies and gain a competitive advantage in a specific product market is
a definition of:
a. business strategy.
b. core competencies.
c. sustained competitive advantage.
d. strategic mission.
Answer: a. business strategy.

In evaluating its customers, which of the following is NOT a relevant question?

a. How will core competencies meet the customer's needs?
b. Who is the customer?
c. What are the customers' needs?
d. How will our top management team interact with the customer?
Answer: d. How will our top management team interact with the customer?

Customer needs are related to the:

a. characteristics that can be used to subdivide a large market into segments.
b. set of values exhibited by a group of customers.
c. use of core competencies to implement a strategy.
d. benefits and features of a good or service that customers want to purchase.
Answer: d. benefits and features of a good or service that customers want to
purchase.

Business-level strategies are concerned specifically with:

a. creating differences between the firm's position and its rivals.
b. the industries in which the firm will compete.
c. how functional areas will be organized within the firm.
d. how a business with multiple physical locations will operate one of those
locations.
Answer: a. creating differences between the firm's position and its rivals.

A company using a narrow scope in its business strategy is:

a. following a cost leadership business strategy.
b. focusing on a broad array of geographic markets.
c. limiting the group of product segments served.
d. likely to earn only average returns.
Answer: c. limiting the group of product segments served.
http://www.vuzs.info/

A cost leadership strategy provides goods or services with features that are:
a. acceptable to customers.
b. unique to the customer.
c. highly valued by the customer.
d. able to meet unique needs of the customer
Answer: a. acceptable to customers

When the costs of supplies increase in an industry, the low-cost leader may:
a. continue competing with rivals on the basis of product features.
b. lose customers as a result of price increases.
c. make it difficult for new entrants to the industry to achieve above-average returns.
d. be the only firm able to pay the higher prices and continue to earn average or
above- average returns.
Answer: d. be the only firm able to pay the higher prices and continue to earn
average or above- average returns.

The risks of a cost leadership strategy include:

a. becoming "stuck in the middle."
b. production and distribution processes becoming obsolete
c. the ability of competing firms to provide similar features in a product.
d. customers deciding the product isn't worth what the firm must charge for it.
Answer: b. production and distribution processes becoming obsolete

A firm successfully implementing a differentiation strategy would expect:

a. customers to be sensitive to price increases.
b. to charge premium prices.
c. customers to perceive the product as standard.
d. to automatically have high levels of power over suppliers.
Answer: b. to charge premium prices.

A differentiation strategy provides products that customers perceive as having:

a. acceptable features.
b. features of little value relative to the value provided by the low-cost leader's
product.
c. features for which the customer will pay a low price.
d. features that are non-standardized for which they are willing to pay a premium.
Answer: d. features that are non-standardized for which they are willing to pay a
premium.

The differentiation strategy can be effective in controlling the power of rivalry with
existing competitors in an industry because:
a. customers will seek out the lowest cost product.
b. customers of non-differentiated products are sensitive to price increases.
c. customers are loyal to brands that are differentiated in meaningful ways.
d. the differentiation strategy benefits from rivalry.
Answer: c. customers are loyal to brands that are differentiated in meaningful ways.

When implementing a focus strategy, the firm seeks:

a. to be the lowest cost producer in an industry.
b. to offer products with unique features for which customers will pay a premium.
c. to avoid being stuck in the middle.
d. to serve the specialized needs of a market segment.
Answer: d. to serve the specialized needs of a market segment.

1. Above-average returns are:

a. higher profits than the firm earned last year.
b. higher profits than the industry average over the last 10 years.
c. profits in excess of what an investor expects to earn from a historical pattern of
performance of the firm.
d. profits in excess of what an investor expects to earn from other investments with
a similar level of risk.
Answer: d. profits in excess of what an investor expects to earn from other
investments with a similar level of risk.

3. The strategic management process is

a. a set of activities that will assure a temporary advantage and average returns for
the firm.
b. a decision-making activity concerned with a firm's internal resources, capabilities,
and competencies, independent of the conditions in its external environment.1
c. a process directed by top-management with input from other stakeholders that
seeks to achieve above-average returns for investors through effective use of the
organization's resources.
d. the full set of commitments, decisions, and actions required for the firm to achieve
above-average returns and strategic competitiveness.
Answer: d. the full set of commitments, decisions, and actions required for the firm to
achieve above-average returns and strategic competitiveness.

All of the following are assumptions of the industrial organization (I/O) model EXCEPT
a. Organizational decision makers are rational and committed to acting in the firm's
best interests.
b. Resources to implement strategies are firm-specific and attached to firms over the
long-term.
c. The external environment is assumed to impose pressures and constraints that
determine the strategies that result in above-average returns.
d. Firms in given industries, or given industry segments, are assumed to control
similar strategically relevant resources.
Answer: b. Resources to implement strategies are firm-specific and attached to firms
over the long-term.

All of the following are assumptions of the resource-based model EXCEPT

a. Each firm is a unique collection of resources and capabilities.
b. The industry's structural characteristics have little impact on a firm's performance
over time.
c. Capabilities are highly mobile across firms.
d. Differences in resources and capabilities are the basis of competitive advantage.
Answer: c. Capabilities are highly mobile across firms.

In the resource-based model, which of the following factors would be considered a

key to organizational success?
a. uniq1ue market niche
b. weak competition
c. economies of scale
d. skilled employees
Answer: d. skilled employees

All of the following are resources of an organization EXCEPT

a. an hourly production employee's ability to catch subtle quality defects in products.
b. oil drilling rights in a promising region.
c. weak competitors in the industry.
d. a charity's endowment of $400 million.
Answer: c. weak competitors in the industry.

The resource-based model of the firm argues that

a. all resources have the potential to be the basis of sustained competitive
advantage.
b. all capabilities can be a source of sustainable competitive advantage.
c. the key to competitive success is the structure of the industry in which the firm
competes.
d. resources and capabilities that are valuable, rare, costly to imitate, and non-
substitutable form the basis of a firm's core competencies.
Answer: d. resources and capabilities that are valuable, rare, costly to imitate, and
non-substitutable form the basis of a firm's core competencies.

The goal of the organization's ____ is to capture the hearts and minds of
employees, challenge them, and evoke their emotions and dreams.
a. vision
b. mission
c. culture
d. strategy
Answer: a. vision

A firm's mission
a. is a statement of a firm's business in which it intends to compete and the
customers which it intends to serve.
b. is an internally-focused affirmation of the organization's financial, social, and
ethical goals.
c. is mainly intended to emotionally inspire employees and other stakeholders.
d. is developed by a firm before the firm develops its vision.
Answer: a. is a statement of a firm's business in which it intends to compete and the
customers which it intends to serve.

The environmental segments that comprise the general environment typically will
NOT include
a. demographic factors.
b. sociocultural factors.
c. substitute products or services.
d. technological factors.
Answer: c. substitute products or services.

An analysis of the economic segment of the external environment would include all
of the following EXCEPT
a. interest rates.
b. international trade.
c. the strength of the U.S. dollar.
d. the move toward a contingent workforce.
Answer: d. the move toward a contingent workforce.

Product differentiation refers to the:

a. ability of the buyers of a product to negotiate a lower price.
b. response of incumbent firms to new entrants.
c. belief by customers that a product is unique.
d. fact that as more of a product is produced the cheaper it becomes per unit.
Answer: c. belief by customers that a product is unique.

Which of the following is NOT an entry barrier to an industry?

a. expected competitor retaliation
b. economies of scale
c. customer product loyalty
d. bargaining power of suppliers1
Answer: d. bargaining power of suppliers
Switching costs refer to the:
a. cost to a producer to exchange equipment in a facility when new technologies
emerge.
b. cost of changing the firm's strategic group.
c. one-time costs suppliers incur when selling to a different customer.
d. one-time costs customers incur when buying from a different supplier.
Answer: d. one-time costs customers incur when buying from a different supplier.

New entrants to an industry are more likely when (i.e., entry barriers are low when...)
a. it is difficult to gain access to distribution channels.
b. economies of scale in the industry are high.
c. product differentiation in the industry is low.
d. capital requirements in the industry are high.
Answer: c. product differentiation in the industry is low.

Suppliers are powerful when:

a. satisfactory substitutes are available.
b. they sell a commodity product.
c. they offer a credible threat of forward integration.
d. they are in a highly fragmented industry.
Answer: c. they offer a credible threat of forward integration.

The highest amount a firm can charge for its products is most directly affected by
a. expected retaliation from competitors.
b. the cost of substitute products.
c. variable costs of production.
d. customers' high switching costs.
Answer: b. the cost of substitute products.

All of the following are forces that create high rivalry within an industry EXCEPT
a. numerous or equally balanced competitors.
b. high fixed costs.
c. fast industry growth.
d. high storage costs.
Answer: c. fast industry growth.

According to the five factors model, an attractive industry would have all of the
following characteristics EXCEPT:
a. low barriers to entry.
b. suppliers with low bargaining power.
c. a moderate degree of rivalry among competitors.
d. few good product substitutes.
Answer: a. low barriers to entry.

Internal analysis enables a firm to determine what the firm

a. can do.
b. should do.
c. will do.
d. might do.
Answer: a. can do.

An external analysis enables a firm to determine what the firm

a. can do.
b. should do.
c. will do.
d. might do.
Answer: d. might do.

____ is/are the source of a firm's ____, which is/are the source of the firm's ____.
a. Resources, capabilities, core competencies
b. Capabilities, resources, core competencies
c. Capabilities, resources, above average returns
d. Core competencies, resources, competitive advantage
Answer: a. Resources, capabilities, core competencies

In the airline industry, frequent-flyer programs, ticket kiosks, and e-ticketing are
all examples of capabilities that are
a. rare.
b. causally ambiguous.
c. socially complex.
d. valuable.
Answer: d. valuable.

Compared to tangible resources, intangible resources are

a. of less strategic value to the firm.
b. not the focus of strategic analysis.
c. a more potent source of competitive advantage.
d. more likely to be reflected on the firm's balance sheet.
Answer: c. a more potent source of competitive advantage.

Which of the following is a true statement about capabilities?

a. Capabilities emerge over time through complex interactions of tangible and
intangible resources.
b. Valuable capabilities are based almost entirely on tangible resources.
c. Capabilities based on human capital are more vulnerable to obsolescence than
other intangible capabilities because of the tendency for employee knowledge to
become outdated.
d. The link between firm financial performance and capabilities is dependent on
whether the capabilities are based on tangible or intangible resources.
Answer: a. Capabilities emerge over time through complex interactions of tangible
and intangible resources.

To be a core competency, a capability must satisfy all of the following criteria

EXCEPT:
a. be technologically innovative.
b. be hard for competing firms to duplicate.
c. be without good substitutes.
d. be valuable to customers.
Answer: a. be technologically innovative.

Capabilities that other firms cannot develop easily are classified as

a. costly to imitate.
b. rare.
c. valuable.
d. nonsubstitutable.
Answer: a. costly to imitate.

Costly-to-imitate capabilities can emerge for all of the following reasons EXCEPT
a. lack of scientific transference.
b. social complexity.
c. unique historical conditions.
d. causal ambiguity.
Answer: a. lack of scientific transference.

Gamma, Inc., has struggled for industry dominance with Ardent, Inc., its main
competitor, for years. Gamma has gathered and analyzed large amounts of
competitive intelligence about Ardent. It has observed as much of the firm's internal
functioning and technology as it can legally, yet Gamma cannot understand why ABC
has a competitive advantage over it. The source of ABC's success is
a. impregnable.
b. causally ambiguous.
c. rationally obscure.
d. elusive.
Answer: b. causally ambiguous.

Firms that achieve competitive parity can expect to:

a. earn below-average returns.
b. earn average returns.
c. earn above-average returns.
d. initially earn above-average returns, declining to average returns.
Answer: b. earn average returns.

Business-level strategies detail commitments and actions taken to provide value to

customers and gain competitive advantage by exploiting core competencies in
a. the selection of industries in which the firm will compete.
b. specific product markets.
c. primary value chain activities.
d. particular geographic locations.
Answer: b. specific product markets.

The three dimensions of a firm's relationships with customers include all the
following EXCEPT
a. exclusiveness.
b. affiliation.
c. richness.
d. reach.
Answer: a. exclusiveness.

The effectiveness of any of the generic business-level strategies is contingent upon

a. customer needs and competitors' strategies.
b. the match between the opportunities and threats in its external market and the
strengths and weaknesses of its internal environment.
c. the trends in the general consumer base and the robustness of the global and
industry economy.
d. the firm's competitive scope and its competitive advantage.
Answer: b. the match between the opportunities and threats in its external market
and the strengths and weaknesses of its internal environment.

Business-level strategies are concerned specifically with:

a. creating differences between the firm's position and its rivals.
b. selecting the industries in which the firm will compete.
c. how functional areas will be organized within the firm.
d. how a business with multiple physical locations will operate one of those
locations.
Answer: a. creating differences between the firm's position and its rivals.

A cost leadership strategy targets the industry's ____ customers.

a. most typical
b. poorest
c. least educated
d. most frugal
Answer: a. most typical

When the costs of supplies increase in an industry, the low-cost leader

a. may continue competing with rivals on the basis of product features.
b. will lose customers as a result of price increases.
c. will be unable to absorb higher costs because cost-leaders operate on very narrow
profit margins.
d. may be the only firm able to pay the higher prices and continue to earn average or
above- average returns.
Answer: d. may be the only firm able to pay the higher prices and continue to earn
average or above- average returns.

When a product's unique attributes provide value to customers, the firm is

implementing
a. a differentiation strategy.
b. a cost leadership strategy.
c. an integrated cost leadership/differentiation strategy.
d. a single-product strategy.
Answer: a. a differentiation strategy.

A company pursuing a differentiation or focused differentiation strategy would

a. have highly efficient systems linking suppliers' products with the firm's production
processes.
b. use economies of scale.
c. have strong capabilities in basic research.
d. make investments in easy-to-use manufacturing technologies.
Answer: c. have strong capabilities in basic research.

T or F? A firm using a differentiation strategy can charge a premium price.

Answer: T

A differentiation strategy can be effective in controlling the power of substitutes in

an industry because
a. customers have low switching costs.
b. substitute products are lower quality.
c. a differentiating firm can always lower prices.
d. customers develop brand loyalty.
Answer: d. customers develop brand loyalty.

The typical risks of a differentiation strategy do NOT include which of the following?
a. Customers may find the price differential between the low-cost product and the
differentiated product too large.
b. Customers' experience with other products may narrow customers' perception of
the value of a product's differentiated features.
c. Counterfeit goods are widely available and acceptable to customers.
d. Suppliers of raw materials erode the firm's profit margin with price increases.
Answer: d. Suppliers of raw materials erode the firm's profit margin with price
increases.

Competitive rivalry has the most effect on the firm's ____ strategies than the firm's
other strategies.
a. business-level
b. corporate-level
c. acquisition
d. international
Answer: a. business-level

Multimarket competition occurs when firms

a. sell different products to the same customer.
b. have a high level of awareness of their competitors' strategic intent.
c. simultaneously enter into an attack strategy.
d. compete against each other in several geographic or product markets.
Answer: d. compete against each other in several geographic or product markets.

Competitive dynamics refers to the

a. circumstances where competitors are aware of the degree of their mutual
interdependence resulting from market commonality and resource similarity.
b. set of competitive actions and competitive responses the firm takes to build or
defend its competitive advantages and to improve its market position.
c. total set of actions and responses taken by all firms competing within a market.
d. ongoing set of competitive actions and competitive responses between
competitors as they maneuver for advantageous market position.
Answer: c. total set of actions and responses taken by all firms competing within a
market.

Firms with few competitive resources are more likely

a. to not respond to competitive actions.
b. respond quickly to competitive actions.
c. delay responding to competitive actions.
d. respond to strategic actions, but not to tactical actions.
Answer: c. delay responding to competitive actions.

Which of the following would be an example of a strategic action?

a. a "two movies for the price of one" campaign by Blockbuster Video
b. use of product coupons by a local grocer
c. entry into the European market by Home Depot
d. fare increases by Southwest Airlines
Answer: c. entry into the European market by Home Depot

The chief disadvantage of being a first mover is the

a. high degree of risk.
b. high level of competition in the new marketplace.
c. inability to earn above-average returns unless the production process is very
efficient.
d. difficulty of obtaining new customers.
Answer: a. high degree of risk.

On the whole there are more competitive responses to

a. strategic actions than to tactical actions.
b. tactical actions than to strategic actions.
c. buyer pressures than to supplier pressures.
d. the demands of the top management team than to industry structural pressures.
Answer: b. tactical actions than to strategic actions.

Competitors are more likely to respond to competitive actions that are taken by
a. differentiators.
b. larger companies.
c. first movers.
d. market leaders.
Answer: d. market leaders.

Ninety percent of Wm. Wrigley Company's total revenue comes from chewing gum.
This is an example of
a. market commonality.
b. standard-cycle markets.
c. economies of scale.
d. market dependence.
Answer: d. market dependence.

All competitive advantages do not accrue to large sized firms. A major advantage of
smaller firms is that they
a. are more likely to have organizational slack.
b. can launch competitive actions more quickly.
c. have more loyal and diverse workforces.
d. can wait for larger firms to make mistakes in introducing innovative products.
Answer: b. can launch competitive actions more quickly.