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Mgmt 464 Samuel Cappell- Test 3

How was Wikipedia able to outperform both Encyclopedia Britannica and Microsoft Encarta?
A. By lowering its network effects
B. By launching an electronic encyclopedia that included a variety of entries
C. By leveraging first-mover advantages
D. By allowing any person, expert or novice, to generate and edit content
D. By allowing any person, expert or novice, to generate and edit content
Which of the following is a drawback of Wikipedia’s business model?
A. The company’s superior differentiated appeal is highly correlated to its cost.
B. The user-generated content may be unreliable and unauthoritative.
C. The company relies on the wisdom of the experts rather than the public.
D. The chances of falling in the competitive chasm, between the early adopters and early majority, are high.
B. The user-generated content may be unreliable and unauthoritative.
The typical four-step innovation process begins with:
A. the modification and recombination of an existing product or process.
B. the presentation of an idea as findings derived from basic research.
C. the commercialization of an invention by entrepreneurs.
D. a competitor’s attempt to imitate an innovation.
B. the presentation of an idea as findings derived from basic research.
A _____ is best described as a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.
A. patent
B. promissory note
C. franchise
D. royalty
A. patent
When TrueHeal Pharma Inc. released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug’s cover. However, any attempts by competitors to copy the chemical composition would result in infringement of TrueHeal Pharma’s intellectual property rights. Thus, the drug is protected by a _____.
A. promissory bill
B. patent
C. franchise
D. royalty
B. patent
In the U.S., the time period for the right to exclude others from the use of a patented technology is _____ from the filing date of a patent application.
A. 20 years
B. 25 months
C. 15 months
D. 25 years
A. 20 years
_____ is best described as the commercialization of any new product, process, or the modification and recombination of existing ones.
A. Direct imitation
B. Mass customization
C. Innovation
D. Headhunting
C. Innovation
As a research scholar, Richard had built a helicam as part of his project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, he started a new venture where he could customize these helicams to fit the specific needs of the buyers and sell them. Richard can be best described as a(n) _____.
A. entrepreneur
B. category captain
C. franchisor
D. early adopter
A. entrepreneur
An intrapreneur is described as a person who:
A. restricts changes within an organization.
B. innovates within existing companies.
C. introduces new products or services by starting his or her own ventures.
D. invests funds in the ideas of another person in the same organization.
B. innovates within existing companies
A. G. Lafley at Procter & Gamble (P&G), had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n):
A. venture capitalist.
B. category captain.
C. intrapreneur.
D. early adopter.
C. intrapreneur
Which of the following statements is NOT true about innovation?
A. Innovation as a competitive weapon can simultaneously create and destroy value.
B. Successful innovation allows a firm to extract temporary monopoly profits.
C. Innovation has to be high-tech in order to be a potent competitive weapon.
D. Process innovations are made possible through advances such as the Internet.
C. Innovation has to be high-tech in order to be a potent competitive weapon.
How has Apple been able to sustain its competitive advantage in the smartphone industry?
A. By reducing its network effects
B. By targeting its new products and services toward laggards
C. By driving the price for the end user to zero
D. By regularly introducing incremental improvements in its products
D. By regularly introducing incremental improvements in its products
Which of the following is a competitive benefit experienced by the first mover firm in an industry?
A. The first mover will be able to achieve a less steeper learning curve.
B. The first mover will be able to reduce the switching costs.
C. The first mover will not have to patent its products or technology.
D. The first mover will be able to reduce costs through economies of scale.
D. The first mover will be able to reduce costs through economies of scale.
The four-step innovation process ends with:
A. idea generation.
B. invention.
C. idea testing.
D. imitation.
D. imitation
As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP’s patents, regular users did not want to switch because they were concerned about possible side-effects. Which of the following benefits does this scenario best illustrate?
A. First-mover advantages
B. Social benefits
C. Network externalities
D. Fringe benefits
A. First-mover advantages
Which of the following statements accurately describes social entrepreneurs?
A. Social entrepreneurs are individuals who invest in start-up businesses in order to earn huge returns.
B. Social entrepreneurs are individuals who rely primarily on social networking sites to generate revenues.
C. Social entrepreneurs are employees within organizations who are responsible for carrying out lean production.
D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm’s performance.
D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm’s performance.
Georgia Ray is the founder of the departmental stores chain, Ether Inc. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and manufactured from recycled material. Also, her company purchases handicrafts from non-profit organizations supporting the aged. Georgia’s belief is that her company should be able to support the community at large. Which of the following terms best describes Georgia Ray?
A. Headhunter
B. Category captain
C. Social entrepreneur
D. Trade creditor
C. Social entrepreneur
After Jeff Bezos read about how the Internet was growing by 2,000 percent a month, he set out to use the Internet as a new distribution channel and founded Amazon, which is now the world’s largest online retailer. This is clearly an example of a(n):
A. firm that uses closed innovation.
B. entrepreneur who commercialized invention into an innovation.
C. business that entered the industry during its maturity stage.
D. exception to the long tail business model.
B. entrepreneur who commercialized invention into an innovation.
The market for 3D televisions is in the introduction stage of the industry life cycle. What does this imply?
A. There are only a few competitors in the 3D television market.
B. The number of buyers in the market is high.
C. The prices of 3D televisions will be lowest during this stage.
D. The barriers to entry are low in the industry.
A. There are only a few competitors in the 3D television market.
The strategic objective of a first mover during the introduction stage of the industry life cycle is to:
A. pursue a harvest strategy.
B. survive by drawing on deep pockets.
C. achieve market acceptance.
D. lower entry barriers.
A. pursue a harvest strategy
FindFriend is an instant messaging application for smartphones. New smartphone users find it easier to connect with friends and relatives through this mobile app when compared to other similar instant messaging applications. Hence, it has the largest user base in the industry. Thus, FindFriend app’s value has increased primarily due to its _____.
A. learning curve effects
B. economies of scale
C. economies of scope
D. network effects
D. network effects
Which of the following has been a primary reason for increases in the Apple iPhone’s installed base?
A. The decision to enter into the smartphone market during the maturity stage
B. The cost-leadership strategy pursued by Apple
C. The availability of apps that led to network effects
D. The decision to target laggards, the most profitable customer segment
C. The availability of apps that led to network effects
In the context of industrial growth, which of the following statements is true of standards?
A. Standards emerge exclusively from bottom-up through competition in the marketplace.
B . As the size of a market expands, a standard signals the market’s agreement on a common set of engineering features and design choices.
C . Standards are exclusively imposed top-down by government or other standard-setting agencies such as the Institute of Electrical and Electronics Engineers.
D . After a standard is established in an industry, the basis of competition tends to move away from process innovations toward product innovations.
B. As the size of a market expands, a standard signals the market’s agreement on a common set of engineering features and design choices.
In which of the following stages of the industry life cycle is a standard first established?
A. Maturity stage
B. Growth stage
C. Shakeout stage
D. Introduction stage
B. Growth stage
Which of the following is a feature of the growth stage of the industry life cycle?
A. The consumer demand increases.
B. The prices of goods begin to rise.
C. The basis of competition moves away from process innovation.
D. The number of competitors decreases.
A. The consumer demand increases.
Which of the following best illustrates a process innovation as opposed to product innovation?
A. A consumer electronics company developing a new generation of tablet computers
B. An automobile company using computer-aided design in its production
C. A consumer electronics company launching 3D televisions
D. An automobile company commercializing electric cars
B. An automobile company using computer-aided design in its production
Process innovation is more important than product innovation during the growth stage because:
A. companies produce very few products during the growth stage, often just prototypes or beta versions.
B. technological and commercial uncertainties about a new product still exist during this stage.
C. it is more crucial to adopt the integration strategy during this stage.
D. a standard, in terms of engineering features and design choices, has been set across the industry.
D. a standard, in terms of engineering features and design choices, has been set across the industry.
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
A. The industry for cell phones with holographic keyboards will face greater competition than the tablet industry.
B . While the industry for cell phones with holographic keyboards will focus on product innovation, the tablet industry will focus on process innovation.
C . While the industry for cell phones with holographic keyboards can reap the benefits of economies of scale, the tablet industry will experience no such benefits.
D . The industry for cell phones with holographic keyboards will face price competition, whereas, in the tablet industry, the mode of competition will be non-price.
B . While the industry for cell phones with holographic keyboards will focus on product innovation, the tablet industry will focus on process innovation.
Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
A. There is more strategic variety in the growth stage when compared to the introduction stage.
B. The number of competitors is more in the introduction stage than the growth stage.
C. The market size for a new product or service is larger in the introduction stage when compared to the growth stage.
D . While achieving market acceptance is the strategic objective during the introduction stage, the objective in the growth stage is to pursue a harvest strategy.
A. There is more strategic variety in the growth stage when compared to the introduction stage.
The key objective for firms during the growth phase is to:
A. invest as many resources as possible in product innovations.
B. stake out a strong strategic position not easily imitated by rivals.
C. pursue a harvest strategy.
D. reduce their network effects.
B. stake out a strong strategic position not easily imitated by rivals.
Which of the following is a feature of the shakeout phase of the industry life cycle?
A. There is rapid industry growth during this stage.
B. Market demand in this stage primarily consists of first-time adopters.
C. Competitive intensity within the industry increases.
D. The mode of competition shifts from price to non-price in this stage.
C. Competitive intensity within the industry increases.
To be successful and to survive the shakeout stage of the industry life cycle, a firm should:
A. charge higher prices than its competitors.
B. focus on product innovation rather than process innovation.
C. gain economies of scale.
D. shift from price to non-price competition.
C. gain economies of scale.
In emerging economies, the LCD television industry is in that phase of the industry life cycle in which the previously increasing market demand becomes limited. The competitive intensity within the industry is high, and inefficient firms have begun to exit the industry. This has allowed only a few major companies to come out as cost leaders and hold the shrinking market. Which of the following stages of the industry life cycle is the LCD television industry currently in?
A. Growth stage
B. Introduction stage
C. Shakeout stage
D. Decline stage
C. Shakeout stage
In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?
A . The mode of competition in the electric car industry will be based on price, whereas in the MP3 player industry, the mode of competition will be non-price based.
B . The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
C. The electric car industry will move to the maturity stage, whereas the industry for MP3 players will enter the growth stage next.
D . The industry for electric cars will primarily pursue an integration strategy, whereas in the MP3 players industry, the focus will be on differentiation.
B . The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
The strategic objective of businesses during the shakeout phase of the industry life cycle will primarily be to:
A. move toward product innovations and away from process innovations.
B. survive by drawing on “deep pockets.”
C. achieve market acceptance.
D. reduce the barriers to entry in the industry.
B. survive by drawing on “deep pockets.”
Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?
A. The barriers to entry increase during this stage.
B. The firms in the industry yield the highest profits during this phase.
C. Rivalry among competitors decreases in this stage.
D. The weaker firms are forced out of the industry in this stage.
D. The weaker firms are forced out of the industry in this stage.
A few efficient and strong firms in the laptop industry have remained and emerged successful from the shakeout stage. Which of the following stages of the industry life cycle will they move to next?
A. Growth stage
B. Introduction stage
C. Maturity stage
D. Decline stage
C. Maturity stage
Which of the following is a feature of the maturity stage of the industry life cycle?
A. The competitive intensity within the industry is at its peak.
B. The market reaches its maximum size.
C. The industry structure is more monopolistically competitive.
D. The focus on product innovation is higher than that on process innovation.
B. The market reaches its maximum size.
The compact disk (CD) industry is in the maturity phase of its industry life cycle. What conditions prevail for an industry in this stage?
A. The type of buyers at this stage will be early adopters.
B. The mode of competition at this stage will be based on non-price factors.
C. The market growth is positive or high at this stage.
D. The industry structure is an oligopoly with only a few large firms.
D. The industry structure is an oligopoly with only a few large firms.
While the domestic airline industry is in the maturity stage of the industry life cycle, the pet clothing industry is in its growth stage. Which of the following can be inferred from the given data?
A. Competitive intensity will be higher in the domestic airline industry than the pet clothing industry.
B. The pet clothing industry is ahead of the domestic airline industry in the industry life cycle.
C. While the domestic airline industry is free from excess capacity, the pet clothing industry will have new entrants.
D . The mode of competition will be price-based in the pet clothing industry and will be non-price based in the domestic airline industry
C. While the domestic airline industry is free from excess capacity, the pet clothing industry will have new entrants.
Which of the conditions prevail when an industry is at the end of its life cycle?
A. The level of process innovation reaches its maximum as firms attempt to lower cost.
B. The industry structure is perfectly competitive with a large number of buyers and sellers.
C. The strategic objectives of businesses will involve gaining market acceptance.
D. The market reaches its maximum size at this stage.
A. The level of process innovation reaches its maximum as firms attempt to lower cost.
The demand for video recorders has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of video recorders are mainly categorized under laggards. Which of the following stages of the industry life cycle is the video recorder industry in currently?
A. Growth stage
B. Maturity stage
C. Decline stage
D. Commercialization stage
C. Decline stage
When a firm pursues a harvest strategy, it:
A. exits the industry by bankruptcy or liquidation.
B. invests significant resources in product innovations.
C. buys out its rivals to strengthen its strategic position.
D. reduces investments in product support.
D. reduces investments in product support.
Though Wave Electronics Inc. still sells its VCR players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Wave Electronics adopted in this scenario?
A. Harvest strategy
B. Maintain strategy
C. Consolidation strategy
D. Differentiation strategy
A. Harvest strategy
When the market for photo film negatives declined with the arrival of digital cameras, Momento Films Inc., a manufacturer of film negatives, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Momento Films adopted in this scenario?
A. Harvest strategy
B. Maintain strategy
C. Consolidated strategy
D. Differentiation strategy
C. Consolidated strategy
When a firm pursues a maintain strategy, it:
A. exits a declining industry to maintain the goodwill of its overall brand name.
B. reduces investments in product support and allocates only a minimum of human and other resources.
C. continues to support marketing efforts even if the demand for the product is declining.
D. chooses to consolidate the industry by buying rival firms, those who plan to exit
C. continues to support marketing efforts even if the demand for the product is declining.
While the industry for e-book readers is in its growth stage, the industry for landline telephones is in the decline stage of the industry life cycle. Which of the following can be inferred from this?
A . While firms in the e-book reader industry will focus on pursuing a harvest strategy, firms in the landline telephone industry will focus on product innovations.
B. The e-book reader industry is at a more advanced stage than the landline industry of the industry life cycle.
C . While firms in the e-book reader industry will attract customers categorized under late majority, firms in the landline telephone industry will attract the early majority customers.
D. The number of competitors in the e-book reader industry will be larger when compared to the landline telephone industry.
D. The number of competitors in the e-book reader industry will be larger when compared to the landline telephone industry.
While the industry for 3D televisions is in the introduction stage of the industry life cycle, the CRT (Cathode ray tube) television industry is in its decline stage. Which of the following statements will be true in this scenario?
A. The market size for 3D televisions is extremely large, while the market size for CRT televisions is moderate.
B . While product innovation will be at its maximum for the 3D television industry, process innovation will be more crucial for the CRT television industry.
C . The focus in the 3D television industry will be on cost-leadership, whereas in the CRT television industry, the focus will be on differentiation.
D . While the strategic objective of the CRT television industry will be achieving market acceptance, the strategic objective of the 3D television industry will be pursuing a harvest strategy.
B . While product innovation will be at its maximum for the 3D television industry, process innovation will be more crucial for the CRT television industry.
On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?
A. The number and size of competitors remain constant throughout the industry life cycle.
B. Each stage of the industry life cycle is dominated by a different customer group.
C. Industries tend to follow an unpredictable industry life cycle.
D. The supply and demand sides of the market remain constant irrespective of the phase of the industry life cycle.
B. Each stage of the industry life cycle is dominated by a different customer group.
Which of the following customer segments as described in the chasm framework make up the mass market?
A. The early and late majority together
B. The early adopters alone
C. The technology enthusiasts and laggards together
D. The technology enthusiasts alone
A. The early and late majority together
Which of the following statements is true of technology enthusiasts?
A. They make up the largest market segment.
B. They are the customer segment in the maturity stage of the industry lifecycle.
C. They are highly price conscious buyers.
D. They enjoy using beta versions of products and providing feedback to companies.
D. They enjoy using beta versions of products and providing feedback to companies.
The customers entering the market in the growth stage are primarily _____.
A. technology enthusiasts
B. laggards
C. early adopters
D. late majority
C. early adopters
Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?
A . While the customer segment in the introduction stage consists of early adopters, the customers entering the market in the growth stage are technology enthusiasts.
B. Unlike technology enthusiasts, early adopters’ demand is fueled more by intuition and vision rather than technology concerns.
C. While early adopters make up the smallest market segment, technology enthusiasts make up the mass market.
D . Firms need to communicate products’ potential applications in a more direct way when attracting technology enthusiasts rather than early adopters.
B. Unlike technology enthusiasts, early adopters’ demand is fueled more by intuition and vision rather than technology concerns.
Which of the following statements is true of the early majority section of consumers?
A. They come into the market during the introduction stage.
B. They are unaware that many hyped new product introductions will fade away.
C. They weigh the benefits and costs carefully when adopting a new product.
D. They make up the smallest market segment.
C. They weigh the benefits and costs carefully when adopting a new product.
It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they:
A. are driven by technology concerns rather than the practicality of a new product.
B. influence the purchase decisions of early adopters.
C. enter into the market in large numbers, creating a herding effect.
D. have the highest purchasing power when compared to the other customer segments.
C. enter into the market in large numbers, creating a herding effect.
When does a firm fall into the large competitive chasm between early adopters and early majority?
A. When it cannot attract technological enthusiasts to try the beta versions of its products
B. When it creates strong network effects during the growth stage
C. When it fails to successfully launch a mass-market version of its product
D. When the early majority create herding effects for its products
C. When it fails to successfully launch a mass-market version of its product
At the time when Kevin decided to purchase a tablet computer, the product had just become accessible to the mass market. He purchased the tablet only after he was completely convinced that the benefits it would offer him would far exceed its price. Also, he waited for his friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Kevin best represent?
A. Laggards
B. Technology enthusiasts
C. Early adopters
D. Early majority
D. Early majority
Sara can be categorized under the late majority customer segment. Which of the following behaviors is she most likely to exhibit?
A. She will be confident in her ability to master any new technology.
B. She will prefer to buy from well-established brands rather than unknown new ventures.
C. She will not rely on endorsements by the early majority or early adopters.
D. She will buy beta versions of new products and technology.
B. She will prefer to buy from well-established brands rather than unknown new ventures.
How is the early majority section of consumers different from the late majority section?
A. While the early majority makes up the mass market, the late majority is the smallest market segment.
B. The late majority enters the market in the decline stage, whereas the early majority enters the market during the maturity stage.
C. Although the early majority is confident in their ability to master a new technology, the late majority is not.
D. While the late majority prefers buying from unknown new ventures, the early majority relies only on well-established brands.
C. Although the early majority is confident in their ability to master a new technology, the late majority is not.
Which of the following statements is true of laggards?
A. They make up the largest customer segment for any business.
B. They tend to enter the market frequently during the decline stage.
C. They do not like waiting too long for new technology to release.
D. They are customers who adopt a new product even if it is not necessary.
B. They tend to enter the market frequently during the decline stage.
While the personal computer industry is flooded and growing with laptops and tablets, John recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does John best represent?
A. Early adopters
B. Category captains
C. Laggards
D. Early majority
C. Laggards
Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?
A. The framework believes that the life cycle of industries is unpredictable.
B. The framework does not explain everything about changes in industries.
C. The framework is based on the tenet that industries can be rejuvenated even in the declining stage.
D. The framework believes that the number and size of competitors remain constant throughout the life cycle.
B. The framework does not explain everything about changes in industries.
SyncTouch Inc. is a manufacturer of cell phones. It has released an improvised version of its smartphone in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
A. Radical innovation
B. Incremental innovation
C. Architectural innovation
D. Disruptive innovation
B. Incremental innovation
In a radical innovation, a firm targets:
A. existing markets by using new technologies.
B. new markets by using existing technologies.
C. new markets by using new technologies.
D. existing markets by using existing technologies
C. new markets by using new technologies.
A firm’s resistance to changes in the status quo is referred to as _____.
A. organizational parity
B. organizational liquidity
C. organizational inertia
D. organizational efficacy
C. organizational inertia
Incumbent firms favor incremental innovation over radical innovation because:
A. their business decisions are independent of the other parties in their innovation ecosystem.
B. radical innovation will disturb the existing power distribution within the firms.
C. incumbent firms do not have formal organizational structures and processes like the way new entrants do.
D . incremental innovations help firms sustain a permanent competitive advantage, whereas radical innovations only help gain a temporary advantage.
B. radical innovation will disturb the existing power distribution within the firms.
Why is it easier for new entrants to involve in radical innovations when compared to incumbent firms?
A. Unlike incumbent firms, new entrants do not have to face the high entry barriers, initially.
B. New entrants are embedded in an innovation ecosystem, while incumbent firms are not.
C. Unlike incumbent firms, new entrants do not have formal organizational structures and processes.
D. Incumbent firms do not have the advantages of network effects that new entrants have.
C. Unlike incumbent firms, new entrants do not have formal organizational structures and processes.
When firms innovate by leveraging existing technologies into new markets, they are said to be involved in _____.
A. incremental innovations
B. radical innovations
C. architectural innovations
D. disruptive innovations
C. architectural innovations
ModelLife Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?
A. Disruptive innovation
B. Incremental innovation
C. Radical innovation
D. Architectural innovation
D. Architectural innovation
A(n) _____ leverages new technologies to attack existing markets.
A. disruptive innovation
B. incremental innovation
C. radical innovation
D. architectural innovation
A. disruptive innovation
Which of the following statements is true of a disruptive innovation?
A. It begins as a low-cost solution to a new problem.
B. It initially performs better than the existing technology.
C. It involves leveraging existing technologies in new markets.
D. It invades the market from the bottom up, by first capturing the low end.
D. It invades the market from the bottom up, by first capturing the low end.
Which of the following is one of the reasons that led to CNN, an innovator, losing its leadership position in the 24-hour cable news industry?
A. The cable news industry was in the maturity stage of the industry life cycle.
B. The second movers imitated CNN’s incremental innovation to continuously improve their offering.
C. It failed to cross the large competitive chasm between the early adopters and early majority.
D. Its business model relied heavily on crowdsourcing for its user-generated content.
B. The second movers imitated CNN’s incremental innovation to continuously improve their offering.
As a start-up company, Virtue Mobiles Inc. entered the low end of the highly competitive cell phone industry with its low-cost smartphones. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartphones in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
A. Radical innovation
B. Incremental innovation
C. Architectural innovation
D. Disruptive innovation
D. Disruptive innovation
When Japanese carmakers attacked the existing U.S. automobile market by first offering small fuel efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in _____.
A. regressive innovation
B. radical innovation
C. disruptive innovation
D. architectural innovation
C. disruptive innovation
Digital photography replacing film photography would be an example of a(n) _____.
A. regressive innovation
B. radical innovation
C. architectural innovation
D. disruptive innovation
D. disruptive innovation
Which of the following is true of a disruptive innovation?
A. It targets existing markets.
B. It initially provides high-cost solutions to existing problems.
C. It introduces a radical idea and creates a new industry.
D. It attacks the market through a top-down process.
A. It targets existing markets.
A factor favoring the success of disruptive innovation is that:
A. incumbent firms are slow to change.
B. new entrants have highly formal organizational structures and processes.
C. the low end of the market is highly guarded.
D. incumbent firms focus on radical innovation rather than incremental innovation.
A. incumbent firms are slow to change.
Intel’s Celeron chip and Atom chip are initiatives to:
A. introduce a new product in a new market to extend its leadership.
B. guard the company against disruptive innovation by protecting the low end of the market.
C. stall its own disruption strategies and wait for its rivals to introduce disruptive forces.
D. target that section of the market that is not particularly price sensitive.
B. guard the company against disruptive innovation by protecting the low end of the market.
General Electric (GE) disrupted itself in the healthcare industry by:
A. replacing the top levels of the executive hierarchy.
B. introducing inexpensive and smaller diagnostic devices in developing countries.
C. saturating the global market with multiple diagnostic devices.
D. targeting the comparatively less price-sensitive sections of the market.
B. introducing inexpensive and smaller diagnostic devices in developing countries.
By introducing Vscan, a small, wireless ultrasound device, GE Healthcare (General Electric) was primarily trying to:
A. cater to the healthcare needs of the developed countries over developing countries.
B. invade the healthcare market from the bottom up.
C. leverage existing technologies to attack new markets.
D. find a market for high-end, high-price diagnostic devices.
B. invade the healthcare market from the bottom up.
Which of the following is stated by the long tail phenomenon?
A. When production is increased by 80 percent, the decrease in cost is close to 20 percent due to economies of scale.
B . To gain a competitive advantage, it is necessary for a business to internalize 80 percent of its R&D, and outsource the remaining 20 percent.
C . For an incumbent firm, 80 percent of its revenue comes from existing customers, and new customers account for the remaining 20 percent.
D. Almost 80 percent of sales in a given product category come from only 20 percent of the offerings in that category.
D. Almost 80 percent of sales in a given product category come from only 20 percent of the offerings in that category.
In the context of the long tail phenomenon, what does the short head represent?
A. It represents products that appeal to the largest segment of the market with homogenous tastes.
B. It represents products that are manufactured from minimal input resources.
C. It represents products that contribute only 20 percent to a firm’s total revenue.
D. It represents products that online retailers offer in order to increase their product portfolio and not their revenues.
A. It represents products that appeal to the largest segment of the market with homogenous tastes.
_____ is a situation in which transactions are likely not to take place because there are only a few buyers and sellers who have difficulty finding each other.
A. Diseconomies of scale
B. Resource ambiguity
C. Thin markets
D. Buyer resistance
C. Thin markets
The _____ business model is best described as one in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices.
A. razor-razor-blade
B. freemium
C. pay-as-you-go
D. long tail
D. long tail
How has the long tail business model affected eBay as an online retailer?
A. It has increased the cost of the virtual shelf space.
B. It has allowed eBay to offer limited product selections to its customers.
C. It has helped overcome the problem of thin markets, at no cost to the buyer.
D. It has made eBay highly dependent on products found in the short head to generate revenues.
C. It has helped overcome the problem of thin markets, at no cost to the buyer.
Large companies, such as AT&T, IBM, and GE, have been shifting their knowledge landscape from closed innovation to open innovation because of the:
A. decreasing capability of external suppliers and vendors.
B. lack of reliability on venture capital.
C. increasing need to internally control research and development.
D. increasing supply and mobility of skilled workers.
D. increasing supply and mobility of skilled workers.
Which of the following statements is true of firms pursuing a closed innovation?
A. Firms following the closed innovation model are less likely to be prone to the not-invented-here syndrome.
B. Firms in the closed innovation model are extremely protective of their intellectual property.
C . Firms in the closed innovation model focus on building a more effective business model to commercialize R&D, rather than focusing on being first to market.
D . Firms following the closed innovation model will find activities such as spin-out ventures or strategic alliances crucial to commercialize their internally developed R&D.
B. Firms in the closed innovation model are extremely protective of their intellectual property.
Globe Source Inc. is a consumer electronics company that follows an open innovation model. Which of the following can be concluded about this firm?
A. The firm will suffer from the not-invented-here syndrome.
B. The firm is less likely to commercialize researches from other firms.
C. The firm will buy others’ intellectual property whenever it advances its own business model.
D. The firm will equate R&D with a high likelihood of benefitting from first-mover advantages.
C. The firm will buy others’ intellectual property whenever it advances its own business model.
Which of the following statements accurately brings out the difference between closed innovation and open innovation?
A . Firms following the open innovation model are much more likely to be prone to the not-invented-here syndrome than firms pursuing a closed innovation model.
B . While open innovation focuses on building an effective business model to commercialize R&D, closed innovation focuses on being first to market.
C . Firms following the open innovation model are more protective about their intellectual property than firms pursuing a closed innovation model.
D . While open innovation means introducing new technologies to new markets, closed innovation refers to introducing new technologies to existing markets.
B . While open innovation focuses on building an effective business model to commercialize R&D, closed innovation focuses on being first to market.
Which of the following key assumptions are innovations like Procter & Gamble’s “Connect + Develop” based on?
A. Combining the best of internal and external R&D will more likely lead to a competitive advantage.
B. Almost 40 percent of sales comes from 80 percent of product selection found in the short head.
C. The low end of a market is highly vulnerable to competitive attacks.
D. Since the best people, the smartest people in the industry work for P&G, the best discoveries must be invented at P&G.
A. Combining the best of internal and external R&D will more likely lead to a competitive advantage.
Norce Autos Inc. allows its customers, suppliers, researchers, and the community in general to contribute their ideas toward new product developments. Customers and other interested stakeholders can let the company know what new features they want to see in their next car. If the company faces any technical complexities that its internal R&D team cannot solve, it posts the problem on its website and allows people from the external community to provide solutions. In this scenario, Norce Autos Inc. is primarily leveraging its:
A. economies of scope.
B. open innovation model.
C. razor-razor-blade business model.
D. experience-curve effects.
B. open innovation model.
Which of the following reasons led to the launch of Procter & Gamble’s “Connect + Develop,” a webbased interface that connects the company’s internal-innovation capability with the distributed knowledge in the global community?
A. The company wanted to focus on process innovation rather than product innovation.
B. The company was no longer able to generate adequate growth through closed innovation.
C. The company wanted to carefully protect its intellectual property.
D. The supply and mobility of unskilled workers within the industry had increased drastically.
B. The company was no longer able to generate adequate growth through closed innovation.
General Electric’s CEO, Jeffrey Immelt, decided to refocus GE’s portfolio of businesses and leverage the firm’s core competency in industrial engineering while pursuing future-growth industries. The two industries that CEO Immelt had identified as major future-growth industries were the:
A. education and entertainment sectors.
B. clean-technology sector and health care sector.
C. capital finance and information technology sectors.
D. consumer electronics sector and hospitality sector.
B. clean-technology sector and health care sector.
Decisions relating to “what stages of the industry value chain to participate in” determine a firm’s:
A. level of diversification.
B. geographic scope.
C. vertical integration.
D. absorptive capacity.
C. vertical integration.
Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?
A. The first-line employees
B. The creditors
C. The chief executive officer
D. The middle manager
C. The chief executive officer
Which of the following statements is true of transaction costs?
A . When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate.
B. When companies transact in the open market, they incur internal transaction costs.
C. Transaction costs exclusively consist of external costs associated with economic exchanges.
D. Transaction costs are necessary to explain and predict the boundaries of a firm.
D. Transaction costs are necessary to explain and predict the boundaries of a firm.
Which of the following is an example of an external transaction cost?
A. The cost of setting up a production unit
B. The cost of searching for a contract manufacturer
C. The cost of recruiting and retaining employees
D. The cost of maintaining plant and machinery
B. The cost of searching for a contract manufacturer
Which of the following is an example of an internal transaction cost?
A. The cost of searching for a contract manufacturer
B. The cost of signing a contract with a supplier
C. The cost of buying raw materials
D. The cost of maintaining a production unit
D. The cost of maintaining a production unit
Which of the following statements is true of internal transaction costs?
A. Internal transaction costs arise when companies transact in the open market.
B . When the internal costs involved in pursuing an activity in-house are more than the costs of transacting, then the concerned firm should vertically integrate.
C. Internal transaction costs tend to increase with organizational size and complexity.
D. It is beneficial to “buy” goods or services rather than “make” when internal transaction costs are low.
C. Internal transaction costs tend to increase with organizational size and complexity.
A primary advantage of organizing economic activity within firms is the:
A. ability to coordinate highly complex tasks to allow for specialized division of labor.
B. low administrative costs because of reduced bureaucracy.
C. eradication of the principal-agent problem.
D. high-powered incentive to work as salaried employees for an existing firm.
A. ability to coordinate highly complex tasks to allow for specialized division of labor.
Grace Apparel Inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?
A. The firm will be protected against the principal-agent problem.
B. The firm’s administrative costs will be low because of necessary bureaucracy.
C. The firm will have more flexibility in purchasing and comparing prices of goods and services.
D. The firm will have high-powered incentives, such as hourly wages and salaries.
C. The firm will have more flexibility in purchasing and comparing prices of goods and services.
Managers in a firm hired to improve the firm’s profitability and ultimately the shareholders’ value will add to the overall costs if they pursue their own self interests. What does this best illustrate?
A. Diseconomies of scale
B. Principal-agent problem
C. Experience-curve effects
D. Information asymmetries
B. Principal-agent problem
The most efficient way to overcome the principal-agent problem in a firm is to:
A. increase the level of vertical integration within the firm.
B. provide stock options to managers.
C. downsize the existing workforce.
D. organize economic activities within the firm.
B. provide stock options to managers.
_____ is best described as a situation in which one party is more informed than another, because of the possession of private information.
A. Information governance
B. Information asymmetry
C. Information deregulation
D. Information piracy
B. Information asymmetry
In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?
A. Experience-curve effects
B. Time compression diseconomies
C. Principal-agent problem
D. Information asymmetry
D. Information asymmetry
Bill is in an interview for a sales job that requires no experience. He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate?
A. Information asymmetry
B. Principal-agent problem
C. Experience-curve effect
D. Learning-curve effect
A. Information asymmetry
When approaching a bank for a loan, the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting. What is this situation referred to as?
A. Principal-agent problem
B. Information asymmetry
C. Experience-curve effect
D. Learning-curve effect
B. Information asymmetry
A drawback of short-term contracting as an alternative to making a component in-house is that:
A. it is the most-integrated alternative to performing an activity so the principal company has no control over the agent.
B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
C. it fails to allow a long planning period that individual market transactions provide.
D. the buying firm cannot demand lower prices due to the lack of a competitive bidding process.
B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
Which of the following firms is least integrated?
A. A firm that enters a joint venture with another company to develop a new technology
B. A firm that owns production subsidiaries across the globe
C. A firm that makes equity investments in its supplier’s company
D. A firm that buys all the required raw materials from multiple external vendors
D. A firm that buys all the required raw materials from multiple external vendors
_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.
A. Embargos
B. Cartel agreements
C. Strategic alliances
D. Corporate acquisitions
C. Strategic alliances
_____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.
A. Lean manufacturing
B. Licensing
C. Crowdsourcing
D. Bootlegging
B. Licensing
Hitoro Inc. developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?
A. Licensing
B. Franchising
C. Crowdsourcing
D. Bootlegging
A. Licensing
Silver Weave Inc., an apparel company, operates through a business model in which individuals can buy the rights to set up Silver Weave stores and sell the company’s merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to stock the collection approved from the company’s headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?
A. Crowdsourcing
B. Credit Rationing
C. Franchising
D. Bootstrapping
BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner’s confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.
A. cartel
B. credible commitment
C. corrective action
D. parent-subsidiary relationship
B. credible commitment
When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. What did Toyota do to instill this trust?
A. It offered Orocobre exposure to Toyota’s proprietary information.
B. It made a credible commitment by taking an equity stake in Orocobre.
C. It acquired Orocobre as part of its backward vertical integration plans.
D. It offered Orocobre franchising opportunities to sell hybrid vehicles.
B. It made a credible commitment by taking an equity stake in Orocobre.
Divina Pharma Inc. and MF Electronics Inc. have together invested and created a new organization, FirstHealth Inc., to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Divina Pharma and MF Electronics. Which of the following alternatives to integration does this scenario best illustrate?
A. A joint venture
B. A franchisee
C. A licensing contract
D. A corporate acquisition
A. A joint venture
Which of the following alternatives on the make-or-buy continuum allows for most integration?
A. Short-term contracting
B. Joint ventures
C. Licensing
D. Parent-subsidiary relationship
D. Parent-subsidiary relationship
Galaxi Products Inc. is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate?
A. Venture capitalism
B. Franchising
C. Joint venture
D. Parent-subsidiary relationship
D. Parent-subsidiary relationship
Which of the following is true of the parent-subsidiary relationship?
A. The ability to create a community of knowledge is low.
B. The parent firm has no control and command over the subsidiary.
C. The transaction costs that arise are frequently due to transfer prices.
D. The parent firm will lack specialization and division of labor.
C. The transaction costs that arise are frequently due to transfer prices.
_____ is best described as a firm’s ownership of its production of needed inputs or of the channels by which it distributes its outputs.
A. Venture capitalism
B. Bootlegging
C. Vertical integration
D. Crowdsourcing
C. Vertical integration
A(n) _____ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages.
A. encrypt
B. chain of command
C. industry value chain
D. scatter chart
C. industry value chain
Each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing.
A. industry
B. functional department
C. economy
D. customer segment
A. industry
_____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.
A. Forward vertical integration
B. Corporate divestiture
C. Reverse engineering
D. Closed innovation
A. Forward vertical integration
Neon Electronics Inc. sourced touchscreens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touchscreens. What does this scenario best illustrate?
A. Crowdsourcing
B. New product development
C. Backward vertical integration
D. Conglomerate diversification
C. Backward vertical integration
Which of the following best illustrates forward vertical integration?
A. A firm that manufactured and sold car engines to major automobile companies launches its own line of cars.
B. A chain of ice cream parlors launches a brand of toys and accessories for children.
C. A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam.
D. A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.
A. A firm that manufactured and sold car engines to major automobile companies launches its own line of cars.
How do firms benefit from vertical integration?
A. Vertical integration allows firms to reduce organizational complexity and administrative costs.
B. Firms that vertically integrate will have increased strategic flexibility when faced with technological changes.
C. Firms that vertically integrate do not have to make transaction-specific investments.
D . Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.
D . Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.
_____ are best described as unique assets with high opportunity costs that have significantly more value in their intended use than in their next-best use.
A. Cost drivers
B. Value drivers
C. Specialized assets
D. Liquid assets
C. Specialized assets
Which of the following best illustrates physical-asset specificity?
A. A unique training program developed in an organization
B. A ship container designed to carry more than the average load of iron ore
C. A generic machine that can be used to churn different mixtures
D. A machine solely designed to give a candy its trademarked shape
D. A machine solely designed to give a candy its trademarked shape
Which of the following best illustrates site specificity?
A. Equipment necessary for mining bauxite and aluminum smelting
B. Bottling machinery to manufacture bottles with trademarked shapes
C. Investment made in human capital to master procedures of a specific organization
D. Investment made to train employees to operate computers
A. Equipment necessary for mining bauxite and aluminum smelting
Investments in specialized assets tend to incur high opportunity costs because the:
A. assets can be profitably used for multiple purposes.
B. threat of one of the partners pursuing his or her self-interest is high.
C. social costs associated with these assets are high.
D. firms can avoid backward integration by investing in these assets.
B. threat of one of the partners pursuing his or her self-interest is high.
Virtue Products Inc., a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. This apart, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Virtue Products applying?
A. Concentric integration
B. Taper integration
C. Horizontal integration
D. Conglomerate integration
B. Taper integration
Apple and Nike have their own retail outlets and also use other independent retailers, both the brickand-mortar type and online, to sell their products. This is an example of _____.
A. monopsony
B. geographic diversification
C. crowdsourcing
D. taper integration
D. taper integration
Which of the following statements is true of taper integration?
A. It is the most-integrated alternative to performing an activity within one’s own corporate family.
B. It refers to a situation in which firms narrow their focus on downstream value chain activities and ignore the upstream value chain activities.
C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.
D. It does not rely on outside-market firms for its supplies.
C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.
_____ is best described as moving one or more internal value chain activities outside the firm’s boundaries to other firms in the industry value chain.
A. Strategic outsourcing
B. Reverse engineering
C. Forward integration
D. Horizontal integration
A. Strategic outsourcing
A firm that engages in strategic outsourcing typically:
A. increases its internal transaction costs.
B. reduces its level of vertical integration.
C. reduces its level of external transaction costs.
D. increases its level of horizontal integration.
B. reduces its level of vertical integration.
Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are:
A. engaging in strategic outsourcing.
B. increasing their level of vertical integration.
C. offshoring their core activities.
D. engaging in unrelated diversification.
A. engaging in strategic outsourcing.
PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in _____.
A. strategic outsourcing
B. lean manufacturing
C. product-market diversification
D. process diversification
C. product-market diversification
While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?
A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
B. Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC.
C. KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy.
D. Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.
A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
_____ is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.
A. Taper integration
B. Open innovation
C. Diversification
D. Differentiation
C. Diversification
When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will:
A. introduce different products and services in an existing single market.
B. sell its products in several different regional, national, and international markets.
C. operate from multiple headquarters across the globe.
D. depend solely on its in-house facilities for all its production purposes.
B. sell its products in several different regional, national, and international markets.
HK Goods Inc. is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?
A. Process diversification
B. Product diversification
C. Geographic diversification
D. Market diversification
B. Product diversification
Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations. Which of the following types of diversification strategies is the firm pursuing?
A. Product diversification strategy
B. Process diversification strategy
C. Geographic diversification strategy
D. Product-market diversification strategy
C. Geographic diversification strategy
Marva Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Marva Industries pursuing?
A. Zone pricing
B. Niche marketing
C. Product-market diversification strategy
D. Process diversification strategy
C. Product-market diversification strategy
White Leo Motors (WLM) Inc. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes WLM?
A. A conglomerate
B. A subsidiary
C. A dominant-business firm
D. A single-business firm
C. A dominant-business firm
Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company?
A. Taper integration strategy
B. Differentiation strategy
C. Related diversification strategy
D. Cost-leadership strategy
C. Related diversification strategy
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using _____.
A. related-constrained diversification
B. related-linked diversification
C. strategic outsourcing
D. offshore outsourcing
A. related-constrained diversification
Evara Inc. started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few, if not all, of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Evara pursuing in this scenario?
A. Taper integration strategy
B. Niche marketing strategy
C. Related-constrained strategy
D. Related-linked strategy
D. Related-linked strategy
DS & Co. is following a related-linked diversification strategy, and GreenWing Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?
A . GreenWing Inc. generates 70 percent of its revenues from its primary business, while DS & Co. generates only 10 percent of its revenues from its primary business.
B. GreenWing Inc. pursues a backward diversification strategy, while DS & Co. pursues a forward diversification strategy.
C. DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc.
D. DS & Co. pursues a differentiation strategy, and GreenWing Inc. pursues a cost leadership strategy, to gain a competitive advantage.
C. DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc.
A firm follows a(n) _____ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.
A. related-constrained strategy
B. unrelated diversification strategy
C. differentiation strategy
D. dominant-business strategy
B. unrelated diversification strategy
A _____ is best defined as a company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy.
A. conglomerate
B. single-business firm
C. parent company
D. subsidiary
A. conglomerate
Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?
A. A flagship brand
B. A single-business firm
C. A dominant-business firm
D. A conglomerate
D. A conglomerate
How does a conglomerate benefit from following an unrelated diversification strategy?
A. The conglomerate can solely depend on its primary business activity for a major portion of its revenues.
B. The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses.
C. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
D. The conglomerate can limit the learning- and experience-curve effects it faces.
C. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies
Which of the following companies will be considered as a conglomerate?
A. ExxonMobil, after it acquired XTO Energy—a natural gas company
B. The Tata Group, active in industries such as tea, steel, IT, power, and automobiles
C. Harley-Davidson, with its Harley-Davidson branded motorcycle clothing and attire
D. Coca-Cola, which solely focuses on soft drinks but operates in many countries
B. The Tata Group, active in industries such as tea, steel, IT, power, and automobiles
With reference to the Strategy Highlight 8.2, the Tata Group’s corporate strategy is attempting to:
A. move from unrelated diversification to related-constrained diversification.
B. integrate different strategic positions, pursued by different strategic business units.
C. pursue a focused differentiation strategy over a focused cost-leadership strategy.
D. depend on a single product market to generate most of its revenues.
B. integrate different strategic positions, pursued by different strategic business units.
The core competency of MotorCraft Inc. is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that there is a new market opportunity to diversify. Thus, it produces the car engines on a large scale and sells them to other automobile companies. In this scenario, MotorCraft is:
A. leveraging existing core competencies to target the chasm between the early adopter and early majority market segment.
B. redeploying and recombining existing core competencies to compete in future markets.
C. building new core competencies to create and compete in future markets.
D. building new core competencies to protect and extend current market position.
B. redeploying and recombining existing core competencies to compete in future markets.
MotorCult Inc. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car. In this scenario, MotorCult is primarily:
A. leveraging new core competencies to improve current market position.
B. redeploying existing core competencies to compete in future markets.
C. unlearning existing core competencies to create and compete in markets of the future.
D. building new core competencies to protect and extend current market position.
D. building new core competencies to protect and extend current market position.
Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?
A. It is leveraging existing core competencies to improve current market position.
B. It is building new core competencies to protect and extend its current market position.
C. It is redeploying and recombining existing core competencies to compete in markets of the future.
D. It is targeting the chasm between the early adopter and early majority market segment.
B. It is building new core competencies to protect and extend its current market position.
In 2007, Salesforce.com recognized an emerging market for “platform as a service (PaaS)” offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of softwares. This is an example of:
A. leveraging existing core competencies to improve current market position.
B. building new core competencies to achieve vertical integration.
C. redeploying and recombining existing core competencies to compete in markets of the future.
D. building new core competencies to create and compete in markets of the future.
D. building new core competencies to create and compete in markets of the future.
Diversification premium is a situation in which:
A . customers have to pay premium prices on products manufactured by firms pursuing unrelated diversification due to the lack of economies of scope.
B. the overall value creation of highly diversified firms is more than the sum of the value created by individual business units.
C. the stock price of related-diversification firms is valued at greater than the sum of their individual business units.
D. shareholders are benefitted from the market capitalization of a highly diversified firm because of its economies of scale.
C. the stock price of related-diversification firms is valued at greater than the sum of their individual business units.
Which of the following firms is most prone to experiencing a diversification discount?
A. A company that deals in petroleum as well as natural gas
B. A company that derives its revenues from selling aerated drinks and health drinks
C. A company that pursues unrelated diversification
D. A company that pursues related-constrained diversification
C. A company that pursues unrelated diversification
Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company’s stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?
A. Diversification discount
B. Learning-curve effects
C. Experience-curve effects
D. Economies of scale
A. Diversification discount
GFR Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has GFR Group created?
A. Capital liquidity
B. Diversification premium
C. Diversification discount
D. Demand-pull inflation
B. Diversification premium
Companies that pursue related diversification are able to create a diversification premium because they:
A. are able to leverage time compression economies.
B. can operate beyond the minimum efficient scale.
C. are able to increase value due to economies of scope.
D. can reduce the value gap created by its products.
C. are able to increase value due to economies of scope
_____ is best described as the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.
A. Reverse engineering
B. Restructuring
C. Rebooting
D. Reverse brainstorming
B. Restructuring
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company’s key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in:
A. reverse engineering.
B. benchmarking.
C. restructuring.
D. crowdsourcing.
C. restructuring
The Boston Consulting Group (BCG) growth-share matrix locates a firm’s individual strategic business units (SBUs) in two dimensions:
A. start-up capital required and stage of industry life cycle.
B. relative market share and speed of market growth.
C. economic value created and costs incurred.
D. amount of debt financing and equity financing.
B. relative market share and speed of market growth.
In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs:
A. compete in a low-growth market but hold considerable market share.
B. hold a high market share in a fast-growing market.
C. compete in a high-growth market but have low and unstable earnings.
D. hold a small market share in a low-growth market.
D. hold a small market share in a low-growth market.
In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should:
A. infuse more capital into the strategic business unit.
B. provide more human resource to the business.
C. hold the business till it turns into a star.
D. divest the strategic business unit.
D. divest the strategic business unit.
ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low-growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under:
A. stars.
B. question marks.
C. dogs.
D. cash cows.
C. dogs.
_____ are strategic business units that compete in a low-growth market but hold considerable market share.
A. Dogs
B. Question marks
C. Cash cows
D. Stars
C. Cash cows
DiskOne Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, DiskOne has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth-share matrix, DiskOne will be categorized under:
A. dogs.
B. cash cows.
C. stars.
D. question marks.
B. cash cows.
If a strategic business unit is recognized as a cash cow, it is advisable to:
A. harvest the business.
B. invest into the business to hold its current position.
C. divest the business due to its low market share.
D. maintain it till turns into a dog.
B. invest into the business to hold its current position.
Real Goods Inc. is a large conglomerate. The company’s beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario?
A. While the tobacco SBU operates in a low-growth market, the beverages SBU operates in a highgrowth market.
B. The management of the company should use the cash inflow from the beverages SBU and invest it in the tobacco SBU.
C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.
D . The tobacco SBU should follow a backward integration strategy, and the beverages SBU should pursue a forward integration strategy.
C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.
A corporation’s star SBUs will:
A. hold a high market share in a fast-growing market.
B. experience low and unstable earnings in a fast-growing market.
C. hold a small market share in a low-growth market.
D. compete in a low-growth market but hold considerable market share.
A. hold a high market share in a fast-growing market.
The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growthshare matrix, the smartphone division of True Electra will be categorized under:
A. question marks.
B. stars.
C. cash cows.
D. dogs.
B. stars.
TrueAutos Inc. is a large automobile company. The company’s petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?
A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
B . The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry.
C . The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the petrol cars SBU, the company should just maintain it.
D. The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.
A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
Strategic business units that have a relatively low market share but have the potential to grow are best categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.
A. dogs
B. stars
C. cash cows
D. question marks
D. question marks
The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under:
A. dogs.
B. question marks.
C. stars.
D. underdogs.
B. question marks.
The 3D television division of a large consumer electronics company has been recognized as a question mark. The company’s LCD television division has been categorized under dogs. Which of the following statements will hold well in this scenario?
A . The strategic recommendation for the 3D television division is to harvest it, and the strategic recommendation for the LCD television division is to invest further in it.
B . The 3D television division will have a high market share in its industry, whereas the LCD television division will have a low-market share in its industry.
C. The 3D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market.
D . The LCD television division will benefit by pursuing a differentiation strategy, and the 3D television division will benefit by following a cost-leadership strategy.
C. The 3D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market.
How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies?
A. By using internal capital markets as a source of value creation
B. By adding more unrelated businesses into its corporate portfolio
C. By increasing its coordination and influence costs
D. By investing in businesses under the question mark quadrant of the BCG matrix
A. By using internal capital markets as a source of value creation
A strategy of _____ will be most beneficial for a firm to enhance its overall corporate performance.
A. unrelated level of diversification
B. single-business level of diversification
C. dominant-business level of diversification
D. related-linked diversification
D. related-linked diversification
_____ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.
A. Fixed costs
B. Influence costs
C. Coordination costs
D. Opportunity costs
B. Influence costs
_____, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.
A. Coordination costs
B. Fixed costs
C. Agency costs
D. Network costs
A. Coordination costs
The success of the Pixar-Disney strategic alliance demonstrated that:
A. Disney was in desperate need of Pixar’s graphic display systems.
B. the two entities’ complementary assets matched.
C. it was easier for the alliance partners to reduce the value gap created.
D. the companies were effectively managing an unrelated diversification strategy.
B. the two entities’ complementary assets matched.
Disney became the world’s leading media company to a large extent by pursuing a corporate strategy of _____.
A. related-linked diversification
B. cost-leadership
C. unrelated diversification
D. hostile takeovers
A. related-linked diversification
Which of the following best illustrates a merger between the two companies GD Inc. and VS Inc.?
A. GD Inc. purchases VS Inc. for $80 billion despite VS Inc. being against the purchase.
B. GD Inc. and VS Inc. join together to form a third new entity, while they also operate separately.
C. GD Inc. outsources a few of its business activities to VS Inc. for competitive advantage.
D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc
D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc.
When does a merger between companies typically occur?
A. When two firms of comparable size join to form a combined entity
B. When large, incumbent firms buy startup companies
C. When a target firm does not want to be acquired
D. When two or more firms enter a temporary vertical strategic alliance
A. When two firms of comparable size join to form a combined entity
The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion. All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels. What does this scenario best illustrate?
A. A merger
B. A joint venture
C. An acquisition
D. An equity alliance
C. An acquisition
Which of the following is true of acquisitions?
A. Acquisitions can be friendly or hostile.
B. Acquisitions can occur only when the involved entities are of comparable size.
C. In acquisitions, two independent companies join to form a separate third entity.
D. Acquisitions increase the competitive intensity in an industry.
A. Acquisitions can be friendly or hostile
When large, incumbent firms buy startup companies, the transaction is generally described as a(n) _____.
A. joint venture
B. partnership
C. acquisition
D. alliance
C. acquisition
Titan Autos Inc. merged with its competitor, Cadvia Autos Inc. This allowed Titan Autos to use its technological competencies along with Cadvia Autos’s marketing capabilities to capture a larger market share than what the two entities individually held. What does this scenario best illustrate?
A. Backward integration
B. Forward integration
C. Horizontal integration
D. Vertical integration
C. Horizontal integration
Which of the following scenarios best illustrates horizontal integration?
A. Regal Autos Inc. enters into a licensing contract with a distributor in a new international market.
B. Regal Autos Inc. acquires a component parts manufacturer who previously supplied to Regal Autos’ competitor.
C. Regal Autos Inc. sets up its own distribution channel and retail stores.
D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.
D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.
How does horizontal integration within an industry affect the surviving firms?
A. By increasing the threat the surviving firms will face from new entrants
B. By strengthening the rivalry among existing firms
C. By requiring the surviving firms to shift their focus from non-price to price competition
D. By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers
D. By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers
Which of the following is a result of horizontal integration in terms of Porter’s five forces model?
A. The industry structure becomes less consolidated.
B. There is a reduction of excess capacity in the market.
C. The industry structure becomes potentially less profitable.
D. There is an increase in rivalry among existing firms.
B. There is a reduction of excess capacity in the market.
How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?
A. By facilitating excess capacity in the industry
B. By preventing mergers from taking place
C. By lowering competitive intensity in the industry overall
D. By increasing the threat of entry in the industry
C. By lowering competitive intensity in the industry overall
It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because:
A. the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive.
B. the surviving firms will need to be protected against the increasing bargaining power of the suppliers.
C. the horizontal integration activity has the potential to reduce competitive intensity in an industry.
D. the surviving firms will need protection against the relaxed entry barriers.
C. the horizontal integration activity has the potential to reduce competitive intensity in an industry.
PureSource Pharma Inc. recently acquired BioChem Pharmaceuticals Inc. It now sells its own products along with the products originally sold by BioChem Pharmaceuticals. As a result, PureSource Pharma’s sales force will also be marketing the acquired company’s products. How will this horizontal integration most likely affect PureSource Pharma?
A. PureSource Pharma will lower its costs through economies of scale.
B. PureSource Pharma will diminish its economic value creation.
C. PureSource Pharma will increase its cost of distribution.
D. PureSource Pharma will reduce the size of its sales force.
A. PureSource Pharma will lower its costs through economies of scale.
Which of the following is a disadvantage of a horizontal integration corporate strategy?
A. It increases competitive intensity within an industry.
B. It increases the potential for legal repercussions.
C. It increases the costs associated with increasing value.
D. It increases the threat of new entrants in an industry.
B. It increases the potential for legal repercussions.
How does Kraft Foods benefit from its hostile takeover of Cadbury PLC in 2010?
A. Its main strategic focus is now on the domestic market.
B. It opens a market for it that is growing slowly but has high profit margins.
C. It has access to convenience stores and a new distribution channel.
D. It automatically gains monopoly in the chocolate-manufacturing industry.
C. It has access to convenience stores and a new distribution channel.
The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market in 2013 because:
A. the U.S. population was growing slowly and becoming more health conscious.
B. its strategic position in the U.S. market was well protected through high entry barriers.
C. this would help the company gain access to large cocoa plantations in China.
D. Hershey’s main strategic focus was on product and market diversification and not on the domestic market.
A. the U.S. population was growing slowly and becoming more health conscious.
Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to:
A. imitate the actions of its competitors like Apple and Facebook.
B. solve its principal-agent problems.
C. fill gaps in its competency lineup.
D. expand through unrelated diversification.
C. fill gaps in its competency lineup.
Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion in 2012?
A. The desire to gain a new capability
B. The need to enter a new geographical market
C. The need to reduce its level of horizontal integration
D. The desire to pursue an unrelated diversification strategy
A. The desire to gain a new capability
The main reason behind Google’s decision to acquire the Israeli startup company Waze for $1 billion was to:
A. preempt its competitors from buying Waze.
B. share its capabilities with Waze.
C. support startup companies with venture capital.
D. gain access to technology that is alien to it.
A. preempt its competitors from buying Waze.
The managers at Movo Automobile Inc. want to diversify their business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Movo Automobile is most likely a result of:
A. time compression diseconomies.
B. experience-curve effects.
C. principal-agent problems.
D. resource ambiguity.
C. principal-agent problems.
FlyOne Airway’s decision to acquire TrueGear Fuels Inc. proved to be ill-fated because its managers had overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers’ capabilities were restricted to the airlines industry. What does this scenario best illustrate?
A. Managerial empathy
B. Managerial feasibility
C. Managerial hubris
D. Managerial capitalism
C. Managerial hubris
Adidas acquired Reebok primarily to _____.
A. overcome its competitive disadvantage against Nike
B. get access to the superior technology of Reebok
C. overcome its principal-agent problems
D. pursue an unrelated diversification strategy
A. overcome its competitive disadvantage against Nike
To position itself more strongly after the 2001 bursting of the Internet and tech stock bubble, Cisco Systems embarked on a(n) _____.
A. harvest strategy
B. acquisitions-led growth strategy
C. unrelated diversification strategy
D. exit strategy
B. acquisitions-led growth strategy
While Cisco Systems has been successful in selecting and buying both big and small technology ventures, HP had to write off some of its recent technology acquisitions. Which of the following statements best explains this scenario?
A. Cisco was successful due to its unrelated diversification, whereas HP failed by pursuing a relatedlinked diversification strategy.
B . Cisco treated the management of the larger firms it took over more like acquisitions, whereas HP treated its acquisitions as strategic alliances.
C. The acquisitions were successful as the learning and experience curve effects were low.
D. Acquisition and integration capabilities were not equally distributed across firms.
D. Acquisition and integration capabilities were not equally distributed across firms.
A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.
A. proprietorship
B. cooperative
C. strategic alliance
D. leveraged buyout
C. strategic alliance
Which of the following statements is true of strategic alliances?
A. They are always focused on joining the same value chain activities.
B. They enable firms to achieve goals faster, but at higher costs.
C. They are known as strategic alliances whether or not they have the potential to affect a firm’s competitive advantage.
D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.
D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.
Vibgyor Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario?
A. An acquisition
B. A strategic alliance
C. A leveraged buyout
D. A proprietorship
B. A strategic alliance
The _____ is a strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.
A. real-options perspective
B. stakeholder strategy
C. relational view of competitive advantage
D. non-differentiation strategy
C. relational view of competitive advantage
What does the relational view of competitive advantage propose?
A . A strategic alliance has the potential to help a firm gain a competitive advantage when it joins together resources that are common, inexpensive, and easy to imitate.
B. The locus of competitive advantage is often not found within the individual firm but within a strategic partnership.
C . Strategic alliances fail to provide competitive advantage when they involve joining different parts of a firm’s value chain, such as R&D and marketing.
D. A firm has a competitive advantage over its rivals when it can provide goods or services similar to the competitors’ at a higher price.
B. The locus of competitive advantage is often not found within the individual firm but within a strategic partnership.
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
A. It helped HP pursue a taper integration strategy.
B. It enabled HP to compete head on with Cisco’s videoconferencing solution.
C. It resulted in depreciation of HP’s shareholder value.
D. It failed because HP lacked the expertise in selecting and integrating technology acquisitions.
B. It enabled HP to compete head on with Cisco’s videoconferencing solution.
Which of the following is NOT a reason why firms enter alliances?
A. To replace competitive advantage with competitive parity
B. To strengthen competitive position
C. To enter new markets, either in terms of geography or products and services
D. To learn new capabilities
A. To replace competitive advantage with competitive parity
How did Apple plan to attack Amazon’s stronghold in the e-reader market?
A. It orchestrated a web of strategic alliances with major publishing houses.
B. It directly imitated Amazon’s Kindle product technology.
C. It acquired startup publishing houses prior to launching its iPad product.
D. It sold e-books at prices lesser than that of Amazon.
A. It orchestrated a web of strategic alliances with major publishing houses.
How did Apple’s e-book business model affect Amazon?
A. Amazon had to further reduce the prices of its e-books.
B. The bargaining power of suppliers, the content providers, increased from Amazon’s perspective.
C. The industry structure changed from oligopoly to monopoly.
D. Amazon acquired the power to set the sales prices of e-books directly for the end consumers.
B. The bargaining power of suppliers, the content providers, increased from Amazon’s perspective.
A drawback involved in using cross-border strategic alliances to enter new foreign markets is that:
A. the foreign firm will need to make larger investments when compared to entering the new market on its own.
B. some of the firm’s proprietary know-how may be appropriated by the foreign partner.
C. all potential business risks in the new market will have to be faced alone by the foreign firm.
D. the shareholder value of the foreign partner will decline drastically.
B. some of the firm’s proprietary know-how may be appropriated by the foreign partner.
What did Microsoft do to gain a foothold in the online search and advertising market dominated by Google?
A. It acquired Yahoo.
B. It entered into a strategic alliance with Yahoo.
C. It sold part of its equity to Yahoo.
D. It outsourced its non-core business activities to Yahoo.
B. It entered into a strategic alliance with Yahoo.
Why did Yahoo enter into a strategic alliance with Microsoft?
A. To pursue an unrelated diversification strategy
B. To overcome its competitive disadvantage in comparison to Google
C. To invest its excess cash flow in Microsoft’s superior technology
D. To share its continuously updated search technology with Microsoft
B. To overcome its competitive disadvantage in comparison to Google
A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.
A. cost-leadership approach
B. break-even analysis
C. market risk framework
D. real-options perspective
D. real-options perspective
Fervana Autos Inc., a large automobile company, made an initial small investment in a startup company that was developing a solar-powered car. This gave Fervana Autos controlling interests in the startup company. However, Fervana Autos had no obligations to make continued investments in the experiments of the startup company. It could invest in small amounts depending on the new product’s success at each stage of its development. If the product proved to be successful, Fervana Autos would have the right to buyout the startup company. This approach to strategic alliance is referred to as _____.
A. a break-even analysis
B. a real-options perspective
C. credible commitment
D. transaction cost economics
B. a real-options perspective
In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech’s drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates _____.
A. the real-options perspective
B. co-opetition
C. explicit knowledge
D. the stakeholder strategy
A. the real-options perspective
How does taking a real-options perspective by entering strategic alliances help incumbent firms?
A. It helps the incumbent firms gain the confidence of the partnering company by making credible commitments.
B. It helps the incumbent firms reduce the value gap they create through their product and service offerings.
C. It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.
D. It reduces the incumbent firms’ cost of acquisition by enabling them to make the entire investment decision in the beginning itself.
C. It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.
When North Autos Inc. wanted to sell its cars in the country of Balvia, it lacked access to distribution channels and marketing expertise in the country. Thus, North Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner’s well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?
A. Increasing competitive intensity
B. Accessing critical complementary assets
C. Procuring additional capital investments
D. Reducing differentiation of product and service offerings
B. Accessing critical complementary assets
When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because:
A. the local partner can better protect its proprietary know-how.
B. building downstream complementary assets can be expensive and time-consuming.
C. the strategic alliance will reduce the differentiation of its product and service offerings.
D. the value gap created by the firm can be easily lowered in an alliance.
B. building downstream complementary assets can be expensive and time-consuming.
_____ is best described as cooperation by competitors to achieve a strategic objective.
A. Limited liability
B. Proprietorship
C. Co-opetition
D. Commerce
C. Co-opetition
_____ are best described as situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary.
A. Learning races
B. Learning networks
C. Learning effects
D. Learning matrices
A. Learning races
In a strategic alliance, the firm that learns faster:
A. has the tendency to lose its competitive advantage.
B. has the incentive to reduce its knowledge sharing.
C. has the tendency to move up a learning curve.
D. has the incentive to invest further in the alliance.
B. has the incentive to reduce its knowledge sharing.
FR Pharmaceuticals Inc., BioCure Pharma Inc., and Regime Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with each other. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?
A. Takeover
B. Buyout
C. Co-opetition
D. Acquisition
C. Co-opetition
New United Motor Manufacturing, Inc. (NUMMI), formed between General Motors (GM) and Toyota in 1984 was the first _____ in the U.S. automobile industry.
A. joint venture
B. non-equity alliance
C. hostile takeover
D. equity alliance
A. joint venture
Aro Shoes Inc. and Mova Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other competencies. Aro Shoes entered the strategic alliance to acquire the production system pioneered by Mova Shoes. Similarly, Mova Shoes agreed to the strategic alliance to study the designing process of Aro Shoes. However, Aro Shoes was more successful and faster than Mova Shoes in accomplishing its alliance goal. What does this scenario best illustrate?
A. Network effects
B. Economies of scope
C. Learning races
D. Time compression diseconomies
C. Learning races
With regard to New United Motor Manufacturing, Inc. (NUMMI), why did General Motors (GM) enter into a strategic alliance with Toyota?
A. To transfer its knowledge of a completely new production system
B. To learn the lean manufacturing system pioneered by Toyota
C. To better understand the American work force
D. To get access to Toyota’s distribution system and marketing expertise
B. To learn the lean manufacturing system pioneered by Toyota
In the New United Motor Manufacturing, Inc. (NUMMI) joint venture, why did Toyota enter into a strategic alliance with General Motors (GM)?
A. To access GM’s completely new production system
B. To learn and implement the just-in-time inventory system pioneered by GM
C. To learn how to implement its lean manufacturing program with an American work force
D. To access GM’s distribution system and marketing expertise
C. To learn how to implement its lean manufacturing program with an American work force
A(n) _____ occurs when firms enter into a partnership based on contractual agreements, which results in vertical strategic alliances, that connect different parts of the industry value chain.
A. equity alliance
B. joint venture
C. non-equity alliance
D. greenfield venture
C. non-equity alliance
Supply, distribution, and licensing contractual agreements between firms, which result in vertical strategic alliances, are all examples of _____.
A. cartel arrangements
B. non-equity alliances
C. joint ventures
D. equity alliances
B. non-equity alliances
In a non-equity alliance, which of the following types of information would firms most likely share?
A. A manager’s knowledge related to solving non-routine problems
B. A top-level manager’s experience related to making strategic decisions
C. The documented information about the material composition of a product
D. The employees’ entrepreneurial skills
C. The documented information about the material composition of a product
Which of the following statements is true of explicit knowledge?
A. Explicit knowledge is about knowing how to do a certain task.
B. Explicit knowledge is knowledge that cannot be codified.
C. Explicit knowledge is shared in non-equity alliance firms.
D. Equity knowledge is acquired only through actively participating in a process.
C. Explicit knowledge is shared in non-equity alliance firms.
_____ are best described as contractual alliances in which the participants regularly exchange codified knowledge.
A. Cartels
B. Licensing agreements
C. Equity alliances
D. Acquisitions
B. Licensing agreements
Amiware Inc., a manufacturer of ceramic cookware, has entered into a contractual agreement with Micoware Inc. The agreement involves vertical strategic alliances connecting different parts of the industry value chain. This arrangement between the two companies best illustrates a(n) _____.
A. joint venture
B. acquisition
C. non-equity alliance
D. greenfield venture
C. non-equity alliance
Which of the following best illustrates a non-equity alliance?
A. A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc.
B. An alliance between RedGate Systems Inc. and DB Computers Inc. that results in DB Gate Inc., an independent third company
C. A collusion between two competitors, RP Pharma Inc. and Vital Pharma Inc., to fix prices
D. An alliance that allows Virtue Insurance Inc. to claim 49 percent ownership in Mercury Finance Inc.
A. A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc.
Which of the following is an advantage of non-equity alliances?
A. They produce strong ties between alliance partners as they are permanent in nature.
B. They are flexible and easy to initiate and terminate.
C. They facilitate the sharing of tacit knowledge between the alliance partners.
D. They are based on ownership rather than contracts.
B. They are flexible and easy to initiate and terminate.
Which of the following is a disadvantage of equity alliances?
A. They are reflective of weaker ties between firms.
B. They do not permit the exchange of explicit knowledge.
C. They can bring about a lack of commitment.
D. They can entail significant investments.
D. They can entail significant investments.
Which of the following statements is true of joint ventures?
A. They enable the exchange of both tacit and explicit knowledge.
B. They reduce the possibilities of trust and commitment.
C. They are characterized by single reporting lines.
D. They cannot entail long negotiations.
A. They enable the exchange of both tacit and explicit knowledge.
Which alliance type is the Renault-Nissan alliance, where Nissan owns 15 percent of Renault, and Renault owns 44.4 percent in Nissan?
A. Equity alliance
B. Non-equity alliance
C. Greenfield venture
D. Joint venture
A. Equity alliance
Which of the following is an advantage of equity alliances when compared to non-equity alliances?
A. They are more flexible and easy to initiate and terminate.
B. They require smaller capital investments.
C. They produce stronger ties between partners.
D. They are based on contracts rather than ownership.
C. They produce stronger ties between partners.
Dow Corning is a company owned by Dow Chemical and Corning. This is most likely an example of a(n) _____.
A. equity alliance
B. sole proprietorship
C. non-equity alliance
D. joint venture
D. joint venture
A drawback of joint ventures is that they are characterized by:
A. involuntary mergers.
B. double reporting lines.
C. contractual agreements rather than ownership.
D. weak ties between alliance partners.
B. double reporting lines.
A(n) _____ is best described as a partnership in which at least one partner takes partial ownership in the other partner.
A. acquisition
B. non-equity alliance
C. joint venture
D. equity alliance
D. equity alliance
Equity alliances are less common than non-equity alliances because they:
A. depend on contractual agreements.
B. produce weaker ties between partners.
C. fail to facilitate the transfer of tacit knowledge.
D. often require larger investments.
D. often require larger investments.
Which of the following statements is true of an equity alliance?
A. An equity alliance is based on contractual agreements rather than partial ownership.
B. In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
C. In an equity alliance, a standalone organization is created that is jointly owned by two or more parent companies.
D. An equity alliance creates weaker ties between the alliance partners when compared to a non-equity alliance.
B. In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
Which of the following statements is NOT true of tacit knowledge?
A. It is concerned with knowing how to do a certain task.
B. It is knowledge that cannot be easily codified.
C. It is regularly shared between partners in a non-equity alliance.
D. It is acquired only through actively participating in the process.
C. It is regularly shared between partners in a non-equity alliance.
Which of the following best illustrates an equity alliance?
A . A contractual agreement that provides Ocia Pharma Inc. the exclusive rights to distribute the drugs of Marvel Pharma Inc. in the Asian market
B. An alliance between GoldWing Systems Inc. and GM Computers Inc. that results in GM Wing Inc., an independent third company
C. A collusion between two competitors, Torque Steels Inc. and Vizor Metals Inc., to fix prices
D. A partnership in which RedGate Insurance Inc. has a 40 percent ownership claim in TwinTrust Finance Inc.
D. A partnership in which RedGate Insurance Inc. has a 40 percent ownership claim in TwinTrust Finance Inc.
The partnership between Toyota and Tesla Motors, in which Toyota has made a $50 million investment in the California startup company to learn new knowledge and gain a window into new technology, is an example of a(n) _____.
A. acquisition
B. joint venture
C. non-equity alliance
D. equity alliance
D. equity alliance
Toyota’s President, Akio Toyoda, hopes that a transfer of tacit knowledge will take place through its equity alliance with Tesla Motors. He is referring to:
A. the lean manufacturing process pioneered by tesla.
B. the entrepreneurial spirit in tesla.
C. the safety measures followed in tesla, recorded in its user manuals.
D. the product information documented in tesla’s database.
B. the entrepreneurial spirit in tesla.
_____ are best described as equity investments by large established firms making in entrepreneurial ventures to gain access to new, and potentially disruptive, technologies.
A. Corporate venture capital investments
B. Greenfield ventures
C. Joint ventures
D. Loan sharks
A. Corporate venture capital investments
The downside of equity alliances is:
A. the weaker ties and reduced trust between partners.
B. the amount of investment that can be involved.
C. that the alliances cannot be abandoned if not promising.
D. that they are not useful stepping stones toward full integration of the partner firms.
B. the amount of investment that can be involved.
When a standalone organization is created and owned by two or more parent companies together, the strategic alliance is referred to as a(n) _____.
A. non-equity alliance
B. equity alliance
C. proprietorship
D. joint venture
D. joint venture
NorthStar Inc. and The Royal Group have together established The Royal Star Group of hotels. NorthStar owns 49 percent and The Royal Group has a 51 percent share in The Royal Star Group of hotels. However, the management of The Royal Star Group of hotels is separate from its parent companies. What alliance type does this scenario best illustrate?
A. Sole Proprietorship
B. Non-equity alliance
C. Equity alliance
D. Joint venture
D. Joint venture
Which of the following is an advantage of joint ventures?
A. They create strong ties, trust, and commitment between the partners.
B. They are based on contractual agreements rather than partial ownership.
C. They require the lowest amount of investment relative to the other alliance types.
D. They can be easily initiated and terminated.
A. They create strong ties, trust, and commitment between the partners.
Which of the following is a drawback of joint ventures?
A. They produce weak ties, trust, and commitment between the partners.
B. They are based on contractual agreements rather than partial ownership.
C. They do not enable the transfer and sharing of tacit knowledge.
D. They necessitate the sharing of rewards between the partners.
D. They necessitate the sharing of rewards between the partners.
Wave Motors Inc., a Kempa-based automobile company, has entered into a partnership with Sphere Autos Inc. headquartered in United Cadvia. The parent companies, together, have established a standalone firm called Genuine Autos Inc. This arrangement best exemplifies a _____.
A. joint venture
B. partnership
C. non-equity alliance
D. proprietorship
A. joint venture
Which of the following types of strategic alliances is the least common in terms of frequency?
A. Mergers
B. Acquisitions
C. Equity alliances
D. Joint ventures
D. Joint ventures
The process of alliance management begins with _____.
A. selecting the best possible partner
B. choosing an appropriate governance mechanism
C. designing the alliance
D. creating resource combinations that obey the VRIO criteria
A. selecting the best possible partner
Partner compatibility and partner commitment are necessary conditions for successful alliance formation. Partner compatibility captures:
A. aspects of cultural fit between different firms in an alliance.
B. features of the financial health of the different alliance partners.
C. the readiness to accept short-term sacrifices to ensure long-term awards.
D. the willingness to make available necessary resources.
A. aspects of cultural fit between different firms in an alliance.
In Eli Lilly’s Office of Alliance Management, the _____ is a senior, corporate-level executive responsible for high-level support and oversight.
A. alliance manager
B. alliance leader
C. alliance regulator
D. alliance champion
D. alliance champion
In Eli Lilly’s Office of Alliance Management, who is responsible for providing alliance training and development?
A. The alliance champion
B. The alliance leader
C. The alliance manager
D. The alliance boss
C. The alliance manager
In Eli Lilly’s Office of Alliance Management, the alliance champion is primarily responsible for:
A. making sure that an alliance fits within the firm’s existing alliance portfolio and corporate-level strategy.
B. providing technical expertise and knowledge needed for the specific technical area in an alliance.
C. providing alliance training and development, as well as diagnostic tools.
D. serving as an alliance process resource and business integrator between the two alliance partners.
A. making sure that an alliance fits within the firm’s existing alliance portfolio and corporate-level strategy.
In Eli Lilly’s Office of Alliance Management, who is responsible for providing the technical expertise and knowledge needed for the specific technical area and the day-to-day management of the alliance?
A. The alliance champion
B. The alliance leader
C. The alliance manager
D. The alliance boss
B. The alliance leader
Which of the following is an ineffective practice in alliance management?
A. Coordinating a firm’s portfolio of alliances
B. Establishing knowledge-sharing routines between alliance partners
C. Developing relational capabilities to manage mergers and acquisitions
D. Focusing on developing an alliance-management capability in isolation
D. Focusing on developing an alliance-management capability in isolation
A consumer electronics company is in the process of evaluating whether it should pursue an internal development strategy or an external growth strategy. To make this decision, the management needs to assess whether the company’s internal resources are superior to those of competitors in the targeted area. Which of the following strategic management models would be most useful in this assessment?
A. The core competence matrix
B. The Boston Consulting Group (BCG) matrix
C. The transaction-cost economics model
D. The VRIO framework
D. The VRIO framework
When a firm does not have the resource required for pursuing a growth strategy, and if the resource in question is not easily tradable, the implication for the strategist is most likely to:
A. borrow via a contractual agreement.
B. pursue internal development.
C. enter into a licensing agreement.
D. consider an outright acquisition.
D. consider an outright acquisition.
When should mergers and acquisitions (M&A) be considered the “buy” option for a strategist trying to determine which corporate strategy to implement?
A. When the resource in question is highly tradable
B. Before the strategist has considered borrowing the necessary resources through integrated strategic alliances
C. After it has been established that the firm’s internal resources are sufficient to build
D. When extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge
D. When extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge
Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. Which of the following was a result of this corporate strategy?
A. Disney attempted full integration with the subsidiaries it acquired after its merger with Pixar.
B. Disney’s revenue streams from its various activities became less predictable.
C. Disney became a less diversified company.
D. Disney compensated more easily for losses from flops.
D. Disney compensated more easily for losses from flops.

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